List of abbreviations

CIDA : Canadian International Development Agency

CRIS : Common RELEX Information System

DFID : Department for International Development

EAMR : External assistance management report

ECA : European Court of Auditors

ECHO : Directorate-General for Humanitarian Aid

EU : European Union

EuropeAid : EuropeAid Cooperation Office

FAFA : Financial and administrative framework agreement

FAO : Food and Agriculture Organisation

IFAD : International Fund for Agricultural Development

ILO : International Labour Organisation

NGO : Non-governmental organisation

ROM : Results-oriented monitoring

UN : United Nations

UNDP : United Nations Development Programme

UNFPA : United Nations Population Fund

UNHCR : United Nations High Commissioner for Refugees

UNICEF : United Nations Children’s Fund

UNOPS : United Nations Office for Project Services

UNRWA : United Nations Relief and Works Agency

WFP : World Food Programme

WHO : World Health Organisation

Executive summary

I. EU funds managed by EuropeAid and ECHO which were channelled through UN organisations increased from 500 million euro in 2002 to over 1 billion euro in 2008. The increase can be explained partly by streamlined procedures and partly by the Commission’s response to major crises in Afghanistan, Iraq, the occupied Palestinian territory and Sudan which was largely channelled through the UN. The December 2005 European Consensus on Development and the March 2005 Paris Declaration on Aid Effectiveness commit the EU to coordinate and harmonise aid in close cooperation with international organisations such as the United Nations (see paragraphs 1 to 10).

II. The audit addressed the following two questions (see paragraphs 11 to 13):

(a) Does the process for deciding to implement aid through the UN demonstrate that this is the most efficient and effective option?

(b) Do monitoring arrangements provide assurance on the robustness of financial procedures and on the achievement of objectives?

III. The strategic and legal requirements to select partners in an objective and transparent way are insufficiently translated into practical criteria to support decision-making. Despite being satisfied with its choice of partner, the Commission does not convincingly demonstrate, before deciding to work with a UN organisation, that it has assessed whether the advantages offset any disadvantages. The choice of a UN organisation is not based on sufficient evidence that this approach is more efficient and effective than other ways of delivering aid. Neither EuropeAid nor ECHO systematically carries out formal appraisals of alternative aid delivery mechanisms in order to compensate for the absence of competitive tendering (see paragraphs 14 to 28).

IV. The Commission verifies the robustness of financial management systems through a prior assessment of the control systems of its UN partners (the four pillar analysis). The Commission seeks confirmation on the practical operation of financial systems and the achievement of results through UN reports, its own field monitoring and verification missions. However, the Commission has not yet succeeded in obtaining from UN reports adequate information on the efficiency of implementation and the achievement of objectives. The Commission’s own field monitoring is not designed to compensate for the limitations of UN reports (see paragraphs 29 to 39).

V. The UN Panel of External Auditors has continually questioned the Commission’s right to carry out financial checks. It argues that its own audit arrangements are sufficient, but does not provide the Commission with satisfactory evidence that financial control procedures work in practice. The Court of Auditors has also encountered difficulties accessing information from UN organisations when carrying out its annual financial audit of the Commission’s accounts (see paragraphs 40 to 46).

VI. On the basis of these observations, the Court makes recommendations to improve decision-making procedures and to focus on the achievement of results which could help the Commission to provide more efficient and effective aid (see paragraphs 48 to 49).

Chapter 1

Introduction

Section 1.1

Context of the audit

1. In implementing overseas aid the Commission works through various partners including national governments, the private sector, NGOs and international organisations such as the United Nations (UN). Where aid is implemented through the UN, the Commission provides funding for activities to be implemented by a UN organisation. Commission decisions to channel aid through UN organisations from the EuropeAid Co-operation Office (EuropeAid) and from the Directorate-General for Humanitarian Aid (ECHO) increased assistance from 500 million euro in 2002 to over 1 billion euro in 2008 as shown in Figure 1. This increase reflects the Commission’s strategic commitments (see paragraph 5), the response to major crises in Afghanistan, Iraq, the occupied Palestinian territory and Sudan (see paragraph 6) and streamlined procedures (see paragraphs 8 and 9).

2. EuropeAid is responsible for the Commission’s development aid including longer-term rehabilitation. In 2008 it committed a total of 8890 million euro of which 670 million euro (8 %) was channelled through UN organisations. Commission delegations in beneficiary countries play a key role in the process for deciding the mechanism for implementing aid.

Figure 1

Commission overseas aid through the UN 2002–08

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3. ECHO is responsible for the Commission’s response to humanitarian crises. It funds activities designed to save and preserve life during emergencies and short-term rehabilitation work. It does not implement activities directly, but through partners consisting of international organisations and non-governmental organisations (NGOs). In 2008 ECHO committed a total of 937 million euros of which 404 million euros (43 %) was channelled through UN organisations. The Subdelegated Authorising Officer is responsible for the choice of aid implementation mechanism, acting on the advice of desk officers in Brussels and field officers located in beneficiary countries.

