EUROSTAT
Directorate C: National Accounts, Prices and Key Indicators
Unit C-3 :Statistics for Administrative Purposes
Eurostat/C3/GNIC/332 - EN
Orig: EN
32nd Meeting of the GNI Committee
21-22 April 2016
Luxembourg, BECH Building
Room Quetelet
Verifying GNI for own resource purposes –
outline of the control approach
Point 11 on the agenda
Verifying GNI for own resource purposes – outline of the control approach
Introduction and the legal framework
The Council Decision 436/2007 on the system of the European Communities’ own resources defines the GNI own resource (GNI OR) as a uniform percentage rate applied to the GNI of each Member State. Over the years GNI OR has become the largest source of revenue of the EU budget and today accounts for more than two thirds of the total EU revenue.
GNI data used for own resource purposes are governed by Council Regulation 1287/2003 of 15 July 2003 on the harmonisation of gross national income at market prices (GNI Regulation), which lays down the definition and calculation of GNI and the provisions for forwarding of the data and related information by Member States to the Commission (Eurostat). The GNI Regulation also establishes the procedures to facilitate the verification, and, where necessary, the improvement of the comparability, reliability and exhaustiveness of Member States’ estimates of GNI OR.
Article 1 of the GNI Regulation states that GNI shall be defined in accordance with the European system of national and regional accounts (ESA 95). However, as in 2014 all Member States introduced the new version of ESA (ESA 2010), a transition mechanism has been put in place whereby for the years 2010 onwards the ESA 2010-based estimates of GNI are converted into ESA 95 figures by means of agreed transition items.
Apart from the abovementioned key legislation the acquis communautaire in the field of GNI OR includes a number of other legal acts dealing with various methodological aspects of GNI compilation. Furthermore, in addition to the legal acts there are recommendations agreed at the GNI Committee (see below), whose application is derived from the Article 5 of GNI Regulation as actions necessary to harmonize the GNI compilation practices[1].
According to the same article of the GNI Regulation, the Commission (Eurostat) shall verify the sources and methods used by Member States to calculate GNI. Carrying out this task entails:
-multiannualverification of the statistical sources and methods used to calculate GNI; and
-annualverification of the data transmitted with the GNI Questionnaires and Quality Reports.
The latter is briefly described in the following section, whereas the rest of this document outlines the approach to the multiannual verification of sources and methods used for compiling GNI OR.
In its verification of the GNI OR Eurostat is assisted by the GNI Committee. Eurostat takes its decisions as regards the processes, methods, procedures, contents and timing of the verification activities independently, while the Directorate-General for Budget (DG Budget) of the Commission is informed about the outcomes of verifications. Although the responsibility for verifying the Member States' GNI data and calculation methods is vested in the Commission, it should be underlined that this requires full cooperation from the respective national authorities who control the production of the GNI data. Thus the peer review and transparency are essential principles governing the GNI verification process. So is the principle of cost effectiveness evoked in the GNI verification context in the GNI Regulation.
Annual verification of the data transmitted with the GNI Questionnaires and Quality Reports
Before 22 September each year the Member States return to Eurostat an annual questionnaire including their GNI data for the preceding year and any changes made to the figures for previous years (the GNI Questionnaire). Thesequestionnaires are accompanied by GNI Quality Reports that give information on revisions of the Member States’ GNI calculations.
The GNI Questionnaires are checked by Eurostat, inter alia,for the formal and numerical correctness of the tables delivered, the consistency of the data over time and their consistency with the published national accounts figures. The Member States can be asked to provide any clarifications on the data and on the Quality Report and to send corrections.
A document that includes the transmitted data and Quality Reports as well as comments on the revisions is presented for examination to the GNI Committee, which is composed of representatives of the Member States and chaired by Eurostat, at its late October meeting (the Committee generally meets two times per year).
The GNI Committee adopts a formal opinion on the appropriateness of the GNI data for own resource purposes with respect to reliability, comparability and exhaustiveness. The annual GNI data and the opinion of the GNI Committee are then transmitted to DG Budget for the purpose of budgetary calculations.
Multiannual verification of the statistical sources and methods used to calculate GNI
GNI Inventories and Process Tables
Article 3 of the GNI Regulation foresees that Member States provide Eurostat with an up-to-date inventory of the procedures and basic statistics used to calculate GNI and its components according to ESA (the GNI Inventory). The GNI Inventories include, as an annex, the Process Tables giving numerical information on the results of all consecutive stages of the GNI compilation process, from the statistical sources, through various adjustments, to the final national accounts data. Numerical evidence in the textual part of the Inventory should be fully consistent with the data in the Process Tables.
