# EUR-Lex - 52002TA1227(03) - EN

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# 52002TA1227(03)

**Report on the financial statements of the European Environment Agency for the financial year 2001, together with the Agency's replies **

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Official Journal C 326 , 27/12/2002 P. 0017 - 0025 *

Report

on the financial statements of the European Environment Agency for the financial year 2001, together with the Agency's replies

(2002/C 326/03)

TABLE OF CONTENTS

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THE COURT'S OPINION

1. This report is addressed to the Management Board of the European Environment Agency in accordance with Article 13(4) of Council Regulation (EEC) No 1210/90(1).

2. The Court has examined the financial statements of the European Environment Agency for the financial year ended 31 December 2001. In accordance with Article 14 of Council Regulation (EEC) No 1210/90, the budget was implemented on the responsibility of the Director. This responsibility included the drawing-up and presentation of the financial statements(2) in accordance with the internal financial provisions adopted in compliance with Article 14 of Council Regulation (EEC) No 1210/90. The Court is required under Article 248 of the Treaty establishing the European Community to audit these accounts.

3. The Court performed its audit in accordance with its auditing policies and standards. These have been adapted from generally accepted international auditing standards to reflect the specific characteristics of the Community context. The Court carried out such tests of the accounting records and applied such other audit procedures as it deemed necessary in the circumstances. By means of this audit the Court obtained a reasonable basis for the opinion expressed below.

4. This examination has enabled the Court to obtain reasonable assurance that the annual accounts for the financial year ended 31 December 2001 are reliable and that the underlying transactions, taken as a whole, are legal and regular.

5. Without calling into question the audit opinion expressed in paragraph 4, the Court nevertheless draws attention to the situation described in paragraphs 8 and 9 of this report.

MAIN OBSERVATIONS

Implementation of the budget

6. The implementation of the appropriations for the financial year 2001 and of the appropriations carried over from the previous financial year is shown in Table 1(3).

7. Final appropriations for the financial year totalled 21,7 million euro, 20,9 million (96 %) of which were committed. 10,3 million euro (i.e. 97 %) of the 10,6 million euro of operating appropriations (Title III) were committed. Payments in respect of appropriations for the financial year totalled 13,2 million euro, i.e. 63 % of the amounts committed. A sum of 8,1 million euro had to be carried over to the following financial year and 0,4 million had to be cancelled.

8. The appropriations carried over to 2002 essentially concern operating appropriations, which account for 6,9 million euro. The increase when compared with the previous financial year is 2,5 million euro. This increase shows that the Agency needs to improve the quality and monitoring of the planning of its activities.

9. The appropriations carried over from the financial year 2000 to 2001 totalled 5,4 million euro, 4,4 million euro of which were settled. One million euro therefore had to be cancelled. In view of these cancellations, which represent an increase when compared with the previous financial year in terms of both absolute and relative value, the Agency should be more rigorous in evaluating the validity of the amounts which it carries over.

10. All the appropriations for the financial year for translation and terminology services (337000 euro) were committed in a single operation in December 2001 and no payment was made. The corresponding worksheets (order forms for the work entrusted to the Translation Centre) totalled 18408 euro. The balance of 318592 euro was carried over without justification, contrary to Article 6 of the Financial Regulation applicable to the Agency, and should have been cancelled.

11. In its Report concerning the financial year 2000(4), the Court emphasised the unjustified carry-over of appropriations from 2000 for translations to be done in 2001. The checks carried out show that the payments in 2001 using appropriations carried over from 2000 should have been made using appropriations for the financial year 2001.

Financial statements

Revenue and expenditure account and balance sheet

12. The revenue and expenditure account and the balance sheet published by the Agency in its activity report for the financial year 2001 are presented in summary form in Tables 2 and 3.

13. As regards the balance sheet, in 2001 the Agency took account, pursuant to Commission Regulation (EC) No 2909/2000 of 29 December 2000(5), of the depreciation of its fixed assets. The gross value of its fixed assets was 3523000 euro as at 31 December 2001. In view of depreciation charges for the financial year 2001 and for the previous financial years (i.e. 2536000 euro), the net value of the Agency's fixed assets was 987000 euro.

14. In its 2000 Annual Report on the Agency(6), the Court highlighted weaknesses in the inventory system. In 2001, the Agency applied the evaluation and depreciation rules adopted by the Commission in December 2000(7), and a computerised inventory-management system was introduced. The Agency's efforts to date should be continued with a view to ensuring that discrepancies do not arise between the value of goods when recorded in the inventory and their value when purchases are entered in the accounts. Greater coordination between the department responsible for keeping the inventory and the accounts department is needed so as to ensure that the depreciation rates laid down in the regulations are correctly applied.

Management of cash-flow

15. The Agency has four bank accounts. There are significant delays(8) in entering banking transactions in the general accounts, which makes it difficult to compare bank balances and the account balances recorded in the general accounts.

