# EUR-Lex - 52003DC0651 - EN

Avis juridique important

*|*

# 52003DC0651

**Report from the Commission to the European Parliament and the Council - Commission's report on the follow-up to 2001 Discharges /* COM/2003/0651 final */ **

*

*

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL - Commission's report on the follow-up to 2001 Discharges

TABLE OF CONTENTS

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL on the follow-up to 2001 Discharges

I. European Parliament Resolution on General Budget

a) Accounting, Treasury, Recovery

b) Eurostat, Fight against fraud

c) Externalisation

d) Budget Underimplementation / SAPARD, Structural Funds

e) Enlargement

f) Agriculture & Food

g) European Social Fund

h) Environment, public health and consumer policy

i) Penalty payments

j) External Policies

k) Financial Instruments

l) Other remarks

m) OLAF

II. European Parliament Resolution on EDF

III. European Parliament Resolution on ECSC

IV. European Parliament Resolution on Agencies

V. Recommendation of the Council on General Budget

a) Commission reform

b) Own resources

c) Common Agricultural Policy

d) Structural measures

e) Internal policies

f) External actions

g) Pre-accession aids

h) Administrative expenditure

i) Financial instruments & banking activities

j) Statement of Assurance

PREAMBLE

1/Scope of the Follow-up Report

Article 276 of the EC Treaty and Article 180b of the EAEC Treaty determine the discharge procedure. These articles state that the "Commission shall take all appropriate steps to act on the observations in the decisions giving discharge and on other observations by the European Parliament relating to the execution of expenditure, as well as on comments accompanying the recommendations on discharge adopted by the Council. At the request of the European Parliament or the Council, the Commission shall report on the measures taken in the light of these observations and comments and in particular on the instructions given to the departments which are responsible for the implementation of the budget. These reports shall also be forwarded to the Court of Auditors".

As far as implementation of the General Budget for the 2001 financial year is concerned, the Commission, acting on requests from the Council and Parliament, accordingly produces the present Follow-up Report, which relates to the Council recommendation of 7 March 2003 and the Resolution voted by the European Parliament on 8 April 2003.Compared with the previous years this Follow-Up Report also relates to the Discharges given in respect of implementation of the budget of the sixth, seventh and eighth European Development Funds and the ECSC for the 2001 financial year.

Lastly, the Report also deals with the follow-up to recommendations to the Commission relating to Discharges given to the European Coal and Steel Community (ECSC) and to the following agencies: Cedefop, Eurofound & Ear

2/Objective of the follow-up report

In accordance with the Treaties, the objective of this Follow-up Report is mainly to present the action taken by the Commission or action it intends to take in response to the comments contained in the discharge resolutions in respect of implementation of the general budget of the European Union for the financial year 2001, the budget of the sixth, seventh and eighth European Development Funds and the ECSC for the 2001 financial year.

3/Methodology

For the sake of clarity and to avoid a very lengthy document, this is a summarised version of the requests expressed by the Budgetary Authority. The requests can be found in full in the attached recommendations issued by the EP and the Council.

To make for quick location of the original requests in the Discharge recommendations, the cross-references to the original requests are presented in brackets after each summarised request. Each cross-reference starts with the name of the rapporteur responsible for a given Discharge recommendation (e.g. Casaca 52 stands for the request presented under paragraph 52 of the 2001 General Budget Discharge recommendation). The same proceeding applies for the other recommendations, i.e.:

Sorensen - stands for the 2001 EDF Discharge recommendation;

Langenhagen - stands for the 2001 ECSC Discharge recommendation;

Council - stands for the 2001 Council Discharge recommendation.

The measures taken by the Commission in respect of each request/recommendation are described in the boxes.

I. European Parliament Resolution on General Budget

a) Accounting, Treasury, Recovery

1. Present by the end of 2003 a multiannual plan containing a timetable and a step-by-step plan for obtaining a positive declaration of reliability in respect of the whole budget; (Casaca - 5)

Commission's reply:

Following the administrative reform, the Commission is gradually setting up the structure needed to give such an assurance. Concerning the accounting aspect, a new accrual accounting framework based on international accounting standards for the public sector is planned for 2005, in conformity with the Financial Regulation of 25 June 2002 and the implementing rules. Such international public sector accounting standards have only recently been agreed. The Court of Auditors has nevertheless consistently indicated that the accounts have over the years faithfully reflected the Communities' revenue and expenditure, except for 4 minor technical qualifications.

As regards the reform of financial management in the Commission, the standards expected of the internal control systems are clearly established and a major effort is being made by the Directorates-General to achieve full compliance as far as possible with the baseline requirements of the 24 Internal Control Standards by the end of 2003 (See Action 5.4.5. of the 2002 Synthesis of the Annual Activity Reports and declarations of the Directors-General and Heads of Services of the European Commission, - COM (2003) 391 of 9.7.2003). The Commission has also taken steps to deal with the risk of irregularity in operations which it does not manage directly. For instance:

- regarding shared management, an interdepartmental group is considering possible measures to involve the Member States more closely;

- as regards shared-cost programmes, a plan of action adopted on 10.1.2003 is now operating to generate greater consistency between Directorates-General in contract management. Several Directorates-General have adopted corrective measures to reduce the risk of errors to the minimum;

- regarding co-financed programmes in general, an interdepartmental group is to work from the end of 2003 on the possibility of introducing flat-rate components in grants and subsidies, with a uniform control methodology.

Finally, given the Court's continuing concern regarding such risks, the Commission will examine the feasibility of formalising benchmarks for the measures taken in each sector of its activities concerned, and of reporting on its attainment of these benchmarks.

2. Plan of the approach to be adopted by the end of 2003 by each individual DG, in the context of decentralisation, stating how and when the DG will obtain a declaration of reliability; (Casaca - 5)

Commission's reply: The Commission attaches the utmost importance to the achievement of a positive DAS. But in the system laid down by the Treaty (Article 248 EC), the Directorates-General are not supposed to obtain a declaration of reliability. It is at the Commission level that such an assurance is to be given. For this purpose, remedial measures to all detected weaknesses are being carried out, either at the services' and at the Commission's level, as it is indicated in the action plan attached to the 2001 and 2002 Synthesis of the Annual Activity Reports and declarations of the Directors-General and Heads of Services of the European Commission.

Since the entry into force of the Treaty of Nice, the statement of assurance can be supplemented by specific assessments for each major area of Community activity. In future the Commission will encourage the Court of Auditors to identify landmarks so as to measure the Commission's progress in complying with obligations in terms of sound financial management. In the meantime the Court's observations will gradually be taken into account through case-by-case improvements in each Directorate-General's internal control systems.

3. Reconciliation of the data in the accounting system to be treated urgently and frequently; (Casaca - 6)

Commission's reply:

Financial data for 2002 have been reconciled between the two sub-systems of SINCOM2. In March 2003 a team was established to monitor the consistency of the two systems on an ongoing basis. This is currently done on the basis of weekly reports comparing the two systems.

4. Take the high turnover of administrative staff in high ranking and crucial posts, as well as the deficit of qualified staff in accounting and auditing, as a top priority in its human resources policy; (Casaca - 11)

Commission's reply:

In principle and as a general rule, the Commission is committed to a policy of mobility for its high-ranking officials. Since the current Commission came into office, a number of mobility exercises have taken place amongst the A1 (Directors general or equivalent) and A2 (directors or equivalent) populations, the most recent took place in November 2002. The Commission believes that such a policy is in the interest of the institution and contributes to increased motivation and professionalisation of its senior staff, and is in no way detrimental either to the continuity or to the quality of the leadership. In its appointments the Commission ensures the best possible match between the qualifications of an official and the requirements and importance of the post.

The Commission has encountered difficulties in the short-term recruitment of a large number of internal auditors and managers internally and externally by means of competitions. The current supply on the employment market does not satisfy the considerable demand for this type of profile. So far a large proportion of requirements have been met by organising several specialised grade A competitions. A long-term policy based on the planned management of requirements and competitions, the organisation of competitions every year and the conversion of staff through appropriate training has enabled the Commission to develop a capacity for providing staff for these highly specialised posts.

5. Provide an answer to EP statement that closure of 2001 Accounts was carried out in violation of the Financial Regulation; (Casaca - 13)

Commission's reply: The accounts for 2001 were prepared by the relevant departments in the Budget Directorate General and were presented, under the responsibility of the accounting officer in office on 31 December, to the Director-General of DG Budget and then to the Commissioner for the Budget, who adopted them on behalf of the Commission on 30 April, as empowered to do so by the Members of the Commission.

Article 18 of the Commission Regulation laying down detailed rules for the implementation of certain provisions of the Financial Regulation does not provide for approval to be given by the Financial Controller.

Given the deadlines for the closure of the annual accounts, the accounts for 2001 were not submitted by the accounting officer to the Financial Controller prior to adoption.

6. Asks for the maximum restraint on earmarking of funds within budgetary lines - especially in Chapter A-30 (Community subsidies); (Casaca - 14)

Commission's reply:

The Commission welcomes the wishes of the European Parliament to restrain earmarking. This is in line with the approach of the new financial regulation. Earmarking in the budgetary remarks of Chapter A-30 is never proposed by the Commission in its PDB. In the past, when the Budgetary Authority decided to place earmarking in the remarks through amendment of the Commission's PDB, the Commission agreed to take into account the earmarking as a manifestation of a political priorities of the Budgetary Authority, as long as it was compatible with its responsibility in executing the budget. In 2004 and later years, the new legal bases for the Chapter A-30 grants currently being discussed by the legislator will clarify the situation.

