Transcript The Court’s AAR scoreboard 2004

Tolerable Risk of Error (TRE) in
Community programmes
Adrian Window, Head of Unit BUDGET D3
Presentation to the Homologues’ Group,
Ljubljana 12 October 2009
What is TRE?
• Best known in industry
• Zero risk is impossible
• So in industry it’s
about seeking a
balance between cost
of safety measures
and the cost of an
accident
Slide 2
So what is TRE to do with us?
European Court of Auditors (opinion 2/2004)
 any control system is a trade-off between the cost of
operating the defined intensity of checks on the one
hand and the benefit these procedures bring on the
other. In the Community context the benefit involves
reducing the risk that funds are wasted and containing the
risk of error to a tolerable level
The Court’s role
 Commission’s external auditor
 Account balances and legality and
regularity of underlying transactions
 Uses a single standard materiality
threshold of 2%
 But…. execution of the EU budget is
complex
Spending the EU budget (1)
 Money is spent across the world
 On many different types of project/ activity
 Rules are often complex to target policy
objectives and due to the decision process
 Control chains are sometimes long and
complex (76% is spent through Member States)
 But the Commission is responsible for the
execution of the budget
Errors in the EU budget (2)
Errors in Structural Fund spending –
Court of Auditors’ 2007 annual report
Missing documents
Over-claimed amount
No errors
Ineligibility
More than one type
So what can we do about this?
 Improve control systems (“better control”)
 But we cannot spend an infinite amount
on control
 Develop a clear vision of control costs
 Decide what represents “cost-effective
control”
 COM(2008) 866 was a first attempt
A first study of TRE
For cohesion policy, we estimated the tolerable risk was
around 5%
9%
215 Mio; 9%
8%
7%
Error rate (%)
6%
5%
Tolerable
Risk Point
4%
996 Mio; 4%
3%
1.695 Mio; 2%
2%
1%
0%
-
250
500
750
1.000
1.250
1.500
1.750
2.000
2.250
2.500
Total cost of controls (Mio €)
Source: COM(2008) 866
A first study of TRE
For cohesion policy, we estimated the tolerable risk was
around 5%
9%
215 Mio; 9%
8%
7%
6%
Error rate (%)
But there were data quality issues, notably as
regards costs of control
5%
Tolerable
Risk Point
4%
996 Mio; 4%
3%
1.695 Mio; 2%
2%
1%
0%
-
250
500
750
1.000
1.250
1.500
1.750
2.000
Total cost of controls (Mio €)
2.250
2.500
A few clarifications on TRE
 TRE is
 A benchmark against which it is fair to judge the
management of overall risk
 A tool for the Discharge Authority
 An instrument for cost-effective management of
the EU budget, not about doing more or less
control
A few clarifications on TRE
 TRE is not
 A sign that error will be ignored in individual
projects
 Applicable at a level lower than the overall
budget
 A tolerable level of fraud
 A recipe for tolerating ineffective control
arrangements
The next steps
 Discharge resolution 2007
 Proposals to Parliament and Council for
research, energy and transport, rural
development, administrative expenditure
and external aid in 2010
 Cohesion will be covered in 2012 (2010
expenditure)
 Reliable data on costs will be needed (data
collection including Member States)
 Thank you for your attention
 Questions?
Email: [email protected]