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I Information

Court of Auditors — Annual report concerning the financial year 2003

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COURT OF AUDITORS

In accordance with the provisions of the Treaties (Article 248(4) of the EC Treaty and Article 160c(4) of the EAEC treaty) and Articles 143 and 181(2) of the Financial Regulation of 25 June 2002 applicable to the general budget of the European Communities, and Articles 116 and 135(2) of the Financial Regulation of 27 March 2003 applicable to the European Development Funds, the Court of Auditors of the European Communities, at its meeting of 6 and 7 October 2004, adopted its

ANNUAL REPORT

concerning the financial year 2003

(2004/C 293/01)

The report, together with the institutions' replies to the Court's observations, was transmitted to the authorities responsible for giving discharge and to the other institutions.

Juan Manuel FABRA VALLÉS

(President)

Giorgio CLEMENTE

Hubert WEBER

Aunus SALMI

François COLLING

Maarten B. ENGWIRDA

Jean-François BERNICOT

Robert REYNDERS

Máire GEOGHEGAN-QUINN

Vítor Manuel da SILVA CALDEIRA

Lars TOBISSON

Hedda von WEDEL

David BOSTOCK

Morten Louis LEVYSOHN

Ioannis SARMAS

Július MOLNÁR

Vojko Anton ANTONČIČ

Gejza HALÁSZ

Jacek UCZKIEWICZ

Josef BONNICI

Irena PETRUŠKEVIČIENĖ

Igors LUDBORŽS

Jan KINŠT

Kersti KALJULAID

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TABLE OF CONTENTS

General introduction

REPORT ON ACTIVITIES FINANCED FROM THE BUDGET

REPORT ON THE ACTIVITIES OF THE SIXTH, SEVENTH, EIGHTH AND NINTH EUROPEAN DEVELOPMENT FUNDS (EDFs)

ANNEXES

GENERAL INTRODUCTION

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(1)  In accordance with Article 129(4) of the Financial Regulation (OJ L 248, 16.9.2002) the Statement of Assurance is also published with the consolidated annual accounts of the European Community in a separate edition of the Official Journal of the European Union.

(2)  The financial perspective is determined by agreement between the European Parliament, the Council and the Commission and sets limits on expenditure for each of seven categories (headings) of expenditure for commitment appropriations, and on total expenditure for payment appropriations. This report does not present a separate chapter on the Reserves heading as its resources are only used through transfer to the other headings.

(3)  Article 248(1) of the EC Treaty as amended by the Treaty of Nice.

(4)  Opinion No 2/2004 of the Court of Auditors of the European Communities on the ‘single audit’ model (and a proposal for a Community internal control framework) (OJ C 107, 30.4.2004).

REPORT ON THE ACTIVITIES FINANCED FROM THE GENERAL BUDGET

CHAPTER 1

The Statement of Assurance and supporting information

TABLE OF CONTENTS

The Court of Auditors' Statement of Assurance

Reliability of the accounts

Legality and regularity of the underlying transactions

Information in support of the Statement of Assurance

Introduction

Reliability of the accounts

Observations concerning the consolidated statements on the implementation of the budget

Observations concerning the consolidated financial statements: balance sheet

Treasury management

Action plan for the modernisation of the accounting system

Legality and regularity of the underlying transactions

Own resources

The Common Agricultural Policy (CAP)

Structural operations

Internal Policies

External Actions

Pre-accession aid

Administrative expenditure

Development of the Commission's internal control system

The Commission's management representations

Progress in the area of administrative reform

THE COURT OF AUDITORS' STATEMENT OF ASSURANCE

Reliability of the accounts

Legality and regularity of the underlying transactions

6 and 7 October 2004

Juan Manuel FABRA VALLÉS

President

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(1)  Namely: ‘Revenue and expenditure account: execution of the budget’ and ‘Consolidated balance sheet’, which make up Volume I of the annual accounts of the European Communities, financial year 2003.

(2)  Firstly, the Court's audits focus on macroeconomic statistics for which the underlying data cannot be audited directly, and secondly, they cannot possibly cover the imports that have not been subject to customs supervision.

(3)  See Annex 1, Volume 1 of the final accounts of the European Communities, financial year 2003.

(4)  Articles 129(3) and 181(2) of 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).

(5)  Including 46,5 million euro in interest.

(6)  Annual Report of the Court of Auditors concerning the financial year 2002, paragraphs 1.10 and 1.11.

(7)  Article 76(3) of the Financial Regulation of 25 June 2002.

(8)  Annual Report concerning the financial year 1999, paragraph 8.16, and Annual Report concerning the financial year 2000, paragraph 9.13.

(9)  Annual Report concerning the financial year 2002, paragraph 1.23.

(10)  Mainly paragraphs 8.55 and 8.56 of the Annual Report concerning the financial year 1999 and paragraphs 9.41 to 9.43 of the Annual Report concerning the financial year 2000 and the continuous follow-up in the Sector Letters of the following years.

(11)  See the replies to the paragraphs mentioned above.

(12)  Communication from the Commission - Modernisation of the Accounting System of the European Communities (COM(2002) 755 final of 17 December 2002).

(13)  See also Resolution of the European Parliament concerning discharge for the 2001 financial year, paragraph 23 (OJ L 148, 16.6.2003).

(14)  Action 16 (accounting framework) of the Action Plan (COM(2002) 426 final of 24 July 2002).

(15)  Action 17 (core financial information systems) of the Action Plan (COM(2002) 426 final of 24 July 2002).

(16)  See Article 185(1) of the Financial Regulation of 25 June 2002.

(17)International Public Sector Accounting Standards (IPSAS) issued by the International Federation of Accountants (IFAC) or, in their absence, International Accounting Standards (IAS)/International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB).

(18)  See Articles 123 to 125 of the Financial Regulation of 25 June 2002.

(19)  See Article 129 of the Financial Regulation of 25 June 2002.

(20)  Ex-budget borrowing and lending transactions managed by the Directorate-General for Economic and Financial Affairs will not be incorporated until July 2005. The accounting information system of the EDFs will be adapted to the requirements of accruals-based accounting in 2006.

(21)  Annual Report concerning the financial year 2002, paragraph 1.8.

(22)  Article 61(2) of the Financial Regulation of 25 June 2002.

(23)  Devolution means that the Commission's central departments transfer to delegations in the beneficiary countries tasks and responsibilities relating to the management of cooperation activities financed by the European Union.

(24)  No reservations were expressed with regard to Sapard in the Director-General's declaration.

(25)  Overview on the state of internal control in the Commission DGs and Services in 2003 (SEC(2004) 720).

(26)  Following the European Parliament's request of January 2000 for the Commission to streamline its management, on 5 April 2000 the Commission submitted a White Paper entitled ‘Reform of the Commission’ (COM(2000) 200 of 5 April 2000).

(27)  Annual Report concerning the financial year 2002, paragraphs 1.62 and 1.63.

(28)  Communication from the Commission to the European Parliament and the Council — Synthesis of Annual Activity Reports 2003 of DGs and Services (COM(2004) 418 final of 9 June 2004).

(29)  See the Annual Report concerning the financial year 2002, paragraph 1.108 and that concerning the financial year 2001, paragraph 9.98.

(30)  Circular on the 2003 activity reports, SEC(2003) 1469 of 19 December 2003.

(31)  Commission Communication ‘The 2002 review of the implementation of activity-based management in the Commission, including clarification of the methodology for the establishment of Annual Activity Reports’ (COM(2003) 28 of 12 March 2003) and Commission Communication ‘Clarification of the role of the Directors-General in shared management’ (C(2003) 1830-2 of 17 June 2003).

(32)  Article 60(7) of the Financial Regulation.

(33)  The performance indicators concern human resources, the implementation of the budget and auditing.

(34)  The standard table requires a minimum of information about the cause, the materiality criterion employed, quantification (where the weakness is quantifiable), the impact as regards reasonable assurance and the corrective measures envisaged.

(35)  Addendum to the circular on the 2003 activity reports (SEC(2004) 147 of 19 February 2004).

(36)  Commission Communication ‘Synthesis of Annual Activity Reports 2002 of DGs and Services’ (COM(2003) 391-4 of 9 July 2003).

(37)  Circular on the follow-up to the action plans resulting from the 2002 annual activity reports and from the synthesis (SEC(2003) 1078 of 10 October 2003) drawn up to implement Action No 24 ‘Follow-up by services’ (ref. 5.4.6.) of the 2002 summary.

(38)  COM(2003) 28 of 12 March 2003.

(39)  The fact is that weaknesses may constitute a risk for management without necessarily leading to actual errors in terms of the legality and regularity of the underlying transactions. In order to assess the significance of a systemic weakness, account must be taken not only of its nature (i.e. the seriousness of the shortcoming) but also of its extent (i.e. the potential financial impact).

(40)  Opinion No 2/2004 of the Court of Auditors on the ‘single audit’ model (and a proposal for a Community internal control framework) (OJ C 107, 30.4.2004, p. 1).

(41)  Paragraph 1.92 of the Annual Report concerning the financial year 2002.

(42)  The Joint Research Centre also issued a reservation about the reliability of the accounts.

(43)  The situation is stable compared with the previous year.

(44)  E.g. Directorates-General Agriculture, Budget, Enlargement, Employment and Social Affairs, Environment, Fisheries, Information Society, Press and Communication, Regional Policy, External Relations, Research, Energy and Transport, Eurostat and the Joint Research Centre.

(45)Impact of the reservations on the Director-General's assurance in the Court's view:

A: reasonable assurance that the internal control systems ensure the legality and regularity of the underlying transactions

B: reasonable qualified assurance that the internal control systems ensure the legality and regularity of the underlying transactions

C: reasonable assurance insufficient or insufficiently supported

(46)Extent of reservations:

A: clear and unambiguous

B: with insignificant inaccuracies

C: with significant or insufficiently justified inaccuracies (for example: negligence of the problems of shared management, cover of the previous financial year, lack of quantification, unusable information)

(47)Account taken of all this information in the Court's audit conclusions:

A: useful source

B: useful source after corrections

C: non-useful source (e.g. material inaccuracies, missing or unusable information) 

Source: Court of Auditors.

(48)  Action No 63 ‘Description of the responsibilities of each financial actor’ of the White Paper and the ‘Guidelines for the declaration and reservations of the Authorising Officer by Delegation in the context of the annual activity report’ (SEC(2002) 401 of 9 April 2002).

(49)  E.g. when the reservations have a significant impact on the Directorate-General's budget.

(50)  E.g. the Directorates-General for Agriculture, Education and Culture, Enlargement, Employment and Social Affairs, Fisheries, Press and Communication, Regional Policy and Eurostat.

(51)  In particular, internal control standards. The internal control system concerns not only the departments in Brussels but also the Commission's local offices (delegations, representations and executive agencies).

(52)  In particular, shared, central, direct and indirect management, ex-ante and ex-post checks and the implementation of the Financial Regulation.

(53)  Court Opinion No 2/2004.

(54)  COM(2000) 200 of 5 April 2000.

(55)  Communication from the Commission ‘Completing the reform mandate: progress report and measures to be implemented in 2004’ (COM(2004) 93 of 10 February 2004).

(56)  Paragraphs 1.65 to 1.67 of the Annual Report concerning the financial year 2002.

(57)  Actions Nos 74 ‘Contracts database’, 83 ‘Adequate levels of staffing’, 87 ‘Examination of the progress made by Commission departments during the process of change’, 93 ‘The better coordination of interaction between OLAF and other services’, 94 ‘The imperviousness of legislation and contract management to fraud’, 95 ‘Optimisation of early warning system’, 96 ‘More effective management of recovery of unduly paid funds’ and 97 ‘Improved financial monitoring and control of Structural Funds’.

(58)  Actions Nos 66 ‘Financial Irregularities Panel’, 71 ‘An Audit Progress Committee’, 78 ‘Minimum standards for internal control’, 81 ‘Strengthening the role of the Directorates-General control function’ internal audit structures/audit capabilities, 82 ‘Declaration by the Director-General in his annual activity report’, 85 ‘Design of adequate internal controls and financial processes’, 90 ‘Assessment of Human Resources needs for financial management and control’ and 91 ‘Training’ (management and finance).

(59)  COM(2004) 418 final of 9 June 2004.

(60)  Paragraph 1.109 of the Annual Report concerning the financial year 2002.

(61)  COM(2003) 391-4 of 9 July 2003.

(62)  Communication from the Commission to the European Parliament and the Council entitled ‘Synthesis of the Annual Activity Reports and declarations of the Directors-General and Heads of Service’ (COM(2002) 426 of 24 July 2002).

(63)  Actions Nos 1 ‘Internal Control Standards’ (ref. 5.4.5), 3 ‘Communication’ (ref. 3.3.2), 6 ‘Accounting framework’ (ref. 5.3.7), 7 ‘Shared management’ (ref. 5.3.3), 8 ‘Co-financing’ (ref. 5.3.4), 9 ‘Recovery’ (ref. 5.3.2), 12 ‘Co-ordination of the Commission's audit community’ (ref. 3.3.2), 13 ‘Audit methodology’ (ref. 3.3.3), 14 ‘Follow up of audit reports’ (ref. 5.3.8), 15 ‘Follow up OLAF’ (ref. 5.3.9), 17 ‘Audit in shared management’ (ref. 5.3.3), 19 ‘Audit Progress Committee: organisation’ (ref. 3.3.3), 21 ‘Management risk assessment’ (ref. 3.3.2), 23 ‘AAR Methodology’ (ref. 4.4) and 24 ‘Follow up by services’ (ref. 5.4.6).

(64)  Actions Nos 6, 7, 8, 9, 12, 15, 17, 19, 21 and 23.

(65)  Actions Nos 6, 7, 8, 9, 12, 17 and 21: ‘ongoing’; actions Nos 15, 19 and 23: ‘completed, partially completed or follow-up action to be launched’.

(66)  Paragraph 1.76 of the Annual Report concerning the financial year 2002.

(67)  Actions Nos 1 ‘Research programmes’, 4 ‘Structural Funds’ (shared management), 5 ‘Human resources’ (reform), 7 ‘Management Information Systems’, 12 ‘Shared management’, 14 ‘Human resources’ (recruitment), 16 ‘Accounting framework’ and 17 ‘Core financial Information systems’.

(68)  Actions Nos 9 ‘Internal control procedures, in particular financial procedures’ and 15 ‘Training’ (financial management).

(69)  Actions Nos 2 ‘External actions’ and 18 ‘Action plans’.

(70)  Standards Nos 11 ‘Risk analysis and management’, 12 ‘Adequate management information’, 14 ‘Reporting improprieties’, 17 ‘Supervision’, 18 ‘Recording exceptions’, 20 ‘Recording and correction of internal control weaknesses’, 21 ‘Audit reports’ and 22 ‘Internal audit capability’.

