# C_2008311EN.01004201.xml

| 5.12.2008 | EN | Official Journal of the European Union | C 311/42 |
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5.12.2008

EN

Official Journal of the European Union

C 311/42

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REPORT

REPORT

on the annual accounts of the European Agency for Reconstruction for the financial year 2007 together with the Agency's replies

(2008/C 311/07)

CONTENTS

| 1-2 | INTRODUCTION |
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1-2

| 3-6 | STATEMENT OF ASSURANCE |
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3-6

| 7-9 | OBSERVATIONS |
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7-9

Tables 1 to 4

The Agency's replies

The Agency's replies

INTRODUCTION

| 1. | The European Agency for Reconstruction (hereinafter the Agency) was established by Council Regulation (EC) No 1628/96 (1), as last amended by Council Regulation (EC) No 1756/2006 of 28 November 2006 (2). When it was set up in 2000, the Agency was responsible for managing the EU's aid programmes in Kosovo. Its mandate was later extended to Serbia and Montenegro and the former Yugoslav Republic of Macedonia. The Agency's head office is in Thessaloniki and it has operational centres in Belgrade, Podgorica, Pristina and Skopje. It implements programmes to foster institution-building and good governance, to promote the development of a market economy and essential infrastructure and to consolidate civil society. Its mandate is scheduled to end on 31 December 2008. |
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1.

The European Agency for Reconstruction (hereinafter the Agency) was established by Council Regulation (EC) No 1628/96 (1), as last amended by Council Regulation (EC) No 1756/2006 of 28 November 2006 (2). When it was set up in 2000, the Agency was responsible for managing the EU's aid programmes in Kosovo. Its mandate was later extended to Serbia and Montenegro and the former Yugoslav Republic of Macedonia. The Agency's head office is in Thessaloniki and it has operational centres in Belgrade, Podgorica, Pristina and Skopje. It implements programmes to foster institution-building and good governance, to promote the development of a market economy and essential infrastructure and to consolidate civil society. Its mandate is scheduled to end on 31 December 2008.

1

2

| 2. | Table 1 summarises the Agency's competences and activities. Key data taken from the financial statements drawn up by the Agency for the financial year 2007 are presented inTables 2, 3 and 4 for information purposes. |
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2.

Table 1 summarises the Agency's competences and activities. Key data taken from the financial statements drawn up by the Agency for the financial year 2007 are presented inTables 2, 3 and 4 for information purposes.

Table 1

Tables 2, 3 and 4

STATEMENT OF ASSURANCE

| 3. | This statement is addressed to the European Parliament and the Council in accordance with Article 185(2) of Council Regulation (EC, Euratom) No 1605/2002 (3). It was drawn up following an examination of the Agency's accounts, as required by Article 248 of the Treaty establishing the European Community. |
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3.

This statement is addressed to the European Parliament and the Council in accordance with Article 185(2) of Council Regulation (EC, Euratom) No 1605/2002 (3). It was drawn up following an examination of the Agency's accounts, as required by Article 248 of the Treaty establishing the European Community.

3

| 4. | The Agency's accounts for the financial year ended 31 December 2007 (4) were drawn up by its Director, pursuant to Article 8(2) of Council Regulation (EC) No 2667/2000 (5), and sent to the Court, which is required to give a statement of assurance on their reliability and on the legality and regularity of the underlying transactions. |
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4.

The Agency's accounts for the financial year ended 31 December 2007 (4) were drawn up by its Director, pursuant to Article 8(2) of Council Regulation (EC) No 2667/2000 (5), and sent to the Court, which is required to give a statement of assurance on their reliability and on the legality and regularity of the underlying transactions.

4

5

| 5. | The Court conducted its audit in accordance with the IFAC and ISSAI (6) International Auditing Standards and Codes of Ethics, insofar as these are applicable in the European Community context. The audit was planned and performed to obtain reasonable assurance that the accounts are reliable and that the underlying transactions are legal and regular. |
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5.

The Court conducted its audit in accordance with the IFAC and ISSAI (6) International Auditing Standards and Codes of Ethics, insofar as these are applicable in the European Community context. The audit was planned and performed to obtain reasonable assurance that the accounts are reliable and that the underlying transactions are legal and regular.