Member States are required to draft their GNI Inventories and Process Tables according to an agreed structure approved by the GNI Committee in order to ensure that their contents are fully comparable. This structure is defined in the GNIC documents 280 Rev. 2 "ESA 2010 GNI Inventory Guide" and 280 Rev. 1 "ESA 2010 GNI Process Tables Compilation Guide" that also give detailed guidelines on drawing up the inventories and compiling the Process Tables.
Thus the individual chapters of the ESA 2010 GNI Inventories cover the following issues:
Chapter 1Overview of the system of accounts
Chapter 2The revisions policy and the timetable for revising and finalising the estimates; major revisions since the last version of the GNI Inventory
Chapter 3The production approach to GDP
Chapter 4The income approach to GDP
Chapter 5The expenditure approach to GDP
Chapter 6The balancing or integration procedure, and validating the estimates
Chapter 7Overview of the allowances for exhaustiveness
Chapter 8The transition from GDP to GNI
Chapter 9Main classifications used
Chapter 10Main data sources used
Chapter 1 is intended to be the “executive summary” of the Inventory and should be readable independently. As such it will be published separately and can be used for purposes other than the GNI OR verification.
The GNI Inventories (and the Process Tables) are the basis for Eurostat's assessment of the quality of GNI data in terms of comparability(compliance with ESA 2010), reliability and exhaustiveness. Theyare reference documents used at all stages of the verification process, from the risk assessment, through desk checks, cross-country analyses, GNI information visits, direct verifications till placing action points and reservations. As such they need to be kept up-to-date to reflect the latest methodology in place.
Since the procedures and basic statistics for compiling final GDP and GNI data do not change significantly every year, but only during major revisions at longer intervals, it is not necessary to rewrite the GNI Inventories every year. As a general rule, countries update their GNI Inventories within one year of a major benchmark revision, or, where no benchmark revision policy exists, at least every five years.
Eurostat checks the GNI Inventories and Process Tables using the GNI Inventory Assessment Questionnaire (GIAQ) approved by the GNI Committee and by performing direct verifications of selected compilation areas (see below).
Risk assessment
The first stage of the GNI verification cycle consists ofthe assessment of the risk associated with the compilation of GNI OR in Member States. This is done in a two-step exercisewith the view to:
a)structuring the GNI verification process in terms of the use of the available verification tools (GIAQ, information visits, direct verifications, cross-country comparisons) in the individual Member States;
b)defining the list of high-risk transversal issues to be verified in all Member States;
c)identifying those (country-specific and transversal) areas of GNI compilation in individual Member States that should be considered for direct verification.
The first part of the exercise is performed shortly after the reception of the GNI Inventories and is based on the information collected in the previous GNI verification cycles, information easily retrievable from the new Inventories and Process Tables as well as on the input from the consultations with the units dealing with the sources for national accounts in Eurostat[2].20 relevant criteria are used for the assessment. It results in the following consequences for the subsequent verification work:
1. Decision on the order/prioritisation of the verification of individual countries;
2.Internal decision on the areas of GNI compilation for which no detailed control (neither through GIAQ or direct verification) is required for a particular country;
3.Decision on the minimum number of GNI information visits per country (missions on reservations are not considered at this stage);
4.Decision on the minimum number of direct verifications per country (direct verifications of reservations are not considered at this stage);
5.Identification of high-risk structural/process-related aspects for individual Member States that might be followed up in the information visits; and
6.List of high-risk transversal issues to be verified in all Member States (including ESA transition items).
The second part of the risk assessment is performed upon the completion of the analysis of GNI Inventories with GIAQ for a given Member State. It is based on the information provided in the GNI Inventories and Process Tables (as analysed with GIAQ), information on any new major revisions provided in the Quality Reports, input from the second step of consultations with the units dealing with the sources for national accounts in Eurostat and it also includes an element of a voluntary self-assessment by Member States. 14 criteria are applied in the assessment of the respective risks inherent to individual compilation areas of GNI. The assessment results in:
7.Determining a pool of country-specific areas of GNI compilation that are prone to high risk from which to choose areas to be checked by means of direct verification in the individual Member States;
8.Drawing up a short list of transversal issues in individual Member States that have a significant impact on GNI and which could be considered for direct verification.
The risk assessment is subject to a rolling review. For each Member State the scores for individual criteria, where appropriate, are updated on a continuous basis as new information becomes available (e.g. after the completion of GIAQs, after the missions on the country's Inventory and direct verifications, after new major revisions of GNI). The review may also lead to adding new or modification of the initial set of criteria to take on board new emerging risks.