4. The UN is funded partly by mandatory contributions from UN member countries based on their gross national income, and partly by voluntary contributions to UN organisations. The Commission’s funding takes the form of voluntary contributions and represents in the order of 6 % of UN resources. The Commission may contribute to multi-donor funds as one of several donors supporting the action, or it may be the only donor. It does not contribute to the general budget of UN organisations with the exception of a UN agency in the occupied Palestinian territory, to which it contributed 66 million euro in 2007.

5. The December 2005 European Consensus on Development and the March 2005 Paris Declaration on Aid Effectiveness commit the EU to coordinate and harmonise aid in close cooperation with international organisations such as the United Nations. In 2006 and 2007 the Commission made over 700 separate contributions to some 30 different UN organisations. The main partners and the amounts received are shown in Figure 2.

6. The activities financed were spread over more than 90 countries. The four countries which received most contributions were all conflict-affected (the occupied Palestinian territory, Iraq, Afghanistan and Sudan), as shown in Figure 3.

7. The European Parliament in its discharge decisions has questioned why the Commission channels funds through the UN, and encouraged more direct management by the Commission. It has expressed concern at the lack of transparency and visibility concerning Commission funding through the UN and has requested assurance on the adequacy of the management of these funds [1].

Figure 2

Contributions to un organisations in 2006 and 2007

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Figure 3

Contributions to un by recipient country in 2006 and 2007 (million euro)

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Section 1.2

Regulatory framework

8. Article 53 of the Financial Regulation which came into force in 2003 and was revised in 2007 sets out the conditions for working with international organisations [2]. This method of implementing the budget is called joint management. Despite its name, the tasks related to the implementation of these funds are not jointly managed, but are delegated to international organisations to be implemented in accordance with their own procedures [3]. Nevertheless, the Treaty and the Financial Regulation insist that the Commission retains overall responsibility for sound management of the budget [4]. Tasks can be directly delegated to organisations and Article 43 of the Implementing Rules on the Financial Regulation requires that the organisations and the actions to be financed shall be chosen in an objective and transparent manner [5].

9. The 2003 Financial and Administrative Framework Agreement (FAFA) translates into contractual terms the requirements of the Financial Regulation and applies to all funding agreements between the Commission and the UN. It sets out a framework intended to enhance cooperation by allowing UN organisations to manage contributions in accordance with their own procedures. The procedures for joint management with UN organisations differ from those required for actions implemented through NGOs, which generally involve competition and the use of Commission procedures. Article 3.1 of the FAFA requires all actions to comply with the principles of sound financial management, in particular value for money and cost-effectiveness. The FAFA encourages multi-donor actions, requires UN organisations to publicise the role of EU funding, outlines the use of subcontractors and defines the financial framework and payment policy. It describes procedures for checking that funds are managed properly including the submission of reports by the UN and the right of the Commission to carry out checks.

10. A contribution agreement is signed for each UN action funded by the Commission, describing the amount of funding, the objectives of the action, the activities to be carried out and their timing. The contribution agreement incorporates the provisions of the FAFA regarding the use of the UN organisation’s own procedures, visibility, use of subcontractors, financial framework and procedures for checking and reporting.

Chapter 2

Audit scope and approach

11. The present audit covered overseas aid of ECHO and EuropeAid funded through UN organisations and addressed the following two questions:

(a) Does the process for deciding to implement aid through the UN demonstrate that this is the most efficient and effective option?

(b) Do monitoring arrangements provide assurance on the robustness of financial procedures and on the achievement of objectives?

12. The consequence of weak procedures is a risk of a reduction in the efficiency and effectiveness of Commission spending. The second phase of the audit, to be reported on at a later date, will assess the extent to which this risk materialises.

13. The audit was based on:

(a) an analysis of documentation, including the Commission’s May 2008 evaluation of its cooperation with the UN and reports of the Commission’s Internal Audit Service (IAS) on the implementation of the FAFA in 2006, 2007 and 2009;

(b) interviews with Commission and UN staff at their headquarters in Brussels and New York;

(c) on-the-spot visits to the occupied Palestinian territory and Sudan in order to corroborate the reliability of monitoring systems;

(d) observation of the April 2008 fifth annual FAFA working group in Vienna and the April 2009 sixth annual FAFA working group in Brussels;

(e) previous audits of the Court in which UN actions were included; and

(f) the results of 52 questionnaires, addressed to delegations in the case of EuropeAid and desk officers in the case of ECHO, concerning the reasons for working with the UN and the systems for monitoring implementation [6].

Chapter 3

Observations

Section 3.1

Decisions to implement aid through the UN

14. Robust procedures for selecting the most appropriate aid delivery mechanism to achieve EC policy objectives are necessary in order to ensure that the choice is based on the organisation’s capacity to carry out the task efficiently and effectively. The audit therefore examined whether the process for deciding to implement Commission aid through the UN was objective and transparent and whether it demonstrated that this was the most efficient and effective option. In particular the audit examined whether decisions to fund UN organisations were informed by:

(a) strategic policy guidelines requiring an assessment of the UN organisation’s suitability to carry out the proposed tasks;

(b) a comparison with alternative aid delivery mechanisms.