6

| 6. | The Court has thus obtained a reasonable basis for the statement set out below:

  Reliability of the accountsThe Agency's accounts for the financial year ended 31 December 2007 are, in all material respects, reliable.Legality and regularity of the underlying transactionsThe transactions underlying the Agency's annual accounts, taken as a whole, are legal and regular.The observations which follow do not call the Court's statement into question. |
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6.

The Court has thus obtained a reasonable basis for the statement set out below:

Reliability of the accountsThe Agency's accounts for the financial year ended 31 December 2007 are, in all material respects, reliable.Legality and regularity of the underlying transactionsThe transactions underlying the Agency's annual accounts, taken as a whole, are legal and regular.The observations which follow do not call the Court's statement into question.

Reliability of the accountsThe Agency's accounts for the financial year ended 31 December 2007 are, in all material respects, reliable.Legality and regularity of the underlying transactionsThe transactions underlying the Agency's annual accounts, taken as a whole, are legal and regular.The observations which follow do not call the Court's statement into question.

OBSERVATIONS

| 7. | The Agency's 2007 budget amounted to 250,2 million euro, as compared with 268,8 million euro for the previous year. Although the rate of implementation of the budget at year end was satisfactory, they were still unused budgetary appropriations (453 million euro) for operating activities: 163 million euro yet to commit and 290 million euro to cover payments on existing commitments. Due to the multiannual character of the Agency's activities, part of these amounts will have to be implemented in the years beyond 2008 which is the last year of existence of the Agency. |
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7.

The Agency's 2007 budget amounted to 250,2 million euro, as compared with 268,8 million euro for the previous year. Although the rate of implementation of the budget at year end was satisfactory, they were still unused budgetary appropriations (453 million euro) for operating activities: 163 million euro yet to commit and 290 million euro to cover payments on existing commitments. Due to the multiannual character of the Agency's activities, part of these amounts will have to be implemented in the years beyond 2008 which is the last year of existence of the Agency.

| 8. | The Agency's mandate expires on 31 December 2008. On 24 April 2008 the European Commission adopted a Decision concerning the handover of programmes previously delegated to the Agency and on 11 June 2008 issued an instruction and guidance note on the transfer of programme/contract files. This guidance note does not cover all items on the Agency's Balance Sheet. To formalise the transfer of all programmes and items a Memorandum of Understanding should be signed between the Agency and the Commission and endorsed by the Agency's Governing Board. This Memorandum will facilitate the transfer of items and ensure that they are reflected correctly on the Agency's accounts. |
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8.

The Agency's mandate expires on 31 December 2008. On 24 April 2008 the European Commission adopted a Decision concerning the handover of programmes previously delegated to the Agency and on 11 June 2008 issued an instruction and guidance note on the transfer of programme/contract files. This guidance note does not cover all items on the Agency's Balance Sheet. To formalise the transfer of all programmes and items a Memorandum of Understanding should be signed between the Agency and the Commission and endorsed by the Agency's Governing Board. This Memorandum will facilitate the transfer of items and ensure that they are reflected correctly on the Agency's accounts.

| 9. | The accumulated surplus of 180 million euro shown on the Balance Sheet at 31 December 2007 mostly reflected the funds received from the Commission for the pre-financing payments made by the Agency under contracts and grant agreements. These will also have to be taken over and managed by the European Commission at the end of the Agency's mandate. |
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9.

The accumulated surplus of 180 million euro shown on the Balance Sheet at 31 December 2007 mostly reflected the funds received from the Commission for the pre-financing payments made by the Agency under contracts and grant agreements. These will also have to be taken over and managed by the European Commission at the end of the Agency's mandate.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 18 September 2008.

For the Court of Auditors

Vítor Manuel da SILVA CALDEIRA

President

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(1)  OJ L 204, 14.8.1996, p. 1.

1

(2)  OJ L 332, 30.11.2006, p. 18.

2

(3)  OJ L 248, 16.9.2002, p. 1.

3

(4)  These accounts were drawn up on 10 July 2008 and received by the Court on 16 July 2008.