(71)  The Directorates-General for Economic and Financial Affairs, Agriculture, Education and Culture, Employment and Social Affairs, Fisheries, Regional Policy, Research, the Information Society, Enlargement, Budget, Personnel and Administration, Justice and Home Affairs, the Humanitarian Aid Office, the EuropeAid Cooperation Office, Eurostat and the Internal Audit Department.

(72)  Communication to the Commission ‘Self-assessment of the readiness of Services to be compliant with the internal control baselines by 31 December 2003’ (SEC(2003) 1287 of 26 November 2003).

(73)  Information note by Mrs Schreyer ‘concerning the readiness of Commission departments to comply with the minimum requirements of the internal control standards by 31 December 2003’ (SEC(2004) 250 of 27 February 2004).

(74)  SEC(2003) 1287 of 26 November 2003.

(75)  SEC(2003) 1469 of 19 December 2003.

(76)  Paragraphs 1.68 to 1.74 of the Annual Report concerning the financial year 2002.

(77)  E.g. the Directorates-General for Competition, Environment, Internal Market, Press and Communication, Interpretation, Trade, Energy and Transport, the Legal Service and the Group of Policy Advisers did not provide the performance indicators proposed by the guidelines.

(78)  Paragraph 1.110 of the Annual Report concerning the financial year 2002.

CHAPTER 2

Budgetary management

TABLE OF CONTENTS

Introduction

General observations

Increase in budget

92 % spending rate for payments

Reduced and better managed surplus

More realistic carryover of appropriations from year to year

Outstanding commitments continue to increase

Specific observations

Community revenue

Agriculture

Structural operations

Increase in outstanding commitments

Internal policies

External actions

Pre-accession aid

Administration

Conclusions and recommendations

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(1)  See Annex I for further background information on the budget.

(2)  http://europa.eu.int/comm/budget/infos/publications_en.htm.

(3)  Adopted by the European Parliament on 19 December 2002 (OJ L 54, 28.2.2003).

(4)Source: General budget of the European Union for the financial year 2003 — The figures, paragraph 3.

(5)  Subsequent amending budgets brought the commitment appropriations to 2,5 billion euro and payment appropriations to 10,4 billion euro below the ceilings.

(6)  Budget finally adopted by the European Parliament on 19 December 2002 (OJ L 54, 28.2.2003).

(7)  Budget appropriations amended after taking into account amending budgets and transfers, and including appropriations carried over from 2002, appropriations resulting from the contributions by third parties and other revenue corresponding to a defined purpose, and appropriations made available again.

Source: 2003 annual accounts.

(8)  The surplus is not a reserve which can be used in future years. Unused payment appropriations are in most cases cancelled and ‘lost’.

(9)  Includes the cancellation of 2 074 million unesed credits brought forward (309 million euro in 2002).

(10)  Amending budgets 6/2003 and 7/2003.

(11)  Amount carried over includes 1 044 million euro in respect of third party earmarked revenues for which the usual cancellation rules for carry-overs do not apply (684 million euro in 2002).

(12)  Adjustment for earmarked revenue received but not budgeted for. No adjustment necessary in 2002 due to different budgeting procedures.

(13)  Sundry elements mainly related to re-used credits carried forward and EFTA contributions.

Source: 2003 annual accounts.

(14)  Paragraph 2.10 of the Court's 2002 Annual Report.

(15)  Gross underspending on payment appropriations for the year and appropriations brought forward.

Source: Annual accounts 1999 to 2003.

(16)  Paragraph 2.11.

(17)  Paragraph 2.26.

(18)  Subject to certain conditions such as a final date for implementation set in compliance with the principles of sound financial management (Article 77 of the Financial Regulation) or specific measures such as the year n+2 rule in respect of the Structural Funds (see paragraph 2.35).

(19)  Expenditure on structural operations, internal policies, external actions and pre-adhesion aid.

(20)  Notwithstanding the annual commitments to be made in the other budgetary areas over the period.

(21)  Up to the end of 2008 for payments in Member States, until 2010 for final payments by the Commission (COM(2002) 528 Final of 20.9.2002).

(22)  Structural Funds 2000 to 2006; Sixth framework programme for research and technological expenditure — 2002 to 2006.

(23)  Defined as commitments for which no payments have been made for the last two years, and commitments that have been in the budget for at least five financial years.

(24)  The VAT resource is derived from the VAT base which is defined as the total value of goods and services liable to VAT according to the 6th Directive. This base is capped so that it will not exceed 50 % of GNI in each country. If GNI falls then so does the VAT resource.

(25)  Including amounts carried over from 2002.

(26)  Unlike in 2002, when there was a significant underspending on rural development: paragraph 2.19, Court's 2002 Annual Report.

(27)  As reported in paragraph 2.26 of the Court’s 2002 Annual Report delays were experienced by the Commission in closing programmes due to most claims being received close to the deadline (31 March 2003) and the often incomplete nature of those claims, leading to the significant risk that payments could only be made in 2004. The Commission’s forecasts did not take the possibility of these delays sufficiently into account.

(28)  Paragraph 2.24.

(29)  Article 32(3) of the general provisions of the Structural Funds requires that Member States ensure, as far as possible, that applications for interim payments are presented to the Commission in batches three times a year, with the last application being no later than 31 October.

(30)  At 2003 prices.

(31)  8,4 billion euro was retained as a performance reserve, and 1,1 billion euro for technical assistance and innovative measures were not pre-allocated.

(32)  See off-balance-sheet commitments in the annual accounts: item 5 of contingent liabilities.

(33)  See paragraphs 2.32 and 2.33 of the Court's 2002 Annual Report.

(34)  Instrument supporting sustainable agricultural and rural development in the central and eastern Europe Member States and candidate countries.

(35)  Instrument supporting economic and social cohesion in the applicant countries, particularly in the fields of the environment and transport.

(36)  The same for both commitments and payments as the administrative expenditure is non-differentialed.

(37)  A similar frontloading exercise occurred in respect of the 2002 financial year involving the 2001 budget.

CHAPTER 3

Own resources

TABLE OF CONTENTS

Introduction

Specific assessment in the context of the Statement of Assurance

Traditional own resources

Introduction

Evaluation of supervisory systems and controls

Commission supervisory systems and controls

Supervisory systems and controls in Member States

Results of controls carried out on customs declarations and national accounting systems

Amounts established but not yet made available to the Commission (B accounts)

Work of other auditors

VAT/GNI own resource

Introduction

Evaluation of supervisory systems and controls

Commission supervisory systems and controls

Delays in payment and submission of data relating to VAT and GNI own resources

Results of controls carried out on the corrections and compensations in the VAT statements produced by Member States

Observations

Annual activity reports and declarations of the Directors-General

Conclusion and recommendations

Own resources preparedness of the acceding countries

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(1)  These figures are presented net of the collection expenses of 2002 (3 725,6 million euro) that were brought to account in 2002 under Chapter 1 9. Under Article 42 of the new financial regulation the budget may not contain negative revenue. For 2003, therefore, both budget and actual figures for Chapters 1 0, 1 1 and 1 2 are net of collection costs, and Chapter 1 9 no longer exists.

(2)  Chapter 2 0 appeared only in 2002, to permit the adjustment of collection expenses for traditional own resources from 10 % to 25 % that came into force during 2002 but with retroactive effect to 1 January 2001 (see the Court's 2002 annual report, paragraph 2.16).

Source: 2003 revenue and expenditure account.

(3)  Contains surplus from previous financial year and miscellaneous revenue.

(4)  Decision 2000/597/EC, Euratom of 29 September 2000 on the system of the Council European Communities' own resources (OJ L 253, 7.10.2000, p. 42); Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000 implementing Decision 94/728/EC, Euratom on the system of the Communities' own resources (OJ L 130, 31.5.2000).

(5)  Article 6 of Council Regulation (EC, Euratom) No 1150/2000.

(6)  Belgium, Denmark, Germany, Greece, Spain, France, Italy, the Netherlands, Austria, Portugal, Finland and the United Kingdom.

(7)  Belgium, Denmark, Germany, Greece, Spain, France, Italy, the Netherlands, Austria, Portugal, Finland and the United Kingdom.

(8)  Article 18 of Council Regulation (EC, Euratom) No 1150/2000.

(9)  The Advisory Committee on Own Resources (ACOR), established by Article 20 of Council Regulation (EC, Euratom) No 1150/2000, consists of representatives of the Member States and of the Commission, and provides the channel for liaison between the Commission and the Member States on own resources matters. It examines questions concerning the implementation of the own resources system, as well as the estimates of own resources.

(10)  The latest is document COM(2003) 345 final, Fourth report from the Commission on the operation of the inspection arrangements for traditional own resources (2000-2002).

(11)  Articles 4(13), 4(14) and 37 of Council Regulation (EEC) No 2913/92 of 12 October 1992 establishing the Community Customs Code (OJ L 302, 19.10.1992, p. 1).

(12)  At the time of the Court's audit there were about 950 quota measures in force.

(13)  Article 30(4) of Commission Regulation (EC) No 1291/2000 of 9 June 2000 laying down common detailed rules for the application of import and export licences and advance fixing certificates for agricultthe system ofural products (OJ L 152, 24.6.2000, p. 1).

(14)  Regulation (EC) No 954/2002 and (EC) No 780/2003.

(15)  Green Paper on the future of rules of origin in preferential trade arrangements (COM(2003) 787 final of 18.12.2003).

(16)  Belgium, Germany, Spain, France, Italy, the Netherlands, the United Kingdom.

(17)  Article 85 of Commission Regulation (EEC) No 2454/93 of 2 July 1993 laying down provisions for the implementation of Council Regulation (EEC) No 2913/92 establishing the Community Customs Code (OJ L 253, 11.10.1993, p. 1), as last amended by Commission Regulation (EC) No 2286/2003 of 18 December 2003 (OJ L 343, 31.12.2003, p. 1).

(18)  Article 94 of Commission Regulation (EEC) No 2454/93.

(19)  See Communication of the Commission to the Council, the European Parliament and the European Economc and Social Commitee concerning a simple and paperless environment for Customs and Trade (COM(2003) 452 final, 24.7.2003).

(20)  Invoice declarations are a simplified form of preference document, accepted as proof of origin for imports from certain countries (usually subject to limits on value), in place of certificates issued by official bodies. They consist of a statement using prescribed text, made by the exporter on the invoice or other commercial document. They are subject to subsequent verification in the same way as other proofs of origin.

(21)  Belgium, Germany, Greece, Spain, France, Italy, the Netherlands, Portugal, Finland and the United Kingdom.

(22)  Figures given are before deduction of collection costs (25 %).

(23)  Opinion No 7/2003 on a proposal for a Council Regulation amending Regulation (EC, Euratom) No 1150/2000 implementing Decision 2000/597/EC, Euratom on the system of the Communities’ own resources.

(24)  Proposal for a Council Regulation? proposed by the Commission on 7 July 2003, amending Regulation (EC, Euratom) No 1150/2000 of 22 May 2000 implementing Decision 2000/597/EC, Euratom on the system of the Communities’ own resources (COM(2003) 366 final — 2003/0131 (CNS)).

(25)  See the Court's 2002 Annual Report, paragraph 3.12.

(26)  The inspection visits are based on Council Regulation (EEC, Euratom) No 1553/89 of 29 May 1989 on the definitive uniform arrangements for the collection of own resources accruing from value added tax (OJ L 155, 7.6.1989, p. 9) and Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000 implementing Decision 94/728/EC, Euratom on the system of the Communities’ own resources (OJ L 130, 31.5.2000, p. 1).

(27)  The VAT statement is a document drawn up by the Member States which must contain the data used to determine the VAT base. The VAT base constitutes the basis for the calculation of the VAT own resource and is required for the Commission's control (Articles 7 and 11 of Council Regulation (ECC, Euratom) No 1553/89).

(28)  Taking into account the subdivision introduced by the Commission in 2003 the actual number of reservations is 85.

(29)  See Annual Report for the financial year 2002, paragraphs 3.40-3.41 and 3.51-3.52.

(30)  Article 19 of Council Regulation (EC, Euratom) No 1150/2000 provides for annual inspections of aggregates for errors in compilation and examination of calculations and basic statistics if necessary. Article 5(1) of Council Regulation (EC, Euratom) No 1287/2003 provides for verification of sources and methods used by Member States to calculate GNI.

(31)  See Article 2 of Council Regulation No 1553/89 and Article 2 of Council Directive 77/388/EEC (Sixth Directive).

(32)  The total absolute value of the corrections and compensations for the financial year concerned has been calculated as the sum of the positive and negative corrections to the VAT receipts, regardless of their signs, divided by each Member State's weighted average rate, plus the sum of the positive and negative compensations to the intermediate VAT base.

(33)  The procedural framework for calculating and presenting corrections and compensations is largely laid down in Council Regulation (EEC, Euratom) No 1553/89 on the definitive uniform arrangements for the collection of own resources from value added tax and in an internal guide on the determination of own resources from VAT, drawn up by the Commission for the benefit of EU officials and the administrations of Member States.

(34)  See Article 9(2) of Council Regulation (EEC) No 1553/1989.

(35)  See paragraph 3.57 of the Annual report for the financial year 2002.

ANNEX 1

Own resources - Development of key observations

ANNEX 2

Supervisory systems and controls

Area: Own resources

System: Traditional own resources and VAT/GNI resources

A Works well, few or minor improvements required.

B Works but improvements necessary : more direct verification of GNI data required.

Notes: - The supervisory systems predate the Commission's reform.

- The assessments are based on detailed review of the monitoring units and of their reports.

CHAPTER 4

The common agricultural policy

CONTENTS

Introduction

Specific assessment in the context of the Statement of Assurance

Scope of the audit

Work of the certifying bodies

IACS

Post-payment checks under Regulation (EEC) No 4045/89

The Court's sample of transactions

Annual Activity Report of the Director-General for Agriculture

The Court's assessment of areas of CAP spending

Area aid schemes

Animal premium schemes

Subsidies paid on the basis of quantity produced

Rural development

Other expenditure

Conclusion

Recommendations

Clearance of accounts

Introduction

Financial clearance decision for 2003

Audit opinions of certifying bodies

Analysis of the work of certifying bodies

The Commission's decision

Conformity decisions taken in 2003

Adequacy of corrections

24 months rule

Time taken to make corrections

Clearance of accounts decisions in recent years

The Court's conclusions

Financial clearance decision

Conformity decisions

Follow-up to previous observations

Export refunds — destination and placing on the market

Support scheme for olive oil

Principal observations in Special Reports

Evaluation of farm incomes by the Commission

Management and supervision by the Commission of control measures and expenditure relating to foot-and-mouth disease

Recovery of irregular payments under the common agricultural policy

The introduction of a system of identification and registration of bovine animals (SIRB) in the European Union

Sound financial management audit of the common organisation of the market in raw tobacco

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(1)  Others: production, processing or consumption aid paid to producers or organisations of producers or processors and other measures.

(2)  Intervention: public and private storage, fruits and vegetables withdrawal arrangements, compulsory and voluntary distillation.