The Commission has always advocated the principle of tendering for grants and this principle is now explicitly mentioned in the Financial Regulation. The Commission has proposed appropriate legislation ready for the introduction of ABB in 2004 and for cases in which a specific beneficiary has to be designated [COM(2003) 275 final and COM(2003)276 final].

7. External audit carried out by the end of 2003 on its treasury system and to report the results thereof to Parliament (Casaca - 16)

Commission's reply:

On 13 May 2003, the Commission asked its external auditors, the European Court of Auditors, whether it could undertake an audit of the Commission's treasury system before the end of 2003. In its reply of 23 May 2003, the Court indicated its willingness to consider such an audit, which would take account of the audits already undertaken by the Commission's Internal Audit Service. The Court stated that it would not be able to complete this task before the end of 2003.

8. Define clearly its understanding of "full accrual accounting"; (Casaca - 17)

Commission's reply:

Accrual accounting is defined by the IFAC in its International Public Sector Accounting Standards (IPSAS) (and therefore understood by the Commission) as: "A basis of accounting under which transactions and other events are recognized when they occur (and not only when cash or its equivalent is received or paid). Therefore, the transactions and events are recorded in the accounting records and recognized in the financial statements of the periods to which they relate. The elements recognized under accrual accounting are assets, liabilities, net assets/equity, revenue and expenses."

Under accrual accounting, operations are therefore entered in the account for the year to which they relate, regardless of the date of payment or receipt.

Article 125 of the new Financial Regulation similarly refers to the accrual accounting principle as the requirement that "...the financial statements shall show the charges and income for the financial year, regardless of the date of payment or collection."

9. SAP/R3 modules 'accounts payable' and 'accounts receivable' to be brought into use by the end of 2003; (Casaca - 18)

Commission's reply: The Commission already uses these modules but a new structure is being analysed under the framework of the accounting reform. A group established under the accounting reform has examined how client and suppliers' accounts can be enhanced and the conclusions from this work are now being finalised which will allow the Commission to ensure that both accounting and user DG requirements are met. Once this group reports, it will be possible to take charge of the translation into the operational system. .

10. Principle of double-entry accounting be respected and Discharge authority be informed of the transition towards this system at least in quarterly intervals; (Casaca - 19 and 20)

Commission's reply:

The principle of double-entry accounting is accepted and has been used for the general accounts for many years. Although the use of double-entry bookkeeping in the budgetary accounts is not required by Article 137 of the Financial Regulation, nor under the International Public Sector Accounting Standards (IPSAS), the Commission is examining whether it is feasible to introduce it within its project for the modernisation of its accounting system. If it proves feasible, and of demonstrated added value, it will also be introduced in 2005.

The Commission's general accounts are already kept by double-entry bookkeeping, in accordance with the requirements of Article 134 of the Financial Regulation.

The Commission will inform the Discharge Authority quarterly on the issue of accounting modernisation. Ms Schreyer presented to the COCOBU on 8 July the first "Information Note from Commissioner Schreyer to the Commission - Progress Report concerning the modernisation of the Accounting System of the European Commission.

11. Experts from ECA to participate, in an advisory capacity, on the new Accounting Standards Committee; (Casaca - 22)

Commission's reply:

Two members of the Court's staff attend the meetings of the Accounting Standards Committee as observers, and give advice in a personal capacity.

12. Lack of integration in current automated accounting system and failure to ensure either the required level of secure access or reliability of data input from different parts of the system; failed to ensure either the required level of secure access or reliability of data input from different parts of the system; (Casaca - 25)

Commission's reply:

The architecture of the current SINCOM2 system requires that data are reconciled to ensure consistency of the sub-systems. This has been done for 2001 and 2002. Data for 2003 are being examined weekly to ensure consistency. This activity will continue until such time as a new integrated accrual accounting system is put in place under the provisions of the ongoing accounting reform project.

Access to SINCOM2 is granted on the basis of the Internal Rules of the Commission and of validated requests from the superiors responsible. The access of system administrators has been severely restricted - no administrator to the system has a permanent access to the system and access is only granted for a limited period for defined tasks of a technical nature. All actions are logged in the system. A revised security policy has been developed for SINCOM2 in line with recognised international standards and this has been applied since July 2003.

13. Cost-benefit analysis of the two alternatives expressed in options 2 ('single standard package') and 3 ('new integrated system')for the development of the computerised accounting system; (Casaca - 26)

Commission's reply:

The Commission has studied both options, and has concluded that option 3, an integrated central system receiving accounting information from a number of local systems, is the only means of introducing accrual-based accounts by the 2005 deadline. Once the new central system is fully operational, it will undertake a cost/benefit analysis of each local system before deciding whether it should be integrated into the central system.

14. Prior to decision to be made, detailed and comprehensive audit by external experts of the Commission's plans to improve the accounting framework (detailed characteristics Casaca - 23) and the related IT systems (detailed characteristics Casaca - 28). Results to be reported and discussed at a hearing before the Committee on Budgetary Control; (Casaca - 29)

Commission's reply:

On 13 May 2003, the Commission asked its external auditors, the European Court of Auditors, whether it could undertake an audit of its project for the modernisation of its accounts. In its reply of 23 May 2003, the Court stated that such an audit by the Court would be premature, given the degree of the project's implementation. To meet Parliament's concern, the Accounting officer of the Commission asked external consultants to do a feasibility study of the Communication of December and of the implementation of the project. This study was completed in early July and its conclusions presented to the COCOBU by Mrs Schreyer on July 8th. Also see answer to point 10.

15. Provide complete explanations of accounts and references to their legal basis, including the various volumes and tables; (Casaca - 32)

Commission's reply:

The consolidated annual accounts of the European Communities for 2001 are drawn up in accordance with Articles 78, 80 and 81 of the Financial Regulation of 21 December 1977, applicable to the general budget of the European Communities, amended last by Council Regulation No 762/2001 of 9 April 2001. They are drawn up each year by the European Commission and record the budgetary and accounting data of all the European institutions.

The annual accounts of the Communities are presented in four volumes, as follows:

. Volume I - The Commission - Analysis of financial management,

. Volume II:

-Tome I: The Commission - statement of budgetary implementation,

-Tome II: The Commission and EURATOM Supply Agency financial statements,

. Volume III - The European Parliament, the European Council, the Court of Justice, the Court of Auditors, the Economic and Social Committee, the Committee of the Regions and the Ombudsman financial statements,

. Volume IV - Consolidated statements on budgetary execution and the consolidated financial statements

16. Make an assessment of the reliability and accuracy of figures included in volumes I and IV of financial statements; (Casaca - 33)

Commission's reply:

The 2001 figures have been audited by the ECA, which has confirmed their reliability in the DAS Chapter 9 of their Annual Report under the heading "Reliability of the accounts": "III. Except for the effects of the observations summarised in indents (a) to (d) below and the remark made in paragraph IV, the Court is of the opinion that the accounts of the financial year closed on 31 December 2001, as published in the Official Journal, faithfully reflect the Communities' revenue and expenditure for the year and their financial position at the year-end..."

17. Use certified figures from the financial statements as the only source for any official release of budgetary figures; (Casaca - 34)

Commission's reply:

The figures released by the accounting services to the Court of Auditors are official as are those sent to the discharge authorities.

Such legal reporting is based on the source data included in the accounting system.

18. Establish a pilot programme introducing information on dates of invoices and payments in the beneficiaries' notifications; (Casaca - 38)

Commission's reply:

A pilot project relating to DG EMPL programmes will be conducted in 2003. Grant beneficiaries will be informed of payments they are to receive as soon as the request for payment has been made by the authorising officer. The information beneficiaries are requested to supply in return should ensure actual payment times. This new procedure will be evaluated in the light of the interest shown by beneficiaries for this advance information.

19. Present a detailed action plan in July 2003 to include in the budget the use of interest paid on advance payments and of recoveries (Casaca - 43), see also Casaca - 40 and 42);

Commission's reply:

All interest received by the Commission is entered in the budgetary accounts. In its planned modernisation of the accounting system, the Commission is examining the best means of also recording interest earned on pre-financing and on recoveries, but not yet received by the Commission.

As for the 20% deduction from recoveries collected under Council Regulation (EEC) 595/91, the COCOBU was informed by letter (AGRI 10440 dated 13/4/2003) that the amounts corresponding to the 20% deduction are booked under specific budget headings. The COCOBU had also been informed about the detailed amounts booked. As for the use of these amounts in the MS it was explained in the same letter that these amounts are resources of the MS and that the Commission therefore makes no enquiry into the specific use of these amounts.

