Financial Accountability in the European Union

Institutions, Policy and Practice

Paul Stephenson, María-Luisa Sánchez-Barrueco, Hartmut Aden, Paul Stephenson, María-Luisa Sánchez-Barrueco, Hartmut Aden

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000223576
• Edition: 1
• Topic: Politics & International Relations
• Subtopic: Politics
• Index: Politics & International Relations

This book offers comprehensive coverage of various aspects of financial accountability around the EU budget – how it is spent via policies, how institutions engage in checking policy performance (what taxpayers' money actually delivers), and therein, the issues of monitoring, controlling, auditing, scrutinising and communicating budgetary expenditure.

Presenting conceptual and theoretical approaches including financial accountability, learning, multi-level governance, implementation and throughput legitimacy, it looks at EU institutions (European Parliament, European Court of Auditors, European Ombudsman, European Public Prosecutor's Office) and national bodies (supreme audit institutions at the national level), examining their contact with the EU budget. It details the historical development of accountability mechanisms (the 'statement of assurance', financial corrections, and parliamentary oversight by the Budgetary Control Committee (CONT)), and examines policy areas such as those of agriculture, social policy and cohesion (including Structural Funds and the Common Agricultural Policy), exploring the challenges of financial accountability in practice. Given the recent introduction of non-budgetary financial instruments and tools only partly financed by the EU budget, it sheds light on new burgeoning areas such as the European Stability Mechanism (ESM) and the European Fund for Strategic Investment (EFSI) and the challenges they bring for ensuring the accountability of public money.

This book will be of key interest to scholars and students of audit and evaluation, budgetary spending and financial control and, more broadly, public administration, public policy and EU institutions and politics.

Part I

Institutional perspectives

Mandates and powers

1 Financial accountability in the broader framework of accountability studies

Hartmut Aden

Introduction

In recent decades accountability has become a frequently used concept. Scholars and practitioners use the term, sometimes with normative connotations (‘accountability as a virtue’), and sometimes in a more analytical sense (‘accountability as a mechanism’, see Bovens et al. 2014: 7–9). Accountability is used as a concept for public administrations regularly monitored by parliaments, courts, audit institutions, data protection authorities, the media and citizens, but also for non-state actors such as companies in their relationship with shareholders, non-governmental organisations (NGOs) or a broader public.

As the term was originally used in a narrower sense for the accounting of income and expenses by state institutions and private companies, financial accountability is in some way a nucleus of the accountability debate. However, accountability has become a conceptual framework that goes far beyond ‘correct’ financial accounting. This chapter situates financial accountability in the broader framework of accountability studies, using a comparative approach. The chapter is based on a selection of empirical examples and concentrates on accountability mechanisms at the EU level and in the European multilevel system.

Financial accountability and data protection have both developed dynamically in the past decade. For financial accountability, the European Public Prosecutor’s Office (EPPO) was recently established (Aden et al. 2019), while for data protection, the European Data Protection Board (EDPB) is a new body created in the framework of the General Data Protection Regulation (GDPR) 2016/679. The chapter situates financial accountability and data protection as cross-cutting policy areas in relation to accountability in substantive policy areas such as internal security and environmental policy. Based on the author’s research regarding the role of, and approach to, accountability in these areas, this chapter asks if specific patterns can be identified which characterise financial accountability. It begins with the hypothesis that accountability mechanisms are not developed to the same extent for all branches of public administration. Methodologically, the chapter is based on an analysis of the primary sources related to accountability in different areas of public administration, on scholarly literature and on the author’s own qualitative empirical research.

Theoretical framework: accountability, responsibility, oversight and democratic control

Accountability is mostly perceived as a relational concept involving actors carrying responsibility for a specific private or public task and those actors to whom they are held accountable (Bovens et al. 2014). In political and scholarly research the term accountability often serves as a kind of umbrella for concepts such as transparency, efficiency, responsiveness, responsibility and integrity (cf. Bovens 2007: 449f.). All these terms are related to the question of whether the actors to be held accountable fulfil their tasks correctly and adequately. However, financial accountability often specifically refers to the correct and effective use of public funds.