4

(5)  OJ L 306, 7.12.2000, p. 7.

5

(6)  International Federation of Accountants (IFAC) and International Standards of Supreme Audit Institutions (ISSAI).

6

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Table 1

European Agency for Reconstruction (Thessaloniki)

| Areas of Community competence deriving from the Treaty | Competences of the Agency as defined in Council Regulation (EC) No 2667/2000 of 5 December 2000 | Governance | Resources available to the Agency in 2007

  (2006) | Activities and services provided in 2007 |
| --- | --- | --- | --- | --- |
| The Community shall carry out, within its spheres of competence, economic, financial and technical cooperation measures with third countries. Such measures must be complementary to those carried out by the Member States and consistent with the development policy of the Community.

  (Article 181a) | Objectives

  To provide EU assistance:






  (i) | for reconstruction and the return of refugees and displaced persons; |

Areas of Community competence deriving from the Treaty

Competences of the Agency as defined in Council Regulation (EC) No 2667/2000 of 5 December 2000

Governance

Resources available to the Agency in 2007

(2006)

Activities and services provided in 2007

The Community shall carry out, within its spheres of competence, economic, financial and technical cooperation measures with third countries. Such measures must be complementary to those carried out by the Member States and consistent with the development policy of the Community.

(Article 181a)

Objectives

To provide EU assistance:

(i)

for reconstruction and the return of refugees and displaced persons;

| (ii) | to promote sound administration, stronger institutions and the rule of law; |
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(ii)

to promote sound administration, stronger institutions and the rule of law;

| (iii) | to support the development of a market economy and investment in essential physical infrastructure and environmental measures; |
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(iii)

to support the development of a market economy and investment in essential physical infrastructure and environmental measures;

| (iv) | to support social development and consolidate civil society. |
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(iv)

to support social development and consolidate civil society.

Application

The agency manages the principal aid programmes in Serbia and Montenegro (Republic of Serbia, Kosovo and Republic of Montenegro) and in the Former Yugoslav Republic of Macedonia (FYROM). Beneficiaries may include States, bodies under UN administration, ferated regional and local bodies, public and semi-public bodies, both sides of industry, business support organisations, cooperatives, mutual companies, charities, foundations and NGOs.

Tasks

| — | To advise the Commission of priority needs; |
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—

To advise the Commission of priority needs;

| — | To devise programmes for reconstruction and the return of refugees and displaced persons; |
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—

To devise programmes for reconstruction and the return of refugees and displaced persons;

| — | To take every possible step to implement EU assistance. |
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—

To take every possible step to implement EU assistance.

1.   Governing Board

Comprises one representative from each MemberState, two representatives from the Commission and an observer from the European Investment Bank.

2.   Director

Appointed by the Governing Board on a proposal from the Commission. Operational Centres in Belgrade, Pristina, Podgorica and Skopje with a high level of management autonomy.

3.   External control

Court of Auditors.

4.   Discharge Authority

The Parliament following a recommendation from the Council.

Final Budget:

250,2 million euro (268,8 million euro)

Staff at 31 December 2007:

108 (108) TA posts listed in the establishment plan

TA posts occupied: 83 (90)

Other posts:

Local staff: 165 (164) posts of which 154 (157) were occupied.

Contract staff: 29(29) posts of which 27 (26) were occupied.

Total staff: 264 (273)

Responsible for

Operational tasks: 163 (171)

Administrative tasks: 101 (102)

By operational centre (main developments):

KOSOVO:

| (a) | Social economic development assistance to minority communities; |
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(a)

Social economic development assistance to minority communities;

| (b) | Support for civil society and the media; |
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(b)

Support for civil society and the media;

| (c) | Support to the ministries of Justice, Internal Affairs, Local Government, Trade and Industry, Agriculture, Energy and to border management bodies and municipalities; |
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(c)

Support to the ministries of Justice, Internal Affairs, Local Government, Trade and Industry, Agriculture, Energy and to border management bodies and municipalities;

| (d) | Capacity building of Agency for European Integration and advice on EU compatibility and participation in the SAP; |
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(d)