As for the interest earned on SAPARD accounts a letter was sent to the COCOBU (AGR 7132 dated 7 March 2003) in which the specific question concerning the use of these amounts was addressed. The Commission stated in that letter that both the receipt and the use of interest is reported by the candidate countries. Interest generated on SAPARD accounts is subject to budgetary control and, in particular, the clearance of accounts process. The legislation applicable to the SAPARD programme (Commission Regulation (EC) No 2222/2000) stipulates that the interest credited to the SAPARD account should be used exclusively for the programme (Article 11(3)), and that the clearance of the SAPARD agency account also covers clearance of the SAPARD EUR account and the interest credited to it (Article 13(3)).

b) Eurostat, Fight against fraud

Eurostat

20. IAS to examine by summer 2003 the legality and regularity of all contracts concluded by Eurostat since 1999 and to include in the investigation those contracts concluded by other Commission services on Eurostat's recommendation; (Casaca - 57)

Commission's reply:

In specific response to Parliament's request, on 11 June 2003 the Commission tasked its Internal Audit Service with an examination of the awarding of contracts and grants in Eurostat or on the recommendation of Eurostat in other Commission services. This examination was carried out on an agreed-upon procedures basis.. The results of this examination were transmitted in confidence, on the basis of Annex III, Article 3.2 of the Framework Agreement, to Parliament on 24 October 2003.

21. Full implementation of the recommendations from the Audit report on EUROGRAMME, including that related to Article 24 of the Staff Regulations. (Casaca - 58)

Commission's reply: The measures taken to follow up the recommendations made during analysis of the Prodcom dossier may be summarised as follows:

(1) "Better methods for checking the criteria laid down in Council Directive 92/50, and in particular Articles 31 and 32, should be implemented".

The manual on calls for tenders, regularly updated and most recently in 2003, has stepped up the checks of these criteria.

Eurostat now carries out a tighter check of the financial statements provided by companies.

To boost financial awareness, the training course on the Expenditure Life Cycle was attended by 56 persons in 2001, 36 persons in 2002 and 12 persons in 2003.

(2) "In obvious cases of misrepresentation in information given to the Commission, Article 29(g) may be applicable".

Eurostat managers considered that the information at its disposal was not such as to justify the application of Article 29(g) of Directive 92/50. Eurostat managers interpreted the further information provided by Eurogramme at Eurostat's request as showing that the information originally supplied was incoherent rather than false.

OLAF examined the case at the end of 1999 and concluded, on the basis of the information available at the time, that there was then no justification for stopping payment or the award of contracts to Eurogramme.

OLAF decided on 2 December 2000 to open an external investigation, and on 5 July 2002 to forward information to the Luxembourg judicial authorities.

OLAF's final investigation report was recently sent to the Secretariat-General of the Commission, which immediately forwarded it to DG ESTAT. OLAF will inform the Commission of action taken by the judicial authorities.

(3) "DG ESTAT should include in the project management procedures a clear statement that no assistance should be given to contractors in recruitment of staff, even if it would be in concern of the success of the project".

(7) "Clear instructions and rules on management of externalised projects, including project files, should be implemented, and training in project management should be intensified".

Clearer and more concise rules have been drawn up for the management of projects and, in particular, the management of outsourced activities. Project managers receive training on a regular basis.

These include instructions to project managers not to help contractors recruit staff.

Meanwhile, there has been more general training on project management. Around 100 persons attended these training courses in 2001 and 2002.

(4) "Considering the settlement proposal from the Head of Unit, the final payment should be executed, in spite of the breach of contract".

The final payment to Eurogramme (EUR192 250, compared with EUR250 000 in the initial contract) reflects a management decision which takes account of the work actually done.

(5) "Contractual obligations, such as deadlines and quality of deliverables, should be better followed up and respected".

The financial reporting for contracts has been improved. The rules on the management of projects and outsourced activities will reinforce and formalise the follow-up measures.

(6) "Clear instructions in cases of breach of contract should be implemented". &

(12) "Clear instructions for procedures related to renewals of contracts should be implemented".

Eurostat has amended its internal manuals on calls for tenders, commitments and grants in line with the new Financial Regulation, the implementing rules and the recommendations of the Internal Audit Service.

These manuals entered into force on 1 January 2003.

(8) "Article 24(1) of the Staff Regulations should be taken into account when replying to the contractor's note of 14 September 2000".

Article 24 of the Staff Regulations had been invoked by the Eurostat Project Officer for Prodcom, Mrs Schmidt-Brown, in connection with a libel action against the contractor Eurogramme that she had brought before the High Court in London. Mrs Schmidt-Brown asked in particular for financial assistance from the Commission, in relation to the costs incurred for the libel action in London. However, Mrs Schmidt-Brown has subsequently informed the Commission that the case in London had come to a settlement and that, as a consequence, the case before the High Court had been closed.

This settlement means that Mrs Schmidt-Brown's request as originally formulated did not retain its relevance.

Against this background, the Commission has subsequently (in May 2003) made clear in writing to Mrs Schmidt-Brown that her professional conduct has always been of high quality. The Commision has also recognised that her case may not have been dealt with in a way that fully accords with the high standards that the Commission is seeking to set for itself.

The Commission has therefore supported Mrs Schmidt-Brown.

(9) "All management of confidential data should be internalised.",

(10) "Internalisation of the PRODCOM project should be considered." and

(11) "All databases and applications should comply with Commission standards".

A new manager was appointed for the Prodcom project in September 2001. One of his responsibilities was to internalise the activities which used to be entrusted to outside firms (the last company to win this contract was Eurogramme).

These activities consisted of:

- Processing data from the Member States by using a system developed and maintained by Eurogramme;

- Analysing the data;

- Preparing the data for distribution.

Internalisation is achieved by developing internally a computer system to receive and process the data from the Member States which are then processed by another Eurostat database for the purposes of production, analysis and distribution.

The data for 2001 have already been processed under the new system which complies with Commission standards.

22. Revise all contracts with and payments to EUROGRAMME, suspend the granting of contracts to that firm and assure the compliance of the stockholding transfer to a new company with the Financial Regulation (Casaca - 59)

Commission's reply:

Given the uncertainty about the exact nature of the transaction between Eurogramme and Calethon and the lack of complete information on the financial and operational capacity of Calethon, Eurostat decided to suspend all payments under current contracts to Eurogramme and to Calethon on a precautionary basis. However, the Commission remains liable for payments relating to work effectively carried out.

An exhaustive analysis of the amounts contractually due compared to the work carried out until now was undertaken before proceeding to any payment. The same decision is being applied by other Commission departments concerned.

In addition, following the undertaking given by the Commission to the COCOBU on 28 February 2003, the Commission has served notice to the company of termination of contracts with work in progress related to statistical activity, pursuant to Art.7.1 of the General Conditions of the contracts.

The two bank accounts held by EUROGRAMME listed in the "Third Party File" were flagged in the Early Warning System on 31/03/2003, following a formal request transmitted by OLAF.

Consequently, as from this date (31/03), any Authorising Officer scheduling a payment for one or the other of these bank accounts is informed "on-line" of this situation and can/has to contact a designated OLAF official.

Furthermore, the IAS has undertaken an examination covering the award procedures of a sample of commercial contracts and grants. It is based on commitments authorised in the financial years 1999 to 2002, awarded by Eurostat or on its recommendation.

Fight against fraud

23. Review the information procedure between OLAF and Commission and necessary steps in order to remedy the fact that Commission ignores OLAF complaints to national judicial authorities (Casaca - 60)

Commission's reply:

The evaluation of OLAF carried out under Article 15 of the relevant regulation had already identified the need to improve exchanges of information on internal and external investigations with due respect for all the rules applying to the Office's activities.

Steps are being taken to improve the working relationship between OLAF and the Commission. Operational instructions issued by OLAF to its investigators concerned with informing the Commission of internal investigations within the Commission came into force on 23 June 2003. These instructions will first operate for a trial period of six months at which point it will be decided on the basis of the experience gathered whether their use will be extended to the other institutions, agencies and bodies.

Furthermore, a draft memorandum of understanding between the Commission and OLAF concerning a code of conduct to ensure the timely exchange of information between OLAF and the Commission with respect to OLAF internal investigations in the Commission was approved by the Commission on 25 July 2003. The draft document has been transmitted by the Commission to the European Parliament and by the Director General of the European Anti-Fraud Office to the OLAF Supervisory Committee for their observations.

The President of the Commission gave an undertaking on 25 September to the Conference of Presidents to propose a plan of action with recommendations for improvements with a view to consolidating the reform and guaranteeing full autonomy of OLAF within a clear political frame.

It is OLAF which has contacts with the national judicial authorities. OLAF has a unit staffed with magistrates from the Member States, one of whose tasks is to ensure an improved judicial follow up of cases transmitted by it to the national judicial authorities.

It is for OLAF to provide the Commission with the information needed for measures to be adopted when OLAF refers a case to the national judicial authorities. Article 10.3 of the relevant regulations allows OLAF to inform the institution concerned during internal investigations.

24. Ensure that Member States have proper accounting, audit and control systems, set up anti-fraud units with OLAF and improve co-operation with ECA. (Casaca - 67)

Commission's reply: The Commission already verifies on a regular basis that Member States have adequate control and audit systems. The manner in which the Member States organise their administrations is a matter of national competence although the Commission favours clearly identified horizontal anti-fraud structures. OLAF cooperates regularly with all the services responsible for the fight against fraud against the Community budget in the Member States. In addition, OLAF and the Court of Auditors have a memorandum of understanding on the mutual exchange of information.