In democratic political systems, a number of concepts may be used in order to analyse the institutional framework designated to making sure that public administrations do not act autonomously, but are instead integrated into a system of democratic checks and balances: the terms oversight and democratic control underline the hierarchical element that characterises some of the institutional settings assuring checks and balances – this is the case for a traditional administrative hierarchy in which oversight by superiors and democratic oversight by governmental institutions and parliaments play crucial roles (Jarvis 2014). Responsibility, by contrast, is a normative concept related to links between results and outcomes on the one hand and the behaviour of actors involved on the other. Thus, accountability, as the term is commonly used today by most scholars and practitioners, is the sum of concepts such as oversight, democratic control, responsibility, integrity and transparency.

Is accountability just a fashionable term? What is its additional value? Accountability can be understood as a characteristic of governance (Lister and Rowe 2016: 2), and the terms governance and accountability are both broadly used and difficult to translate into other languages such as French and German. In the international debate, this means that the scholarly literature of other countries and languages tends to use the English terms. Both concepts also share the lack of a single definition recognised across scholarly disciplines. For both terms, a variety of definitions and perspectives exist (see Bovens et al. 2014: 3ff.). Yet, using these kinds of fluid concepts can facilitate debates among scholars from different backgrounds. In political discourse, such kinds of ‘golden concepts that no one can be against’ (Bovens 2007: 448) may facilitate consensus building. However, for such fluid concepts, additional efforts are required in order to ensure analytical precision and understanding.

From an analytical perspective, the terms accountability settings and accountability mechanisms, both used as synonyms in this chapter, are broad umbrella terms covering all kinds of accountability – internal and external, public and non-public. The term accountability forums is used more specifically for persons or agencies designated to hold actors accountable (see Bovens 2007: 450).

Three types of effects can be analytically distinguished for accountability and all three are relevant for financial accountability: first, democratic control; second, the prevention of corruption and abuse of power; and third, a learning perspective related to improving government effectiveness (Bovens 2007: 463f.).

Some authors use principal-agent theories to analyse accountability forums (see Gailmard 2014: Möldner 2019: 18–20: Damen-Koedijk in this volume). Depending upon the perspective, accountability forums may be conceived as principals in their role as actors exerting formal supervisory powers. Or they may also be conceived as agents assisting parliaments, governments or voters in their roles as principals to assure effective governance. Therefore, principal agent theories and their perspectives on information asymmetries are flexible instruments for interpreting institutional arrangements on accountability and their effects (Gailmard 2014: 101).

Accountability settings can be analysed as a multi-stage process and compared with respect to the formal power in the relationship between ‘watchdogs’ and the actors to be held accountable. Usually actors to be held accountable have to: first, inform the accountability forum about their activity, and second, answer questions and deliver justifications for their behaviour. They are also usually subject to judgement. Some ‘watchdogs’ also have the power to sanction (cf. Bovens 2007: 452f.: Bovens et al. 2014: 9: Möldner 2019: 36–38). Obviously, not all accountability forums are based on all four of these elements. For example, the media and the broader public have only limited powers to require information about the activities of actors to be held accountable. By contrast, public prosecutors and criminal courts have much more far-reaching options and can use a full range of accountability instruments in cases falling under their jurisdiction. However, shortcomings detected by accountability forums are mostly situated below the threshold defined for criminal offences. Therefore, criminal or administrative sanctions only concern a relatively small number of cases.

Characteristics of the policy area and their impact upon accountability settings

The specific characteristics of the policy area influence the accountability settings. For cross-cutting policy areas such as budget policy or data protection, accountability forums have a broader remit and need to be able to adapt their expertise to numerous different situations and cases that they have to monitor.