The document GNIC/333 "Risk assessment model for verification of GNI for own resource purposes" provides further details on the GNI risk assessment model.
Use of expertise of other national accounts units in Eurostat as well as of units dealing with source data for GNI estimates
National accounts take as its basic source a wide range of official statistics and administrative data.In that context, the quality assessment frameworks for these statistics provide valuable input into GNI OR verification work.
In the current GNI verification cyclean enhanced cooperation between GNI desk officers and experts from other Eurostat units takes place. Existing cooperation structures within Eurostat are streamlined to this end. The bespoken cooperation focusses on the consultation of relevant units in Eurostat and is based on existing expertise and quality assessments of the relevant statistical domainsalready in place.
The areas identified as having an important impact on GNI are:
-Balance of Payments;
-Non-financial National Accounts (Main aggregates and Sector accounts);
-Government Finance Statistics;
-International Trade in Goods Statistics (Intrastat and Extrastat);
-International Trade in Services Statistics;
-Foreign Direct Investment Statistics;
-Foreign Affiliates Statistics (Outward FATS and Inward FATS);
-Business Registers;
-Structural Business Statistics;
-Labour Force Survey;
-Household Budget Survey; and
-Economic Accounts for Agriculture.
The GNI team consults the relevant units in a two-step process. Step 1 aims at identification of the countries' levels of risk regarding basic data sources, whereas step 2 aims at identification of particular risks (important shortcomings in sources and/or major cases of non-compliance with the domain-specific standards). For GNI OR purposes this exercise is focusing on annual statistics at current prices. The consultations with the staff dealing with the respective statistical domains are undertaken having in mind the criteria of reliability, comparability and exhaustiveness of the GNI estimates. Thus, relevant units have been adequately informed on the role of the GNI team in the verification of sources and methods used in the compilation of GNI and on the main uses of basic statistics in the compilation of GNI.
The first step helps the GNI team to assess the countries' levels of risk in terms of the overall quality of their statistics in the respective domains listed above. The aggregated results from this first general assessment feed into the GNI OR risk assessment model as one of the criteria used to structure the GNI verification process[3].
In the second step the relevant units are consulted in order to obtain more detailed information on the individual quality problems/cases of non-compliance in each Member State. Key members of staff in the respective units are interviewed for the identification of such non-compliance cases. Since compliance and quality monitoring are well established in Eurostat, the GNI teampredominantly relies in the course of this consultation on the efficient re-use of already existing information (e.g. respective quality reports or assessments, non-compliance information, statistical working papers or recommendations). This second step feeds into the second stage of the risk assessment analysis for the GNI verification process[4].
The GNIteam follows up such issues in the GNI information visitsto verify if appropriate actions are taken in national accounts to remedy them (e.g. if relevant adjustments are made). It may be that in some cases, as a consequence of their consideration in the second part of the risk assessment, these aspects are eventually followed up through direct verification. If no appropriate measures are implemented by national accountants in the Member States in order to rectify the identified deficiencies in the sources within the designated time limit, GNI reservations may be placed. This will be communicated to the respective units in Eurostat.
The reservations are placed on the use of the sources in GNI calculation or the (lack of) rectification measures, not on the sources themselves. The latter remains the responsibility of the consulted units in Eurostat.
Desk checks
After completion of the first part of the risk assessment the desk officers in Eurostat responsible for each country[5], supported by the co-readers, proceed with the desk checks of the GNI Inventories. Desk checks are the essential element of the GNI OR verification process.
The basic tool applied in checks of the GNI Inventories is the GNI Inventory Assessment Questionnaire (see document GNIC/312 "ESA 2010 GNI Inventory Assessment Questionnaire – GIAQ"). GIAQ is intended to ensure a systematic, consistent and fair analysis of the GNI Inventories in assessing the quality of GDP and GNI estimates in terms of their reliability, comparability and exhaustiveness. Thus it is mainly focused on verifying the compliance of the described methods with the requirements of ESA 2010, related legislation and methodological guidelines, e.g. recommendations of the GNI Committee. On top of that some GIAQ questions verify the completeness of the Inventories (against the requirements of the GNI Inventory Guide), their internal consistency, as well as consistency with the Process Tables. Last but not least the GIAQ also contains questions that facilitate the assessment of some structural issues relevant for compilation of national accounts, like e.g. the adequacy of resources and functioning of supervisory and control systems in the national accounts departments of the national statistical institutes (NSIs). The filled in GIAQ is updated on a continuous basis as the verification process progresses.