Between November 2002 and January 2003, OLAF carried out a joint audit with the Directorates General responsible for the Structural Funds on the implementation by the Member States of the provisions of Regulation (EC) No 1681/94 of the Commission concerning the systems and procedures for the notification and follow up of irregularities as well as the application of Article 8 of Regulation (EC) No 438/2001. The conclusions of this audit will be transmitted to the Member States, the Council, the European Parliament and the European Court of Auditors.

c) Externalisation

PERSONNEL POLICY

25. Establish a code of conduct for its personnel that ensures transparency and separation between private and public interests. (Casaca - 44)

Commission's reply:

An administrative guide has been drawn up and published on the Commission's intranet giving guidance to officials as regards their obligations in general and the need for them to ensure separation between their private and public interests.

According to the internal control standards the Commission has adopted (specifically control standard No.1 concerning 'ethics and integrity'), DGs and services have made several documents available to staff (among others Staff regulations, Code of good administrative behaviour).

The application of these rules is supervised by the management and by the IAC.

These issues will be repeated in a notice to staff to increase awareness, ongoing attention and sensitivity.

26. Closely monitor the granting of leave on personal grounds and to review its past decisions. (Casaca - 45)

Commission's reply:

The Commission, in the context of the reform process, has decided to encourage external mobility to enable officials to acquire new skills and knowledge which are of benefit both to the officials themselves and to the institution. However, the Commission also considers that in the interest of transparency, the provisions governing permission to engage in an outside activity should be incorporated in a single measure indicating in detail which factors have to be taken into account when taking a decision on such permission.

The Commission therefore intends to adopt new rules on the authorisation of external activities by end 2003 - early 2004. These revised rules will make a clearer link between the authorisation of external activities and the authorisation of leave on personal grounds.

These rules will apply also to leave already granted when the time comes for annual renewal.

27. Amend its proposals to review the staff regulation about the cost of the pension weightings. (Casaca - 47)

Commission's reply:

On 19 May 2003 the Council adopted a "Presidency Proposal for the Revision of the Staff Regulations" including the following political agreement with regard to the correction coefficients for pensions:

"Weightings (correction coefficients) will not be applied to pension rights accumulated after the entry into effect of the new Staff Regulations. Acquired rights of existing officials who retire to their state of origin will be respected by applying country-based coefficients (which cannot be less than 100 percent, including for current pensioners) to the part of the pension resulting from pension rights accumulated until the entry into effect of the new Staff Regulations."

The Commission supports the compromise reached in Council and will integrate it into its modified proposals to be submitted to Council in the autumn of this year.

OUTSOURCING POLICY

28. Make a rigorous analysis of the need and added value of the administrative functions it will perform prior to the decision to create any executive agency. (Casaca - 51)

Commission's reply:

The preparation of any decision to create an executive agency is the responsibility of the DG concerned; the dossier comprises a "cost-benefit" analysis which could cover the action referred to in point 28. Article 3 of Regulation 58/2003 laying down the statute of executive agencies contains precise provisions on the cost-benefit analysis. Before the Commission can take a decision on the creation of an executive agency it has to submit the draft text to a regulatory committee. The committee has all the elements of a cost-benefit analysis. DG Budget is consulted during the interdepartmental consultations initiated by the other DGs and Services. As it is responsible for the committee procedure for the executive agencies and has drawn up the framework regulation on the statute of these agencies (No 58/2003), DG Budget also contributes its know-how and assistance to the sound preparation of dossiers.

The Commission is considering the establishment of an executive agency to replace the Technical Assistance Offices which have still been retained on a transitional basis. The final decision on setting up this agency will not be taken until the conclusions of a feasibility study and a cost/benefit study commissioned from an outside consultancy have been taken into consideration.

29. Launch a careful review of policy of outsourcing of activities, with particular reference to the principle of budgetary annuality. (Casaca - 52)

Commission's reply:

Since 1999, the Commission has undertaken a reorganization of its externalisation policy, re-focusing on its core tasks and activities and reassuming effective control of executive and support activities by means of more closely controlled structures endowed with the necessary skilled staff.

New externalisation instruments have been designed to implement this policy and take over tasks performed by TAOs. The new regulation on executive agencies, adopted by the Council last December, is a decisive part of this package. However, adopting legal instruments and implementing them has taken and will still take some time. In the meantime, the Commission decided to adopt measures to rectify the situation regarding the tasks entrusted to some of the TAOs.

Externalisation of the management of community programmes can take a number of forms, according to the sectors or activities to which it is applied. Certain limits and constraints must be observed when tasks are externalised. In particular, externalisation cannot relieve the Commission of the responsibilities conferred on it by the Treaties, by virtue of either implementing powers delegated to it by the Council (Article 202) or its responsibility for implementing the budget (Article 274). Its public-authority tasks, in particular, cannot be devolved to private bodies.

The externalisation body must be designed in such a way as to preserve the continuity of the chain of responsibility between the Commission and the bodies to which it delegates powers and to give the Commission effective control of the tasks it devolves to outside agencies.

The decision to externalise tasks must always be made on grounds of good management, accompanied where appropriate by a simplification and clarification of management procedures, and because it is more cost-effective than direct centralised management.

The tasks entrusted to external private-sector entities or bodies other than those, which have a public-service mission, are technical expertise tasks and administrative, preparatory or ancillary tasks involving neither the exercise of public authority nor the use of discretionary powers of judgement.

These principles are enshrined in the new financial regulation, which specifies in Article 54, that the Commission cannot entrust to third parties its executive powers involving a large measure of discretion implying political powers. The same article also defines "indirect central management" and allows for externalisation. Furthermore, Article 57 also recalls the main constraints on outsourcing tasks to the private sector.

Three forms of externalisation of the management of programmes have been implemented.

Executive tasks which are the responsibility of the public authorities, or for which there is no truly competitive market, can be dealt with by:

(i) devolution, i.e. delegating executive responsibilities to Community public bodies (executive agencies) conceived as part of an expanded Community administrative architecture;

(ii) decentralising, i.e. delegating executive responsibilities to national bodies, with a public service mission backed by the State, to act as partners in implementing some Community policies.

Some tasks requiring technical expertise and various preparatory or auxiliary administrative tasks, not inherently belonging to the domain of the public authorities nor requiring the exercise of discretionary powers, could be handled by:

(iii) outsourcing through contracts given to the private sector. The relationship between the Commission and the service provider is defined in a private law contract, usually in the form of a service contract following a tendering procedure. The services concern specific tasks during the life cycle of operations when implementing a Community programme. The Commission remains responsible for ensuring the tasks have been duly performed according to the stated terms of reference.

30. Quantify as soon as possible the externalisation of administrative tasks, broken down by Commission department; according to the number of tenders and tendering procedures, number of contracts and list of leading recipients of the contracts by financial value. (Casaca - 53)

Commission's reply:

In 2000, the Commission underwent a thorough assessment of existing and planned TAOs and reassessed their tasks in the light of the criteria setting the scope and limits of various forms of externalisation. The information available for quantifying the externalisation of administrative tasks relates to the technical assistance offices (TAOs) listed in the annex to letter of amendment N° 1 of 4 September 2000 to the preliminary draft budget (PDB) for 2001.

This Letter of Amendment listed 124 contracts with TAOs that the Commission was using or planned to use. The related aggregate annual expenditure was estimated at some EUR133.6 million.

TAOs could be kept on if the tasks subcontracted are strictly limited to technical expertise and administrative, preparatory or ancillary tasks involving neither the exercise of public authority nor the use of discretionary powers of judgment.

The letter of amendment provides for the retention of 24 TAOs. The list is regularly updated by the Commission and then sent to the committees responsible in the European Parliament. It contains precise information on the number of TAOs closed down, the remaining TAOs and the dates on which their contracts end.

For TAOs failing to meet the minimum criteria for the delegation of responsibilities in acceptable conditions, the Commission proposed alternative solutions. For most of the TAOs, the identified long-term solution proved to be the setting-up of executive agencies. Pending the adoption of the regulation on executive agencies, which only came at end-2002, the Commission devised an orderly transitional scheme to allow a speedy phasing out of TAOs, as requested by the budgetary authority. This implied a progressive re-incorporation of tasks in the Commission's departments, while preserving programme continuity and minimising the risk of contractual conflicts.

In practice, the Commission has been implementing the following transitional solutions on a case-by-case basis:

- either temporarily returning the tasks to the relevant Commission department, at headquarters or in delegations in third countries, who should be able to recruit intra muros outside contract personnel charging the cost to the budgetary BA headings for the programmes concerned;

- or extending existing contracts and providing - if necessary - more restrictive terms for tasks to be performed.

In 2002, payments amounted to EUR28.1 million, showing a drastic reduction compared to what was announced in 2000. This trend is still more impressive in commitments (with some 16 million committed in 2002).

The figures, updated to 3 July 2003, are as follows: the total number of TAOs has fallen to 12. This means that 114 TAOs have been closed down and others will disappear once the conditions are met for setting up an executive agency in accordance with Council Regulation (EC) No 58/2003 of 19 December 2002 laying down the statute for executive agencies to be entrusted with certain tasks in the management of Community programmes. [1]

[1] Published in OJ L 11, 16.1.2003, p.1.

The rules for subcontracting tasks of technical and administrative assistance in the implementation of Community programmes have been tightened up, [2] in particular Article 57 of the new Financial Regulation [3] under which:

[2] - Communication from Ms Schreyer and Mr Kinnock on orientations for the externalisation policy, SEC(1999) 2051/7 of 14 December 1999;

[3] Council Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the general budget of the European Communities, published in OJ L 248, 16.9.2002, p.1.

