Oversight and Accountability of EU budget:
An analysis of the oversight role of the European Parliament
on the EU General Budget Discharge.
Programme: Master in Public Administration
Track: International and European Governance Name: Mable Dube
Student Number: s2146398 Supervisor Dr. A. Wille Second Reader: Dr. R. de Ruiter Date: 09/08/2019
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Table of Contents
List of Tables
List of Acronyms
Introduction
Review of Literature
Oversight and accountabilityOversight and accountability as principal-agent relationship Parliamentary oversight instruments
Accountability and three elements/phases
Parliamentary oversight and Budget accountability in the EU EU budget discharge
Methodology
Research strategy Case selection Indicators SourcesValidity and reliability
Institutional context of the European Parliament
The structure of the EP, legal framework and the procedure The evolution of the EU budget dischargeFindings
Analysis of findings
Conclusions and recommendations
References
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List of Tables
Table 1: Key events of 2017 discharge.
Table 2: Documents/ Information that supported 2017 budget discharge. Table 3: Forms of discussion in the 2017 budget discharge.
List of Acronyms
CONT- Committee on Budgetary Control EC- European Commission
ECA- European Court of Auditors EP- European Parliament EU- European Union
MEPs- Members of the European Parliament MFF- Multi- Annual Financial Framework
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Introduction
Ex-post oversight of the budget allows parliaments to hold the executive accountable for the use of public resources and promote improvements in their management. Control of the budget after it has been implemented typically involves an examination of the public sector accounts for reliability, accuracy, completeness and conformity with applicable rules and an assessment of the extent to which the budget was used for the purposes indicated when the budget was adopted. Academic scholars pointed out that parliaments play a significant role in overseeing government income and expenditure, by means of monitoring, enforcing and controlling budget execution; holding the executive/government accountable (Wehner, 2006; Santiso, 2015).
Parliaments worldwide operate within an array of challenges. This applies to European Parliament also. A number of factors trigger such challenges. Firstly, unclear and vague regulatory framework that does not clearly define the responsibilities of the parliament and the executive has a negative impact on accountability (Dubresso, 2013). It then becomes difficult to account for and to hold account those responsible. In some instances the legislatures are subject to executive influence; taking orders from the executive or vice-versa. This challenge is also linked to lack of parliamentary independence in executing its oversight function over the executive. Secondly, the absence of a standing institutional structure and the parliamentary incapacity may constrain a possibility to deliver effective oversight function. Thus, the setup, the structure and the organization of tasks within the Parliament might affect its ability to scrutinize the executive; especially, in more composite and interconnected governance structures like the EU. Also, the political domain surrounding the parliamentary affairs directly impinges on the legislature’s freedom to oversee (Dubresso, 2013). Unstable political environment, including political tensions affects the flow in the course of events. Lastly, inappropriate use of parliamentary ‘oversight tools’ has a potential to infringe the successful and effective parliamentary oversight function; this relates to the mechanisms in which the parliament use in executing its role.
Budget accountability deficit is a common problem in European Union (Ciprianni, 2010). A very notable accountability gap is that the ‘taxpayers’ are not directly engaged in the control,
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management of EU funds; hence their democratic right is being suppressed (Ciprianni, 2010. Effective budget oversight is relevant for greater budget accountability to help realize transparency. It is important that the public is provided with information on how budgets are spent. In the past two decades we can witness an increasing interest in promoting openness in government budget spending as one of the pillars of good governance.
Additionally, the accountability gap is also triggered by the EU’s grand setup and its ambitious budgetary goals, objectives and strategies that are difficult to interpret and not specific, leading to unexpected outcomes (Ciprianni, 2010). These create problems not only to the EP but also to the Commission, Member States and the audit agencies in performing their budgetary roles effectively. Moreover, the Member States bodies who perform some of the budget management functions do not directly report to the Commission (the management authority); thus, the Commission’s position is largely compromised as it has to report such national bodies’ performance when compiling its annual financial reports (Ciprianni, 2010). There is a confusion regarding the Member States and Commission responsibilities, since on one hand the Commission serves as an agent who has a mandate to deliver Member States principals’ interests. On the other hand, the Member States are more of agents when it comes to actual budget implementation, as they would be carrying out Commission orders as the EU executive. This argument is congruent with Ciprianni’s notion of ‘diffused responsibility’, which states that; “…responsibilities remain diffused and there is no single owner of the EU budget” (Ciprianni, 2010, p.68). The challenge associated with budget accountability deficit in EU relates to a difficult to manage ‘collective action dilemma’ commonly known as the “common pool” problem that subdue joint action and agreement (Ostrom, 1990).
Other challenges for financial accountability are the multi-level governance character and the complex EU architecture of budget control. The European Union (EU) represents both a ‘political’ and ‘administrative’ organization, functioning at supranational level. The presence of the specialized Committees in the EP and their input in overseeing the EU budget is crucial as they possess key administrative competences that supplement their political will power. In light of this, an analysis of accountability phenomena in such an organization gives an unparalleled view and a much broader understanding of the subject.
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Effective oversight relies on the separation of functions between the executive and the bodies of oversight, the controllers. Executive bodies managing and spending public funds are accountable to parliaments as legitimate representatives. The European Parliament democratically channels citizens’ involvement in the EU affairs (Ciprianni, 2010). Henceforth, the EU budget is a crucial instrument to analyse European Union accountability to its member states citizens and for citizens to hold EC accountable, hence the proper and liable use and account of the EU funds and resources secure citizen trust to the EU executive.
The EP has the power to hold executive bodies to account for budget spending and management through the so-called discharge procedure. The discharge procedure represents the last stage in the budgetary policy process and allows parliament to certify whether public funds have been implemented according to the legal framework and internationally accepted standards. Granting discharge releases the executive from its responsibilities and provides closure to the budgetary cycle.
In consideration of the above; the following main research question has been developed:
RQ: How does the oversight role of the European Parliament in the EU budget discharge secures financial accountability?
The significance of parliamentary oversight as developed within the EU budget accountability context could be a solution to problems of misappropriation of funds and resources. Actors at all levels of EU budgetary process are entitled to recognize the value of taking account of their actions so as to fulfil their purpose of meeting public expectations. Given the effective oversight role of the European Parliament (EP) in the discharge procedure; accountability becomes more relevant in the entire EU budgetary process.