(3)  Belgium, Denmark, Germany, Greece, Spain, France, Ireland, Italy, Netherlands, Portugal, United Kingdom.

(4)  Wholly unreliable: not performed or not covering a number of risks or eligibility conditions; wholly satisfactory: covering all key risks and eligibility conditions.

(5)  According to Regulation (EEC) No 4045/89 ‘the programmes established by the Member States and forwarded to the Commission, shall be implemented by the Member States, if, within eight weeks, the Commission has not made known its comments’.

(6)  The Director-General's declaration is drawn up in accordance with the Commission's charter of tasks and responsibilities of authorising officers by delegation, issued in 2004. This states that, for expenditure under shared management, the annual activity report should be related, not to the accounts of the year for which the activity report is produced, but to accounts for earlier years. Article 60 of the Financial Regulation however provides that ‘the authorising officer shall be responsible for ensuring that the requirements of legality and regularity are complied with (...) and shall report to his/her institution on the performance of his/her duties in the form of an annual activity report (...)’.

(7)  Forage area comprises pasture and land devoted to production of fodder crops which are not subsidised on an area aid basis. Forage areas are used in the calculation of stocking density for animal premiums.

(8)  The overall figures here may be influenced by the greater use of remote sensing in risk-based inspection (58 % of the area checked) compared to random inspections (50 % of the area checked) given that remote sensing appears, in general, to be less reliable. However, this factor cannot explain the lower error rate found for risk-based checks in Greece, Spain or Luxembourg.

(9)  Amended figures following receipt of IACS inspection results for Greece.

NB 1: Remote sensing involves the use of satellite or aerial photography to check IACS application.

NB 2: Tests performed in year N are relevant to payments made in year N+1.

Source: DG AGRI - IACS 2000, 2001 & 2002 Statistics.

(10)  For example, this year the Court's testing identified one claim by a farmer in Spain who had sought payment on a piece of land that was too densely planted with trees to be eligible for subsidy for arable crops. In 2002 the audit identified two payments where the error exceeded 20 % of the area claimed (in Greece and France). And in 2001 the Court also identified two declarations which were largely or wholly unfounded, involving protein crops in Italy, and maize production in Greece.

(11)  Ireland, Italy, Austria and Finland all report no errors for extensification premiums. Overall results for this measure appear unreliable.

(12)  This information is not available as Luxembourg failed to provide the Commission with their results.

NB 1: A claim is fully rejected when a difference greater than 20 % is found between the number of animals declared and that determined to be eligible, or when the difference is the result of irregularities committed intentionally.

NB 2: Tests performed in year N are relevant to payments made in year N + 1.

Source: DG AGRI - IACS 2002 Statistics, summarising inspection results provided by the Member States

(13)  This information is not available as Luxembourg failed to provide the Commission with their results.

(14)  The geographical information system links parcel identification, registers and aerial photographs to allow administrative checks on the number and location of olive trees.

(15)  Portugal do not carry out summary checks.

Source: Annual Reports for 2001 to 2002 of the Greek, Spanish, Italian and Portuguese olive oil agencies.

(16)  In 2001/ to 2002 the Greek olive oil agency recommended withdrawing approval for 149 olive mills and in 2000 to 2001 for 211 mills. In 2000 to 2001 the Sanction Commission of the Ministry of Agriculture considered 144 recommendations and implemented the recommendations in four cases. In 2001 to 2002 it considered 241 recommendations, withdrawing approval from five mills.

(17)  Council Regulation (EEC) No 386/90.

(18)  In cases of shared or decentralised management, in order to ensure that the funds are used in accordance with the applicable rules, the Commission shall apply clearance of accounts procedures or financial correction mechanisms which enable it to assume financial responsibility for the implementation of the budget in accordance with Article 274 of the EC Treaty and Article 179 of the Euratom Treaty; Article 53.5 of the Financial Regulation, Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 (OJ L 248, 16.9.2002, p. 1).

(19)  Article 3 of Commission Regulation (EC) No 1663/95 (OJ L 158, 8.7.1995, p. 6).

(20)  The French certifying body also made reservations for material level of errors amounting to 13,8 million euro on the accounts of Ofival, Cnasea, Odeadom and SDE.

(21)  Due to the 2003 droughts, five Member States (Germany, France, Italy, Luxembourg, Portugal) were authorised to make advance payments of 2004 aid to livestock farmers under specified schemes during the period 1 September to 15 October 2003. In total 501,4 million euro was made available for this purpose of which 225 million euro for France (Commission Regulation (EC) No 1621/2003 (OJ L 231, 17.9.2003, p. 7)).

(22)  Accounts disjoined from the financial decision taken on 29 April 2004.

(23)  The Court examined the reports and certificates of these 25 paying agencies in respect of which a sample of transactions was selected for testing.

NB: The exchange rates for Member States outside euro zone: Denmark: 7,428, Sweden: 9,1458, United Kingdom: 0,6842.

Source: Summary report of the Commission on the financial clearance of the EAGGF Guarantee Section accounts for 2003.

(24)  For example, delegation of the authorisation function and/or the technical service; adequacy of the internal audit service.

(25)  Materiality is defined for these purposes as 1 % of the value of the population from which the sample is taken.

(26)  AGRI/24487/2000.

(27)  Sweden, NAWAD (United Kingdom), Berlin, Hamburg, Niedersachsen and Bayern StMiLF.

(28)  The results of this exercise have not been made available to the Court. The Commission has asked certifying bodies to pay particular attention to the risk of duplicate payments as part of their 2004 work.

(29)  Commission Decision 2004/451/EC (OJ L 155, 30.4.2004, p. 129).

(30)  The Court raised this issue in its Special Report No 22/2000 on evaluation of the reformed clearance of accounts procedure.

(31)  Baden-Württemberg, Bayern Umwelt, Opekepe, SDE, Ofival, ONIC, Oniflhor, FIRS, Onivins and NAWAD.

(32)  Commission Decisions 2003/102/EC (OJ L 42, 15.2.2003, p. 47), 2003/364/EC (OJ L 124, 20.5.2003, p. 45) and 2003/536/EC (OJ L 184, 23.7.2003, p. 42).

(33)  The flat-rate corrections are applied as follows: 2 % when key controls are satisfactory but secondary controls are partly or totally ineffective; 5 % when key controls are executed but the number, frequency or rigour required by regulations is not respected, and the risk of loss to the Fund is significant; 10 % when one or more key controls do not operate making it impossible to determine the eligibility or regularity of a claim, with, as a result, a high risk of loss to the Fund.

(34)  Article 28(2) and (3) of Commission Regulation (EC) No 2366/98 (OJ L 293, 31.10.1998, p. 50) states that alternative checks are required as long as the GIS is not complete and operational.

(35)  Article 8 of Commission Regulation (EC) No 1663/95 (OJ L 158, 8.7.1995, p. 6).

(36)  Proposal for a Council Regulation amending Council Regulation (EC) No 1258/1999 on the financing of the common agricultural policy (COM(2002) 293 final).

(37)  1999 was the first year in which the Commission took conformity decisions under the revised procedure for clearance of accounts introduced in 1996.

(38)OJ C 314, 8.11.2001.

(39)  Article 17 of Commission Regulation (EC) No 800/1999.

(40)  Council Regulation (EEC) No 4045/89.

(41)  2 410th session of the Council of the European Union of 18 February 2002 and the Decision of the European Parliament of 10 April 2002 concerning discharge in respect of the implementation of the general budget of the EU for the financial year 2000 (Commission) (OJ L 158, 17.6.2002).

(42)  Commission Regulation (EC) No 2584/2000 as last amended by Regulation (EC) No 44/2003.

(43)  Refunds are still however calculated by weight, which is logical for animals for slaughter, and not by head, which is appropriate for breeding animals.

(44)  Commission Regulation (EC) No 118/2003: preamble (4): ‘... As to live animals for reproduction, in order to prevent any abuse export refunds for pure-bred breeding animals should be limited to heifers and cows of no more than 30 months of age.’

(45)  Special Report No 11/2000 on the support scheme for olive oil (OJ C 215, 27.7.2000).

(46)  Council Regulation (EC) No 865/2004 (OJ L 161, 30.4.2004, p. 97).

(47)  Following the provisions of Article 2 of Council Regulation (EC) No 1638/98 the Olive Cultivation GIS shall be created using the data from the olive cultivation register, and information shall be geographically situated using computerised aerial photographs.

(48)  European Parliament resolution on the European Court of Auditors Special Report No 11/2000 on the support scheme for olive oil, accompanied by the Commission's replies (CD5-0009/2001 — 2001/2001/COS).

(49)  Report to the Commission on ‘Evaluation des impacts des principales mesures de l'OCM dans le secteur de l'huile d'olive’. ADE SA, Brussels, December 2002.

(50)  Commission Proposal of 22 December 2000 for a Council Regulation amending Regulation No 136/66/EEC and Regulation (EC) No 1638/98 as regards the extension of the period of validity of the aid scheme and the quality strategy for olive oil (OJ C 213 E, 31.7.2001, p. 1).

(51)  Report on the activities financed from the budget.

(52)  Special Report No 8/2004 (in process of being published).

(53)  Following the outbreaks of FMD in Italy and Greece, to which the Court refers below, the Commission together with the Member States analysed in the Standing Veterinary Committee the epidemiological situation and the effects of the control measures applied; based on the output of working groups involving all Member States, a report was prepared in 1998 outlining the principles of a future FMD control policy. The Scientific Committee also prepared a report on emergency vaccination in 1999. Each year the Commission coordinates the position of Member States in the General Session of the OIE, including positions on the FMD chapter of the Animal Health Code. Member States, together with the Commission as observer, discuss biannually the FMD situation in the world and Europe within the framework of the European Commission for the Control of FMD at the FAO. Taking into account the experience of past crises Council Directive 2001/89/EC summarised the lessons to be learned from the classical swine fever epidemic in parts of the EC in 1996/97 and provided ample opportunity to discuss key strategies for the control and eradication of major infectious livestock diseases. More recently, and in the light of the 2001 outbreak, the Community strategy defined in 1990 was unanimously reconfirmed by the International Conference in December 2001, by the Resolution of the EP in December 2002, in the Commission proposal for a new Directive submitted to the Council in December 2002, and finally by the Council adopting Directive 2003/85/EC following an opinion of the European Parliament, the European Economic and Social Committee, and the Committee of the Regions.

(54)  European Parliament resolution adopted on 17 December 2002, paragraph 54.

(55)  Report on measures to control foot and mouth disease in the European Union in 2001 and future measures to prevent and control animal diseases in the European Union – European Parliament report of 28 November 2002 (FINAL A5-0405/2002).

(56)  Council Regulation (EEC) No 595/91 (OJ L 67, 14.3.1991, p. 11).

(57)  Council Regulation (EC) No 1469/95 (OJ L 145, 29.6.1995, p. 1).

(58)  Commission Regulation (EC) No 296/96 (OJ L 39, 17.2.1996, p. 5).

(59)  See in particular Article 3(1) of Council Regulation (EEC) No 595/91 of 4 March 1991 (OJ L 67, 7.3.1997), Commission Regulation (EC) No 1681/94 and (EC) No 1831/94 (OJ L 191, 27.7.1994) for expenditure, and Article 6(5) of Council Regulation (EC, Euratom) No 1150/2000 for traditional own resources.

(60)  Except for Council Regulation (EC, Euratom) No 1150/2000 implementing Decision 94/728/EC, Euratom on the system of the Communities' own resources (OJ L 130, 31.5.2000), where this information is optional only.

(61)  See Article 8 of Regulation (EC) No 2988/95 (OJ L 312, 23.12.1995) and Article 8 of Regulations (EC) No 1258/1999 (OJ L 160, 26.6.1999).

(62)  As confirmed by the Court in the Zwartfeld and Yugoslav maize cases). Case C-2/88 [1990] ECR I-3365, 13.7.90; Case C-68/88 Commission v Greece [1989] ECR 2965.

(63)  COM(2000) 358 final of 28.6.2000 and Action Plan 2001 to 2003 (COM(2001) 254 final of 15.5.2001).

(64)  Including the accounting and recovery aspects.

(65)  Special Report No 6/2004 (in process of being published).

(66)  Special Report No 7/2004 (in the process of being published).

(67)  Report to the European Parliament and the Council on the operation of the common organisation of the market in raw tobacco. SEC(2002) 1183, 6.11.2002.

(68)  Evaluation of the common organisation of the market in raw tobacco. COGEA, 2003. Rome. 220 pp.

(69)  Tobacco sector, extended impact assessment. COM(2003) 554 final, SEC(2003) 1023.

(70)  Council Regulation (EC) No 864/2004 (OJ L 161, 30.4.2004, p. 48).

ANNEX 1

Evolution of key observations - Agriculture

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(1)  Regulation (EEC) No 386/90

ANNEX 2

IACS monitoring elements — Follow up 2002 paying agencies

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(1)  The EAGGF payment year runs from 16 October to 15 October. For area aid, it covers subsdies paid for claims (applications) made in the preceding campaign year, which would also have been inspected in that campaign year. For example, the payment year 2002, ending 15 October 2002, would cover aid applications made and inspected in the preceding campaign year 2001. For animal premiums, subsidies are inspected and paid in the year of application.

(2)  Many of the paying agencies reviewed for the payment year ending 15 October 2002, which covers payments made with reference to claims and inspections made in the 2001 campaign, were unable to take corrective action in time for the 2002 campaign, thus affecting payment year ending 15 October 2003, In many cases, corrective action could only be taken in time for the 2003 campaign, which affects payments in the EAGGF payment year ending 15 October 2004.

(3)  France — OFIVAL is the paying agency for animal premiums, the schemes are administered and inspected by local services of the Minister of Agriculture.

(4)  France — ONIC is the paying agency for area aid, and performs the inspections. The scheme is administered by local services of the Minister of Agriculture, which also select the inspections.

Source:Court of Auditors review of paying agency IACS systems.

ANNEX 3

IACS monitoring elements 2003

CHAPTER 5

Structural measures

TABLE OF CONTENTS

Introduction

Specific assessment in the context of the Statement of Assurance

Objective and scope of the audit

The internal control environment at the Commission

Risk analyses carried out by the Commission: Member States' management and control systems do not yet provide sufficient assurance of the legality and regularity of expenditure

Implementation of the internal control standards: generally satisfactory progress by the structural measures Directorates-General

Follow-up to the Action Plan

Management of the 1994-1999 programme period

Improvements made to the financial control framework, although late in the programme period

Management and control systems in the Member States: failures to respect regulatory requirements

The Court's substantive testing of transactions: final expenditure declarations contain significant levels of error

Closure of 1994-1999 programmes: delays in the Member States...

... and problems for the Commission's examination of files...