1. The Commission may not entrust measures of implementation of funds deriving from the budget, including payment and recovery, to external private-sector entities or bodies, other than those which have a public-service mission under Article 54(2)(c).

2. The tasks which may be entrusted by contract to external private-sector entities or bodies other than those which have a public-service mission are technical expertise tasks and administrative, preparatory or ancillary tasks involving neither the exercise of public authority nor the use of discretionary powers of judgment.

To ensure that these provisions are respected, the Commission consults the Directorate-General for the Budget before subcontracting technical assistance services.

31. Make an overall study of activities currently deployed by various Community bodies that may overlap or serve the same goals in order to propose appropriate solutions including possible mergers of agencies. (Casaca - 54)

Commission's reply:

The possible overlap or duplication between the work of the ETF and CEDEFOP has been assessed both in the external evaluation of Cedefop carried out in 2001 as well as in the external evaluation of the ETF (COM(2003)287 final). The external evaluations have confirmed that there is no overlap between the two Agencies which have a separate geographical coverage and quite different missions and tasks: Cedefop contributes to the Community's vocational training policy through transnational cooperation within the EU, while the ETF supports the Commission in the design and implementation of VET reform activities in third countries as part of the Community's external policies' framework.

The Commission in recent years has ensured that tools are in place for the Agencies to achieve maximum synergy and complementarity (e.g. a framework for cooperation decided in 2001, a joint annex to each Agency's annual work programme, establishment of an ETF/CEDEFOP working group, etc).

It should also be pointed out that the structure of the Management Boards for CEDEFOP and the ETF are of quite different nature: whereas CEDEFOP has a tripartite board as an Agency working for the vocational training policy, the ETF has a board made up exclusively by Member States. Representatives on the Board of CEDEFOP should have experience and skills relating to the vocational training policy area, while the ones on the Board of the ETF should also have an external relations and third country aid programme experience. The profile of the members of each Board required for the efficient functioning of the Board and fulfilling its tasks should therefore be quite different.

There is a list of Community bodies currently operating, out of which four would be the more obvious candidates for examination for possible overlapping, that is the European Centre for the Development of Vocational Training (CEDEFOP) in Thessaloniki and the European Training Foundation (ETF) in Turin, as well as the European Foundation for the Improvement of Living and Working Conditions in Dublin and the European Agency for Safety and Health at work in Bilbao.

As regards the European Foundation for the Improvement of Living and Working Conditions and the European Agency for Safety and Health at work, the two Agencies have already signed a Memorandum of Understanding on 7 February 2001 and from 2003 the two agencies have extended (June 2003) their areas of collaboration and agreed on an action plan with concrete actions and activities for cooperation, in a spirit of maximising the synergies and removing the possibilities of duplication of activities.

32. Set targets and a timetable to reduce the level of administrative expenditure as part of total expenditure in agencies. (Casaca - 55)

Commission's reply: Decentralised Community bodies have specific missions according to their respective founding regulations, which are adopted by the legislative body of the EU, that is the Council and in several cases, the Council in codecision with the European Parliament.

The Agencies carry out these missions as independent legal personalities, adopting their work programme strictly based on the tasks foreseen in their founding regulations. In order to implement their work programmes, the Management Boards of the Agencies adopt their annual budgets, taking into account the Community subsidies adopted by the budgetary authority of the EU for the funding of decentralised bodies.

In a series of cases the legislator has foreseen that these Agencies are to carry out labour-intensive tasks, and no or few tasks involving the implementation of operational appropriations. Whenever the tasks given to the Agency mainly involve manpower, and therefore the respective salaries and office space, these costs fall under Titles 1 and 2 'staff and administrative expenditure' of the Agencies' budgets. It would be misleading to compare administrative expenditures to the so-called 'operating expenditure' (title 3 of the Agencies' budget), and conclude that Agencies, which have a higher percentage of 'Administrative expenditure' are less efficient and productive then those with a higher percentage of 'Operating expenditure', as such a comparison can only indicate that the nature of the work differs.

As indicated, it is neither in the Agencies' nor the Commission's competence to chose the tasks to be carried out by the Agencies, but the will of the legislator is being transposed via the annual work programme and the corresponding budget.

33. Existing agencies could be entrusted with more operational tasks. Make appropriate proposals by 30 June 2003 before creating any further executive agencies (Casaca - 56)

Commission's reply:

In adopting the framework regulation on executive agencies, the legislature has already created an instrument to provide the necessary assistance for programme management. The proposal to create an instrument of this type answered the need to clarify the sort of body which was to implement or support Community policies (the decentralised agencies mentioned in the White Paper on European governance, executive agencies or offices).

This reasoning led to a general preference for using an executive agency under the Commission's control rather than a decentralised agency for programme management. One consideration was the fact that the decentralised agencies are placed under the authority of management boards on which the Commission is in a minority; this fact would complicate the idea of liability, in particular financial liability, for which the Commission would still be responsible if work was outsourced. In addition, decentralised agencies are not normally located in places where the Commission has an office, while executive agencies are based in the same place as the Commission and its departments.

As regards the executive agency planned for DG EAC, the feasibility study states that the cost/benefit study (provided for by the framework regulation of December 2002) should take account of the existence of two decentralised agencies in the field of education and culture when examining the assistance required by the DG.

As indicated in response to point 32, activities carried out by decentralised Community bodies are set out in their founding regulations. Any modification and/or addition of tasks would require an amendment to the legal act setting up the Agency. However, this would not seem to be the appropriate way forward, as the reason for the planned creation of Executive Agencies is to respond to different needs for financial management:

Council Regulation 58/2003 lays down the statute for executive agencies, which are to be entrusted with certain tasks in the management of Community programmes.

Council Regulation 58/2003 provides that Executive Agencies, to which the Commission may entrust part of the management of Community programmes, is to implement these appropriations under the responsibility of the Commission. The nature of executive agencies therefore differs fundamentally from traditional agencies, which implement their budgets under the responsibility of the Agency's Directors.

Article 5(1) of Council Regulation 58/2003 also provides for the location of executive agencies, stating that "An executive agency shall be located at the place where the Commission and its departments are located, in accordance with the Protocol on the location of the seats of the institutions and of certain bodies and departments of the European Communities and of Europol." This principle diverges from the location throughout the European Union of centralised community bodies.

These points highlight the conceptual differences between decentralised Community bodies and executive Agencies, which make it difficult to see existing decentralised Community bodies taking over the tasks of future executive Agencies.

However, the Commission may decide to set up an executive Agency only after a prior cost-benefit analysis (see Article 3 of Council Regulation 58/2003).

d) Budget Underimplementation / SAPARD, Structural Funds

SAPARD

34. Take into consideration the situation of candidate countries in areas such as access to credit and the lack of a property market (Casaca - 78)

Commission's reply:

The assertion that in Bulgaria access to credit is non-existent does not take recent developments into account. In that country the State Fund Agriculture and the executive directors of 14 commercial banks signed, on 14 March 2002, a Memorandum of Understanding on joint action in implementing the SAPARD Programme. Through them, the banks undertook to extend some EUR150 million as co-financing credits to SAPARD funded projects. It is, however, correct that some potential beneficiaries may face particular problems in access to credit. In order to seek to mitigate these problems the Commission, with the aid of PHARE funds, supports a project to improve access to credits of SMEs in candidate countries. The Commission is further examining the possibility of ensuring that this "facility" is taken up more widely.

On the issue of pre-financing of projects, one of the principles upon which SAPARD is based is that beneficiaries obtain aid from the Community only after they have incurred costs. This is for reasons of sound financial management. The Community does not, however, require the project to be completed before such aid may be granted although many of the beneficiary countries (including Bulgaria) have chosen to require project completion before any aid is granted. This has an inevitable burden on beneficiaries in terms of their cash flow, but does have advantages including that of less burdensome management and administrative costs for the national authorities as required by Parliament in 80.

On the issue of the property market, especially on aspects related to private ownership, potential beneficiaries who do not have clear title or property use claims, face problems especially for certain investments in particular but not only those involving buildings. The Community has already given considerable support through PHARE to all countries to help develop property markets. It is however inevitable that this help cannot solve all problems of ownership in cases such as when all of the inheritors cannot be located or where for whatever reason they are unable to agree on future use of the land.

35. As regards the derogation to the rule n+2 provide monitoring in the implementation of the new ruling and early warning to Parliament in case of appropriations cancellations; (Casaca - 79)

Commission's reply:

The Commission monitors closely implementation of the new rule. In autumn 2002 it launched an exercise of reporting the amounts committed by each SAPARD Agency to final beneficiaries, based on information from the Candidate Country. This, together with information received during the Monitoring Committees, in the annual reports and in the payment application, enable the Commission to provide early warning to the Candidate Countries. Moreover, the information obtained was provided by Commissioner Fischler to the Budgetary Control Committee on 10/3/2003, and he subsequently, on 2/4/2003, wrote to all beneficiary countries warning them of the risks of cancellation (and set out options that might overcome them).

It is planned that from time to time Parliament will be updated on the risk of cancellation. The last update was provided on 11 June 2003 by a letter from Commissioner Fischler to Ms Theato and Mr Casaca.