The study is of significance to the EU as a whole in understanding the value of scrutiny, enforcement and accountability in EU budget as well as to infuse a shared understanding of making accountability a habit of both the EU executive and Member States. The study will also serve as a contribution to the scientific body of knowledge by setting the context on the ways of reforming the existing accountability mechanisms and oversight practices and on making the European Parliament (EP) more effective in ensuring meaningful regulatory scrutiny and
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enforcement, hence, future researchers will build new areas of study based on the proposed recommendations of this study.
This study also aims to contribute to the existing watchdogs and accountability research areas, particularly EU accountability. The study on EU accountability, legitimacy and democracy has been largely researched over the years, thus, there is a vast amount of literature on the subjects. The trend towards greater openness in public budget processes has focussed on transparency and participation in the budgeting part, and less on the ex post scrutiny and accountability. Ciprianni, (2010) presented a more comprehensive research on ‘budgetary control and financial accountability’, and emphasized on the complexities associated with accountability deficit in general. This thesis examines in detail fiscal accountability in practice by focussing on the EU budget discharge of 2017.
A relatively similar study by Blomeyer & Sans (2012), presents an in-depth analysis on how the ‘national parliaments of the EU member states manage their budgets’, in which the authors limit their focus on ‘the oversight role of national parliaments for enhancing the EU budget transparency and sound financial management through executing their discharge procedure’. This thesis adds to these studies in that it analyses parliamentary oversight approach to budget accountability in EU budget discharge procedure.
This study is aimed at evaluating the supervisory, scrutiny and control functions of European Parliament in discharging the EU budget; realizing how this enhances
accountability; and to assess how the EP contributes towards accountability, by analysing its role in 2017 discharge processes. This study used data from 2017 European Union (EU) general budget discharge, which provides more solid forms of oversight tools by the European Parliament in overseeing the European Commission. Data are analysed by means of an in-depth qualitative document analysis in which the 2017 budget discharge serves as the unit of analysis
The research study is organized in five sections in which the first section presents a brief introductory background to the study, highlighting on the problem, aim and value of the study as well as the central research question. The second section presents the overall context of the entire
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thesis by emphasising on the general overview of the concepts of accountability and oversight; reviewing existing literature as a starting point towards an evaluation of the role of the European Parliament in EU fiscal accountability. The third part comprises of the methodology section in which data collection methods adopted in this research are presented. The methodology section shapes the development of the last parts. The institutional context of the EP is represented in section 4. The fifth part represents a layout of the research findings, followed by a discussion on the results on the contribution by the EP to EU budget accountability as reflected in the discharge procedure. Finally, the last part comprises of the concluding remarks and possible recommendations to the study. Such recommendations provide for best ways of enhancing the oversight role of EP on the budget discharge as well as enhancing fiscal accountability in the EU budget and shapes future research path.
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Review of Literature
This section provides conceptual framework of oversight and accountability as a foundation of this research study. It also sets the theoretical foundations in which the parliamentary oversight role in budget accountability is revealed. These elements serve as a point of departure to the study and will be done by reviewing the related literature from previous studies; thus making use of scholarly debate and empirical evidence.
The understanding of the role of parliamentary oversight in enhancing accountability is determined by a clear interpretation of parliament’s role and its connection with accountability.
Oversight and accountability
Generally, oversight signifies the elements of supervision and regulation, while accountability implies some sense of responsibility. Therefore, the connection between these concepts is revealed by a general impression that; it is such responsibility that has to be supervised and regulated.
Oversight is a much broader subject which encompasses the elements of supervision, monitoring and control of actions by public officials, bureaucrats and politicians to ensure that they align with the legislation, set standards, goals, objectives, targets, as well as the codes of conduct (Ciprianni, 2010). Parliamentary oversight is perceived by Calland, (1999) as mechanisms for representative accountability as well as a form of democracy as the parliamentarians speak for the people and they represent citizens’ interests to the executive. Therefore, effective parliamentary oversight secures accountability. Mbete (2016) highlighted that, parliamentary oversight becomes effective if the parliament execute its duties independently and autonomously and with integrity. It is important for the parliament to exercise its powers within the bounds of the legal framework. Yamamoto (2007.p.9) defined parliamentary oversight as “the review, monitoring and supervision of government and public agencies, including the implementation of policy and legislation”. In budgetary context, the mechanisms for oversight function of parliaments encompass the role of parliamentary committees which includes plenary debates and hearing procedures. It is a parliamentary duty to provide oversight functions to
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government/executive. Oliver (1994) is of the argument that, parliament is a citizen ‘representative body’ which provides checks and balances mainly on financial issues that support effectiveness in decision making, policymaking and implementation. Therefore, oversight and supervisory roles is aimed at generating effective accountability and sound decision-making and as a way of reproof, rectification, indemnification as well as legal prosecution for criminal behaviour, offences and corrupt tendencies (Sigma, 1999).
The notions of oversight and accountability have long been studied; there exists volumes of studies to which a huge amount of literature can be critically reviewed. The study by Bovens (2007) serves as a landmark for the study of accountability. He maintained a more generalized understanding of accountability, which is a ‘social relation’, embedded within the ‘principal-agent perspective’. It is noteworthy that, the principal-‘principal-agent approach shapes the dynamics of EU budget accountability and the entire discussion on the general EU budget oversight. In simple terms, the principal oversees and scrutinizes the action of the agency. Accountability is defined as:
“…a relationship between an actor and a forum, in which the actor has an obligation to explain and to justify his or her conduct, the forum can pose questions and pass judgement, and the actor may face consequences” Bovens (2007 p.50).
Provided with the aforementioned definition, accountability is oversimplified to the notions of ‘account giving’, ‘answerability’ and formal or informal obligation on the part of an actor as well as ‘scrutiny’, ‘holding to account’, ‘questioning and ‘judgement passing’ by the forum. An important realization is that on one hand, a forum oversees and scrutinizes the actor’s actions and on the other hand, an actor has to provide a full account of his or her actions to the forum.
In some instances, the concepts of oversight and accountability are used interchangeably; characterised by ‘holding to account and giving an account’ (Ciprianni, 2010). The notion of accountability gives a cognisance of what is being done and who is responsible for the task, with what expenses as well as with what success (Ciprianni, 2010). It is therefore, an obligation on the part of public officials and servants to account for their actions to the public. Henceforth, the
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central argument of this thesis relies on the above interpretation of oversight and accountability, which is analysed in detail in the later parts.