... have slowed the closure of the 1994 to 1999 programme period

Limited extent of Commission's closure audits

Management of the 2000 to 2006 programme period

Further financial control requirements introduced into the regulatory framework

The Commission's supervision of the Member States' systems: limited assurance on the legality and regularity of expenditure

The operation of the management and control systems in the Member States: failure to respect regulatory requirements still to be found in the current programme period

The Court's substantive testing of transactions: systems weaknesses corroborated as errors persist in the current programme period

Annual activity reports and declarations of the Directors-General

Overall positive assurance on the legality and regularity of expenditure limited by serious reservations on the operation of the Member States' management and control systems

Follow-up of observations from previous Statements of Assurance

Conclusions and recommendations

Follow-up to observations in Special Report No 7/2000 on the International Fund for Ireland and the Special Support Programme for Peace and Reconciliation in Northern Ireland and the border counties of Ireland (1995-1999)

Scope of the Special Report and the main recommendations

The International Fund for Ireland

Assessment of financial needs

Appropriate evaluation criteria for project applications consistently applied and adhered to

Routine monitoring of the Community contribution in IFI projects and evaluation of the projects' merits

Special Support Programme for Peace and Reconciliation in Northern Ireland and the border counties of Ireland (1995 to 1999)

Further assistance to the implementing bodies ensuring consistent selection criteria for local community projects and social groups as well as guidance and resources ensuring assistance to the same projects and groups

Assessment of financial needs based on projected activity

Review of non-governmental bodies' work

Documented project appraisals according to specific, written criteria

Introduction of appropriate control mechanisms

Assessment of synergy and coordination between IFI and Structural Funds

Principal observations in special report No 4/2004 on programming of Interreg III

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(1)  In 2003: Greece, Spain, Ireland and Portugal.

(2)  210 579 million euro for the Structural Funds and 19 598 million euro for the Cohesion Fund (at 2003 prices).

(3)  The Commission may also carry out direct innovatory and technical assistance actions, up to a budgetary limit of 0,65 %.

(4)  For ease of reference, the single term ‘programme’ is used throughout the text to refer generally to Structural Funds assistance. A programme may receive assistance from more than one Fund.

(5)  These are the figures before the approval of programmes and projects for the new Member States from 2004.

(6)  Article 274 of the Treaty establishing the European Community.

(7)  Standard 11 ‘Risk analysis and management’, Standard 12 ‘Management information’, Standard 14 ‘Reporting improprieties’, Standard 17 ‘Supervision’, Standard 18 ‘Exception reporting’, Standard 20 ‘Recording and correction of internal control weaknesses’, Standard 21 ‘Audit reports’ and Standard 22 ‘Internal audit capability’.

(8)  Standards 17 ‘Supervision’ and 22 ‘Internal audit capability’.

(9)  Commission Regulation (EC) No 2064/97 of 15 October 1997 establishing detailed arrangements for the implementation of Council Regulation (EEC) No 4253/88 as regards the financial control by Member States of operations co-financed by the Structural Funds (OJ L 290, 23.10.1997, p. 1). The Cohesion Fund systems are governed by Council Regulation (EEC) No 1164/94 of 16 May 1994 establishing a Cohesion Fund (OJ L 130, 25.5.1994, p. 1).

(10)  Court of Auditors, Special Report No 10/2001 concerning the financial control of the Structural Funds, Commission Regulations (EC) No 2064/97 and (EC) No 1681/94 and Court of Auditors (OJ C 314, 8.11.2001), Annual Report concerning the financial year 2002, paragraphs 5.16 to 5.21.

(11)  3 ERDF, 2 ESF, 1 EAGGF-Guidance and 1 Cohesion Fund.

(12)  Ireland EAGGF-Guidance Objective 1 94IR16006.

(13)  France (Pays de la Loire) ERDF Objective 2 970313015; Germany (Thüringen) ERDF Objective 1 940209005.

(14)  Italy (Emilia-Romagna) ESF Objective 3 940009I3.

(15)  Court of Auditors — Annual Report concerning the financial year 1999, paragraph 3.66.

(16)  Portugal (Azores) ERDF Objective 1 941209013; France (Pays de la Loire) ERDF Objective 2 970313015.

(17)  Germany (Thüringen) ERDF Objective 1 940209005.

(18)  Ireland EAGGF-Guidance Objective 1 94IR16006.

(19)  Court of Auditors, Special Report No 10/2001 concerning the financial control of the Structural Funds, paragraph 33.

(20)  Ireland EAGGF-Guidance Objective 1 94IR16006; Germany (Thüringen) ERDF Objective 1 940209005; Portugal (Azores) ERDF Objective 1 941209013.

(21)  Italy (Emilia-Romagna) ESF Objective 3 940009I3.

(22)  Portugal (Madeira) ESF Objective 1 947000P1.

(23)  France (Pays de la Loire) ERDF Objective 2 970313015; Ireland EAGGF-Guidance Objective 1 94IR16006.

(24)  Germany (Thüringen) ERDF Objective 1 940209005; Portugal (Azores) ERDF Objective 1 941209013; France (Pays de la Loire) ERDF Objective 2 970313015.

(25)  Portugal (Madeira) ESF Objective 1 947000P1.

(26)  Ireland EAGGF-Guidance Objective 1 94IR16006.

(27)  Portugal (Madeira) ESF Objective 1 947000P1; France (Pays de la Loire) ERDF Objective 2 970313015; Germany (Thüringen) ERDF Objective 1 940209005.

(28)  Ineligible expenditure and projects:

The declaration of projects which do not fit into the programme criteria: Germany (Thüringen) ERDF Objective 1 940209005.

Declaration of expenditure incurred outside the eligible area or outside the eligible period: France (Pays de la Loire) ERDF Objective 2 970313015; Portugal (Madeira) ESF Objective 1 947000P1.

Declaring expenditure twice: Portugal (Azores) ERDF Objective 1 941209013; Ireland EAGGF-Guidance Objective 1 94IR16006; Germany (Thüringen) ERDF Objective 1 940209005.

Failure to respect job creation criteria: Germany (Thüringen) ERDF Objective 1 940209005.

Declaration of ineligible expenditure relating to the day-to-day management tasks of the claimant public administration: Ireland EAGGF-Guidance Objective 1 94IR16006.

Other ineligible expenditure: Ireland EAGGF-Guidance Objective 1 94IR16006.

(29)  Expenditure without supporting documents:

Expenditure without adequate supporting documents: Ireland EAGGF-Guidance Objective 1 94IR16006; France (Pays de la Loire) ERDF Objective 2 970313015; Portugal (Madeira) ESF Objective 1 947000P1.

Declaration of estimated rather than actual expenditure: France (Pays de la Loire) ERDF Objective 2 970313015; Portugal (Madeira) ESF Objective 1 947000P1.

Failure to maintain a separate accounting system or adequate accounting codes to enable identification of the Community funding: France (Pays de la Loire) ERDF Objective 2 970313015.

The allocation of a proportion of overhead costs to projects without any underlying calculation supporting the amount attributed: Portugal (Madeira) ESF Objective 1 947000P1.

(30)  Incorrect calculation of the Community contribution:

Failure to take account of potential generation of revenue or other income when calculating the rate of Community contribution to projects: Portugal (Azores) ERDF Objective 1 941209013.

Exceeding the maximum public subsidy limit: Germany (Thüringen) ERDF Objective 1 940209005.

(31)  Other failures: Failure to provide information and publicity measures for the participation of the Structural Funds: France (Pays de la Loire) ERDF Objective 2 970313015; Germany (Thüringen) ERDF Objective 1 940209005; Portugal (Azores) ERDF Objective 1 941209013; Portugal (Madeira) ESF Objective 1 947000P1.

(32)  Germany (Thüringen) ERDF Objective 1 940209005; France (Pays de la Loire) ERDF Objective 2 970313015; Portugal (Azores) ERDF Objective 1 941209013.

(33)  Portugal (Madeira) ESF Objective 1 947000P1.

(34)  Ireland EAGGF-Guidance Objective 1 94IR06006.

(35)  Council Regulation (EEC) No 2082/93 of 20 July 1993, Art. 21(4), amending Regulation (EEC) No 4253/88 laying down provisions for implementing Regulation (EEC) No 2052/88 as regards coordination of the activities of the different Structural Funds between themselves and with the operations of the European Investment Bank and the other existing financial instruments (OJ L 193, 31.7.1993, p. 20).

(36)  Article 8 of Commission Regulation (EC) No 2064/97 of 15 October 1997 establishing detailed arrangements for the implementation of Council Regulation (EEC) No 4253/88 as regards the financial control by Member States of operations co-financed by the Structural Funds (OJ L 290, 23.10.1997, p. 1).

(37)  As required by Regulation (EC) No 1681/94.

(38)  33 ERDF (of which 2 closed), 27 ESF (of which 5 closed), 13 EAGGF-Guidance (of which 5 closed), 4 FIFG (of which none closed).

(39)  Brandenburg 940209002, Sachsen-Anhalt 940209003, Sachsen 940209004, Berlin West Objective 2 1997-1999 970213004, Sachsen Objective 1 DG V 940209015, Attikh 940809001, Western Greece 940809003, Tourismos-Politismos 940809016, Roads-Ports-Airport 940809019, Asturias 941109002, Canaries 941109003, Incentivos Regionales 941109015, Medio Ambiente Local 941109024, Pais Vasco Objective 2 1997-1999 971109007, Corsica 940313024, Guadeloupe 940313025, Guyane 940313026, Tourism MoP (Irl) 940409003, Industrial Development (Irl) 940409007, Economic Infrastructure (Irl) 940409005, Sardinia 940509001, Puglia 940509002, Infrastrutture di Trasporto Stradali 940509016, Calabria 940509011, Hainaut 941013001.

(40)  Incentivos Regionales 941109015, Aragon Objective 2 1997-1999 971109001, Pais Vasco Objective 2 1997-1999 971109007, Guadeloupe 940313025, Tourism MoP (Irl) 940409003, Industrial Development (Irl) 940409007, Economic Infrastructure (Irl) 940409005, Infrastrutture di Trasporto Stradali 940509016.

(41)  Sachsen 940209004, Sachsen Objective 1 DG V 940209015, Western Greece 940809003, Roads-Ports-Airport 940809019, Aragon Objective 2 1997-1999 971109001, Pais Vasco Objective 2 1997-1999 971109007, Guadeloupe 940313025, Sardinia 940509001, Puglia 940509002, Infrastrutture di Trasporto Stradali 940509016.

(42)  Brandenburg 940209002, Sachsen 940209004, Sachsen Objective 1 DG V, Aragon Objective 2 1997-1999 971109001, Pais Vasco Objective 2 1997-1999 971109007; Zuid Oost Brabant Objective 2 1997-1999.

(43)  Zuid Oost Brabant Objective 2 1997-1999; Ricerca Objective 1 1994-1999.

(44)  Ricerca Objective 1 1994-1999.

(45)  Brandenburg 940209002, Sachsen-Anhalt 940209003, Sachsen 940209004, Sachsen Objective 1 DG V, Corsica 940313024, Reunion 940313028, Hainaut 941013001.

(46)  Germany 941001D1, Germany 943001D3.

(47)  Italy 940019I1, 940013I2, 940012I3, 940022I1, 940017I1.

(48)  Spain 940112ES1, 970234ES2.

(49)  Spain 94ES06016, Italy 94IT06045, Portugal 94PT16004, Spain Interreg Z1 97EU16002, United Kingdom 94UK060160 5a, Ireland 94IR06009, France (Brittany) 94FR06016 5b, France (Guadeloupe) Objective 1 94FR16002SPD, Sicily 94IT16033, Spain 94ES06032, Germany 94DE06007, Italy 94IT06056, Austria 95AT06016.

(50)  Spain 94ES06016.

(51)  Spain 94ES06032, Italy 94IT16033.

(52)  Ireland 94IR06009, United Kingdom 94UK06016.

(53)  Spain (Andalusia) 94ES06016, Italy 94IT06045, France (Guadeloupe) Objective 1 94FR16002SPD, Portugal 94PT16004, United Kingdom 94UK060160 5a.

(54)  United Kingdom 94UK06016, Spain 94ES06016.

(55)  Spain Objective 1 94ES14101.

(56)  Italy 94IT14101.

(57)  United Kingdom Objective 1 94UK16003.

(58)  Note that where more than one Fund contributes to the same programme, each Fund part of the programme is closed separately. Thus the figures do not reconcile to the total number of programmes given in paragraph 5.3.

(59)  Structural measures objectives have since been regrouped for the 2000 to 2006 programme period.

Source:Table prepared by the Court of Auditors on the basis of data provided by the Commission.

(60)  Structural measures objectives have since been regrouped for the 2000 to 2006 programme period.

(61)  Figures available are as at 15 April 2004.

Source:Table prepared by the Court of Auditors on the basis of data provided by the Commission.

(62)  Structural measures objectives have since been regrouped for the 2000 to 2006 programme period.

Source:Table prepared by the Court of Auditors on the basis of data provided by the Commission.

(63)  Structural measures objectives have since been regrouped for the 2000 to 2006 programme period.

Source:Table prepared by the Court of Auditors on the basis of data provided by the Commission.

(64)  Commission Regulation (EC) No 438/2001 of 2 March 2001 laying down detailed rules for the implementation of Council Regulation (EC) No 1260/1999 as regards the management and control systems for assistance granted under the Structural Funds (OJ L 63, 3.3.2001, p. 21).

(65)  Commission Regulation (EC) No 448/2001 of 2 March 2001 laying down detailed rules for the implementation of Council Regulation (EC) No 1260/1999 as regards the procedure for making financial corrections to assistance granted under the Structural Funds (OJ L 64, 6.3.2001, p. 13).

(66)  Council Regulation (EC) No 1260/1999 of 21 June 1999 laying down general provisions on the Structural Funds (OJ L 161, 26.6.1999, p. 1).

(67)  The assessment was not completed for the Community Initiatives and a final conclusion on the systems could not be reached for Greece, Spain, United Kingdom (Northern Ireland) and for one programme in Portugal.

(68)  5 ERDF, 4 ESF, 1 EAGGF-Guidance and 1 FIFG.

(69)  Netherlands ESF Objective 3 1999NL053DO001.

(70)  Belgium FIFG Outside Objective 1 2000BE14FDO001.

(71)  Italy (Puglia) ERDF Objective 1 1999IT161PO009; Spain (Galicia) ERDF Objective 1 2000ES161PO011.

(72)  Spain (Galicia) ERDF Objective 1 2000ES161PO011; Italy (Piemonte) ERDF Objective 2 2000IT162DO007; United Kingdom (East Midlands) ERDF Objective 2 2000GB162DO004.

(73)  Spain (Andalusia) EAGGF-Guidance Objective 1 2000ES161PO003.

(74)  Germany (Thüringen) ESF Objective 1 1999DE161PO002; Netherlands ESF Objective 3 1999NL053DO001.

(75)  Netherlands ESF Objective 3 1999NL053DO001 (operational centre of The Hague); Spain (Andalusia) EAGGF-Guidance Objective 1 2000ES161PO003.