36. Prioritise the structural adaptation of agriculture in candidate countries by giving adequate financial help to farmers while ensuring that adequate controls are in place and that control structures and administrative costs are in proportion to money allocated; (Casaca - 80)

Commission's reply:

The Commission too would have preferred that the impact of European assistance to structural reform of agriculture in the candidate countries was already greater. It is not, however, evident that what has been achieved causes serious prejudice to the enlargement process or to the image of enlargement in the EU. On the contrary, what has been achieved via SAPARD is to build systems so that, irrespective of the levels of expenditure recorded, all countries already now have systems capable of managing aid to foster structural adaptation of their agriculture. Those systems include desk and on-the-spot checks before contracting and payment phases, and are finally supplemented by an ex-post follow-up of the investment, in conformity with criteria set out in the Multi-Annual Financing Agreement (MAFA). All beneficiary countries receive considerable financial help from the Community, the level of which is determined in the budget procedure, to help, inter alia, farmers faced with the challenges of integration. The Commission considers that all such help is subject to adequate control systems that have to be in place prior to any funds being released, and that these control structures and administrative costs are in proportion to money allocated, taking into account the levels of risk involved.

37. Provide at the earliest opportunity guidance notes for SAPARD in the languages of the candidate countries (Casaca - 81)

Commission's reply:

SAPARD is implemented on a fully decentralised basis. The Commission points out that on all occasions it is the candidate country concerned that is responsible for preparing documentation in its language. The Commission is not aware that this has caused any problems, nor is it aware of any unfulfilled requests for guidance notes.

STRUCTURAL FUNDS

38. Make proposals for the next Structural Funds reform to prevent long delays in implementation without harming political priorities while respecting principles set out by the Parliament (few clear priorities, administrative simplification, improved distribution of funds and smooth changeover to new programming periods). (Casaca - 63, 65 and 72)

Commission's reply:

The Commission regrets the delay in negotiating the programming documents at the start of the 2000-2006 programming period and the resulting consequences for the start of implementation. This is the reason why the Commission will be presenting its legislative proposals for the period after 2006 as early as possible in 2004 so that all the legislation will be introduced before the start of the next programming period (1 January 2007). The Commission is considering a new system of implementation based on a more decentralised, more simple and more effective system of programming, management and control. It is also planning a substantial simplification of the number of stages in the programming.

To ensure a smoother transition to the future programming period, the Structural Funds and Cohesion Fund regulations, the implementing rules, and the multiannual financial framework for the period after 2006 must be adopted early enough to ensure that the preparations for the adoption of measures, allocation of funds, adoption of guidelines, presentation of proposals, etc., are virtually completed by the end of 2006.

39. Divide in the next programming period the programming periods for objective programmes and Community initiatives. (Casaca - 63)

Commission's reply: The Commission takes note of the suggestion to divide the programme periods for structural operations by objectives and Community initiatives. The system of a single programming period for all the Structural Funds is linked to the mechanism of the financial perspective which is fixed for a period of several years.

40. Improve payment forecasts together with Member States. (Casaca - 64)

Commission's reply: It is true that so far Member States' forecasts have been very inaccurate and have tended to overestimate expenditure. They have also been very volatile, i.e., often the same Member State produces relatively good estimates one year and very bad estimates the next year or vice versa.

Although so far the forecasts have been of limited value for budgeting, the Commission believes that forecasting retains its potential to become a very useful budgeting tool in order to simplify the preparation and execution of the Structural Funds budget. Accordingly, it has already taken several measures aimed at improving the forecasts.

The Commission has begun informing the budgetary authority regularly about the forecasting exercise. On 12 November 2002, it sent a first working document on the provisional results for 2002 to the BA. Further analysis, including a final analysis of the 2002 exercise, were sent to the budgetary authority with the working paper (Commission, DG BUDG) "Analysis of the budgetary implementation of the Structural Funds in 2002. More recently, the Commission sent to the budgetary authority a qualified analysis of Member States' forecasts for 2003 and 2004.

Forecast requests are now also forwarded for information to the management authorities of the different programmes rather than only transmitted to the Permanent Representations as used to be the case. It is hoped that this will make the Member States' forecasting task easier to accomplish effectively.

Finally, in November 2002 the Commission sent a questionnaire to the Member States on their experiences with the 2002 forecasting exercise. The feedback received was helpful to further improve the procedure. This was already reflected in the reminder letter sent in 2003 to the Member States, with streamlined instructions for the collection and transmission of the 2003 forecasts.

The Commission corrects the forecasts received from Member States in the light of its own information. For 2004 the amounts in the budget are smaller than those returned by the Member States in their forecasts.

Despite the fact that Member States' forecasts have systematically overestimated significantly the need for funds, they remain an information source to be considered by the Commission as it comes from sources closer to the execution of the programmes on the ground. This is a consequence of shared management.

41. Implement simplified measures proposed in October 2002 in order to increase rate of implementation of payment appropriations. (Casaca - 66)

Commission's reply: The Commission has already implemented most of a package of simplification measures adopted in 2003 (communication of 25 April 2003 (COM(2003)1255). The package includes both amendments to legislation (Regulations 1685/2000 and 438/2001) and changes in practices that do not require changes to legislation.

An example of measures in the package that will help increase the rate of implementation is the more flexible procedure for calculating the co--financing rates for interim payments. The Commission has also introduced an early warning system for Member States at risk under the M+18 (reimbursement of advances) and N+2 (decommitment) rules.

42. Introduce a single audit model. (Casaca - 68)

Commission's reply: Concrete steps will be taken to promote convergence of audit methodologies and processes between Directorates-General and Services operating under shared management arrangements. Specific attention will be paid to the development of common standards, taking into account well-established best practices, complementary control and audit processes, at Community and national levels, and assurance protocols with member States. The single audit approach involves greater cooperation between the Commission and the Member States in auditing the Structural Funds. The Commission and the Member States thereby coordinate their audit plans to avoid overlap and use one another's audit information, and the Commission takes into account to a greater extent on the work done by national audit bodies. The single audit concept is already being implemented by all Structural Funds departments under the audit coordination protocols. A further development now under discussion with the Member States is a "contract of confidence" which the Commission would enter into with Member States for particular programmes or all programmes in the country concerned, whereby the Member State would guarantee a satisfactory level of audit of management and control systems for the Structural Funds allowing the Commission to reduce its own audits.

This audit strategy was given a favourable reception by the national delegations and the representative of the Court of Auditors. It takes into account and integrates with the methodological approach for all the Structural Funds set out and updated in early 2003 in the Funds' manual for the audit of the management and control system.

43. Consider for the 2005 budgetary procedure alternative methods bringing payment appropriations into line with Member States' absorption capacity. (Casaca - 69)

Commission's reply: It is difficult to base payments appropriation only on "absorption capacity" as the EP also request to keep a link between payments and commitments. The later are defined as target expenditure.

So far, implementation of the Structural Funds programmes has indeed trailed below expectations in some countries. The payments appropriations for 2000-2006 programmes were in line with the absorption capacity in 2002 and likely 2003 where the problems are concentrated on the closure of 1994-1999 programmes. In the PDB 2004, the approach adopted was to determine the level of the payment appropriations requested on the basis of implementation in 2002 and not on the basis of the forecasts received from the Member States.

For 2004 the Commission estimated the level of payments on the basis of experience acquired up to end-2002. This approach produced a level of payments below that resulting from Member States' forecasts. The Commission will therefore continue to refine its forecasts on the basis of the analysis of past experience.

44. Provide more guidance to Member States on the reporting of irregularities and inform Parliament of it. (Casaca - 71)

Commission's reply: The Commission Structural Fund departments and OLAF have carried out an enquiry into the reporting and follow-up of irregularities in the Structural Funds in all 15 Member States. The enquiry was carried out in late 2002 and early 2003. A report on the results of the enquiry will be published in the autumn of 2003. Parliament will be informed. A general result has already been the clarification of Member States' obligations and better coordination between them and OLAF.

45. Profound changes to be made in the next Structural Funds programme in keeping with the proposals in the Commission White Paper on EU Governance; (Casaca - 72)

Commission's reply: This White Paper applies to all Community policies; therefore, the principles and objectives set out in it will be reflected in the Commission's proposals for the next Structural Fund programme period.

46. In the context of the European convention, set up audit structures proportionate to money allocated. (Casaca - 73)

Commission's reply: Audit structures should be sized according to the budget being managed and the risk profile, which may depend on other factors such as indirect management or the complexity of the legislation. The audit structures required in the Member States under Structural Funds regulations already take account of the volume of funds being managed. Under shared management the Member States are principally responsible for the control and audit of the Structural Funds. Within the Commission, the Structural Funds services have generally reinforced their audit capacity to be able to verify the adequacy of national systems.

e) Enlargement

47. PHARE and ISPA: improve the implementation rate. (Casaca - 82/83)

Commission's reply: As far as ISPA is concerned, the implementation rate of 58% was relatively high for an instrument that has only been available since 2000. Projects that have been prepared during the last two years for ISPA, are now reaching the implementation stage; therefore the Commission is confident that the implementation rate for the forthcoming years will improve (in 2002, the rate increased to 78%). The Commission is closely monitoring project preparation and provides - also with a view to future accession- continuous support through Technical Assistance funds for improving the preparation of projects and for strengthening the administrative capacity in the ISPA beneficiary countries for implementation. The activities covered include technical preparation of projects, environmental impact assessments, feasibility studies, training on procurement, on public-private-partnerships, financial management and control.

The Court of Auditor's Annual Report 2001 complimented the Commission on its "high" implementation for PHARE (81.6 %)..