Strategic requirements insufficiently translated into practice

15. In addition to the commitments of the European Consensus (see paragraph 5), the 2001 Commission communication on "Building an effective partnership with the United Nations" set out the Commission’s strategy for funding aid through UN organisations [7] and contained the following two main messages which remain preconditions of working with the UN:

(a) the decision to fund a UN organisation should be based on its capacity to carry out the proposed task efficiently and effectively; and

(b) through the provision of systematic rather than piecemeal funding, the Commission should focus on results, rather than inputs, and ensure that UN reporting adequately demonstrates the achievement of well-defined objectives.

16. The Commission’s strategy with regard to EU assistance funded through UN organisations covered both development cooperation and humanitarian aid. It suggested that cooperation should focus on the six thematic areas identified as a priority for all development aid in the November 2000 statement by the Council and the Commission on "The European Community’s development policy" [8]. However, in 2007 over half the Commission funding through the UN related to dealing with crises (mainly post-crisis humanitarian aid, rehabilitation and recovery), rather than the six thematic areas identified in the Communication. Some 40 % of Commission aid through the UN was spent on these six areas [9], considerably less than the proportion of global Commission aid, which amounted to almost 80 % [10]. It is not clear what added value the focus on thematic areas brings because it appears not to be followed in practice.

17. The strategic requirements are insufficiently translated into practical criteria for assessing the advantages and disadvantages of working with UN organisations. The Commission has carried out retrospective analysis which shows that there are good reasons for implementing aid through the UN (see paragraph 20) and that the Commission was satisfied with its choices (see paragraph 27). However, before deciding to work with a UN organisation, the Commission does not systematically document its assessment of whether the added value of the UN offsets any disadvantages.

18. Before contracting with a UN organisation, EuropeAid does not systematically carry out a documented assessment of its suitability to implement the proposed task. Information on past performance, including the findings of results-oriented monitoring, is available to delegations through the CRIS database, and, since 2008, the twice-yearly external assistance management reports (EAMRs) include a specific section on international organisations. However, the information is not currently analysed and communicated to delegations in a way which could more usefully inform such assessments. One of the purposes of the Commission’s evaluation in 2008 was to establish whether there were clear reasons for implementing aid through the UN. EuropeAid has also carried out surveys to establish why UN organisations have been selected as partners.

19. Because of the urgent character of its interventions, ECHO enters into framework agreements with all its partners, having first assessed their suitability. In addition, before entering into an agreement for a specific intervention, it systematically carries out and documents an appraisal of the capacity of the partner for the specific action proposed. However, the useful information on past performance of UN partners, contained in ECHO’s project monitoring system, is stored at the level of operational units rather than being made readily available to all desks to inform decisions on funding UN organisations. Consequently, ECHO’s assessment process may be based on incomplete information and so the partner may not have the capacity to deliver the expected results, particularly where it diversifies outside its core activity.

20. The Court’s questionnaires (see paragraph 13) aimed to identify, for each of the 52 contribution agreements, the three main reasons for choosing to work with the UN. The relative importance of the reasons for selecting the UN are summarised in Figure 4. The results of the questionnaires confirmed the findings of the Commission’s evaluation and surveys that the Commission chooses to work with the UN primarily for attributes linked to its capacity to deliver, such as its experience, expertise, logistical capacity (including access to insecure zones) and past performance. Another reason why the Commission chooses the UN is its capacity for coordination and high-level dialogue.

Figure 4

Relative importance of reasons for choosinG UN

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21. The Commission’s strategy, the Financial Regulation and the FAFA require that the decision-making process is objective and transparent and aims for efficiency and effectiveness (see paragraphs 8, 9 and 15). Whilst elements such as cost (see paragraphs 22 and 23), speed (see paragraph 24) and visibility (see paragraph 25) were also considered, in the replies to the Court’s questionnaires requesting the three main reasons for choosing the UN these criteria did not feature prominently.

22. Concerning cost, the Commission has limited information on the cost efficiency of implementation. The Commission makes a contribution, not exceeding 7 % of direct costs, to the UN organisation’s indirect costs [11]. Article 5 of the FAFA states that subcontracting should not lead to increased costs over direct implementation by the UN itself. However, when activities are subcontracted, the total level of the contribution to indirect costs for all organisations involved is not reported as, for example, in the case of the Interim Disarmament, Demobilisation and Reintegration Programme in Sudan, where one UN organisation subcontracted half the activities to another UN organisation which further subcontracted activities to NGOs for implementation.

23. In addition to its contribution to indirect costs, the Commission also funds the support costs of local offices, staff and transport directly related to activities financed. An analysis of projects in Sudan showed a range in the level of support costs of between 6 % and 60 % of the total project cost [12]. The Commission does not assess the level of support costs with reference to a normal range or benchmark for the type of project to establish if it is reasonable.