(76)  Italy (Puglia) ERDF Objective 1 1999IT161PO009.

(77)  Belgium (Hainault) ERDF Objective 1 1999BE161DO001; Spain ESF Objective 1 2000ES053PO311; United Kingdom (East Midlands) ERDF Objective 2 2000GB162DO004.

(78)  Spain (Galicia) ERDF Objective 1 2000ES161PO011; United Kingdom (East Midlands) ERDF Objective 2 2000GB162DO004; Italy (Puglia) ERDF Objective 1 1999IT161PO009.

(79)  Spain (Andalusia) EAGGF-Guidance Objective 1 2000ES161PO003.

(80)  Italy (Puglia) ERDF Objective 1 1999IT161PO009; Italy (Piemonte) ERDF Objective 2 2000IT162DO007; United Kingdom (East Midlands) ERDF Objective 2 2000GB162DO004.

(81)  Germany (Thüringen) ESF Objective 1 1999DE161PO002.

(82)  Netherlands ESF Objective 3 1999NL053DO001.

(83)  Belgium FIFG Outside Objective 1 2000BE14FDO001; Italy (Piemonte) ERDF Objective 2 2000IT162DO007.

(84)  Ineligible expenditure and projects:

Declaration of costs unrelated to the programmes or projects concerned: Netherlands ESF Objective 3 1999NL053DO001; Belgium FIFG Outside Objective 1 2000BE14FDO001; United Kingdom (East Midlands) ERDF Objective 2 2000GB162DO004; Belgium (Hainault) ERDF Objective 1 1999BE161DO001; Italy (Puglia) ERDF Objective 1 1999IT161PO009; Spain (Andalusia) EAGGF-Guidance Objective 1 2000ES161PO003.

Declaration of expenditure incurred outside the eligible period: Netherlands ESF Objective 3 1999NL053DO001; Spain (Andalusia) EAGGF-Guidance Objective 1 2000ES161PO003; United Kingdom (East Midlands) ERDF Objective 2 2000GB162DO004; Spain (Galicia) ERDF Objective 1 2000ES161PO011.

Declaration of recoverable value added tax: Belgium (Hainault) ERDF Objective 1 1999BE161DO001.

The declaration of expenditure although funds had not been paid out to projects by the final beneficiaries: Netherlands ESF Objective 3 1999NL053DO001.

(85)  Expenditure without supporting documents:

Declaration of estimated rather than actual expenditure: Germany (Thüringen) ESF Objective 1 1999DE161PO002; Spain ESF Objective 1 2000ES053PO311.

Expenditure without adequate supporting documents: Netherlands ESF Objective 3 1999NL053DO001; Germany (Thüringen) ESF Objective 1 1999DE161PO002; Spain ESF Objective 1 2000ES053PO311; United Kingdom (East Midlands) ERDF Objective 2 2000GB162DO004; Belgium (Hainault) ERDF Objective 1 1999BE161DO001; Spain (Galicia) ERDF Objective 1 2000ES161PO011.

The allocation of a proportion of overhead costs to projects without any underlying calculation supporting the amount attributed: Netherlands ESF Objective 3 1999NL053DO001; Germany (Thüringen) ESF Objective 1 1999DE161PO002; Spain ESF Objective 1 2000ES053PO311; United Kingdom (East Midlands) ERDF Objective 2 2000GB162DO004; Spain (Galicia) ERDF Objective 1 2000ES161PO011.

Failure to maintain a separate accounting system or adequate accounting code to enable identification of the Community funding: Netherlands ESF Objective 3 1999NL053DO001.

(86)  Incorrect calculation of the Community contribution: Failure to take account of potential generation of revenue or other income when calculating the rate of Community contribution to projects: Spain (Andalusia) EAGGF-Guidance Objective 1 2000ES161PO003; United Kingdom (East Midlands) ERDF Objective 2 2000GB162DO004; Spain (Galicia) ERDF Objective 1 2000ES161PO011; Italy (Puglia) ERDF Objective 1 1999IT161PO009.

(87)  Other failures:

Failure to check that the appropriate national cofinancing was in fact made available: Germany (Thüringen) ESF Objective 1 1999DE161PO002.

Failure to carry out an environmental impact assessment: Italy (Puglia) ERDF Objective 1 1999IT161PO009.

Failure to provide information and publicity measures for the participation of the Structural Funds: Netherlands ESF Objective 3 1999NL053DO001; Spain (Galicia) ERDF Objective 1 2000ES161PO011.

Failure to respect Community rules on the award of public contracts: Belgium FIFG Outside Objective 1 2000BE14FDO001; United Kingdom (East Midlands) ERDF Objective 2 2000GB162DO004; Belgium (Hainault) ERDF Objective 1 1999BE161DO001; Spain (Galicia) ERDF Objective 1 2000ES161PO011; Italy (Puglia) ERDF Objective 1 1999IT161PO009.

Failure to notify substantial modifications to a project: Germany (Thüringen) ESF Objective 1 1999DE161PO002.

(88)  Annual Report concerning the financial year 2002, paragraph 5.24.

(89)  Council Regulation (EC) No 1260/99, Article 38 (5).

(90)  Council Regulation (EC) No 1260/99, Article 39 (2).

(91)  Greece and Spain.

(92)  Greece, Spain and Portugal.

(93)  In one case, DG REGIO did not continue to take action (Nordrhein Westfalen Objective 2 1992-1993); in two cases it has not taken a definitive position, (Piemonte 1994-1996, Italy airport Infrastructure 1997-1999).

(94)  Italy Aree attrezzate 1989-1993; Greater Manchester, Lancashire and Cheshire Objective 2 1997-1999.

(95)  Annual Report concerning the financial year 1996; Special Report No 14/98 on the closure of the forms of ERDF assistance (OJ C 368, 27.11.1998).

(96)  Court Opinion No 2/2004

(97)  Paragraphs 70 a), 70 c) and 70 d) of the Special Report.

(98)  Paragraphs 71 a), 71 b), 71 c), 71 d), 71 e) and 71 f) of the Special Report.

(99)  The Programme complement is an additional document, providing further details on the implementation of the Programme.

(100)  Special Report No 4/2004 (in process of being published).

Annex 1

Annex 2

Follow-up of key observations

CHAPTER 6

Internal policies, including research

TABLE OF CONTENTS

Introduction

Specific appraisal in the context of the Statement of Assurance

Audit objectives and scope of the audit

Assessment of the Commission’s supervisory systems and controls

Implementation of the Internal Control Standards

Preliminary assessment of the management and control system for FP6

Preliminary assessment of the management and control systems for the European Refugee Fund in the area of freedom, security and justice

Results of the tests of underlying transactions authorised during the financial year

Analysis of the Commission's ex-post financial audits

Review of the Annual Activity Reports and the Directors-Generals' Declarations

Conclusions and recommendations

Follow-up of previous observations in Special Report No 2/2002 ‘Socrates’ and ‘Youth for Europe’

Principal observations in Special Report No 1/2004 concerning FP5 (1998 to 2002)

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(1)  Other agricultural operations, other regional operations, transport as well as other measures concerning fisheries and the sea (Titles B2-5 to B2-9 of subsection B2), and public awareness of the common agricultural policy (Article B1-382).

(2)  Directorates-General for Research (RTD), Information Society (INFSO), Energy and Transport (TREN), Enterprise (ENTR), Fisheries (FISH), Justice and Home Affairs (JHA), Education and Culture (EAC), Environment (ENV), Health and Consumer Protection (SANCO), Competition (COMP), Internal Market (MARKT), Economic and Financial Affairs (ECFIN), EUROSTAT and the Commission's Joint Research Centre (JRC).

(3)  Annual Activity Reports 2003 of Directorates-General for Research (30 March 2004), for Information Society (6 April 2004), for Justice and Home Affairs (31 March 2004) and for Education and Culture (7 April 2004).

(4)  Standard 11 ‘Risk analysis and management’, Standard 12 ‘Adequate management information’, Standard 14 ‘Reporting improperties’, Standard 17 ‘Supervision’, Standard 18 ‘Recording exceptions’, Standard 20 ‘Recording and correction of internal control weaknesses’, Standard 21 ‘Audit reports’ and Standard 22 ‘Internal audit capability’.

(5)  European Commission, COM(2000) 2203 dated 13 December 2000, and action No. 78 of White paper, together with European Commission, Synthesis of Annual Activity Reports 2002 of DGs and Services, COM(2003) 391 final, 9. July 2003.

(6)  This was corrected in February 2004 by the creation of a central unit to monitor the implementation of corrective actions.

(7)  Special Report No 1/2004 on the management of indirect RTD actions under the 5th Framework Programme (FP5) for Research and Technological Development (1998 to 2002), together with the Commission's replies, paragraph 110.

(8)  The FP6 budget comprises 16 270 million for the European Community (EC) section and 1 230 million euro for the Euratom section. This budget will be increased with the contributions from third countries signing a cooperation agreement with the Community to participate in FP6. This budget includes 760 million euro and 290 million euro from the EC and the Euratom sections respectively, intended to cover the direct research activities carried out by the Directorate-General Joint Research Centre.

(9)  In 2003, the five Directorates-General signed 507 contracts for FP6 indirect RTD actions (i.e. Networks of excellence, Integrated projects, Specific targeted projects, Article 169 actions, Specific research projects for SMEs, Actions to promote and develop human resources and mobility, Specific Actions to promote Research Infrastructure, Coordination actions, Specific support actions, Integrated infrastructure initiatives) for a total Community contribution of 1 945,7 million euro. This compares to 846 contracts for FP5 indirect RTD actions, covering a total Community contribution of 961, 0 million euro, signed in 1999, the first year of the previous RTD framework programme (see Special Report No 1/2004 on the management of indirect RTD actions under the 5th Framework Programme (FP5) for Research and Technological Development (1998 to 2002), together with the Commission's replies: paragraphs 59, 60, 132 and annex 3a and 3b)

(10)  FP6 was adopted on 27 June 2002 by Decision No 1513/2002/EC of the European Parliament and of the Council. The specific programmes ‘Integrating and strengthening the European Research Area’ and ‘Structuring the European Research Area’ were adopted on 30 September 2002 by Council Decisions No 834 and No 835 respectively (see Special Report No 1/2004 on the management of indirect RTD actions under the 5th Framework Programme (FP5) for Research and Technological Development (1998 to 2002), together with the Commission's replies, paragraphs 11 to 15).

(11)  Special Report No 1/2004 on the management of indirect RTD actions under the 5th Framework Programme (FP5) for Research and Technological Development (1998 to 2002), together with the Commission's replies: paragraph 15.

(12)  Core model contract adopted by Commission decision C(2003)799/1 dated 10 March 2003, modified by C(2003)799/2 dated 12 March 2003 and C(2003)3834 of 23 October 2003 (together with Annex II ‘General conditions’, Annex III for ‘Integrated Projects’ and ‘Networks of Excellence’); Annex III for ‘Integrated Infrastructures Initiatives’ adopted by Commission decision C(2003)2029 dated 2 July 2003; two sets of general Special Clauses adopted by Commission decisions DL/2003/3004 (dated 7 November 2003) and DL/2003/3188 (dated 27 November 2003); targeted Special Clauses by Commission decisions DL/2003/3140 (for ‘International Organisations’) and DL/2003/3141 (for ‘Specific support actions involving Transnational Access’), both dated 20 November 2003 and by Commission decision DL/2003/3388 (for ‘Specific Support Actions for Infrastructures’) dated 10 December 2003.

(13)  European Commission, ‘Guide to Financial Issues relating to Indirect Actions of the Sixth Framework Programmes’, version April 2004.

(14)  Special Report No 1/2004 on the on the management of indirect RTD actions under the 5th Framework Programme (FP5) for Research and Technological Development (1998 to 2002), together with the Commission's replies: paragraphs 42 to 45 and 114.

(15)  Special Report No 1/2004 on the management of indirect RTD actions under the 5th Framework Programme (FP5) for Research and Technological Development (1998 to 2002), together with the Commission's replies: paragraph 132.

(16)  This approach provided for three types of audits to be carried out by (or on behalf of) the Commission: ex-post financial audits to verify the reliability of audit certificates accompanying financial statements for FP6 indirect RTD actions, compliance audits (so called ‘management audits’) to provide assurance on the effective operation of the new instruments (i.e. ‘Networks of Excellence’ and ‘Integrated projects’); and — ex-post financial audits for those instruments for which an audit certificate is not required, intended to confirm the eligibility of the costs declared (see Directorate-General for Research, L4/RH/ER D (2003), Common Audit Policy of the DG's for FP6, dated 5 December 2003)

(17)  Special Report No 1/2004 on the management of indirect RTD actions under the 5th Framework Programme (FP5) for Research and Technological Development (1998 to 2002), together with the Commission's replies: paragraph 132.

(18)  Council Decision 2000/596/EC of 28 September 2000 establishing a European Refugee Fund (OJ L 252, 6.10.2000, p. 12).

(19)  Denmark is not participating in the ERF programme (Recital 23 of Council Decision 2000/596/EC)

(20)  Article 15, baseline requirements by 31 December 2002 of Internal Control and Risk Assessment 2002 (ICRSA) 2002, Summary of the baseline and full internal control Standard requirements (http://intracomm.cec.eu-admin.net/budg/document/crd/ics/baseline-en-1.03-final.pdf).

(21)  In addition to guidelines prepared at technical level, which were not formally approved by the hierarchy, the only manuals at Directorate-General for Justice and Home Affairs were on financial procedures and interdepartmental consultation (in particular ‘Vademecum des Circuits financiers’, Unit C1, Human resources, budget, informatics, security; ‘Vademecum sur les procédures institutionelles’, July 2003, DG JAI.01).

(22)  Article 7 in combination with Article 18 of Council Decision 2000/596/EC.

(23)  Commission Decision 2001/275/EC of 20 March 2001, laying down detailed rules for the implementation of Council Decision 2000/596/EC as regards the eligibility of expenditure and reports on implementation in the context of actions co-financed by the European Refugee Fund (OJ L 95, 5.4.2001, p. 27). Commission Decision 2002/307/EC of 18 December 2001 laying down detailed rules for the implementation of Council Decision 2000/596/EC as regards management and control systems and procedures for making financial corrections in the context of actions co-financed by the European Refugee Fund (OJ L 106, 23.4.2002, p. 11).

(24)  Article 4(1)(c) of Council Decision 2000/596/EC.

(25)  Annual Report concerning the financial year 2002, paragraph 6.43.

(26)  Article 4 of Commission Decision 2002/307/EC as regards management and control systems and procedures for making financial corrections in the context of actions co-financed by the European Refugee Fund.

(27)  For one transaudited by the Court the interim report prepared by a final beneficiary and forwarded to the national authority did not contain sufficient information to justify the declared expenditure. Nevertheless the amount was fully accepted and certified to the Commission on which basis the Commission authorised the payment. Another final report included amounts paid by a local office of the beneficiary in Kosovo without any adequate supporting documentation in the file.

