Mr President, I am pleased to see so many members of the public here today because, as everyone up there can see, there are very few people down here at this time of night. Today's debate marks an important step in the reform process that was initiated by the Prodi Commission just over one year ago. It is the very first legislative proposal to be considered by this House as part of the reform package. The proposal to separate the internal audit function from the ex ante financial control function flows directly from the recommendations formulated last year by the Committee of Independent Experts, which Parliament endorsed in my report of 19 January of this year. This draft legislation is more important to the future of the Commission than its less than thrilling title suggests. In its first report the Committee of Independent Experts stated that internal control and internal audit were entirely separate – even conflicting – activities, which do not belong in the same department. They reached the conclusion that a priori control and internal auditing are activities which employ completely different techniques and address completely different concerns. The arrangement whereby they have been kept together within the same DG should be reviewed. Internal auditing must play an effective supporting role in the service of the Commission so that the latter can exercise its responsibilities. With that aim in view, the human resources allocated to internal auditing should be greatly increased. In addition, internal auditing must take its place independently. The Court of Auditors took the same view in 1997, when it wrote that there was a latent conflict between the power to grant approval – and thus expenditure – and the responsibility for subsequently evaluating the same expenditure in accordance with the criteria for sound financial management. The Commission's fast-track proposal seeks to implement the recommendation of the Committee of Independent Experts by creating an internal auditor who operates separately and independently from the financial controller. I have no doubt that its implementation will be one of the keys to the success of the reform package announced by Vice-President Kinnock in April. I am proud of the fact that the Committee on Budgetary Control has been able to agree unanimously on a draft opinion within a very short period of time. Many thanks, therefore, to the other members of the committee for their help and in particular to Mr dell'Alba, whose work as rapporteur for the Committee on Budgets proved invaluable. Let us hope that the Council will now take a leaf out of our book and develop the same sense of urgency. While our committee welcomes the broad gist of the Commission's proposal, my report presents a number of changes which must be made in order to make the proposed separation of powers work. I cannot help but feel that in the race to produce a proposal within the time limit set by the Reform White Paper, the Commission failed to focus properly on the detail. The changes proposed by our committee are designed to clarify the Commission's text, to impose certain minimum reporting standards and to tailor the text more closely to the specific circumstances of the different European institutions, all of which are affected by any changes to the Financial Regulation. First, the division of responsibilities between the financial controller and the new internal auditor must be clarified. It is not enough to state that an internal auditor must be appointed. The Financial Regulation must also contain a job description. Our committee's amendments seek to draw a clear distinction between the role of the financial controller who remains responsible for ex ante financial control, and the internal auditor, who is responsible for ex post control, and in particular reporting on the quality of management and control systems. Secondly, the Commission's proposal would have the effect of making the appointment of an internal auditor compulsory for all institutions. While this makes sense for an institution with a large operational budget or those with a relatively large administrative budget, such as the European Parliament and the Council, it does not necessarily make sense for the other small institutions which have a financial control staff of no more than four. While these institutions must have the option of appointing an internal auditor, it is sufficient to impose certain minimum audit requirements on the financial controller. It must be clear, however, that this distinction can only apply during a transitional period. When the recasting of the Financial Regulation is completed, hopefully within one to two years, it must apply fully to all institutions. Some members of the committee have argued that the appointment of an internal auditor should be made compulsory for all institutions at this stage. Of course such a notion has superficial appeal, but if it leads to the appointment of at least 20 additional officials without a clear prospect of direct efficiency gains it should be resisted. It is important, however, that institutions which do not employ an internal auditor take the job of internal audit seriously. I was surprised to discover that in at least one of the smaller institutions no audits were carried out by the financial controller despite the clear requirement to do so in the Financial Regulation. The third change to the Commission's proposals contained in my report is therefore the spelling out of a minimum reporting requirement. One of the problems Parliament has faced in recent years is a lack of standardised information on financial control from the institutions. I therefore propose that both the financial controller and the internal auditor should produce annual reports detailing their activities. Finally, institutions must learn from each other instead of constantly reinventing the wheel. My report proposes that the annual internal audit report produced in one institution should be made available to all other institutions to enable them where appropriate to apply the conclusions arrived at elsewhere to their own management and control systems. As I have already reminded the House, this proposal is only the prelude to a full recasting of the Financial Regulation. Parliament has not yet received the official text of the proposal but we have been able to see a preliminary version of the text and although I hope the full text will be forwarded to Parliament soon I also understand the Commission's wish to ensure that the text is legally and linguistically watertight. It is a very substantial document. Some in Parliament have already referred to it as the 'beast', but it is going to be one of the most important items of legislation before us during the term of this Parliament. One of the key changes advocated by the Commission is the abolition of the system of ex ante financial control. This proposal does not meet with unanimous approval in this Parliament as, the Commissioner well knows. Many Members are concerned that the existing system of financial control will disappear before a new system which now exists only on paper has been proven to work. We have therefore asked the Commission to give us an undertaking that during the transitional period which is about to begin the system of centralised ex ante control will be maintained and will not be affected by the introduction of the internal audit function. I would ask the Commission to confirm today the undertaking it has already given Parliament in relation to this point. I would, however, like to make my personal point of view very clear. I welcome the proposed change in principle. As the Committee of Independent Experts pointed out last year, most of the irregularities highlighted by the committee stem from decisions approved by the financial controller, that the supposed quality guarantee provided by the approval is a myth and put forward two strong arguments for changing the system. First, ex ante checking, whether it be universal or based on sampling, is unlikely to be a cost-effective process. The effort put into checking all transactions is clearly disproportionate, while sampling is unlikely to have sufficient deterrent effect. The second and fundamental principle is that any retention of ex ante control runs up against the crucial objection that, de facto if not de jure, it displaces responsibility for financial regularity from the person actually managing expenditure to the person approving it. Although the Court of Auditors has never explicitly backed abolition of centralised ex ante financial control and we have yet to hear its views on the proposal at present before us, it has raised the possibility of moving to a different system. In its 1997 opinion it wrote: 'As for completely abolishing the requirement of prior approval, this would not be acceptable unless it were to be replaced by other procedures that provided at least equivalent safeguards and that could also involve financial officials other than the financial controller.' The Commission's challenge will be to convince Parliament that it can create those safeguards.

Political group: PSE