Oversight and Accountability as a ‘principal agent relationship’
The principal-agent relationship is an integral perspective surrounding the understanding of accountability. Thus, the approach and its underlying assumptions entirely aid both conceptualization and operationalization of concepts studied. In simple terms, the relationship between oversight and accountability is best understood within the lens of the principal-agent perspective in which the principal oversees and scrutinizes the actions of an agent who act within the interest of the principal. Analysing the oversight function of a principal (EP) over the actions of the agency (Commission) is probably the most significant way of revealing the dynamics of EU budget accountability.
Parliamentary oversight and accountability relationship entails that the performance and tasks of a single agency are under scrutiny by another body which requires that the former have “to provide information with regards to its performance and actions, as well as justifying such actions” (Griffith 2005 p. 36). Sharman (2001), argues in his report, that the agency (which may be the government or the executive) has to ‘give an explanation’ (annual reports), ‘provide further information if required’; and the parliament reviews the information given, by ‘examining the performance and practices’ Finally, the parliament issue a decision in which they either give measures for redress or may sanction the agency.
Parliamentary oversight instruments.
A parliament is a citizen ‘representative body’ championing the interests of the public; and its major responsibility is to ensure public accountability and executive/ government transparency (Duresso, 2013). Thus, parliamentary oversight is commonly referred to as ‘political scrutiny’. In any democratic society and institution, parliamentarians are vested with key legislative powers to scrutinize the executive actions as provided in the regulatory and legal provisions. The powers of parliament vary; from law making, policy and program monitoring to overseeing government spending and approving budget implementation. However, parliamentary oversight can also be in the form of ‘administrative oversight’ which includes carrying out assessments, investigations
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and questioning of the government/executive through oversight mechanisms such as committee system, parliamentary questions and debates (Griffith, 2015; Mbete, 2016; Stapenhurst, Jacobs and Eboutou, 2019) ). Such tools serve as the ‘modes of inquiry’ upon which the parliament executes its duties. The effective use of these parliamentary oversight tools guarantees accountability; henceforth, the success or failure of these tools to deliver depends on the following key elements: the type of tools the parliament employs; the institutional structure and capacity of the Parliament; the political atmosphere in which the parliamentarians operate; the political capacity, will and commitment of the Committees; regulatory framework and legal powers, and information availability (Duresso, 2013).
The key roles of parliamentary oversight includes prevention of power abuse and bad conduct by public office holders, controlling and regulating management and spending of public funds and resources, protection of public interests ; ensure that government officials act in compliance with the legal provisions ; ‘thus holding public officials accountable’ (Yamamoto, 2007). A number of scholars agree on the various instruments upon which parliaments exercise their functions; with the common ones being that:
“Parliament can simply ask the government for information; can request for further clarification; can obtain information from sources outside the government and can express its views to the government and the public. Consequentially, parliament often has a constitutional power to remove the office holders in the executive branch when the latter no longer seems to be performing its proper function” (Rehman, 2015 p.24)
Deriving from the more general aforementioned tools, more specific parliamentary oversight tools commonly used include the committees, plenary session hearings, and establishment of commissions of inquiry, sessions of questioning as well as interpellations (Stapenhurst, Jacobs and Eboutou, 2019).
The committee system is the primary oversight tool which the legislatures engage. The oversight mandate is always executed within the committees since it is within the Committees that other tools rely on. It is within the parliamentary committees that the hearing procedures, debates and
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questioning of the executive or government are conducted (Griffith, 2005). However, parliamentary committees vary in terms of their functions and responsibilities. Griffith (2005), distinguished committees into five distinct categories, namely, legislative review, public accounts, estimates, standing and specialized oversight committees. These committees serve different functions, hence in this context, the standing committees are of key importance. Standing committees perform a significant oversight function in public institutions policy departments, ranging from budget, agriculture, health, development, environment, etc. Such committees serve as drivers for providing best practices for the government and the executive regarding the execution of their roles (Griffith, 2005). Therefore, parliamentary Committee system serves as a platform for the utilization of oversight tools in which the executive, government agencies can present information to the parliament, defending their actions before the parliamentarians (Griffith, 2005; Stapenhurst, Jacobs and Eboutou, 2019)
The Plenary questions and interpellations are common tools extensively employed by parliamentarians with whom questions are presented to the executive body, agencies and members concerned (Rehman, 2015 p.24). Such tool is mostly used when the parliament requires information; pressing the executive to take an action; demand for clarity and justification of the executive position; and wants to reach a compromise with the executive.
Auditing is a significant administrative tool for ensuring public budget accountability by the executive to the parliament and to the public at large (Griffith, 2005). It is the role of audit institutions to scrutinize public accounts, verifying compliance, checking for errors, abuse of funds and incorrect spending in the executive annual financial accounts. Friedberg and Hazan (2012:11) argues that, audit institutions offers a very significant contribution to the oversight function of the parliament as they provide the parliament with reliable, detailed, comprehensive and objective annual reports with information regarding the executive expenditure and how the implementation was conducted. It is important for the audit institutions to perform their role independently and without executive interference.
Henceforth, budgetary oversight is perceived to be the most significant oversight function by parliaments as the public budget has a direct bearing on the citizens unlike in policy and decision
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making areas. It is the citizens’ money that has to be accounted for. According to Friedberg and Hazan, (2012), the parliament performs two fundamental roles in the budgetary process, which are; giving an approval to the proposed budget and scrutinising how the budget has been implemented through the aforementioned oversight mechanisms; with the later role as the most critical one as much as issues of accountability is concerned. Therefore, it is within the interest of the parliament to hold those responsible for budget implementation accountable.
Accountability and three elements/phases.
Accountability consists of three elements: information, discussion and consequences; in which the agent provide information to the principal; then discussion follows as the principal would want to question the behaviour of the agent based on the information given; and this result into a consequence or eventually, the imposition of a sanction to the actor by a forum (Brandsma and Schillemans, 2012). Various scholars have consistently agreed that the understanding of the principal-agent approach’s notion of the interaction between an actor and a forum revolves around three elements; information, discussion/debate, and consequences/sanctions/decision (Day and Klein, 1987; Romzek and Dubnick, 1998; Brandsma and Schillemans, 2012). These elements give some practical sense in understanding accountability and they are key to the measurement of accountability (Brandsma and Schillemans, 2012).