(28)  The Annual Activity Report 2003 for DG RTD, for example, states that the time limits for the Commission are not respected in more than 60 % of cases.

(29)  Special Report No 1/2004 on the management of indirect RTD actions under the 5th Framework Programme (FP5) for Research and Technological Development (1998 to 2002), together with the Commission's replies, paragraphs 90 to 100 and 129.

(30)  Annual Report concerning the financial year 2001, paragraphs 4.27 to 4.30; Annual Report concerning the financial year 2002, paragraphs 6.33 to 6.36.

(31)  Opinion No 2/2004 on the ‘single audit’ model and a proposal for a Community Internal Control Framework.

(32)  The figures for 2002 have been modified, as compared to the Court's Annual Report 2002, taking into account additional information made available by the Commission.

(33)  Definitions used in this table:

(34)  Veterinary and phytosanitary actions. Value of audited contracts means here the maximum contribution to be EU funded.

(35)  Fishery control measures. Contract means here programme of a Member State; value of audited contracts means here value of audited items within a programme; value of open contracts means here the total value of the pluriannual measures for all Member States.

(36)  The figures for 2002 include exclusively research related audits.

(37)  This amount corresponds to the total audited cost statements.

(38)  This amount includes a suspended 2 million euro payment to the Netherlands under the project ‘Idea’ (identification of animals).

(39)  The number of audits includes two audits of ‘Idea’ (identification of animals) in the Netherlands and Spain of budget line B1-3 6 0.

Source: European Commission.

(40)  The figures for 2002 have been modified, as compared to the Court's Annual Report 2002, taking into account additional information made available by the Commission.

(41)  Written Commission reply to the questionnaire of the European Parliament Committee on Budgetary Control, paragraph 4.3, dated 21 December 2001. See also Court of Auditors' Annual Report concerning the financial year 1999, together with the Commission's replies, paragraph 4.23.

(42)  The ratio was 9,2 % for the year 2000, 8,5 % for the year 2001 and 4,8 % for the year 2002. See also the Court's Annual Report concerning the financial year 2002, paragraph 6.46.

(43)  The Commission's service contract states that up to three contracts per auditee can be requested from external audit firms for a fixed price and the obligation to deliver the final audit report within six months. In order to increase the audit coverage, the Commission could require the audit firms to carry out more audits per assignment.

(44)  Special Report No 1/2004 on the management of indirect RTD actions under the 5th Framework Programme (FP5) for Research and Technological Development (1998 to 2002), together with the Commission's replies, paragraph 98.

(45)  Directorates-General for Research, for Information Society, for Justice and Home Affairs and for Education and Culture.

(46)  Secretary-General and the Directorate-General for Budget, ‘Circular on annual activity reports for year 2003 to Directors-General and Heads of Service’, SEC(2003) 1469 of 19 December 2003, amended by SEC(2004) 147 of 19 February 2004.

(47)  Synthesis of the Annual Activity Reports and declarations of the Directors-General and Heads of Service, COM(2002) 426 final, 24 July 2002.

(48)  European Commission, ‘Action Plan to address the issues identified in certain Annual Activity Reports (2001) as weak points in the management of research projects’, C(2002) 5558, 3 January 2003.

(49)  The common action plan adopted by the Directorates-General operating the RTD framework programmes covers, among others, the following specific measures: as regards the implementation of FP5, the improvement of the organisational cooperation between the Directorates-General through the creation of an inter-service group on the financial management of contracts and a network of correspondents reporting to this inter-service group, the improvement of the contract management through better information for contractors, an increase in the verification of cost claims (involving the implementation of desk audits and the improvement of training on financial issues), and the improvement of the IT systems; as regards FP6, the preparation of clear financial guidelines for contractors, the requirement of audit certificates, the development of a common IT system, the continuation of the audit strategy applied for FP5 and the introduction of sanctions in the model contract.

(50)  COM(2004) 247 final, 5 April 2004, points 30, 32, 33 and 39.

(51)  Special Report No 1/2004 paragraphs 42 to 45.

(52)  Special Report No 1/2004, paragraphs 36 to 41 and 113 to 115.

(53)  Opinion No 2/2004 on the ‘single audit’ model and a proposal for a Community Internal Control Framework.

(54)  Special Report No 2/2002 on the Socrates and Youth for Europe Community action programmes, together with the Commission's replies; see in particular paragraphs 10 to 21, 25 to 36, 39 to 56, 75 to 83 and 91 to 102.

(55)  Report concerning discharge in respect of the implementation of the general budget of the European Union for the 2001 financial year (Commission) 26 March 2003, paragraphs 47 to 55.

(56)  The Community action programme Socrates was established by Decision No 819/95/EC of the European Parliament and of the Council of 14 March 1995 (OJ L 87, 20.4.1995) and amended by Decision No 576/98/EC of 23 February 1998 (OJ L 77, 14.3.1998). The second ‘Socrates’ programme established by Decision No 253/2000/EC of 24 January 2000, (OJ L 28, 3.2.2000) covers all aspects related to the different educational phases: Action 1 ‘School education (Comenius)’; Action 2 ‘Higher education (Erasmus)’; Action 3 ‘Adult education and other educational pathways (Grundtvig)’; Action 4 ‘Teaching and learning of languages (Lingua)’; Action 5 ‘Open and distance learning; information and communication technologies in the field of education (Minerva)’; Action 6 ‘Observation and innovation’; Action 7 ‘Joint actions’; Action 8 ‘Accompanying measures’.

(57)  The original ‘Youth for Europe’ programme supported informal educational activities (Action 1 ‘Youth for Europe’; Action 2 ‘European Volunteers System’; Action 3 ‘Initiatives in favour of young people’; Action 4 ‘Joint actions’; Action 5 ‘Accompanying measures’; Action 6 ‘Third countries’). The scope of the actions was slightly reduced in 2000 when the ‘Youth Community action programme’ was launched.

(58)  Decision No. 253/2000/EC of the European Parliament and of the Council of 24 January 2000 establishing the second phase of the ‘Socrates’ Community action programme in the field of education.

(59)  Directorate-General for Education and Culture, ‘Annual Activity Report 2002’, 14 April 2003: part 3, point 2(a).

(60)  Council Regulation (EC) No 58/2003 (OJ L 11, 16.1.2003).

(61)  Such as a body pursuant to Article 185 of the Financial Regulation applicable to the general budget (see Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 (OJ L 248, 16.9.2002): articles 54 to 56).

(62)  See for example Contract No 2003-3007/001001, Article 9.

(63)  European Commission, ‘A new Framework for Resource Management and Internal Auditing in the Commission’, 22 February 2000, Chapter 4.

(64)  See for example: Terms of Reference, Tasks to be carried out by the National Agencies for the implementation of the Socrates Programme at national level, Period: 1 April 2003 to 31 December 2004, SOC/COM/02/061; indicators concern among others the number of staff working for Socrates, number of applications received, etc.

(65)  European Commission, ‘Standards for Internal Control within the Commission's services’ (SEC(2000) 2203 of 2 February 2001 (second version dated 18 December 2001).

(66)  European Commission, ‘Evaluation intermédiaire du Programme Jeunesse 2000-2006 (couvrant la période 2000-2003)’, 8 mars 2004, COM(2004) 158 final, point 4 and recommendations.

(67)  European Commission, ‘Call for applications EAC/60/02 with a view to constituting a list of experts to assess the proposals received in connection with the “Socrates” Community action programme in the field of education and other actions in the field of education’ (OJ C 211, 5.9.2002).

(68)  European Commission, ‘Evaluation intermédiaire du Programme Jeunesse 2000-2006 (couvrant la période 2000-2003)’, 8 mars 2004, COM(2004) 158 final.

(69)  In early 2004, following an internal reorganisation, a specific function within the financial unit of the Directorate-General for Education and Culture was entrusted with assessing the National Agencies' certification reports.

(70)  See for example the certification reports of the French National Agency of 11 February 2004 or the reports by the Luxembourg National Agency of 10 February 2004.

(71)  Decision No 253/2000/EC of the European Parliament and of the Council of 24 January 2000 establishing the second phase of the ‘Socrates’ Community action programme in the field of education; Article 14 ‘Monitoring and Evaluation’.

(72)  Decision No 1031/2000/EC of the European Parliament and of the Council of 13 April 2000 establishing the ‘Youth’ Community action programme; Article 13 ‘Monitoring and Evaluation’.

(73)  Communication COM(2002) 276 of 5 June 2002.

(74)  European Commission, ‘Interim evaluation report on the results achieved and on the qualitative and quantitative aspects of the implementation of the second phase of the “Socrates” Community action programme in the field of education, 8 March 2004’, COM(2004) 153 final.

(75)  European Commission, ‘Evaluation intermédiaire du Programme Jeunesse 2000-2006 (couvrant la période 2000-2003)’, 8 mars 2004, COM(2004) 158 final.

(76)  Directorate-General for Education and Culture, ‘Annual Activity Report 2002’, 14 April 2003.

(77)  See DG Budget — Central Financial Service, ‘Standards for Internal Control within the Commission's services and the baseline for implementation by the 31 December 2001’, 18 December 2001.

(78)  Special Report No 1/2004.

ANNEX 1

Internal policies (including research) — Assessment of key aspects previously observed

ANNEX 2

Supervisory systems and controls

Area: Internal Policies (including Research)

System: 6th Framework Programme (FP6) for Research and Technological Development and European Refugee Fund (ERF)

CHAPTER 7

External actions

TABLE OF CONTENTS

Introduction

Specific assessment in the context of the Statement of Assurance

Scope and nature of the audit

Supervisory systems and controls

Internal control standards

Humanitarian Aid Office

EuropeAid Cooperation Office at central level

Supervisory systems and controls at the level of the Delegations

Audit of transactions

Audit of transactions carried out at central level

Audit of transactions carried out at the level of Delegations

Implementing organisations

Analysis of Annual Activity Reports and the Statements of the Authorising Officers by delegation

Conclusions

Recommendations

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(1)  See separate report on the EDFs.

(2)  Programmes financed by budget lines which are focused on certain geographic regions (like Asia, Latin America, Mediterranean countries, Eastern Europe and Balkan) in contrast to budget lines which finance certain types of operations (e.g. Food aid, NGO co-financing).

(3)  Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 (OJ L 248, 16.9.2002).

(4)  Commission Regulation (EC, Euratom) No 2342/2002 of 23 December 2002 (OJ L 357, 31.12.2002).

(5)  SEC (2000) 2203.

(6)  A large proportion of payments is in the form of advances to implementing organisations, which have at a later stage to present statements of incurred expenditure.

(7)  Synthesis of Annual Activity Reports of Directors General and Heads of Service; Communication from the Commission, COM(2003) 391 of 9 July 2003.

ANNEX

(a) Court's assessment of supervisory systems and controls in 2003

(b) Court's assessment of external audits at the level of organisations implementing projects funded by EuropeAid

Key to indicators

(c) Key areas followed up by the Court of Auditors in 2003

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(1)  Most elements function, but certain important ones remain to be improved.

(2)  The internal audit unit focused on system analysis and did not yet test systems.

(3)  Nevertheless the number of audits increased as compared to 2002.

(4)  For external audits launched by the Commission, the terms of reference and involvement in appointing the auditors are satisfactory, but when the audits are launched by implementing organisations, improvements are necessary.

CHAPTER 8

Pre-accession aid

TABLE OF CONTENTS

Introduction

Specific Assessment in the context of the Statement of Assurance

Scope and nature of the audit

Supervisory systems and controls

The management and control systems

Phare

ISPA

Sapard

Audits by the Commission or on its behalf

Phare

ISPA

Sapard

Tests of transactions

Phare payments

ISPA payments

Sapard payments

Annual Activity Reports

The Directorate-General for Enlargement

The Directorate-General for Regional Policy

The Directorate-General for Agriculture

Conclusions

Recommendations

Principal observations in Special Reports

Special Report No 2/2004 ‘Has Sapard been well managed?’

Special Report No 5/2004 ‘Phare support to prepare Candidate Countries for Managing the Structural Funds’

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(1)  The Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Slovenia, Slovakia, Bulgaria and Romania, . On 1 May 2004 these countries, with the exception of Bulgaria and Romania, became Member States of the European Union.

(2)  Cyprus and Malta (which became Member States of the European Union on 1 May 2004) and Turkey. These assistance programmes were relatively insignificant in terms of payments in 2003.

(3)  Poland, Hungary and Restructuring in the East, Council Regulation (EEC) No 3906/989.

(4)  Instrument for Structural Policies for Pre-Accession, Council Regulation (EC) No 1267/1999. For the countries becoming Member States on 1 May 2004 this instrument is transformed into the Cohesion Fund.

(5)  Special Accession Programme for Agriculture and Rural Development, Council Regulation (EC) No 1268/1999.

(6)  Excluding the programmes for the Mediterranean countries.

(7)  Phare: The Czech Republic, Lithuania, Hungary, Poland, Bulgaria and Romania. ISPA: Estonia, Latvia, Lithuania, Poland and Slovenia. Sapard: Poland, Bulgaria and Romania.

(8)  The key observations from this audit are presented in paragraphs 8.45 to 8.53.

(9)  See Annual Report concerning the financial year 2002, paragraph 8.4.

(10)  The Czech Republic, Latvia, Lithuania, Hungary, Slovenia and Slovakia.

(11)  SEC(1999) 1596. These guidelines are binding since they are referred to in Article 8 of Council Regulation (EEC) No 3906/89 and are part of the Financing Memorandum concluded between the Commission and the candidate country concerned.

(12)  National Funds have been set up in all candidate countries to channel the flow of all three pre-accession instruments, both receipts from the Commission and distribution of funds to implementing agencies.

(13)Parallel co-financing implies that the partners finance different project elements, possibly at different times, and related payments are separately made. The other form is joint co-financing, which implies that each project element is simultaneously co-financed and payments are made simultaneously by the partners.

(14)  Article 9(1) of Council Regulation (EC) No 1267/1999, of 21 June 1999, establishing an Instrument for Structural Policies for Pre-accession (OJ L 161, 26.6.1999, p. 73).

(15)  As Community regulations are not directly applicable in candidate countries these requirements were included in Annex III to the Financing Memorandum. A Financing Memorandum is signed for each project following the Commission Decision.

(16)  Only for the transport sector in Estonia and the road sectors in Hungary and Lithuania did the Directorate-General for Regional Policy consider it appropriate to start the formal validation procedure for granting EDIS.

(17)  Tender dossiers had to be resubmitted a number of times (in one case seven times) prior to their approval and in 3 out of the 12 tendering procedures examined, the evaluation reports were not endorsed by the EC Delegation, and the evaluation had to be repeated.

(18)  Not all the official correspondence exchanged as a result of the examination of the different versions of the tender dossiers, submitted to the Delegations for approval, were filed.

(19)  Multiannual financing agreements, Section A, Article 6.