24. Concerning speed of implementation, in some cases, for example the large quantities of food transported, the UN has demonstrated its capacity to deliver aid to beneficiaries rapidly. However, examples of slow delivery (see Box 1) should feed into the decision-making process.

25. Concerning visibility, the Commission’s evaluation concluded that, whilst visibility was satisfactory at country level, EU taxpayers were generally not aware of the presence and role of the Commission in this type of intervention. In the case of the Interim Disarmament, Demobilisation and Reintegration Programme, for example, whilst the role of the EC was clear at the level of the national administration in Sudan, it was rarely mentioned in public and formal documents. The 2006 joint action plan on visibility recognises the risk of reduced visibility and emphasises the importance of addressing this issue.

Box 1

Examples of slow implementation of aid

A November 2006 review of the Interim Disarmament, Demobilisation and Reintegration Programme in Sudan reported on the high level of frustration with delays and lack of implementation. In December 2007 the Sudanese government expressed disappointment at the slow implementation of the programme, which was confirmed by a subsequent Commission mission to Sudan.

In south Sudan, EuropeAid selected a UN organisation as a partner to supervise the emergency construction of legal offices. Beneficiaries agreed to a prefabricated construction which could be quickly delivered and assembled. However, they were frustrated by delays in implementation as foundations were initially dug in the wrong location, prefabricated panels were delivered late and the project manager departed.

The camp development project managed by a UN organisation in the occupied Palestinian territory was initially planned for a period of 12 months ending in June 2007 but after two extensions was still continuing at the end of 2008.

Formal comparison with alternative aid delivery mechanisms should be systematic

26. Neither EuropeAid nor ECHO systematically carries out formal appraisals of alternative aid delivery mechanisms. Comparative or standard cost information is not used to analyse the cost-effectiveness of project proposals in order to compensate for the absence of competitive tendering. The choice of using a UN organisation to deliver aid, is not, therefore, supported by conclusive evidence that this approach is more efficient and effective than other ways of delivering aid.

27. The replies to the Court’s questionnaires indicated that where comparisons with alternatives were carried out they were generally not documented. The Commission’s evaluation similarly found that there was no formalised appraisal of alternative forms of aid and little information could be found on any analysis of possible alternatives prior to the decision. However, even where there was little record of the decision-making process that had taken place, the Commission was satisfied with its choices to deliver aid through UN organisations. Channelling aid through the UN was frequently considered to have been the only option, particularly in crisis situations. Where there had been other options the Commission generally considered that the UN had been the best choice, despite the absence of systematically documented justifications at the time when the decisions were taken.

28. Implementation by the Commission itself is one of the other options for delivering aid. The lead role of the Commission in the implementation of the temporary international mechanism in the occupied Palestinian territory, through which over 600 million euro were channelled in 2006 and 2007, demonstrates the capacity of the Commission to implement and coordinate aid on a large scale in an unstable environment. Article 18(1) of the revised Financial Regulation explicitly states that Commission programmes can be financed by financial contributions from Member States and other donors, which provides an opportunity to explore the possibility of multi-donor funds managed and coordinated by the Commission.

Section 3.2

Systems for monitoring and auditing aid delivered through the UN

29. Robust financial management procedures are a legal and strategic requirement (see paragraphs 8 and 15). They are necessary in order to reduce the risk that Commission funding is used uneconomically or inappropriately. Reliable information on the efficiency of implementation and the achievement of results is necessary in order to ensure that the Commission’s objectives have been met. The audit therefore examined whether monitoring and audit arrangements provide assurance on the robustness of financial procedures and on the achievement of results.

30. The Commission has responded to the requirement to ensure robust financial management procedures by developing monitoring and control mechanisms which combine prior approval and ex post checks [13] (see Figure 5). The Commission first carries out an assessment of the financial control systems of its UN partners (the four pillar analysis) to ensure they meet international standards [14]. In order to ensure that these systems operate in practice, the Commission is provided with information by its UN partners through reports. The Commission also conducts field monitoring visits and carries out verification missions. Although not part of the Commission’s monitoring procedures, the Court of Auditors also checks the eligibility of a sample of expenditure implemented through UN organisations as part of its annual financial audit of the Commission’s accounts.

The four pillar analysis does not cover systems relating to subcontracted activities

31. The four pillar analysis assesses the adequacy of the accounting, internal control, external audit and procurement procedures of UN partners. By 2008 it had been completed for nearly all Commission funds managed through the UN. Whilst it was being carried out the Commission continued to work with UN organisations on the basis of a presumption of conformity.

32. UN organisations frequently subcontract the implementation of activities to other organisations whose financial control systems have not been reviewed by the Commission. For example, in the context of the ECHO-financed emergency health care project in Sudan, the UN organisation subcontracted activities to NGOs which had not entered into a partnership agreement with ECHO. The Commission relies on the UN organisation’s systems to control the activities of the subcontractors.