The Information phase is probably the first and foremost stage in which an agent/actor is required to give ‘an account of his conduct and behaviour towards the accountability forum’ (Brandsma and Schillemans, 2012; p.955). In this case, the agent has to produce some records with description, explanations, narrations or statistical calculations regarding his actions to the forum. Following information provision is the discussion/debate stage which can be conducted formally or informally and in the form of a debate or a hearing procedure (Brandsma and Scillemans, 2012). In such a scenario, a forum may seek more clarifications from the actor concerning information given; and as such the forum may require more information from the actor through posing written or oral questions. Finally, in the consequence/decision phase, the forum decides on the measures to take with regards to the actor’s conduct. Henceforth, the forum may impose punitive measures or impose sanctions in the event of a more serious breach of an
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expected conduct, may reward good conduct and put corrective measures on the event of an omission or minor errors.
A more comprehensive picture of the role of parliamentary oversight in fiscal accountability is reflected by means of identifying the elements of accountability from the information provided by the EC to the parliament; from the discussion between the EC, EP and other relevant agencies and from the consequence thereof as well as analysing whether or not the oversight function has been effectively executed and to see the ability or inability to lodge a consequence. Thus, all this is to avoid a situation where agents drift away from their intended purpose, and for the principal to offer corrective measure as well as providing a remedy to improper practices (Strom, 2000; Brandsma and Schillemans, 2012). The three elements serve as key elements in analysing accountability by means of identifying aspects of accountability, for example, information availability, proper discussion and the capacity to redress and to sanction; and accountability lack, for instance, ‘‘information deficit, improper discussion and failure to correct, redress and to punish’’ (Brandsma and Schillemans, 2012, p. 956).
Parliamentary oversight and budget accountability in the EU
Accountability, in relation to budget is best understood as the notion of devising very clear standards, goals, targets, objectives and dealing with unprogressive areas of financial management (Ciprianni, 2010). Analyzing public accountability within the budgetary context gives a clearer reflection of the phenomena on the management of public funds, as budgetary process is more public-oriented and involves a number of actors. Consequently, this study analyzes the oversight role of the EP in securing EU budget accountability as a focal point as parliaments allows for citizen proximity to the budget through parliamentary representation as citizens directly contribute to the budget (Calland, 1999; Bovens, 2007). It is therefore, the right of the citizens to demand a full account of the budget regarding its implementation. In certain countries within the EU, the likes of Finland and Sweden, the constitution provides for the citizen- centred power in which the governments deduce autonomy from the public (EFDD Group, Germany, 2018). These are democratic settings in which power comes from the public represented by the parliament to the government which delegates to the sub-government agencies. From the existing EU budgetary framework, accountability to Member States citizens
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regarding spending and use of resources is largely compromised. As a result, the effective oversight function of the EP could possible promote EU fiscal accountability.
Furthermore, the EU systems, setup and operations resembles that of individual Member countries; with the most notable one, which is also of great interest to this study being that; the EP members are elected, just the same way as nation states elect their parliamentarians; and as well directly elected from the member states representatives (Ciprianni, 2010). Additionally, the EP’s mandate is to directly connect citizens to the EU. Most importantly, is that the manner in which the EU budget is approved, implemented and discharged is also similar to that of member countries. Therefore, the analysis the EP budget oversight role also follows the lens in which the previous scholars follow when assessing the national parliamentary role in national budgets oversight.
In the EU, the EP, the Council and the ECA are the ‘guardians’ of the budget (Blomeyer & Sans, 2012) they serve as watchdogs that oversees not only the budget but also policy making processes. Particularly, the EP is vested with the budgetary powers which enable it to authorize budget implementation through general discharge. The EP together with the ECA primarily oversees the budget, whose responsibility is to regulate and control the entire budget execution to ensure alignment with the standards set in the Financial Regulation and treaties governing budgetary process. Generally, the budget discharge by the EP takes place after the implementation, auditing and finalization of annual books of accounts.
The EU budget discharge
A discharge procedure is the last stage preceding the annual auditing and closure of accounts for the given accounting period in which the annual EU budget implementation is sanctioned and approved (The EFDD Group, Germany (2018). The discharge procedure in the EU context is a formal act of concluding the EU budget implementation after which the auditing process took place (Cippriani, (2010). It is granted by the EP on the basis of compliance with the intended goals. In the event that, all the books of accounts are found in place, it serves as a sign that the responsible implementers exercised good conduct; and if they successfully account for their
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actions regarding budget execution they then become ‘released or discharged’ from their implementation responsibility of that particular year. Furthermore, a discharge procedure is generally an instrument by which the public represented by the Parliament, exercise their right to control the budgetary process by means of asking public servants to provide a full account of how they administer public funds and resources (European Parliament, 2000).
Furthermore, discharge procedures by the European Parliament is aimed at identifying the shortcomings and draw conclusions related to misuse of public funds and poor financial management, to ensure that the European Commission execute the budget effectively as well as to make sure that all Member States complied by ways of meeting their required contributions to the budget (European Parliament, 2000). The discharge procedure in particular is a political legal opinion or a judgement by the EP as a political unit of the EU, following an assessment of whether or not the European Commission has properly discharged its mandate of budget implementation (Ciprianni, 2010).
Now that the elements of accountability have been identified; and that the parliamentary oversight tools have been highlighted; four specific research questions below have been formulated; taking into consideration the oversight tools/instruments used, the information that is provided, the discussion undertaken and the consequences surrounding the 2017 budget discharge. The empirical work entirely focuses on oversight and accountability concepts in which the study focus on the oversight of the 2017 EU budget by the EP, showing how this has evoked financial accountability. The empirical section focuses on specific research questions deduced from the reviewed literature as these give direction and shape the entire argument of this study. The focused questions below highlight that the empirical part follows three paths; oversight on one hand, accountability on the other and their relationship. Hence, the questions below directly address the oversight element and the accountability aspect of the study as well as their relationship. The aim is to see how EP oversight role in 2017 budget discharge enhances accountability.