Capacity building of Agency for European Integration and advice on EU compatibility and participation in the SAP;

| (e) | Drafting of public procurement law, and support for developing a public investment programme; |
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(e)

Drafting of public procurement law, and support for developing a public investment programme;

| (f) | Incorporation of publicly owned utilities; |
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(f)

Incorporation of publicly owned utilities;

| (g) | Sustainable forest management and land utilisation; |
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(g)

Sustainable forest management and land utilisation;

| (h) | Livestock breeding and development of food safety control systems; |
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(h)

Livestock breeding and development of food safety control systems;

| (i) | Support for the energy, environment, professional training, transport sectors. |
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(i)

Support for the energy, environment, professional training, transport sectors.

SERBIA:

| (a) | Draft laws in public administration reform; |
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(a)

Draft laws in public administration reform;

| (b) | Supply of equipment and support to the police and the border police; support for Juvenile Detention Centres; |
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(b)

Supply of equipment and support to the police and the border police; support for Juvenile Detention Centres;

| (c) | Introduction of capitation payment in state primary health care facilities; |
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(c)

Introduction of capitation payment in state primary health care facilities;

| (d) | Support for privatisation and training support for enterprises; |
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(d)

Support for privatisation and training support for enterprises;

| (e) | Support for the facilitation of FDIs; |
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(e)

Support for the facilitation of FDIs;

| (f) | Support for vulnerable groups including refugees and displaced persons; |
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(f)

Support for vulnerable groups including refugees and displaced persons;

| (g) | District Heating renovation and modernisation; |
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(g)

District Heating renovation and modernisation;

MONTENEGRO:

| (a) | Support for refugee and IDP integration and support to civil society organisations; |
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(a)

Support for refugee and IDP integration and support to civil society organisations;

| (b) | Strengthen environmental management; |
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(b)

Strengthen environmental management;

| (c) | Upgrade road infrastructure in coastal areas; |
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(c)

Upgrade road infrastructure in coastal areas;

| (d) | Assist Public Administration Reform: police and prison reform; |
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(d)

Assist Public Administration Reform: police and prison reform;

| (e) | Electricity utility unbundling/restructuring, energy efficiency strategy; |
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(e)

Electricity utility unbundling/restructuring, energy efficiency strategy;

| (f) | Providing management expertise to companies; |
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(f)

Providing management expertise to companies;

| (g) | Animal identification and registration system and fishery resource management; |
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(g)

Animal identification and registration system and fishery resource management;

FORMER YUGOSLAV REPUBLIC OF MACEDONIA:

| (a) | Twinning support on Money Laundering, Corruption and Organised Crime, Statistics, Air Quality, Financial Control; |
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(a)

Twinning support on Money Laundering, Corruption and Organised Crime, Statistics, Air Quality, Financial Control;

| (b) | Completing the establishment of the National Animal Identification System; |
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(b)

Completing the establishment of the National Animal Identification System;

| (c) | Fostering performance of SMEs and development of Human Resource Development Fund; elaborating a National Transport Strategy; |
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(c)

Fostering performance of SMEs and development of Human Resource Development Fund; elaborating a National Transport Strategy;

| (d) | Support for civil society organisations and municipalities; |
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(d)

Support for civil society organisations and municipalities;

| (e) | Support for the elimination of industrial hotspots, municipal waste water management and healthcare risk waste management; |
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(e)

Support for the elimination of industrial hotspots, municipal waste water management and healthcare risk waste management;

| (f) | Support for the programming of the Pre-accession Assistance Instrument; |
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(f)

Support for the programming of the Pre-accession Assistance Instrument;

| (g) | Support for the implementation of professional standards in prison administrations. |
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(g)

Support for the implementation of professional standards in prison administrations.

Source: Information submitted by the Agency.

