EU BUDGET: GUIDELINES FOR FINANCIAL REGULATION REFORM.

Dating back to December 21, 1997, the current Financial Regulation is the prime instrument for creating rules for establishing, implementing (in terms of income and expenditure) the EU Budget, plus the definition of the role and responsibility of the protagonists involved in the implementation of the EU Budget and the vetting thereof.The reform will involve two main parts. One is intertwined with the administrative reform process. As the Financial Regulation features financial management, inspection and auditing rules, the key strands of the reform (such as dropping the ex ante approval system) many not be implemented without changing the Financial Regulation. The other part (budget creation, implementation, reporting and auditing) will provide an opportunity for planning a new legal setting, thereby helping to create a more efficient, responsible and transparent system of budgetary and financial restraint, according to Michaele Schreyer.Implications of the administrative reform.The continuing reform of financial management, inspection and auditing, as provided for by the European Commission's in-house administrative reform, calls for a revision of the Financial Regulation's current "tripod" status, where a financial auditor is required for the implementation of each transaction. The auditor presently has to give prior permission to any financial transaction (i.e. ex ante approval), even if only a small part is audited (currently about 10% of the total volume of transactions). Audits are performed via a monetary unit sampling system based on a potential risk assessment. They have to be routinely carried out (100%) in all high-risk sectors. The auditor also performs in-house audits. The financial auditor will become surplus to requirements if the auditing activity is integrated into the authorising officers' services and an internal auditing service is created.As for the financial reporting requirements (the Financial Regulation principle where each protagonist is accountable and has to report back on the tasks carried out) will not be affected. The payment obligation is a consequence of the accountability and reporting requirements. This covers disciplinary action and the undertaking to pay compensation for any loss or deterioration of budget funds. This principle has to be retained. However, the natural consequence of any misconduct has to be better defined and an appropriate triggering mechanism created to protect the rights of the...