Adrian Window, Head of Unit BUDGET D3 Presentation to the Homologues’ Group, Ljubljana 12 October 2009 Tolerable Risk of Error (TRE) in Community programmes

What is TRE? Slide 2 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

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 Ineligibility More than one type No errors

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% Source: COM(2008) 866

A first study of TRE For cohesion policy, we estimated the tolerable risk was around 5% But there were data quality issues, notably as regards costs of control

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?