Figure 5

Monitoring and control arrangements

■ Prior approval

■ Ex post checks

| 1.Four pillar analysisCommission examination of the four main types of financial control (accounting, internal control, external audit and procurement) of UN organisations to check they meet international standards. | |

2.UN reportsUN organisations are required to provide annual progress reports plus a final report within six months of the end of implementation (three months for humanitarian assistance). The annual strategy is supported through programming dialogues. | 3.Field monitoringCommission visits to projects and meetings with partners to ensure the efficiency of implementation and achievement of objectives. Includes results-oriented monitoring (ROM). | 4.VerificationsCommission checks, including on the spot, to confirm the adequacy of the procedures identified in the four pillar analysis and to examine whether value for money has been obtained. In addition, evaluations check the efficiency and effectiveness of aid. |

Un reports provide insufficient information on results

33. The Commission is critical of UN reports which are excessively general, do not communicate problems encountered and are frequently late [15]. The Commission has not succeeded in obtaining adequate information on project achievements because clearly quantified output targets are not developed for all projects. When performance indicators are quantified they focus on the more easily measurable project output rather than project impact. The Commission’s project cycle management guidelines (March 2004) distinguish between output indicators, on the one hand, and outcome and impact indicators, on the other. Output indicators measure the immediate and concrete consequences of measures taken whilst outcome and impact indicators measure the effect of the project on beneficiaries and the long-term consequences. In some cases impact indicators were included but were not measurable, particularly within the shorter reporting timescale of ECHO [16] (see Box 2).

Box 2

Difficulties in measuring performance

Where projects included both output and outcome indicators, the UN organisation was not necessarily able to report on the outcome indicators within the reporting timescale. For example in the case of one UN project in Darfur, Sudan, an output target was for 25000 households to receive seeds for crop production whilst the outcome target was for each beneficiary to cultivate an additional 1,2 hectares from the assistance provided. In the case of the UN health, nutrition and water project in Blue Nile and Khartoum states the output indicators related to the number of clinics supported whilst the outcome indicators concerned mortality and morbidity rates. Although for both these ECHO projects the UN organisations were able to report on the output indicators, they were unable, within the reporting timescale (three months after the end of the project), to report on the outcome indicators concerning the additional land cultivated or mortality and morbidity rates.

34. The quality of reporting is important in the context of the aid effectiveness agenda and the aim of the Commission and the UN to focus on results [17]. The 2005 Paris Declaration on Aid Effectiveness commits donors to implementing common arrangements at country level for planning and funding activities. The 2005 European Consensus on Development similarly emphasises the EU’s commitment to working with partners in harmonising aid through more predictable aid mechanisms. The Good Humanitarian Donorship Principles agreed in Stockholm in 2003 commit donors to strive to ensure predictability and flexibility in funding to UN organisations and to explore the possibility of reducing earmarking and introducing longer-term funding arrangements. Earmarking aid for a large number of specific activities can be a means to target resources in order to achieve specific results, but it is not consistent with the common approach envisaged by the aid effectiveness agenda. However, partly due to inadequate reporting by the UN, the Commission has preferred to earmark funds, rather than funding longer-term cooperation [18].

35. Even where the Commission contributes to a multi-donor fund, instead of pooling its funding with the other donors it sometimes earmarks its funding for specific activities within that fund (see Box 3). Earmarking brings with it additional reporting requirements and associated costs. The Court’s 1999 Annual Report criticised the devotion of scarce UN and Commission resources to the largely unproductive administrative task of reporting on earmarked expenditure [19]. The Commission replied that it was looking at new approaches which would take account of the Court’s suggestion to reduce earmarking. The results of the Court’s questionnaires showed that for 10 out of 29 multi-donor funds (34 %) the Commission had earmarked its funds for specific activities.

Box 3

Example of earmarking

The Commission contributed 1 million euro to a UN organisation’s multi-donor fund of 14 million euro to support elections in Guyana in 2006. Other donors including Canada (CIDA) and the UK (DFID) did not earmark their contributions for specific activities, but the Commission did. For example, it allocated 146000 euro for information technology, 418000 euro for voter education, 143000 euro for media monitoring and 115000 for local observation. However, the UN organisation’s accounting systems did not record expenditure according to these budget headings and it was unable to provide the Commission with a list of transactions in each category.

36. The Commission has not funded the general budget of UN bodies with the exception of a UN agency in the occupied Palestinian territory [20]. By contributing to the general budget of this agency the Commission was able to engage in a high-level dialogue to improve the system for measuring the organisation’s performance and providing clear and reliable information on the achievement of results. The current pilot UN initiative to present a single UN interface for donors in a particular country may, in the future, present a further opportunity for the Commission to consider funding in a less fragmented way, ensuring greater harmonisation of aid. However, any move away from earmarking needs to be accompanied by a robust reporting system which provides donors with reliable information on the achievement of results.