RQ1: What tools does the EP use in the oversight of 2017 budget?;
RQ2: What is the information provided to the EP in the budget discharge of 2017? ;
RQ3: What kind of debate and/discussion took place in the budget discharge of 2017? ; and RQ4: What were the consequences that came out of the discharge of 2017? ;
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Methodology
Research strategy
This thesis is case study –oriented and the EU budget discharge procedure is the examined case. A case strategy is used since we are ‘interested in an in-depth account for just the particular outcomes of one particular case’ (Toshkov, 2016); which is the role of EP in EU financial accountability by performing its discharge role of 2017 budget. Since oversight and accountability are much broader subjects; demarcating this thesis to a case make it more focused and manageable. The selection of the EU context is primarily driven by two factors. Firstly, considering that accountability deficit is often a problem of big public organizations, hence analysing accountability within the EU context gives a clear picture of the phenomena in the scope of a collaborative type of governance as compared to small organizations. Secondly, the researcher’s personal interest; since the author is specialising in International and European Governance, thus, finding it interesting to conduct a study within the EU context. The selection of budget context is driven by the assumption that, budget issues involve a number of actors, thus accounting for public funds becomes a challenge and also that it is important to ensure that the government/executive always account for public finances.
Case selection
The 2017 EU budget discharge is selected as the study focus and unit of analysis. Since this thesis is interested in assessing the EP role in (current state of) EU budget accountability; selecting the most recent discharge provides an answer to this. Therefore, since the 2018 discharge is still pending, the 2017 discharge has been selected. In selecting the 2017 discharge case, this thesis utilized purposeful sampling technique; which is about choosing a case that contains intense information and that which is of great use (Patton, 2002). Firstly, we schemed through discharges from 2013 to 2018 as we wanted to choose one year discharge to focus our attention on. Through browsing all the discharges, we realized that the trends for the procedure were almost the same, though with some notable differences. Finally, we ended up with an option to focus on the recent discharge to enable us to come with conclusions on the current state of accountability in EU budget discharge.
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Regarding measurement of concepts, this study analyses two key variable; on one hand it looks at ‘oversight’ and on the other, the focus is on ‘accountability’. Now, the aim is to analyse their link in relation to the role of EP in 2017 EU budget discharge. In measuring accountability, the study applies three elements of accountability; and the parliamentary oversight tools are utilized in analysing the EP parliamentary discharge role. Thus, the study integrate three accountability instruments and oversight tools by developing more specific research questions which aid the presentation, discussion and analysis of study findings. Since we have independent variable (oversight tools) and dependent variables: financial accountability (information, debate, consequences), RQ1 on oversight is not only addressed independently but it has been merged with RQs 1, 2 and 3 on accountability to give a reflection of the connection between oversight tools and three accountability elements.
RQ1: What tools does the EP use in the oversight of 2017 budget?
This question is addressed by revealing the overall summary of the tools used by the EP in 2017 discharge. Later, this question is addressed in more details by merging it with other three questions on elements of accountability highlighting on the means used by the EP in requesting for information and analysing given information, engaging in discussions and in reaching a consequence. The aim is to analyse the ‘availability of tools’ and the EP capacity in assessing the manner in which the 2017 budget was implemented for accountability and to understand tools as means to request for information, engage in discussions and reaching a consequence.
The following sub questions will be the key focus in revealing the tools used by EP, to see whether or not the EP has the capacity to enhance financial accountability:
How does the EP request for information and assess information provided in the 2017 budget discharge?; How does the EP undertake the discussions regarding 2017 discharge?; and
How does the EP reach an outcome for 2017 discharge?
RQ2: What is the information provided to the EP in the budget discharge of 2017?
This focuses mainly on the documents used by the EP in 2017 discharge; hence the aim is to measure the EP’s capacity to request for such documents, and to assess the information provided; showing how this reveals accountability.
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RQ3: What kind of debate and/discussion took place in the budget discharge of 2017?
The focus is on measuring EP’s capacity to request for additional information and further justification in support of the 2017 discharge, revealing the means used; and its ability to share and give opinion and point of views among the MEPs. Also, to assess the EP actions in making changes and amendments to see whether these align with accountability.
RQ4: What were the consequences that came out of the discharge of 2017?
This question attempts to measure what has been accomplished by the EP against its oversight duties and responsibilities. Thus, the EP’s power and capacity to effect changes, make amendments, control the procedure in the entire budget discharge is assessed on how these actions enhances financial accountability in the EU budget.
Sources
The study utilized document review in which primary and secondary data have been collected. The main source for data collection is the EP Committees official website in which the discharge reports for 2017, ECA audit reports, minutes for hearing procedures, plenary debate minutes and questionnaires, EC financial statements and performance reports were extracted. Other sources include the scholarly articles on discharge procedure. Analysing data from the official websites of institutions and organizations studied has been argued by Brandsma and Schillemans, 2012) to be the most effective method as website data is easily accessible, authentic, reliable as it covers a wider scope and it allows for comparison of data for various cases. Thus choosing documents; we did this by searching documents on the basis of the specific research questions; henceforth, only documents that directly address the research questions were selected for this study.
Validity and reliability
Concerning validity and reliability; too much reliance on document analysis compromised reliability since it eliminated other important primary sources of interview and questionnaire surveys; to resolve this, we made use of a broad array of documents (abovementioned) to compare if the findings tally and the EP website is more reliable sources. The study directly focused on the useful documents which directly answer the studied phenomenon, hence internal validity is high. External validity is compromised due to a single case study which does not
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provide for generalization (Toshkov, 2016); and also due to the purposeful sampling technique employed, which is not representative. However, in some sense, the selection of 2017 discharge is representative for other recent discharges e.g 2013-2017 since the procedure looks the same in various facets.
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The institutional context of the European Parliament
This section represents the structures, procedures, processes, systems, rules and regulations underlying the role of the EP in budget oversight, particularly discharge procedure
The structure of the EP, legal framework and the procedure
The EP comprises of 751 members commonly referred to as Members of the European Parliament (MEPS) and has 20 specialized standing committees for different and specific policy fields.The standing committees perform formal roles such as;
“…posing oral questions to the Council and the Commission; posing questions to external experts; proposing resolutions following statements made by the other Community institutions; proposing amendments to the Parliament’s plenary agenda” (Settembri and Neuhold, (2004, p.7)
The Committee on Budgets (BUDG) and the Committee on Budgetary Control (CONT) play a leading role in the EU budget, with CONT at the forefront of the discharge process. All the Committees have the power to give their opinion but it is the Committee on the Budgetary Control (CONT) that plays a leading role in budget oversight. The CONT is actually the engine of the EP in budgetary issues.