Table 2

European Agency for Reconstruction (Thessaloniki) — Implementation of the budget for the financial year 2007

| (1000 euro) |
| --- |
| Revenue | Expenditure |
| Source of revenue | Revenue entered in the final budget for the financial year | Revenue collected | Allocation of expenditure | Final budget appropriations | Appropriations carried over from the previous financial year | Appropriations available (from financial year plus previous year) |
| Entered | Committed | Paid | Carried over | Cancelled | Available | Committed | Paid | Carried over | Cancelled | Entered | Committed | Paid | Carried over | Cancelled |
| Commission subsidy | 24 559 | 23 960 | Title I
  Staff | 18 702 | 17 869 | 17 540 | 330 | 832 | 187 | 0 | 133 | | 54 | 18 889 | 17 869 | 17 673 | 330 | 886 |
| Other revenue | p.m. | 4 743 | Title II
  Administration | 5 857 | 4 768 | 4 299 | 469 | 1 089 | 507 | 0 | 471 | | 36 | 6 364 | 4 768 | 4 770 | 469 | 1 125 |
| Earmarked revenue | 225 642 | 222 461 | Title III
  Operating activities | 13 727 | 3 031 | 120 | 13 607 | 0 | 678 806 | 276 086 | 236 172 | 439 217 | 3 417 | 692 533 | 279 117 | 236 292 | 452 824 | 3 417 |
| Total | 250 201 | 251 164 | Total | 38 286 | 25 668 | 21 959 | 14 406 | 1 921 | 679 500 | 276 086 | 236 776 | 439 217 | 3 507 | 717 786 | 301 754 | 258 735 | 453 623 | 5 428 |
| Source: Data supplied by the Agency. This table summarises the data provided by the Agency in its annual accounts. Revenue collected and payments are estimated on a cash basis. |

(1000 euro)

Revenue

Expenditure

Source of revenue

Revenue entered in the final budget for the financial year

Revenue collected

Allocation of expenditure

Final budget appropriations

Appropriations carried over from the previous financial year

Appropriations available (from financial year plus previous year)

Entered

Committed

Paid

Carried over

Cancelled

Available

Committed

Paid

Carried over

Cancelled

Entered

Committed

Paid

Carried over

Cancelled

Commission subsidy

24 559

23 960

Title I

Staff

18 702

17 869

17 540

330

832

187

0

133

54

18 889

17 869

17 673

330

886

Other revenue

p.m.

4 743

Title II

Administration

5 857

4 768

4 299

469

1 089

507

0

471

36

6 364

4 768

4 770

469

1 125

Earmarked revenue

225 642

222 461

Title III

Operating activities

13 727

3 031

120

13 607

0

678 806

276 086

236 172

439 217

3 417

692 533

279 117

236 292

452 824

3 417

Total

250 201

251 164

Total

38 286

25 668

21 959

14 406

1 921

679 500

276 086

236 776

439 217

3 507

717 786

301 754

258 735

453 623

5 428

Source: Data supplied by the Agency. This table summarises the data provided by the Agency in its annual accounts. Revenue collected and payments are estimated on a cash basis.

Table 3

European Agency for Reconstruction (Thessaloniki) — Economic outturn account for the financial years 2007 and 2006

| (1000 euro) |
| --- |
| | 2007 | 2006 |
| Operating revenue |
| Community subsidies | 255 537 | 273 192 |
| Other revenue | 1 243 | 239 |
| Total (a) | 256 780 | 273 432 |
| Operating expenses |
| Staff expenditure | 16 724 | 16 164 |
| Fixed asset-related expenses | 412 | 581 |
| Other administrative expenses | 5 454 | 5 510 |
| Operational expenditure | 225 568 | 247 509 |
| Total (b) | 248 158 | 269 764 |
| Surplus/(deficit) from operating activities (c = a – b) | 8 622 | 3 668 |
| Financial expenditure (d) | 36 | 25 |
| Surplus/(deficit) from non operating activities (e = – d) | –36 | –25 |
| Economic result for the year (f = c + e) | 8 586 | 3 643 |
| Source: Data supplied by the Agency — This table summarises the data provided by the Agency in its annual accounts. These accounts are drawn up on an accrual basis. |

(1000 euro)

2007

2006

Operating revenue

Community subsidies

255 537

273 192

Other revenue

1 243

239

Total (a)

256 780

273 432

Operating expenses

Staff expenditure

16 724

16 164

Fixed asset-related expenses

412

581

Other administrative expenses

5 454

5 510

Operational expenditure

225 568

247 509

Total (b)

248 158

269 764

Surplus/(deficit) from operating activities (c = a – b)

8 622

3 668

Financial expenditure (d)

36

25

Surplus/(deficit) from non operating activities (e = – d)

–36

–25

Economic result for the year (f = c + e)

8 586

3 643

Source: Data supplied by the Agency — This table summarises the data provided by the Agency in its annual accounts. These accounts are drawn up on an accrual basis.