Commission field monitoring does not compensate for lack of information in un reports

37. EuropeAid field monitoring by delegation staff includes meetings with UN staff, field visits to projects and beneficiaries and attendance at steering committees. UN organisations, beneficiaries and other donors generally perceive EuropeAid as a relatively involved donor. In addition, results-oriented monitoring (ROM) visits, carried out for EuropeAid by consultants, assess a project’s relevance, efficiency, effectiveness, impact and potential sustainability.

38. However, monitoring carried out by delegations and the ROM is not designed to compensate for the limitations of UN reporting on the efficiency of implementation and achievement of results (see Box 4). The ROM methodology is based on sampling, and security issues are also a consideration. The results of the Court’s questionnaires showed that only seven out of 37 EuropeAid projects (19 %) had been monitored through the ROM.

39. In contrast, ECHO’s field officers systematically carry out monitoring visits to projects once every six months (except when it is not possible, for example, for security reasons) and document the findings. These monitoring reports are a useful tool for initiating any necessary remedial action, though their effectiveness could be enhanced by sharing the written report with partners instead of providing only verbal feedback. The monitoring by ECHO field officers, together with visits of evaluators, missions by desk officers and annual strategic programming dialogues with UN organisations, helps to compensate for the limitations of UN reports.

Box 4

Limitations of EuropeAid field monitoring

In Sudan, Commission aid was distributed evenly between the north and the south of the country. However, the delegation was based in Khartoum in the north and there was only one programme manager working in the south, in particularly difficult conditions. The planned opening of the south office in Juba in 2009 will provide an opportunity to address this imbalance in the distribution of monitoring resources.

Where projects encountered problems, as in the case of the emergency construction of legal offices in south Sudan, delegation monitoring had not compensated for ineffective UN supervision.

In Sri Lanka, adequate monitoring and supervision procedures had not been established for the community roads project implemented by a UN organisation [21].

Commission verifications questioned by un panel of auditors

40. The FAFA states that the European Communities may undertake, including on the spot, checks related to the operations financed by the European Communities. The purpose of these checks is not only to review financial management systems, but also to examine whether value for money has been obtained in the implementation of projects. With some exceptions [22], verification missions focus on the adequacy of procedures whereas examination of the efficiency of implementation or the effectiveness of results are issues addressed by UN reports and Commission field monitoring. Typical terms of reference of a verification mission are:

(a) to evaluate the local systems for accounting for Commission funding and confirm that they operate in practice; and

(b) to check the eligibility of expenditure on the specific activities financed.

41. At the same time as the level of Commission funds channelled through the UN has increased (see paragraph 1), the Commission has increasingly exercised its right to carry out verifications. Between 2004 and 2006 EuropeAid and ECHO carried out a combined total of 22 verification missions, or roughly seven per year. In 2007 the number significantly increased as EuropeAid carried out 38 verification missions and ECHO a further nine. In 2008 EuropeAid carried out 25 verification missions and ECHO nine. To put the number of verification missions into context, EuropeAid and ECHO each enter annually into approximately 180 contracts with UN organisations (see paragraph 5).

42. Attitudes towards verifications vary within the UN, but the UN Panel of Auditors has continually questioned the Commission’s right to check expenditure, arguing that its own audit arrangements are sufficient (see Box 5). The UN Board of Auditors carries out the external audit of the financial statements of UN bodies [23]. The various UN agencies also have their own internal audit function. For example, one UN organisation has an Office of Audit and Performance Review which is required to audit each activity at least once in its lifetime.

Box 5

Long-standing controversy over Commission verifications

In 1993 the UN Panel of External Auditors wrote to the Secretary General of the UN insisting that donors should rely on normal UN audit arrangements. This view was endorsed by the UN General Assembly.

In 1994, the verification clause was agreed, providing the basis for EC access to all relevant UN information and the right to carry out checks, though stating that transactions and financial statements were subject to UN internal and external auditing procedures.

The UN Panel of External Auditors continued to voice its concerns over independent audits by donors and in 2001 a supplementary agreement was signed on the application of the verification clause.

In 2005 the UN High Level Committee on Management claimed the exclusive right of audit of UN auditors, despite what it described as pressure from some donors, including the Commission, to break the single audit principle.

In early 2008 the UN Controller requested all verification missions to be put on hold until the verification clause, considered contrary to the independence of the UN, was renegotiated or removed. The Commission refused the request.

In April 2008 the question of verifications was the main subject discussed at the fifth annual FAFA working group. The UN and the Commission agreed to draft common terms of reference for verification missions, which were adopted at the sixth annual working group in April 2009.

43. The Commission relies on the work of the UN auditors when it is available for review and scrutiny [24]. The audited financial statements of the UN organisation as a whole are publicly available. However, the financial statements of actions funded by the Commission are not separately audited.

44. The Commission and UN have worked to overcome their differences regarding verifications but the Commission has encountered restricted access to UN systems and documents (see Box 6).