The EP, is the ‘guardian’ of the EU budget (Blomeyer & Sans, 2012). The EP is vested with the budgetary powers which enable it to authorize budget implementation through general discharge. The EP with the support of the ECA and Council oversee the budget whose responsibility is to regulate and control the entire budget execution to ensure alignment with the standards set in the Financial Regulation and treaties governing budgetary process. Generally, the budget discharge by the EP takes place after the implementation, auditing and finalization of annual books of accounts. Article 314 of the Treaty on the Functioning of the European Union; sections 2-10 provide for the budgetary procedure of the EU and it mandated all EU agencies to exercise their powers as provided in the treaties . Article 145 of the Financial Regulation authorises the EP to grant a discharge to the European Commission with on the annual implementation of the budget. Additionally, the Financial Regulation article 30 states that, the duty of the parliament is to
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ensure that budget implementation aligns with the principles of sound financial management; which are; ‘efficiency, effectiveness and economy’ (EFDD, 2018).
Financial Regulation, Article 30 states that, the EP execute the discharge based on the reports provided by the European Parliament Committee on Budgetary Control (CONT) and ECA as well as after the considerations of the feedback from Members of the European Parliament (MEPs) after questioning the commission on certain issues. In this case, the reports are prepared after the examination of the EC accounts, checking their reliability, the flow of revenue and expenditure and to verify whether or not there was ‘economic’, ‘efficient’ and ‘effective’ use of funds and resources (EFDD Germany, (2018). The CONT coordinate with ECA in fighting corruption, abuse of funds, resources misuse and fraud cases through scrutinising and auditing of EU accounts.
The evolution of the EU budget discharge
The EU budget discharge witnessed significant developments since its inception in 1957. The 1957 Treaty of Rome gave discharge power to the Council and later the 1970 Luxembourg Treaty provide for the sharing of discharge power by both the Council and the EP (D’ Alfonso, 2016). The 1975 Treaty of Brussels gave ‘the power to grant discharge’ to the EP and has introduced ECA as the key player in the discharge process (D’ Alfonso, 2016). This increases the EP’s political influence over the entire procedure. This however, leads to interinstitutional friction between the Council and the EP as the EP could also oversee the specific Council budget. Tensions mounted resulting in the EP’s refusal to grant discharge to the Council regarding the 2001 financial year of the Council and also the EP’s decision on the postponement of the 2008 to 2013 financial years after the Council failed to cooperate; for example, by not providing required information, since it is the right of the EP to get the information (D’Alfonso, 2016).
Regarding the EU general budget, the EP refused to grant discharge for 1982 and 1996 financial years to the EC. For the 1982 financial year, no action was taken against the Commission since they were already towards the end of their term (D’Alfonso, 2016). For the 1996 year, the EP’s refusal to grant the discharge to the EC has led to a ‘motion of censure’, subsequently, the Santer Commission resigned (D’Alfonso, 2016). From 1997 up to date, the EU budget has shown a
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positive development as reflected by the EP’s decision to grant discharge to the EC for all these years.
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Findings
This section presents results of the study. The specific research questions highlighted in the previous sections serve as guidelines upon which relevant data is retrieved from the EP website on the 2017 budget discharge. RQ1 on the oversight tools is often merged with RQ2, 3 and 4 on accountability elements in order to see how the oversight tools used by the EP enhances accountability; hence a more detailed and complete answer to RQ1 is revealed in later questions.
RQ1: What tools does the EP use in the oversight of 2017 budget Table 1: Key events of 2017 discharge
Date Key events of the 2017 discharge
28/06/2018 EP published the ‘Non-legislative document
11/09/2018 Announcement of the ‘Committee Referral’ in parliament-First reading 20/02/2019 Committee vote-First reading
28/02/2019 Report for the first reading-Plenary sitting 26/03/2019 Parliamentary debate
Decision by the EP-First reading Procedure completed in parliament Source: European Parliament, (2019)
Table 1 above shows the series of events surrounding the 2017 procedure. The key events illustrated above reflect on the tools used by the EP in the 2017 budget discharge. The 2017 EU budget discharge by the EP began just after the EC Communicated its position (EU 2017 Consolidated Annual Accounts) regarding budget implementation to the EP, Council and ECA. The publishing of the Non-legislative basic document by the EP marked the beginning of the procedure. The document contains the ‘EU's consolidated accounts for the year 2017 and details on how spending by the EU institutions and bodies was carried out as well as financial information on Member States’.
In consideration of the EU Consolidated accounts and the ECA audit report, the CONT drafted a report proposing the granting of discharge regarding implementation of 2017 budget. The CONT announced the Committee Referral proposal in Plenary on 11 September 2018 consulting
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different EP specialised committees to give their opinions regarding the report drafted and the granting of 2017 budget discharge. This affords the Committees an opportunity to issue amendments to the report drafted by CONT and to give their opinion.
A vote was conducted in plenary on 20 February 2019 on the first reading in which MEPs voted for the adoption of CONT report which proposes ‘to grant discharge in respect of the implementation of the 2017 European Development Funds . This determines the parliament’s final position.
Debate in parliament was held on 26 March 2019. This was an internal discussion by the plenary on the report prepared by CONT on the EC and 6 bodies’ performance, mainly concerning ‘management of the European Development Funds (EDFs)’. As part of the discussion, series of hearings were conducted in which the Commissioners would respond to a number of questions posed by the EP, Council and ECA. The CONT put forward its recommendation to the plenary on granting the EC and 6 agencies discharge for 2017. Finally, a decision was made in which the EP decide on granting discharge for 2017 to the EC and to 6 EU bodies during second plenary meeting in March. This leads to the closure of the 2017 budget cycle.
What is the information provided to the EP in the budget discharge of 2017? Table 2: Documents/information that supported the 2017 discharge.
Documents/Information that supported the 2017 discharge Key documents
Consolidated Accounts of the EU- ‘Integrated Financial Reporting Package 2017’ ECA Annual Audit Report
Follow up report- 2016 discharge (EC). Additional information
EP Committees (different policy departments) opinions EC replies to questionnaires from the CONT
Exchange of views in committees. Source: European Parliament, (2019
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Table 2 represents a list of documents/ information utilized by the EP in carrying out its 2017 EU budget discharge function, and these are elaborated below.