(20)  The figures are as reported by the Directorate-General for Enlargement.

(21)  Article 12(2) of Council Regulation (EC) No 1266/1999 and Annex III of the Financing Memorandum.

(22)  Annual Report concerning the financial year 2002, paragraphs 8.14 to 8.22.

(23)  Tendering and contracting procedures were examined only for those payments (13) made under the relatively new Economic and Social Cohesion grant scheme. A wider examination of tendering and contracting procedures was carried out for the Statement of Assurance audit of 2002. See Annual Report concerning the financial year 2002, paragraphs 8.38 to 8.43.

(24)  The remaining payments, which were audited at the level of Commission and the European Bank for Reconstruction and Development, revealed no errors.

(25)  Article 8(2) of Regulation (EC) No 1267/1999 and Annex III.1 of the Financing Memorandum.

(26)  In three cases, the requirement that the expenditure should have been incurred was not complied with because Sapard payments were made against unpaid invoices; in three cases the procedure for private procurement to submit three bids for each item costing more than 10 000 euro was not respected; in two cases the limit of public aid stipulated in the Sapard programme was exceeded; and in two cases the approval procedure for checklists was not followed.

(27)  For further details, see paragraphs 38 to 40 of the Sapard Special Report No 2/2004 (OJ C 295, 30.11.2004).

(28)  See Annual Report concerning the financial year 2002, paragraph 8.45.

(29)  Bulgaria and Romania.

(30)  As specified in Council Regulation (EC) No 1268/1999 of 21 June 1999 on Community support for pre-accession measures for agriculture and rural development in the applicant countries of central and eastern Europe in the pre-accession period (OJ L 161, 26.6.1999, p. 87).

(31)  These 10 countries are: The Czech Republic, Estonia, Latvia, Lithuania, Hungary, Poland, Slovenia, Slovakia, Bulgaria and Romania.

CHAPTER 9

Administrative expenditure

TABLE OF CONTENTS

Administrative expenditure of the institutions and Community bodies

Introduction

Specific assessment in the context of the Statement of Assurance

Introduction

Audit objectives

Audit methods applied

Risks

Parliament

Supervisory systems and controls

Observations concerning transactions

Annual activity reports and declarations of the authorising officers by delegation

Council

Supervisory systems and controls

Observations concerning transactions

Annual activity reports and declarations of the authorising officers by delegation

Court of Justice

Supervisory systems and controls

Observations concerning transactions

Annual activity reports and declarations of the authorising officers by delegation

Court of Auditors

Supervisory systems and controls

Observations concerning transactions

Annual activity reports and declarations of the authorising officers by delegation

Economic and Social Committee and Committee of the Regions

Supervisory systems and controls

Economic and Social Committee

Supervisory systems and controls

Observations concerning transactions

Annual activity reports and declarations of the authorising officers by delegation

Committee of the Regions

Supervisory systems and controls

Observations concerning transactions

Annual activity reports and declarations of the authorising officers by delegation

Commission

Supervisory systems and controls for administrative expenditure

Observations concerning transactions

Annual activity reports and declarations of the authorising officers by delegation

Overall conclusion and recommendations

Audit of the satellite bodies

Audit of the European Schools

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(1)  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).

(2)  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).

(3)OJ L 209, 24.7.1992.

(4)  The Commission departments responsible for most of the administrative expenditure are the following: Directorate-General ‘Personnel and Administration’, Directorate-General for Translation, Directorate-General for Interpretation, Directorate-General ‘Press and Communication’, Directorate-General for External Relations, Office for Infrastructures and Logistics — Luxembourg, Office for Infrastructures and Logistics — Brussels, Office for the Administration and Settlement of Individual Entitlements, European Personnel Selection Office, Publications Office.

(5)  Namely as regards the effective implementation of internal control standards, insufficient ex post controls and insufficient implementation of the internal audit function.

(6)  At the Commission similar reports had already been produced in previous years.

(7)  In the process of publication in the OJ.

(8)  The smaller figure is explained by the reduction in the activities of the European Agency for Reconstruction.

(9)  Commission Regulation (EC, Euratom) No 2343/2002 of 23 December 2002 on the framework Financial Regulation for the bodies referred to in Article 185 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. 72).

(10)  Eurojust and the European Agency for Reconstruction.

(11)  The European Agency for the Evaluation of Medicinal Products.

(12)  The Court expressed qualified opinions in its reports on the European Agency for the Evaluation of Medicinal Products and the European Monitoring Centre on Racism and Xenophobia.

CHAPTER 10

Financial instruments and banking activities

TABLE OF CONTENTS

Introduction

Financial instruments in favour of small and medium-sized enterprises

Introduction

The Court's audit

Overall observations on the programmes

Reporting data on employment

Reporting data on financial participations

Observations on the specific measures

Small and medium-sized enterprise guarantees

Calls on guarantees

Commitment fees

Equity guarantees

State aid rules

European Technology Facility (ETF) — Start-up Facility

Valuation methods

Seed Capital Action

Joint European Venture

Conclusions

Guarantee Fund for external actions

The European Coal and Steel Community in liquidation

Introduction

ECSC.in liquidation financial statements

IT weaknesses

Readaptation aid

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(1)  For example, the European Bank for Reconstruction and Development (EBRD).

(2)  The EIF was established in 1994 with the task of ‘contributing to the pursuit of Community objectives’. As of 2000 the EIB owns over 60 % of the EIF's shares, the European Commission owns 30 % on behalf of the EU; the remainder is held by public and private financial institutions. As of 2001 the EIF provides venture capital and small and medium-sized enterprises portfolio guarantees for financial intermediaries.

(3)  Council Regulation (EC) No 2728/94 provides that the Guarantee Fund must reach an appropriate level (target amount) for potential payments, set at 9 % of the amount guaranteed. The Fund is financed by payments from the budget at the beginning of a financial year on a provisional basis. At the end of a financial year, the Fund's assets may exceed the target amount. In this case repayments apply.

(4)  Including default interest incurred but not paid at 31 December.

(5)  After deduction of EIB fees not paid at 31 December.

Source: Commission.

(6)  Decision 98/347/EC of 19 May 1998 (OJ L 155, 29.5.1998, p. 43).

(7)  Decision 2000/819/EC of 20 December 2000 (OJ L 333, 29.12.2000, p. 84).

(8)  These intermediaries, which conclude guarantee contracts with the EIF are either institutions granting loans or mutual and national credit guarantee schemes.

(9)  The amounts in the trust accounts are recorded in the Community balance sheet under item VII ‘short term assets’, subheading ‘Sundry debtors’.

(10)  Article 7 of Council decision 98/347/EC of 19 May 1998.

(11)  COM(2003) 758 Final of 8 December 2003.

(12)  The latest report issued is COM(2003) 480 Final of 5 August 2003.

(13)  Since 2002 these participations are included in the Community balance sheet under item IV B 1 (Financial fixed assets, other financial fixed assets, subscriptions and participations).

(14)  SME guarantee facility under the Growth and Employment Initiative and under the Multiannual Programme.

(15)  Intermediaries that are new for participation in the SME guarantee facility, new contracts with intermediaries that participated already in the past are not concerned.

(16)  The fees are allocated to the trust accounts, they are not income of the EIF.

(17)  In the case of loan guarantees the loan volume, and in the case of counter-guarantees the guarantee volume.

(18)  The method has been changed recently in that the commitment fee is now calculated on a lower basis taking into account the percentage of the guarantee part and not the whole loan volume.

(19)  Council Regulation (EC) No 994/98 of 7 May 1998 and Commission Regulations (EC) No 69/2001 and (EC) No 70/2001 of 12 January 2001. The Fiduciary and Management Agreement between the Commission and the EIF requires a corresponding declaration by the intermediaries.

(20)  Out of five venture capital funds visited on the spot only one had detailed guidelines and justification for all valuations of investments made.

(21)  European Venture Capital Association.

(22)  Council Decisions 98/347/EC of 19 May 1998 and 2000/819/EC of 20 December 2000. Subsidies are provided for preparation and, in case of an establishment of joint venture, for investments made, but may together not exceed 100 000 euro per case.

(23)  Proposal for a decision of the European Parliament and of the Council (COM 2003/758 of 8 December 2003).

(24)  Council Decision 2003/76/EC of 1 February 2003 (OJ L 29, 5.2.2003, p. 22).

(25)  Especially those concerning the ‘sécurité logique et physique’, the ‘plan de continuité des activités’, and the accounting software used by the Directorate-General for Economic and Financial Affairs.

(26)  Previous years audits of the Court covered steel traditional aid in the United Kingdom and in Italy. Audit in Germany concerned both traditional aid and RECHAR (Volet social charbonnier).

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REPORT ON THE ACTIVITIES OF THE SIXTH, SEVENTH AND EIGHTH EUROPEAN DEVELOPMENT FUNDS (EDFs)

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REPORT ON THE ACTIVITIES FUNDED BY THE SIXTH, SEVENTH, EIGHT AND NINTH EUROPEAN DEVELOPMENT FUNDS (EDFs)

CONTENTS

Introduction

Chapter I — Implementation of the sixth, seventh, eighth and ninth EDFs

New-style financial management report could be improved still further

Further remarks concerning the content of the report

Conclusions

Chapter II — Statement of Assurance by the Court of Auditors concerning the EDFs

Statement of Assurance by the Court of Auditors concerning the sixth, seventh, eighth and ninth European Development Funds (EDFs) for the financial year 2003

Information in support of the Statement of Assurance

Reliability of the accounts

Legality and regularity of the underlying transactions

Changes in the performance of the supervisory systems and controls

Chapter III — Follow-up to previous observation s

Including the EDF in the general budget

Summary of previous observations

Development of the situation

Participation in auditing the EDF by the ACP States' Supreme Audit Institutions

Summary of previous observations

Development of the situation

Monitoring of Stabex funds

Summary of previous observations

Development of the situation

Chapter IV — Main observations set out in special reports published by the Court since the last discharge procedure

Special Report No 15/2003 concerning the audit of microproject programmes financed by the EDF

CHAPTER II — STATEMENT OF ASSURANCE BY THE COURT OF AUDITORS CONCERNING THE EDFs

Statement of Assurance by the Court of Auditors concerning the sixth, seventh, eighth and ninth European Development Funds (EDFs) for the financial year 2003

Except for the effects of the problems concerning:

the Court is of the opinion that the reports on financial implementation for the financial year 2003 and the financial statements at 31 December 2003 reliably reflect the revenue and expenditure relating to the sixth, seventh, eighth and ninth EDFs for the financial year and their financial situation at the end of the year.

III.   Legality and regularity of the underlying transactions

Analysis of the supervisory systems and controls

As in the case of the 2002 financial year, when the Court drew attention to deficiencies regarding audits of EDF projects and the insufficiency of key controls on compliance with contracts and the reality of the works, supplies and services invoiced, the Court was not able to rely fully on the Commission's supervisory systems and controls in 2003 for the following reasons:

Audit of transactions

The audit of transactions was based on the documentation available at the Commission in Brussels and, where appropriate, in the Delegations in ACP States, and was also based on on-the-spot audits carried out in six ACP States in order to verify the reality of works, supplies and services. It should be noted that the Court's audit of the legality and regularity of budget support expenditure stopped at the stage where the aid was paid to the beneficiary countries' budgets (see paragraphs 7, 19 and 46). The audit did not bring any major problems to light.

Conclusions regarding the legality and regularity of the underlying transactions

These conclusions are based on analysis of the supervisory systems and controls, audit of a number of transactions, and analysis of the annual activity report and declaration of the Director-General of the EuropeAid Cooperation Office. On that basis, the Court is of the opinion that the problems encountered are not material and that the revenue entered in the accounts, the EDF allocations, the commitments and the payments of the financial year are, taken as a whole, legal and regular.

6 and 7 Octobre 2004

Juan Manuel FABRA VALLÉS

President

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(1)  The Yaoundé I Convention dates back to 1964. The most recent agreement (Cotonou) dates from 23 June 2000.

(2)  Articles 96, 103 and 112 of the Financial Regulation of 27 March 2003 applicable to the ninth EDF: in its Opinion No 12/2002 on this proposal for a regulation, the Court had drawn attention to the implications of these articles, which reduce the European Parliament's powers of control.

(3)  Thus, under the ninth EDF, the Commission is responsible for managing 13 200 million euro, while the EIB is responsible for 2 200 million euro.

(4)  The ACP-EU Conventions instituting the EDFs contain a safeguard Article that states that ‘any balance remaining from the Fund that has not been committed or disbursed by the end of the last year of the application (...) shall be utilised until it has been exhausted, in accordance with the same conditions as those laid down in this Convention’ (Article 216 of the third Lomé Convention, Article 284(2) of the fourth Lomé Convention, Article 4 of the Second financial protocol to the fourth Lomé Convention (revised).

(5)  Date of entry into force of the Convention or Agreement.

(6)  Programmable aid is defined within the framework of national and regional indicative programmes (NIPs and RIPs) concluded with the ACP States.

(7)  Programmable aid is defined within the framework of national and regional indicative programmes (NIPs and RIPs) concluded with the ACP States.

(8)  As regards the sixth, seventh and eighth EDFs, these operations continue to be implemented by the EIB under the Commission's responsibility.

(9)  Previously known as primary commitments.

(10)  For amounts below two million euro, the Committee's assent is not necessary.

(11)  In general, the national authorising officer's powers are vested in the Finance Ministers of the ACP States.

(12)  Previously known as secondary commitments.

(13)  Article 91(1), second subparagraph, of the rules for implementing the Financial Regulation applicable to the general budget.

(14)  Communication of 16 May 2000 (SEC(2000) 814/5).

(15)  This chapter summarises the results of a limited review by the Court of the financial management report for the financial year 2003.

(16)  Initial allocations to the 6th, 7th, 8th and 9th EDFs, interest, sundry resources and transfers from previous EDFs.

(17)  Including Stabex transfers (7th EDF: 104 million euro, 8th EDF: 87 million euro, total 191 million euro).

(18)  As a percentage of resources.

(19)  Including 732,9 million euro in financial commitments, 347,4 million euro in individual legal commitments and 97,7 million euro in payments for advance implementation of the Cotonou Agreement.

(20)NB: for ease of comparison with previous years, these figures include operations now managed autonomously by the EIB (allocation: 2 245 million euro, financial commitments: 366 million euro, individual legal commitments: 140 million euro, payments: 4 million euro).

Source: Court of Auditors, based on the EDF financial statements at 31 December 2003.

(21)  As a result, the Court is no longer able to produce Table 2 in the same detail as in previous years or to attach comments.

(22)  Pursuant to the provisions of Articles 96(1), 100, 101 and 125(2) of the Financial Regulation applicable to the ninth EDF; in practice, this refers, firstly, to the balance sheets and associated statements prepared by the accounting officer and, secondly, to the management accounts comprising the tables prepared by the principal authorising officer in consultation with the accountant. These financial statements are presented for each of the four EDFs and in a comprehensive, consolidated form. The financial statements and information supplied by the EIB are not covered by this Statement (see footnote 15).