Table 4

European Agency for Reconstruction (Thessaloniki) — Balance sheet at 31 December 2007 and 2006

| (1000 euro) |
| --- |
| | 2007 | 2006 |
| Non-current assets |
| Intangible fixed assets | 41 | 70 |
| Tangible fixed assets | 529 | 743 |
| Long-term receivables | 3 618 | 10 175 |
| Current assets |
| Short-term pre-financing | 179 810 | 166 885 |
| Short-term receivables | 30 329 | 24 562 |
| Cash and cash equivalents | 41 499 | 51 991 |
| Total assets | 255 826 | 254 425 |
| Current liabilities |
| Provisions for risks and charges | 1 189 | 1 986 |
| Accounts payable | 79 108 | 85 496 |
| Total liabilities | 80 297 | 87 482 |
| Net assets | 175 529 | 166 943 |
| Reserve |
| Accumulated surplus/deficit | 166 943 | 163 300 |
| Economic result for the year | 8 586 | 3 643 |
| Net capital | 175 529 | 166 943 |
| Source: Data supplied by the Agency — This table summarises the data provided by the Agency in its annual accounts. These accounts are drawn up on an accrual basis. |

(1000 euro)

2007

2006

Non-current assets

Intangible fixed assets

41

70

Tangible fixed assets

529

743

Long-term receivables

3 618

10 175

Current assets

Short-term pre-financing

179 810

166 885

Short-term receivables

30 329

24 562

Cash and cash equivalents

41 499

51 991

Total assets

255 826

254 425

Current liabilities

Provisions for risks and charges

1 189

1 986

Accounts payable

79 108

85 496

Total liabilities

80 297

87 482

Net assets

175 529

166 943

Reserve

Accumulated surplus/deficit

166 943

163 300

Economic result for the year

8 586

3 643

Net capital

175 529

166 943

Source: Data supplied by the Agency — This table summarises the data provided by the Agency in its annual accounts. These accounts are drawn up on an accrual basis.

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THE AGENCY'S REPLIES

| 7. | At the end of 2007, due to the multi-annual character of the CARDS programmes, the Agency could still proceed to commitments and payments for annual programmes 2004, 2005 and 2006. The CARDS deadline for committing is 2009 and for disbursement is 2010. These three live programmes amounted to € 1,8 billion. Having € 163 million still to be committed (9 %) and a total amount of € 453 million still to be paid (25 %) three years ahead of the CARDS deadline, shows a very high rate of implementation. The Court has praised the Agency's performance on its Special Report no 5/2007 (OJ C 285, 27.11.2007, p. 1.) |
| --- | --- |

7.

At the end of 2007, due to the multi-annual character of the CARDS programmes, the Agency could still proceed to commitments and payments for annual programmes 2004, 2005 and 2006. The CARDS deadline for committing is 2009 and for disbursement is 2010. These three live programmes amounted to € 1,8 billion. Having € 163 million still to be committed (9 %) and a total amount of € 453 million still to be paid (25 %) three years ahead of the CARDS deadline, shows a very high rate of implementation. The Court has praised the Agency's performance on its Special Report no 5/2007 (OJ C 285, 27.11.2007, p. 1.)

| 8. | The Agency is doing its utmost to make this hand over exercise a successful one. It is in process of drafting agreements for the disposal of items of its assets with several EU Institutions. Moreover, the Agency is in contact with the Commission in view of formalising all aspects of the hand over and will present the result to the Governing Board for endorsement. |
| --- | --- |

8.

The Agency is doing its utmost to make this hand over exercise a successful one. It is in process of drafting agreements for the disposal of items of its assets with several EU Institutions. Moreover, the Agency is in contact with the Commission in view of formalising all aspects of the hand over and will present the result to the Governing Board for endorsement.

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