48. TACIS: Indicate proportion of local companies selected for projects and design call for tenders so that they get a fair chance of winning. (Casaca - 84)

Commission's reply: TACIS is a programme of technical assistance whose objective is to promote the transition of the beneficiary countries towards well-functioning market economies and to reinforce democracy and the rule of law.

The assistance is, in general, delivered in the form of grants financing technical assistance contracts.

When a project is launched a contractor is selected to deliver services to the beneficiary organisation.

The selected contractor is generally an organisation from the Member States, mainly from the private sector but also from the public sector or a non-profit organisation.

The contractor is normally the final recipient of the EU funds while the final beneficiary, receiving the assistance, is normally a government institution in the TACIS country.

The services delivered by the contractor aim to transfer know-how in eligible areas of cooperation which are:

- support for institutional, legal and administrative reform

- support to the private sector and assistance for economic development

- support in addressing the social consequences of transition

- development of infrastructure networks

- promotion of environmental protection and management of natural resources

- development of the rural economy

- support for nuclear safety

The forwarding of technical assistance implies the selection of contractors with a specific know-how that has been identified as not being available in the targeted beneficiary countries. This explains why selection of local companies in TACIS project is very exceptional.

However, the Commission would like to stress that the enforcement of the principle of equality of potential eligible contractors (including from beneficiary countries) has always been applied in TACIS procurement rules.

No statistics are held on the origin of the contractors, as the phenomenon of association of contractors and the constitution within consortia would not make these sufficiently relevant.

49. Ensure that candidate countries have proper accounting, audit and control systems, set up anti-fraud units with OLAF and improve co-operation with ECA. (Casaca - 85)

Commission's reply:

The pre-accession instruments and the certification of management systems which they required have given the candidate countries considerable practice in managing EU funds and applying its legislation. Before accession the Commission is checking that the management and control systems being put in place in the candidate countries come up to the standards laid down in Regulations 438 and 448/2001 (Structural Funds) and 1386/2002 (Cohesion Fund). The Commission has developed and implemented a monitoring and counselling strategy to ensure that these countries fulfil the requirements of the acquis in relation to accounting, control and internal audit (chapters 28 and 29) before the date of accession. A comprehensive monitoring report on the progress achieved is due for 1 November 2003. It should be noted, however, that although the monitoring actions have given a clear and rather unproblematic picture of the situation in the various accession countries, a real performance audit can only be meaningfully carried out once these countries have joined the Union.

As far as fraud prevention is concerned, the Commission is ensuring that each of the countries has a clearly identified administrative service responsible for the protection of the Communities' financial interests and fighting fraud against the Community budget, which is also capable of cooperating directly with OLAF. In Poland, this service has been reinforced by the presence of an agent from OLAF in 2001 and 2002. The Commission committed EUR15 million of the PHARE budget in 2002 in a special programme dedicated to supporting anti-fraud structures in the PHARE countries thereby making them more effective.

f) Agriculture & Food

Management and control systems

50. Harmonise and simplify IACS requirements across the EU (Casaca - 88)

Commission's reply:

The Commission seeks to harmonise and simplify administration, control and sanctions when necessary and possible. The IACS Regulation 2419/2001 was recast with this objective in mind and is regarded as having provided significant benefits both for national administrations and for farmers alike.

Articles 6 (area aid applications) and 10 (livestock applications) of Commission Regulation (EC) No. 2419/2001 specify the information required in the applications to enable eligibility for aid to be established. However, it is left to Member States to decide on the exact composition of these forms (subject to the regulatory requirements). Furthermore, Article 11 of the same Regulation allows for the applications to be transmitted electronically, as well as in paper form. Therefore, there is no "common" form used by Member States, and the Commission sees no advantage in introducing one at the moment.

51. Common standards for measuring eligible areas (Casaca - 87)

Commission's reply:

On the basis of art. 22 of Regulation 2419/2001, guidelines were issued in May 2003 in respect of on-the-spot controls. A document of the Joint Research Centre (JRC) on specific tolerances for different types of measuring equipment has also been distributed. Together these documents should ensure that common standards are applied throughout the Community. Moreover, the Commission is currently in the process of proposing amendments to the Regulation in this respect.

52. Ensure before the end of 2003 that Greece fully implements the IACS system (Casaca - 89)

Commission's reply:

The Commission is fully aware of the delays in Greece in implementing IACS. The Greek paying agency has been subject to regular and close supervision, both in terms of institutional structure and actual scheme implementation, since the deadline for achieving IACS expired in January 1997. For these reasons the Director-General for Agriculture formally reserved his position on the matter in the AAR 2002.

To complement the already on-going audit work, and to take full account of the unsatisfactory situation in Greece, DG Agriculture instigated, in late 2002 / early 2003, an enhanced action plan to supervise and monitor progress. According to this plan, Greece's new paying agency, OPEKEPE, provides regular progress updates and, already in the first half of 2003, on-the-spot audit missions have been undertaken in the context of the Commission's clearance of accounts procedure in the arable crops, animal premiums, olive oil, textiles and dry grapes sectors.

Any resulting financial corrections are based not only on deficiencies established in respect of IACS, but must also correspond to a reasonable estimate of the real risk of undue charge on the Community budget. On this basis, the Commission has until now decided annual corrections at a rate of 5% or more for arable crops, at least 5% for sheep and goat premiums and 10% for bovine premiums. Furthermore, a clearance of accounts procedure is currently ongoing in respect of bovine premiums claimed in 2000 with the possibility of a very high financial correction. In addition the Commission services are contemplating a very important financial correction for certain other aid schemes.

In 2002 the Commission also brought a case against Greece before the Court of Justice under Article 226 of the Treaty because of its failure to introduce a management and control system.

Finally, it should be noted, that the responsibility for implementing the IACS in Greece lies with the Greek authorities. The Commission cannot "ensure", as asked by the EP, the implementation of IACS. The Commission can only take legal action against a Member States not complying with the acquis and ensure that any financial risk to the Community budget is covered within the clearance of account procedure.

53. Operational Bovine Identification System by the end of 2003 in all Member States (Casaca - 90)

Commission's reply:

The bovine identification system as laid down in Council Regulation (EC) No 820/97 followed by Regulation (EC) No 1760/2000 of the European Parliament and of the Council of 17 July 2000 establishing inter alia a system for the identification and registration of bovine animals comprises the following elements: eartags, passports, holding registers and computerised database. According to Article 5 of those Regulations the bovine identification system should have been operational in all Member States since 31 December 1999, by which date the computerised database set up by the competent authority should have been fully operational.

Having regard to Article 6(3)of the Regulations, the Commission has, on request from the Member States concerned, recognised the fully operational character of the databases for bovine animals for the following Member States: Austria, Belgium, Denmark, Finland, Luxembourg, Netherlands, Sweden, France, Germany and Northern Ireland (United Kingdom). As far as the remaining Member States (Portugal, United Kingdom as regards Great Britain, Italy, Ireland, Spain and Greece) are concerned, the situation is being analysed within the Commission services with a view to the requested recognition. This analysis takes into account the reports from the series of missions on traceability and labelling of beef and minced beef carried out by the Food and Veterinary Office in all Member States. This has included an evaluation of the operation of bovine identification databases in the Member States. This series of missions was finished by the end of 2002. Reports of individual missions are available on the SANCO-FVO website, and provide information on outstanding issues regarding the implementation of these systems. The Commission is currently examining the lessons to be learned from this series of missions, and is preparing an overview report of the situation, which will be made available both to the Parliament and on the above website in 2003.

54. Level of controls: propose as soon as possible clearly defined and objectively controllable indicators (Casaca - 92).

Commission's reply:

The development of verifiable indicators of Good Farming Practices has been difficult. Nevertheless, updated guidelines, worked out with the Member States, were issued in 2002 and the system is now up and running. One of the purposes of Agenda 2000 was to allow the CAP to adapt better to local circumstances or priorities. Thus, the criteria for Good Farming Practice, and controllable indicators, are set at national or regional level. Considering the huge variety of situations between and within Member States, the Commission does not wish to propose harmonised, Community wide criteria or indicators as it would not allow local conditions to be taken into account.

The Commission attaches high importance to the environmental impact of farming in the EU. The CAP reform - a long-term perspective for sustainable agriculture - foresees, as regards direct aids, a cross compliance with environmental rules. In the preparation of the implementing rules, the Commission takes into account the necessity, underlined by the Parliament, of defining objective control obligations.

55. Produce a report by November 2003 on higher IT-security among paying agencies (Casaca - 86)

Commission's reply:

The Commission is preparing a report on higher IT-security among paying agencies which will be made available to the EP.