(23)  Pursuant to Article 103(3) of the abovementioned Financial Regulation; taken together with Article 1 of the same Regulation, this means that the statement does not extend to the part of the ninth EDF resources that is managed by the EIB and for which it is responsible (for the amounts in question, see Chapter 1, Table 2, note 5).

(24)  In his declaration, the Director-General for Budgets expressed two reservations in respect of the EDF accounting system: the first concerned the difficulties of modernising the presentation of assets owing to the system's obsolete design, while the second concerned the management of the accounts (see also paragraph 1.8 of Chapter 1, General budget, section).

(25)  SEC(2001) 875 adopted by the Commission on 27 June 2001.

(26)  Instead of 30 April 2004, in accordance with Articles 102 and 135 of the abovementioned Financial Regulation. However, a preliminary draft was sent on 28 May 2004.

(27)  The Commission did not forward to the Court the changes in the allocations over the financial year, nor the totals for commitments and payments, by country, for the EDF resources managed by the EIB, as referred to in Articles 96 and 125(2) of the Financial Regulation applicable to the ninth EDF. The EIB did not submit these additional items of information until 24 August 2004.

(28)  In accordance with Articles 103(2) and 135 of the abovementioned Financial Regulation. However, a version of the accounts that was in principle a final version was informally sent to the Court on 14 September 2004.

(29)  In accordance with Article 96(2) of the abovementioned Financial Regulation.

(30)  In his declaration, the Director-General for Budgets expressed two reservations in respect of the EDF accounting system: the first concerned the limits placed by the obsolete design of the system on the possibility of an up-to-date presentation of assets, while the second concerned the management of the accounts. (See also paragraph 1.8 of Chapter 1, General budget, section.)

(31)  Note AIDCO/HCS D(2002) 37709.

(32)  Document SEC(2004) 318.

(33)  These agreements account for a little less than 1 % of the total sum approved.

(34)  Uganda, Malawi, Ghana, Zimbabwe, Madagascar and Zambia.

(35)  Kenya, Papua-New Guinea, Solomon Islands, Senegal, Mali and Mauritania.

Source: Court of Auditors.

(36)  Most recently in the Annual Report on the activities of the sixth, seventh and eighth EDFs concerning the financial year 2002 (paragraph 10 and the corresponding reply).

(37)  Most recently in the Annual Report on the activities of the sixth, seventh and eighth EDFs concerning the financial year 2002 (paragraph 10 and the corresponding reply).

(38)  In particular in the course of the examination of the Court's Annual Reports on the activities of the sixth, seventh and eighth EDFs concerning the financial years 1999 (paragraphs 46-47), 2001 (paragraphs 46-47) and 2002 (paragraphs 39-43).

(39)  Paragraph 41 of the Commission's reply to the above-mentioned report concerning the financial year 2002.

(40)  Paragraph 23 of the discharge report for the financial year 2002.

(41)  In particular, in Special Report No 2/95 (OJ C 167, 3.7.1995) and, most recently, in the Annual Reports on the activities of the sixth, seventh and eighth EDFs concerning the financial years 2001 (paragraph 19) and 2002 (paragraphs 49-51).

(42)  Report by the Director-General of the EuropeAid Cooperation Office for 2003.

(43)  Article 186(2) of the fourth Lomé Convention.

Chart illustrating the consolidated sixth, seventh, eighth and ninth EDFs as at 31 December 2003

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(1)  The total resources in the revenue and expenditure accounts (43 408,6 million euro) differ by 24,1 million euro from the total resources in the consolidated balance sheet (43 432,7 million euro) since the revenue and expenditure accounts do not include the capitalised interest related to Stabex (27 million euro), other operations of minor importance (0,3 million euro) and provisions for loss in value of investments (– 3,2 million euro).

Source: Court of Auditors, from the 2003 annual EDFrevenue and expenditure accounts and accounting balance.

ANNEXES

ANNEX I

Financial Information

CONTENTS

PRELIMINARY NOTES

Sources of financial data

Monetary unit

Abbreviations and symbols

BACKGROUND INFORMATION ON THE BUDGET

7.   Implementation of the budget

DIAGRAMS

PRELIMINARY NOTES

SOURCES OF FINANCIAL DATA

The financial data contained in this Annex have been drawn from the annual accounts of the European Communities (1) and from other financial records provided by the Commission. The geographical distribution is in accordance with the country codes in the Commission's system of accounting information (Sincom 2). As the Commission points out, all the figures given by Member State — for both revenue and expenditure — are the result of arithmetic that gives an incomplete view of the benefits that each State derives from the Union. They must therefore be interpreted with circumspection.

MONETARY UNIT

All the financial data are presented in millions of euro. The totals are rounded from each exact value and will not therefore necessarily represent the sum of the rounded-off figures.

ABBREVIATIONS AND SYMBOLS

BACKGROUND INFORMATION ON THE BUDGET

1.   ORIGIN OF THE BUDGET

The budget comprises the expenditure of the European Economic Community and the European Atomic Energy Community (Euratom). It also includes administrative expenditure on cooperation in the fields of ‘justice and home affairs’ and the common foreign and security policy, as well as all other expenditure that the Council considers should be borne by the budget for the purpose of implementing these policies.

2.   LEGAL BASIS

The budget is governed by the financial provisions of the Treaty of Rome (2) (3) (Articles 268 to 280 EC and Articles 171 to 183 Euratom) and by the Financial Regulations (4).

3.   MAIN BUDGETARY PRINCIPLES LAID DOWN IN THE TREATIES AND THE FINANCIAL REGULATION

All items of Community revenue and expenditure are to be included in a single budget (unity and accuracy). The budget is authorised for one financial year only (annuality). Budgetary revenue and expenditure must balance (equilibrium). The accounts are established, implemented and presented in euro (unit of account). Revenue is to be used without distinction to finance all expenditure and, like the expenditure, is to be entered in full in the budget and subsequently in the financial statements without any adjustment of one item against another (universality). The appropriations are specialised by titles and chapters; the chapters are subdivided into articles and items (speciality). The budgetary appropriations are used in accordance with the principles of sound financial management, i.e. in accordance with the principles of economy, efficiency and effectiveness (sound financial management). The budget is established and implemented and the accounts are presented in observance of the principle of transparency (transparency). There are some exceptions to these general principles.

4.   CONTENT AND STRUCTURE OF THE BUDGET

The budget consists of a ‘Summary statement of revenue and expenditure’ and sections divided into ‘Statements of revenue and expenditure’ for each institution. The eight sections are: (I) Parliament; (II) Council; (III) Commission, (IV) Court of Justice; (V) Court of Auditors; (VI) Economic and Social Committee; (VII) Committee of the Regions; (VIII) European Ombudsman and European Data Protection Officer.

Within each section, items of revenue and expenditure are classified under budget headings (titles, chapters, articles and, where applicable, items) according to their type or the use to which they are to be applied.

5.   FINANCING OF THE BUDGET (BUDGETARY REVENUE)

The budget is mainly financed from the Communities' own resources: agricultural duties, sugar and isoglucose levies; customs duties; own resources accruing from VAT and GNI-based own resources (5).

Besides own resources, there are other, marginal items of revenue; (See Diagram I).

6.   TYPES OF BUDGET APPROPRIATION

To cover estimated expenditure, the following types of budget appropriation are distinguished in the budget:

It is thus important to establish the following two totals for each financial year:

Revenue raised in the budget is intended to cover the total appropriations for payments. Commitment appropriations do not need to be covered by revenue.

The following simplified presentation (with illustrative amounts) shows the impact of these types of appropriations in each budget year.

7.   IMPLEMENTATION OF THE BUDGET

7.1.   Responsibility for implementation

The Commission implements the budget under its own responsibility in accordance with the Financial Regulation and within the limits of the allotted appropriations; it also confers upon the other institutions the requisite powers for the implementation of the sections of the budget relating to them (7). The Financial Regulation lays down the implementation procedures and, in particular, the responsibilities of the authorising officers, accounting officers, administrators of imprest accounts and internal auditors of the institutions. In two main specific areas (EAGGF-Guarantee and Structural Funds) the management of Community funds is shared with the Member States.

7.2.   Implementation of revenue

The estimated revenue is entered in the budget subject to changes deriving from amending budgets.

The budgetary implementation of revenue consists of establishing the entitlements and recovering the revenue due to the Communities (own resources and other revenue). It is governed by certain special provisions (8). The actual revenue of a financial year is defined as the total of sums collected against entitlements established during the current financial year and sums collected against entitlements still to be recovered from previous financial years.

7.3.   Implementation of expenditure

The estimated expenditure is entered in the budget.

The budgetary implementation of expenditure, i.e. the evolution and utilisation of appropriations, may be summarised as follows:

7.4.   The consolidated statements of budgetary implementation and determination of the balance of the financial year

The consolidated statements of budgetary implementation are drawn up after the closure of each financial year. They determine the balance of the year which is entered in the budget of the next financial year through an amending budget.

8.   PRESENTATION OF THE ACCOUNTS

The accounts for a given financial year are forwarded not later than 1 May of the following financial year to the Parliament, the Council and the Court of Auditors; these accounts comprise financial statements and statements on budgetary implementation, together with a report on the budgetary and financial management.

9.   EXTERNAL AUDIT

Since 1977 the external audit of the budget has been carried out by the Court of Auditors of the European Communities (9). The Court of Auditors examines the accounts of all revenue and expenditure of the budget. It must provide the European 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. It also considers whether revenue has been received and expenditure incurred in a lawful and regular manner, and whether the financial management has been sound. The audits may be carried out before the closure of the financial year in question and are performed on the basis of records and, where necessary, on the spot in the institutions of the Communities, in the Member States and in third countries. The Court of Auditors draws up an annual report for each financial year and may also, at any time, submit its observations on specific questions and deliver opinions at the request of any of the institutions of the Communities.

10.   DISCHARGE AND FOLLOW-UP

Since 1977 the following provisions have been applicable (10): Parliament, on the recommendation of the Council, gives, before 30 April of the second year following the financial year in question, discharge to the Commission in respect of its implementation of the budget. To this end, the Council and Parliament in turn examine the accounts presented by the Commission and the annual report and special reports of the Court of Auditors. The institutions must take appropriate action in response to the comments appearing in the decisions giving discharge and report on the measures taken.

DIAGRAMS

BUDGET FOR THE FINANCIAL YEAR 2003 AND BUDGETARY IMPLEMENTATION DURING THE FINANCIAL YEAR 2003

HISTORICAL DATA IN RESPECT OF THE IMPLEMENTATION OF THE BUDGET (1999 to 2003)

Diagram III

Appropriations for commitment available in 2003 and utilisation thereof, by financial perspective heading

Diagram IV

Appropriations for payment available in 2003 and utilisation thereof, by financial perspective heading

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(1)  In the case of the 2003 financial year: final annual accounts relating to operations under the 2003 budget (SEC(2004) 1181).

(2)  Treaty of Rome (25 March 1957): Treaty establishing the European Economic Community (EEC).

(3)  Treaty of Rome (25 March 1957): Treaty establishing the European Atomic Energy Community (Euratom).

(4)  Mainly the Financial Regulation (FR) of 25 June 2002 (OJ L 248, 16.9.2002).

(5)  Principal legal acts relating to own resources: Council Decision 2000/597/EC, Euratom of 29 September 2000 (OJ L 253, 7.10.2000); Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000 (OJ L 130, 31.5.2000); Council Regulation (EEC, Euratom) No 1553/89 of 29 May 1989 (OJ L 155, 7.6.1989); Sixth Council Directive of 17 May 1977, common system of VAT: uniform assessment basis (OJ L 145, 13.6.1977); Council Directive 89/130/EEC, Euratom of 13 February 1989 on the harmonisation of the compilation of GNI (OJ L 49, 21.2.1989), Council Regulation (EC, Euratom) No 1287/2003 of 15 July 2003 on the harmonisation of gross national income at market prices (OJ L 181, 19.7.2003).

(6)  It is important to note the differences between ‘appropriations for commitments’ and ‘commitment appropriations’ and between ‘appropriations for payments’ and ‘payment appropriations’. The two terms ‘commitment appropriations’ and ‘payment appropriations’ are used exclusively in the context of differentiated appropriations.

(7)  See Articles 274 of the EC Treaty, 179 of the Euratom Treaty and 50 of the FR.

(8)  See Articles 69 to 74 of the FR and Council Regulation (EC, Euratom) No 1150/2000 of 22 May 2000 (OJ L 130, 31.5.2000).

(9)  See Articles 246, 247 and 248 of the EC Treaty, 160a, 160b and 160c of the Euratom Treaty and Articles 139 to 147 of the FR.

(10)  See Articles 276 of the EC Treaty and 180b of the Euratom Treaty.

(11)  After amending budgets.

(12)  Revenue from participation by outside bodies.

(13)  After amending budgets and transfers between budget headings.

(14)  Assigned revenue and appropriations made available again, appropriations carried over and appropriations.

(15)  EFTA expenditure.

(16)  Budgetary appropriations amended after taking account of CAs carried over from 2002, appropriations corresponding to assigned revenue, transfers between budget headings, EFTA appropriations and financing from the EU Solidarity Fund. As a consequence the ceiling for some financial perspective headings is exceeded by the available appropriations.

(17)  Including appropriations corresponding to assigned revenue or similar.

(18)  Including the section of the EU Solidarity Fund destined for the Member States.

(19)  Budget appropriations amended after taking account of transfers between budget headings, appropriations relating to assigned revenue or similar and appropriations carried over from the previous financial year.

(20)  Including the section of the EU Solidarity Fund destined for the Member States.

(21)  For the United Kingdom a correction (5 184,9 million euro) is applied to the gross amount of own resources (15 156,1 million euro). The financing of this adjustment is borne by the other Member States. This correction was solely assigned to the VAT and GNP elements of gross own resources in accordance with their respective amounts.

(22)  The geographical breakdown is not by payments made to the Member States, but by expenditure allocation according to the data in the Commission's computerised accounting system SINCOM2.

(23)  The amounts under ‘Miscellaneous’ include mainly expenditure related to the projects implemented outside the Union and participation by third countries. Expenditure in respect of which the geographical distribution could not be made is also included.

(24)  Available appropriations = Appropriations for payment of the financial year + Appropriations carried over from the previous financial year.

(25)  For the 1993 to 1999 period, heading 7 covers compensation paid to the new Member States. For the 2000-2006 period, it covers pre-accession aid.

ANNEX II

Reports and opinions adopted by the Court of Auditors during the last five years

The Court of Auditors is required by the terms of the Treaties to produce an annual report. It is also required, by the Treaties and other legislation at present in force, to produce special annual reports on certain Community bodies and activities. The treaties also give the Court the power to submit observations on specific questions and to deliver opinions at the request of one of the institutions. The reports and opinions adopted by the Court during the last five years are listed below.

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