The EU Consolidated Accounts
Firstly, the procedure began with the EC providing the EP with the EU ‘Consolidated Annual Accounts’ as part of its ‘Integrated Financial Reporting Package’:
“Regarding the 2017 discharge, the EC presented the Integrated Financial Reporting Package consisting of the 2017 Annual Management and Performance Report, the 2017 Consolidated annual accounts of the European Union and the Report on the follow-up on the discharge for the 2016 financial year”(European Parliament, 2019).
After the EC adopted the EU ‘consolidated accounts’ and its 2017 financial reports; these were sent to both the Council and to the EP as required by the law (Financial Regulation, Article 148). This was after all agencies and Member states send their 2017 financial accounting reports with summary, explanation and justification of their performance and financial position in terms of 2017 budget implementation to the EC for consolidation. Then, the EC integrated all financial reports into an ‘integral document’ which was later forwarded to ECA for auditing and directly to the CONT committee.
These accounts emphasized more on the Euros 267 billion in outstanding commitments by December 2017, 28 billion more than in 2016 and an estimated increase in 2018. The Commission submitted these before the scheduled 31 July 2018 deadline, thus, fulfilling its obligation as a ‘management and implementation authority’ in EU budget. On 28 June 2018, the EU’s ‘non-legislative basic document’ was adopted and published by the EP in the EU Journal.
ECA audit report
ECA presented its Annual Report, both in CONT and in Plenary. The CONT adopted the report on the ECA' special audit report regarding the 2017 financial year. As part of the EP resolution, the CONT has acknowledged that the special reports presented by ECA “contained information
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on issues of concern related to the implementation of funds, which are thus useful for Parliament in exercising its role as a discharge authority” (European Parliament, (2019).
The CONT made use of the audit report in executing the discharge. This was submitted before the 15 November 2018 deadline; and the report provides a “Statement of Assurance’ (DAS) on the legality and regularity of transactions” (European Parliament, 2019). Thus, ECA provided its detailed observations essential for the EP to carry out its decision for the 2017 EU budget discharge. The information presented in audit report by ECA provided the EP with details revealed on the audit conducted by independent external auditors. Henceforth, ECA report presented a pure record of the 2017 EU accounts as being reliable, free from major errors, omission and flaws; ( looked at records from 2013) showing consistence with records of previous years in terms of complying with the financial standards regulations.
ECA released a ‘qualified opinion’ regarding ‘the legality and regularity of the payments underlying the accounts’, which the ECA, highlighted that a larger portion of the 2017expenditure it audited has not ‘materially affected by error and that the level of irregularities in EU spending has continued to decrease’. However, the EP embraced a more positive development witnessed by a considerable decrease in the rate of errors in the payments set by ECA recently; with a 2.4% in 2017, showing a decrease; however, still above the expected 2%. A serious flaw was found in Member States accounts; regarding transaction errors, ECA discovered that, 36 out of 217 randomly selected transactions have been found with errors; after which the Member States auditors could not locate such errors.
The report by ECA further pointed out some risks pertaining to the ‘reliability, legality and regularity’ of accounting systems and transactions; thus, the court reveals that; ‘only a few accounting and transaction related errors have been identified not only in 2017 but also over the past years. The highlighted errors pose serious shortcomings that affect the regularity in expenditure as stated by the responsible management authority. Consequently, the members of the EP communicated their worry concerning the lack of openness regarding budget spending ‘for financial instruments as four times more money is available for financial instruments under the current MFF’.
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From the ECA report, the EP observes that, ‘a number of small agencies, each with their own administrative structures and procedures, constitutes a risk to administrative inefficiency and risks potentially overlapping of incoherent methods, unless harmonisation is ensured and unless resources are shared efficiently’ Additionally, a number of observations on the legality and regularity of payments decreased to 8 in 2017, from 11 in 2016, which illustrates the agencies’ continued efforts to comply with the Financial Regulation.
Follow up report- 2016 discharge (EC).
Results show that, in granting the discharge for the 2017 EU general budget, the CONT has made some follow ups on the 2016 discharge resolutions; with the aim to verify whether the EC has demonstrated compliance in the manner they executed their 2017 budget. The EP took into consideration the Follow up report- 2016 discharge, checking if the observations and recommendations made in 2016 discharge of the EU general budget have been addressed in the 2017 financial period. Some of the observations and recommendations were that, the EP requested the EC to fast forward the preparation of the financial accounting reports; timely provision of reliable information by Member States; essential to enable EP to speed up the procedure. It is noted from the 2017 discharge that all the documents were presented to the EP way before the deadlines. In such regard, results show that, the EC Annual accounts and the Management and Performance reports were adopted in June 2018; the Commission committed itself in providing responses to questions and the report on the follow-up of previous discharge was provided to the CONT in July. Therefore the EP has received all the key documents by beginning of July 2018. Secondly, the EP initiated ‘a call to assist Member States, which encounter difficulties with timely and smooth absorption of available EU funding’ (European Commission, (2018 p.7).
The EP also made a number of requests to the EC based on the recommendations and reforms, which the EP called for in 2016 discharge. After the consideration of the EC Follow-up Report on 2016 discharge, the EP requested the EC ‘to provide a report about the indirectly managed and implemented EU budget by the European Investment Bank group and to establish annually an updated long-term cash-flow forecast’ (European Commission, 2018, p. 6).
29 EP Committees (different policy departments) opinions
The CONT and other EP Committees (Plenary) carried out an examination of the report by ECA and EC financial accounts, in which they were expected to give feedback. The CONT was/is the ‘responsible committee’, and CONT Rapporteur was/is in charge of the procedure, together with the 6 shadow Rapporteurs within the CONT. Other EP committees gave their ‘opinions’ after observing the annual financial reports and performance reports by the EC and also the ECA audit reports , but others decided not to. ‘The Foreign Affairs; Development; Employment and Social Affairs; Environment, Public Health and Food Safety; Transport and Tourism; Regional Development; Agriculture and Rural Development; Fisheries; Civil Liberties, Justice and Home Affairs and Women’s Rights and Gender Equality Committees’ provided their opinions to the CONT. Each of these Committees was chaired by a responsible ‘Rapporteur for opinion’ in giving their views to the CONT for consideration on information provided in support of the discharge. The committees have called on the CONT to consider their advice in making its resolution on the discharge. It is noted from the opinions given that, all committees expressed their satisfaction after observing the reduction in payment errors found in the 2017 EC annual financial reports as compared to previous years, which states that, “ECA report highlights especially the further reduction of the aggregated payment errors in 2017 at the EU level, reaching an all-time low level of 2,4 %...” (European Parliament, 2019). Additionally they acknowledged a number of insights revealed in ECA annual audit report saying that it represents a ‘clean opinion’.