Box 6

Examples of restricted Commission access

EuropeAid’s 2007 verification of a UN organisation’s support to elections in Guyana could not access the UN organisation’s accounting system.

EuropeAid’s 2007 verification of a UN organisation’s polio eradication programme was not allowed to take copies of documents.

Due to limitations imposed by the HQ of one UN organisation, ECHO’s 2008 verification of projects in Uganda was not able to select a reasonable number of transactions for testing in order to arrive at a general conclusion on the eligibility of costs.

Court of Auditors encounters obstacles carrying out financial checks

45. In order to carry out its annual financial audit of the Commission’s accounts, the Court of Auditors checks the eligibility of a random sample of payments [25]. For those transactions relating to the UN, the Court checks that expenditure has been incurred in accordance with the terms of the agreement with the Commission.

46. The Commission ensured that the verification clause of the FAFA provided the Court of Auditors with the necessary access to information in order to perform these checks [26]. The verification clause of the FAFA states that the European Communities, and therefore the Court, even though not specifically mentioned, may undertake on-the-spot financial checks, and that the UN shall provide all relevant financial information. Nevertheless, the Court has experienced some difficulties accessing UN information (see Box 7).

Box 7

Court of Auditors has difficulties accessing information

The Court’s annual reports for 2001 and 2004 describe the difficulties of the Court in accessing data from UN organisations.

The Court’s 2007 audit of the European Development Funds reported that out of 11 payments to UN organisations, two payments could not be fully audited because the Court could not obtain the underlying documentation. The audit of other UN payments was hampered by inadequate cooperation by UN organisations and was eventually made possible only by the intervention of the Commission.

The Court’s 2007 annual report on the general budget reported that for three payments to UN organisations some of the documents needed could not be provided in good time by the organisations concerned.

Chapter 4

Conclusions and recommendations

47. The European Consensus on Development commits the EU to coordinate and harmonise aid in close cooperation with UN organisations. The 2003 Financial Regulation and the FAFA provide the framework enabling the Commission to contract directly with UN organisations. The Commission remains accountable for tasks delegated to UN organisations. On the basis of the Financial Regulation and the arrangements in the FAFA, it therefore checks that UN financial procedures meet international standards and seeks confirmation on the practical operation of these systems and on the achievement of results through UN reports and its own verifications and field monitoring.

Decisions to implement aid through the UN

48. The process for deciding to implement aid through the UN does not demonstrate that this is the most efficient and effective option. In order to compensate for the absence of competition, the Commission has recognised the need for robust decision-making procedures in choosing its implementing partner. However, the strategic and legal requirements are insufficiently translated into practical criteria to support decision-making. Before deciding to work with a UN organisation, the Commission does not convincingly demonstrate that the advantages offset any disadvantages. Nor is the choice of using a UN organisation to deliver aid supported by sufficient evidence to show that this approach is more efficient and effective than other ways of delivering aid.

Recommendation 1

The Commission should issue and ensure the implementation of practical guidelines in order to improve the decision-making process for selecting the implementing channel for the proposed task. The guidelines should lead to a transparent, objective and systematic demonstration that the choice is more efficient and effective than other aid delivery mechanisms.

Systems for monitoring and auditing aid delivered through the UN

49. Monitoring arrangements do not provide adequate information on the robustness of financial procedures and on the achievement of objectives. UN reports do not systematically provide adequate information on project achievements and whilst monitoring by the Commission provides complementary information, it is insufficient to fully compensate for these limitations. The UN Panel of External Auditors has continually questioned the Commission’s right to check expenditure and the Court of Auditors has also encountered difficulties accessing information.

Recommendation 2

The Commission should continue to explore opportunities to rely on audit work carried out by UN bodies and continue to ensure that the FAFA is applied so that any issues of access to information are rapidly resolved.

Recommendation 3

In order to respond to the aid effectiveness agenda, the Commission should ensure that UN reports provide adequate information on project performance and the achievement of results including the achievement of longer-term impact not measurable within the existing reporting time-frame.

Recommendation 4

EuropeAid should ensure that its field monitoring provides adequate coverage of projects implemented through UN organisations to supplement and confirm the information on results obtained from UN reports.

Recommendation 5

The Commission should consider whether it can build on its experience with one UN agency by contributing in a less fragmented way, for example at country level, to other UN organisations with a view to engaging in a similar high-level dialogue enhancing the focus on their performance in achieving objectives.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 22 October 2009.

For the Court of Auditors

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Vítor Manuel da Silva Caldeira

President

[1] European Parliament decisions on the discharge for implementation of the EU general budget for the financial years 2004, 2005, 2006 and 2007.

[2] Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (OJ L 248, 16.9.2002, p. 1).

[3] UN organisations may manage Commission funds in accordance with their own accounting, audit, internal control and procurement procedures, provided these conform to internationally accepted standards (Article 53d(1) of the Financial Regulation and the preamble to the FAFA).