16. In order to strengthen internal control procedures, bank accounts should be reconciled with the general accounts at the end of each month and forwarded for approval to the relevant official in the administration department. Transactions which have not been reconciled for two consecutive months should be subject to particular scrutiny.

17. The Agency's payments are generally made through bank accounts. However, three "petty cash" sub-accounts are used to make cash payments. The accounts are kept by the Agency's accounting officer.

18. In order to ensure that accounts and cash-flow are kept separate the Agency's accounting officer should submit for approval to the Director a draft decision concerning the creation of and operating arrangements for these accounts. This decision should indicate the maximum amount and type of expenditure which may be disbursed from these accounts and the person authorised to manage them.

Implementation of financial provisions

19. Commitments to finance expenditure resulting from meetings of experts totalled 390000 euro. An initial commitment of 265000 euro was made at the beginning of the financial year by the appropriate authorising officer. However, two additional commitments (for 100000 and 25000 euro respectively) were signed by staff to whom the necessary powers had not been delegated in respect of this budget heading.

20. These irregular commitments were made possible when the member of staff responsible for the security of the computerised accounting system made a mistake in allocating the electronic certificate for authorising appropriations. The lists of people whom the computerised system recognises as having been authorised to sign official documents should be compared on a regular basis.

21. In its 1999 and 2000 Annual Reports concerning the Agency(9), the Court highlighted weaknesses in the management of contracts, in particular when payment requests were being handled. An examination of the files on the payments made in 2001 showed once again that the financial files do not always contain supporting documents but only a certificate of the authenticity and compliance of the work carried out.

Purchasing of goods and services

System for estimating requirements

22. The volume of purchases is linked to the content of the Agency's annual work programme, which defines the work needed to achieve the objectives set in the context of the multiannual programme.

23. The efforts made so far by the Agency to improve its system for planning purchases and for setting it within a multiannual context should be pursued and extended. Greater formalisation would enable comparisons to be made between estimates and actual outcomes with a view to improving the accuracy of subsequent estimates.

Cooperation with the Institutions and other Community bodies

24. The Agency does not participate in the Interinstitutional Group for the Harmonisation of Purchasing Procedures and, for this reason, it does not take part in interinstitutional invitations to tender or in exchanges of information about the purchasing of goods and services. For everyday purchases, it tries to develop forms of cooperation with the branch offices of the Community bodies in Copenhagen.

25. In order to implement projects which require the compilation of specific sets of data, the Agency endeavours to cooperate with the Statistical Office of the European Communities or with the Joint Research Centre in Ispra. A consultant(10) was recruited for a period of a year to guarantee the availability and quality of the socio-economic statistics needed to draw up basic indicators. The problem of updating these data in subsequent years has not been resolved.

Choice of procedure

26. In general, the Agency tends to favour invitations to tender. In one case(11), the restricted procedure was used even though the nature and value of the contract required publication in the Official Journal.

Evaluation of bids

27. The criteria for evaluating bids are defined in general terms, which makes quantitative evaluation difficult.

28. The bids are assessed by an evaluation committee made up of three members which gives its opinion on the basis of the documents submitted by the tenderers. The modus operandi of the evaluation committees should be subject to specific instructions so as to guarantee the independence of the assessors.

29. In order to provide better guarantees as to the quality of evaluations, the format of the replies to be provided by tenderers should be improved so as to make their content more precise and easier to compare.

Framework contracts

30. For everyday purchases, the Agency employs three-year framework contracts which may be renewed for two years in succession. These framework contracts include a clause allowing for prices to be adjusted in line with market prices for the goods provided.

31. Framework contracts often specify a maximum total value for the purchases to be made. Thought needs to be given to whether there is any point in having such a clause in a framework contract, when the specific aim of the latter is to offer a degree of flexibility and to ensure that purchasing procedures are not repeated(12).

This report was adopted by the Court of Auditors in Luxembourg at its meeting held on 25 and 26 September 2002.

For the Court of Auditors

Juan Manuel Fabra Vallés

President

(1) OJ L 120, 11.5.1990, p. 4.

(2) As required under Article 13(3) of Council Regulation (EEC) No 1210/90, the accounts for all the Agency's revenue and expenditure for the financial year 2001 were drawn up on 15 March 2002 and were sent to the Agency's Management Board, the Commission and the Court of Auditors. These accounts were received by the Court on 2 April 2002. A summary version of these financial statements is presented in the tables annexed to this report.

(3) All the tables in this report have been drawn up on the basis of the most exact values possible of the data used. For presentation purposes, the figures have been rounded up or down, which may give rise to minor differences in the totals. A dash indicates a non-existent or nil value and 0,0 indicates a value below the rounding threshold.

(4) OJ C 372, 28.12.2001.

(5) OJ L 336, 30.12.2000, p. 75.

(6) OJ C 372, 28.12.2001.

(7) Commission Regulation (EC) No 2909/2000 of 29 December 2000 (OJ L 336, 30.12.2000, p. 75).