Financial accountability in the public sector, looking at public revenue and expenditure, is closely connected to budgetary policy. The ministries of finance and the parliamentary committees for the budget and for budgetary control are key players both for budget policy (setting the budget in advance, and in the case of the EU, the Multi-annual Financial Framework (MFF)) and for financial accountability (often looking back to assess past budgetary spending). Budget policy is also interconnected with all other policy areas, and therefore financial accountability is relevant in all individual policy areas for which money is spent or collected. Financial accountability concerns a broad range of issues. Shortcomings and errors often arise where financial managers and beneficiaries are responsible for overseeing and spending funds. Generally, it can be difficult to attribute responsibility for inconsistencies in financial management or misspending to those in public administration. However, it is those at the sub-national level, in particular, who must ensure they respect EU regulations pertaining to public procurement. Compliance is especially important in policies that entail large-scale public investment for new public infrastructure such as harbours, airports, roads or railway lines.

At member state level, tax policy is highly interconnected with financial accountability as well. The reliability of public revenue is crucial for the state’s ability to invest in public infrastructure and for its function as provider of public services such as education, environmental protection, support for poorer citizens, etc. As the EU does not have the right to raise its own taxes thus far, financial accountability in the EU instead looks at the specific way in which the EU budget is financed, based on own resources – mainly the steadily diminishing customs revenues – and on contributions made by the member states according to a specific system to be (re-)discussed every seven years for the MFF (i.e. 2014–2020, 2021–2027). The notion of financial accountability is not limited to the correct expenditure of the budget but also includes the performance of spending programmes, as is increasingly the focus of audits carried out by the European Court of Auditors (ECA).

Similar to budget policy, data protection is a cross-cutting policy area related to many other policies. In the era of digitalisation, personal data is being used for multiple purposes, and technological developments bring with them new risks for privacy. Therefore the accountability of those actors that process the personal data of others has become a highly relevant issue (see Raab 2012 on the context). Analysing large quantities of data is of increasing relevance in most policy areas. For example, health policy relies on the analysis of personal health data in order to gain insights into the causes of health problems. ‘Predictive policing’ strategies attempt to analyse data related to crimes in order to understand which kind of crimes might occur in specific areas in the future – in order to develop strategies to prevent these crimes being committed. Therefore, data protection ‘watchdogs’ must look at data processing in many different policy areas. Professionals and NGO representatives involved in accountability forums for cross-cutting policy areas such as financial accountability and data protection need considerable and varied trans-disciplinary expertise in order to be able to monitor activities across a wide range of issue areas.

Accountability settings are usually specific to the particular policy area. Police accountability, for example, is characterised by unique challenges when it comes to establishing effective accountability mechanisms, relating to confidentiality and specific patterns of criminal investigation, policing and internal security in general (see Lister and Rowe 2016: 7–9: Aden 2016; 2018; 2019).

Internal and external layers of accountability

Another analytical dimension is related to the layers of accountability. Accountability forums can be internal or external to the body to be held accountable. For public policy in the EU multilevel system, internal and external layers of accountability forums tend to co-exist. In democratic rule of law systems, parliaments with their committees play a role as external accountability forums for all policy areas, and the degrees of specific internal and external accountability can vary considerably, even across the EU member states.

Internal layers of accountability forums and their shortcomings

Internal layers of accountability are the standard for most public bodies in rule of law countries and in the EU. For public administrations in democratic political systems, administrative hierarchy is a typical internal accountability mechanism: public officers are accountable to their superiors who are accountable to governments, parliaments and, finally, to voters (Jarvis 2014).

For financial accountability and beyond, internal audit services or specific internal affairs units investigate cases of bad performance or misconduct. Public bodies usually have internal mechanisms meant to prevent the abuse of funds and corruption – these can be specialised units for internal revision or specific mechanisms such as the obligation to double-check the correctness of bills before payments are made. For the EU, Article 36 of Financial Regulation 2018/1046 provides rules for the internal control of budget implementation.

For data protection, the GDPR has established a general obligation for public authorities – and under certain conditions for private entities – to designate internal data protection officers (DPOs, Article 37). The entity to be held accountable is not allowed to give any instructions to the DPO rega...