The EP also requested for additional information through questioning the Commissioners in hearings. The results for this are presented in the RQ3.
RQ3: What kind of debate and/discussion took place in the budget discharge of 2017?
Discussions concerning 2017 discharge were two-fold, hearing procedures (questioning of Commissioners) and Parliamentary debates within MEPs Committees. Table 3 illustrates the forms of discussion conducted by the EP during the 2017 discharge process.
30 Table 3: Forms of discussion for the 2017 discharge Series of discussions for the 2017 discharge process Hearings (questioning Commissioners)
18 October- Commissioner J. Hahn
Commissioner D. Avramopoulos 25 October- Commissioner P. Hogan
8 November- Commissioner M. Minica 19 November- Commissioner C. Cretu 20 November- Secretary General M Selmayr
Commissioner C. Moedas 3 December- Commissioner H. Ottinger Debate
11/09/19- Debate in CONT. 26/03/19- Debate in Plenary Source: European Parliament, (2019)
Questions and hearing procedures
EP inquires for additional information from the EC. Article 319(2) of the Treaty on the Functioning of the European Union (TFEU) requires that the EC has to produce “evidence” pertaining implementation of the EU budget., and to submit “any necessary information” (“for the smooth application of the discharge procedure”, (Article 165 Financial Regulation). After the EP CONT observed the EC financial reports and audit reports, they posed questions to the Commissioners and they presented their written responses orally before CONT, with a responsible Rapporteur in charge of the proceedings. In the 2017 discharge, a series of hearing procedures has been undertaken between 18 October and 3 December 2018, in which more than 500 questions were directly posed to 7 Commissioners and 1 Secretary General . The procedure begins just after the ECA presented its audit findings; followed by the Commission response on the findings. The Rapporteur of the Parliament posed some written questions that need clarity to the Commissioner. Proceedings of meetings and hearings have always been conducted openly in EP Chambers. More questions were directed towards ‘Agri-food in developed countries and in
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least developed nations as well as CAP beneficiaries in 2007’. Other questions posed were more general, for example, staff and salary related issues.
Parliamentary debates
Parliamentary debate was also conducted within the Committees (CONT and Plenary) in which committee members express their opinions and also they give their vote. The CONT prepared ‘individual discharge reports’ that were debated in the Plenary; these include the report on discharge of the Commission and that of individual bodies. On 11 September 2018, the first debate on the discharge was held in CONT, making some amendments on the 2017 discharge reports drafted by CONT. Secondly, a debate was held in Plenary between different Committees on 26 March 2018. In Plenary, committees ‘exchanged views’ and shared their opinion on the 2017 discharge. Following debates, the Committees also conducted a vote. The majority of the EP members voted for the granting of discharge (views/opinions given by the committees are discussed under the next research questions).
RQ4: What were the consequences that came out of the discharge of 2017? ;
The consequences of the procedure were two-fold; the decision was made and resolutions/ recommendations were given for the future budgets. The outcome of the 2017 procedure is that, ‘the EP granted a discharge (2018/2166(DEC)) to the EC and to other 6 individual bodies’.
“After the EP considerations of the information provided in EC financial and performance reports, the ECA audit reports, opinions of different Committees and Council recommendations and after a vote in parliament on 20 February 2019, the CONT adopted its report, which proposes to grant discharge for the EU general budget to the Commission (2018/2166(DEC)) and to all other six executive agencies” (European Parliament report, 2019)
These 6 agencies include; ‘Education, Audio-visual and Culture Executive Agency; the Executive Agency for Small and Medium-sized Enterprises; the Consumers, Health, Agriculture and Food Executive Agency; the European Research Council Executive Agency and the Innovation and Networks Executive Agency.’
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The decision by the EP to grant a discharge to the Commission for the 2017 EU general budget on 26 March 2019 was agreed upon by the EP members during a parliamentary vote on 20 February 2019, on a single reading. Accordingly, the outcome of the vote was that; 449 members voted for, while 152 members voted against granting discharge and 26 members were not present, thus, the EP decided by ‘majority vote’.
Council Recommendations
The Council recommended a decision to ‘grant the discharge’. The Council acknowledged that the 2017 audit findings presented by ECA were very accurate and reliable; and commends ECA to increase information levels and detail per each spending area as well as to make sure there is ‘stability, continuity and comparability’ with previous years (European Parliament, 2019)
Resolutions by CONT
A number of resolutions have been made by CONT (European Parliament, 2019). As part of the 2017 resolution regarding the decision; the CONT condemned issues of conflict of interest, emphasized on a need to ‘fight against abuse of funds, fraud, mismanagement of public funds’ on the Commission; calls on the EC and individual bodies to cooperate in the negotiations for the ‘post-2020’s Multiannual Financial Framework’; and to increase revenue sources for the individual agencies other than relying only on budget contributions. Further, the CONT suggested a decentralised system of decision making regarding the use of resources, in which agencies should bear the responsibility of carrying out the tasks specified in the legislation.
After noting the differences in the information provided by agencies, the CONT emphasised the establishment of clear reporting guidelines and standards. The CONT recognises the levels of inconsistency regarding the way accounts were presented and financial reports were reported. However, a number of discrepancies have been identified in some documents presented by agencies, i.e staff figures in reports, and the ‘budgetary performance indicators’ utilized and some calculations did not tally. Henceforth, the CONT recommend that, the Commission and agencies should utilize ‘streamlined and harmonised’ indicators. The EP acknowledged the value of the Network established by the agencies-‘inter-agency cooperative platform’ to increase their interactions, to promote efficiency, added value and further improvements in communications
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and document sharing and discussions as well as enhancing the interactions with the EP. The EP’s CONT made an approval on the proposal to develop and advance internal mechanisms in managing requests and access-to-document.
After granting the discharge, the EP put forward a number of political priorities which will be of use to the 2021-2027 Multiannual Financial Framework; which are: “the European added value; a more streamlined and transparent budget; less red tape for beneficiaries; a more flexible, agile budget; and a budget that performs” (European Parliament, 2018). Commission was not sanctioned.