[4] Article 274 of the EC Treaty states that the Commission shall implement the budget on its own responsibility. Article 27 of the Financial Regulation states that budget appropriations shall be used in accordance with the principles of sound financial management. Article 165 of the Financial Regulation states that the implementation of actions by international organisations is subject to scrutiny by the Commission.

[5] Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 laying down detailed rules for the implementation of Council Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities (OJ L 357, 31.12.2002, p. 1).

[6] The sample of 52 contracts with a total value of 764 million euro represented 7 % of the total number of contracts (741) agreed with the UN in 2006 and 2007 comprising 33 % of their total value (2286 million euro).

[7] COM(2001) 231 of 2.5.2001 "Building an effective partnership with the United Nations in the fields of Development and Humanitarian Affairs". The subsequent Communication COM(2003) 526 of 10.9.2003 "The European Union and the United Nations: The choice of multilateralism" discussed how the EU Council, Member States and Commission could make the EU more effective in shaping UN policy, but did not revise the strategy concerning cooperation in the development and humanitarian fields. These two communications are complemented by strategic partnership agreements with a number of UN organisations.

[8] The six priority areas were: (i) Trade and development; (ii) Regional integration and cooperation; (iii) Macroeconomic policies and social sector support; (iv) Transport; (v) Food security and sustainable rural development; (vi) Institutional capacity building.

[9] United Nations: Improving lives — Results from the partnership of the United Nations and the European Commission in 2007.

[10] EuropeAid Cooperation Office: Annual report 2008 on the EC’s development and external assistance policies and their implementation in 2007.

[11] Article 4.1 of the FAFA states that a fixed percentage of direct eligible costs, not exceeding 7 %, shall be eligible to fund the indirect costs of UN organisations. The indirect costs funded by the Commission are not separately identified by its financial systems. However, based on annual funding of over 1 billion euro and allowing for some projects which do not receive the 7 % contribution to indirect costs, the Court estimates that the total annual contribution to indirect costs of UN organisations is in the order of 50 million euro per year.

[12] The instance of 60 % support costs related to a food assistance project, and the support costs included local transport, storage and handling. The Commission considered that these were extremely high due partly to conditions in Darfur, but also to the need to streamline operations to be more cost-effective.

[13] Article 165 of the Financial Regulation states that the implementation of actions by international organisations is subject to scrutiny by the Commission. Such scrutiny shall be exercised either by prior approval, by ex post checks or by a combined procedure.

[14] The Commission defined benchmarks relative to each procedure as the basis for this assessment.

[15] Over 70 % of the replies to the Court’s questionnaires from ECHO indicated that UN reports were late.

[16] Article 2.6 of the FAFA requires a final report within three months after the end of implementation for humanitarian aid and six months in other cases.

[17] The preamble to the FAFA states "All activities undertaken hereunder are directed towards the attainment of results: humanitarian, developmental or otherwise. The shift to a results orientation should be accompanied by a corresponding shift away from the exclusive examination of inputs and activities." The April 2007 Joint Guidelines on reporting under the FAFA similarly emphasise the importance of focusing on results, in accordance with the UN’s results-based management principles, to allow the Commission to assess whether the objectives of the action have been met.

[18] COM(2001) 231 of 2.5.2001 "Building an effective partnership with the United Nations in the fields of development and humanitarian affairs" states that several obstacles, including inadequate reporting, have hindered the development of programmatic, longer-term cooperation.

[19] Court of Auditors’ Annual Report concerning the financial year 1999.

[20] The 2001 communication COM(2001) 231 of 2.5.2001 "Building an effective partnership with the United Nations" stated that the Commission was not, at that stage, recommending core contributions to the general budget of UN organisations as there would be no added value for the EC simply to pass on the resources entrusted to it by Member States to UN agencies as core contributions.

[21] European Court of Auditors’ Special Report No 6/2008: European Commission rehabilitation aid following the tsunami and Hurricane Mitch (http://eca.europa.eu). The Commission later reinforced independent quality control before the acceptance of finished works.

[22] For example, the ECHO 2008 verification of projects implemented by a UN organisation for the support and protection of internally displaced persons in Uganda included a review of progress against indicators.

[23] The UN Board of Auditors consists of three Auditors-General of UN Member States and carries out the external audit of the financial statements of UN bodies. The role of the Panel of External Auditors, which includes the members of the Board of Auditors, is to coordinate audits and exchange information on methods and findings.

[24] International Standard on Auditing 600 on Using the Work of Another Auditor; International Standard on Auditing 402 on Audit Considerations Relating to an Entity Using a Third Party Service Organisation; Opinion No 2/2004 of the Court of Auditors on the "single audit" model (OJ C 107, 30.4.2004, p. 1).

[25] The Court is required by Article 248 of the EC Treaty to provide the Parliament and the Council with a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions.

[26] Article 43.4(h) of the Implementing Rules on the Financial Regulation states that agreements concluded with international organisations shall contain provisions granting the Court of Auditors access to the information required to perform its duties.

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