(8) In November 2001, the delay ranged from one-and-a-half to four months.

(9) OJ C 373, 27.12.2000 and OJ C 372, 28.12.2001.

(10) Commitment EEA.50995 totalling 118000 euro.

(11) Project EEA-ACPC-00-0026.

(12) For the last year of the contract to supply paper and office equipment, an increase in the number of staff which was unexpected when the contract was signed led to an increase in requirements of more than 70000 euro and the contract had to be re-examined by the ACPC. The administrative procedure involved was correspondingly cumbersome.

Table 1

Implementation of the budget for the financial year 2001NB:

Any discrepancies in totals are due to the effects of rounding.

Source:

Data compiled by the Agency - These tables summarise the data provided by the Agency in its own financial statements.

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Table 2

Revenue and expenditure account for the financial years 2001 and 2000

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NB:

Any discrepancies in totals are due to the effects of rounding.

Source:

Data compiled by the Agency - These tables summarise the data provided by the Agency in its own financial statements.

Table 3

Balance sheet as at 31 December 2001 and 31 December 2000NB:

Any discrepancies in totals are due to the effects of rounding.

Source:

Data compiled by the Agency - These tables summarise the data provided by the Agency in its own financial statements.

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The Agency's replies

Implementation of the budget

8. The Agency recognises an increase in carry-forward appropriations and is fostering a tighter planning of its activities. It should be noted however that the Agency is in a growth phase, with an increasing budget, and also that part of the appropriations that were carried forward to 2002 relate to earmarked multiannual budget funds.

9. The Agency, during the year 2001, put specific emphasis on assuring annuality for its administrative titles and hence be more rigorous in evaluating the validity of amounts carried over. In doing so it was decided not to use some of the carry-forward appropriations for outstanding payments, and to provide a better implementation basis for the budgetary management for the coming years.

10. The Agency foresees its translation requirements as part of the annual publication planning, which is conducted in parallel to the development of its work programme. The Translation Centre invoices its services on an annual basis, so even if some advance payment may be made during the year, the total work carried out by the Centre for the Agency during the year can only be determined after the end of the year. As a consequence, the bulk of the payments corresponding to the work entrusted to the Translation Centre during the period 1 January 2001 to 31 December 2001 was finally paid in March 2002, thanks to the appropriations that had been carried over for this purpose from 2001 to 2002.

11. The Agency will in the future, and at the end of each year, consolidate the outstanding translation requests that have been put forward to the Translation Centre and hence need to be carried forward to the following year.

Financial statement

14. The Agency inventory system is now in place as acknowledged by the Court. The synchronisation between the accounts and the inventory, specifically on depreciation and exchange rates, will be further developed through regular reconciliations and a yearly inventory stock taking.

Management of cash flow

15 and 16. A new general ledger system (BOB) was installed during the month of April 2002 and includes a link to the SI2 budget management system. This link will enable a synchronisation between the budget system and the general ledger and will facilitate the monthly reconciliations as they are currently done. A link with direct banking is also being implemented, which will facilitate and speed up the reconciliation of the bank statements.

An internal auditor has been recruited and will assess the effectiveness of the accounting system and specifically on the reconciliation processes.

17 and 18. The three petty cash accounts are closed and cash is currently managed by an imprest administrator. The decision by the Executive Director to appoint an imprest administrator also defines the operating principles.

Implementation of financial provisions

19 and 20. The Agency recognises the discrepancy between the delegations signed off by the Executive Director and the SI2 implementation. The procedure for assuring the consistency has been sharpened and the task of security officer has been taken up explicitly as a task for the finance group coordinator.

21. The Agency is developing an electronic document repository that is integrated with the financial SI2 system. This system will include links and references to relevant documents, including main deliverables. The maintenance of this repository will be part of the role of the Agency's programmes, where programme managers have delegated responsibilities as authorising officers.

System for estimating requirements

22 and 23. The Agency agrees with the comment made by the Court of Auditors and will be ensuring that the accuracy of estimates is improved.

Procurement; cooperation with other institutions and other bodies

25. The Agency has established a Memorandum of Understanding both with Eurostat and with the Joint Research Centre and it also has to be noted that an extensive annual consultation takes place on the mutual work programmes. It is however recognised that the Agency must continue to foster further integration and cooperation with other Community bodies and institutions in order to share resources and capacities. With regard to the referred consultancy work, it was deemed necessary by the Agency that the work was outsourced, since neither internal Agency nor Eurostat staff resources were available to allow to implement the specific part of the work programme.

Evaluation of bids

27. to 29. The Agency recognises the need to develop more specific guidelines to enable more quantitative evaluation by tender evaluation Committees and expects to have such guidelines in place by the autumn 2002.

Framework contracts

30 and 31. The Agency agrees that the price ceilings as defined in some framework contracts are of internal nature and should not be part of the agreements with contractors.