Sugar CMO

56. Make a careful internal analysis of the reasons for the failure of the CMO reform (Casaca - 94).

Commission's reply:

In May 2001, the Council decided, in accordance with the opinion of the European Parliament, that the sugar CMO would be maintained up to the 2005/06 marketing year. On 23 September 2003 the Commission transmitted a communication to the Council and the European Parliament. The Communication fulfils the Commission's commitment to report to the Council in 2003 on the EU sugar regime and its prospects, as laid down in Article 50(2) of Council Regulation (EC) No 1260/2001. It outlines three options for the future of the sugar sector. The Communication "Accomplishing a sustainable agricultural model for Europe through the reformed CAP - the tobacco, olive oil, cotton and sugar sectors", can be found on the Internet at:

http://europa.eu.int/comm/agriculture/ capreform/com554/index_en.htm

The complexity of the sector and the various challenges it faces, both domestically and internationally, as well as the potential impact of various options, are documented in the accompanying Extended Impact Assessment (EIA) of the sugar sector. The EIA has been made with the help of an Interservice Steering Group (ISG) where 14 Directorates-General were represented and a broad consultation of stakeholders was organised. The EIA of the sugar sector can be found on the Internet at:

http://europa.eu.int/comm/agriculture/ publi/reports/sugar/index_en.htm

57. Withhold as soon as possible export refunds for sugar exports to countries enjoying duty free access to the European market (Casaca - 98);

Commission's reply:

This issue was part of one of the reservations (risk of "carousel" business) that the Director-General for DG Agriculture made to his annual declaration. The reservation was followed up by the implementation of an action plan to address the identified weaknesses. One part of the measures taken has concerned export/import of sugar to/from the countries of the Western Balkans. Hence, for export licences delivered as from 8 March 2003, the Commission ceased the granting of refunds for sugar exported to five countries of the Western Balkan (Albania, Bosnia & Herzegovina, Croatia, the Former Yugoslav Republic of Macedonia, and Serbia & Montenegro, including Kosovo). See Commission Reg. No 430/2003, 431/2003 and 432/2003.

Another of the measures taken concerns the provisional suspension for 3 month, as from 8 May 2003, of the preferential import arrangements for duty free sugar imports from Serbia- Montenegro, .following OLAF's report on serious shortcomings in the customs controls (for the certification and control of the preferential origin of sugar) in this country (see Regulation (EC) No 764/2003 - OJ L 109, 1.5.2003). The provisional suspension measure was extended for a further 6 months until 8 February 2004 (see Regulation (EC) No 1343/2003 - OJ L 189, 27.7.2003.

Export refunds

58. Evaluate all export refunds schemes and their impact on world hunger as well as corresponding increase in food aid (Casaca - 99).

Commission's reply:

The Commission is examining how to ensure the requested evaluation. It will be integrated into the Commission's working program for evaluations. A comprehensive evaluation project takes a considerable time (project definition, call for tender, selection procedure, project implementation, report examination).

Fisheries

59. Significantly increase both on-the-spot checks and record-based audits (Casaca - 100).

Commission's reply:

"Joint enterprise" projects will be systematically checked during control missions. Following Parliament's request, "joint enterprise" projects have already been checked during 2003 in three Member States.

All the files relating to payment requests directly managed by the Commission for joint enterprise projects will also be exhaustively checked to ensure compliance with the rules applicable.

Others

60. Make public a list of subsidies to export refunds and surplus disposal measures under CAP mechanisms (Casaca - 102).

Commission's reply:

On the basis of Regulations (EC) No 1663/95 and (EC) No 2390/1999 amended by Regulation (EC) No 419/2002 the Commission receives from Member States accounting information. This information is, pursuant to Article 2(1) of Regulation (EC) No 2390/1999, to be used only to carry out its functions in the context of the clearance of accounts as well as to monitor developments and to provide forecasts in the agricultural sector.

Article 2(3) of the same Regulation imposes on the Commission the obligation to keep the accounting information confidential and secure.

The Commission can only provide aggregated statistics which do not allow the identification of individual beneficiaries. The Committee on Budgetary Control has recently received such information regarding export refunds.

61. Take action against companies involved in large scale adulteration of food product, especially milk products (Casaca - 103/104).

Commission's reply:

Adulterated butter case:

Any penalties which might be imposed in the adulterated butter case are a matter for the national judicial authorities concerned. OLAF assisted the judicial authorities in Italy and France and was associated with the administrative inquiry in Germany. At this stage the enquiries (criminal) are continuing in Italy and France. In addition, the competent Belgian authority filed cases against two Belgian companies with the courts at the beginning of October 2003 in which they requested to intervene as "partie civile" (i.e. to bring a civil action for damages as part of the criminal proceedings).

g) European Social Fund

62. Inform Parliament as soon as results are available of investigations results and actions taken under Regulation (EEC) 4523/88. (Casaca - 105)

Commission's reply:

The Commission regularly applies the procedures referred to in Article 24 of Council Regulation (EEC) No 4253/88, as amended, when following up its audits and controls and those carried out by the Court of Auditors or when national control finding have not been followed up. However, the procedures for obtaining a net reduction in Community assistance requires a certain amount of time before the irregularity can be formally confirmed and the grounds established for taking a decision to make a net financial correction; in several cases the Member State agrees to carry out the financial correction without requiring a formal decision to reduce the assistance. The Commission will forward the list of decisions taken in 2002 and 2003. The financial closure of the programmes for 1994/1999 provides also an opportunity for clearing those cases which are still open (either by deducting expenditure from the applications for payments of balances or by means of a net reduction).

63. Clarify how ESF objectives could be reached while avoiding inefficient procedures, fraud and mismanagement. (Casaca - 107)

Commission's reply: Achieving ESF objectives while avoiding inefficient procedures, fraud and mismanagement was one of the aims of the simplification exercise the Commission has launched in 2002. This exercise is based on the guiding principles of simplification, clarification, coordination, flexibility and proportionality for which the Commission adopted the Communication on the simplification, clarification, coordination and flexible management of the structural policies 2000-06 [4]. However, Regulation 1260/99 will not be modified. The Commission believes that the simplification package will contribute to a better management of the Funds, reducing the risk of inefficiencies and mismanagement. Since the structural funds rely on a shared management system, based on the principle of decentralisation, Member States themselves must make an effort to streamline their internal procedures and simplify the programming at national and/or regional level.

[4] C(2003) 1255 of 25.04.2003.

(See also the reply to 141).

64. Close as soon as possible the Madrid ESF funding case of mismanagement and clarify the situation. (Casaca - 108)

Commission's reply:

In the IMEFE/Madrid City Hall case, Commission departments sent the Member State, on 30.07.03, official notification of their intention of suspending payment of the entire amount still outstanding in the programme in question.

The member State was also informed that Commission departments intended to carry out a series of audits to determine definitively the level of error or irregularity in measures managed by IMEFE over the period 1994/99. Prior to this and in order not to interfere with measures covered by the ongoing judicial investigation, OLAF must get in touch with its contacts in Spain and provide a list of the measures involved so that they can be eliminated from the audit.

65. In the light of ECA's special reports 3/2002 and 4/2003, reflect on the reform of aid irrespective of specialist sectors. (Casaca - 109)

Commission's reply: The Commission is currently reflecting on the reform of its budgetary support instruments in the framework of its proposal for the new financial perspective. It has taken into consideration the experience of Integra and has applied the Court's considerations when designing the Integra successor, EQUAL (ESF community initiative 2000-2006). The lessons drawn during the running of Integra were applied to EQUAL.

As concerns evaluation, dissemination and capitalisation of results, the Commission has already undertaken a number of initiatives in the area of innovative actions: evaluation of preparatory measures projects 2000 and of 2001 projects (underway), overall thematic evaluation of local development (underway), external evaluation of the projects in the field of Social Dialogue (underway). The dissemination of information is being improved through a variety of materials: a Local Development Forum, held on 15-16 May 2003 jointly with the Parliament and the Council Presidency, the publication of a project directory, a Vademecum on the development of local employment strategies which will be prepared to provide local actors with a practical tool.

A study on performance indicators on local employment will propose common quantitative and qualitative indicators to improve exploitation of results.

66. Seek a solution with relevant Member States to remedy for the failure to use the instrument of 'social risk capital'. (Casaca - 110)

Commission's reply:

The intermediary bodies, which are responsible for the management of the small grants, must fulfil certain requirements listed in article 27 of Regulation 1260/99. These requirements limit the number of intermediary bodies which can manage small grants. Furthermore, the decentralisation of responsibilities adds extra levels to the decision-making hierarchy. This makes it more difficult to ensure compliance with audit and control obligations and delays the start-up of projects.

Taking into account the decentralisation of Structural Funds management and delivery, and the variety of administrative structures in the Member States, a one-size-fits-all approach for the implementation of the small grants provision would be neither operational nor desirable.

The Commission believes that the delays and administrative complexities in some Member States in implementing the small grants provisions under the ESF should be dealt with individually by the Member States and/or Managing Authorities concerned. The Commission has pleaded for more simplification in this domain, but - in line with the principle of subsidiarity - the Commission has no authority over national or administrative mechanisms. It cannot replace the Member States in their organisational or administrative choices.

67. Pay more attention to promoting women's participation in the knowledge society. (Casaca - 112)

Commission's reply: The new regulatory framework and the European Employment Strategy have helped raise the profile of gender equality in the new Structural Funds' programming period. The new CSFs/SPDs are developing a more comprehensive equality strategy than in the past, based on the dual approach of gender mainstreaming and specific actions.

The percentage of funding devoted to policy field E "Women's access to and participation in the labour market", varies across Member States, but only three Member States devote more than the EU average to this policy field.

As the Commission Communication (2002) 748 "Gender mainstreaming in the Structural Funds" puts it: "Within the ESF, policy field E receives only 6% of the total support, which is the smallest part of assistance compared to the other fields". Moreover, "some Member States with a large gender gap spend significantly less than other Member States where the employment gap is much smaller". However, it is also worth saying that "a Member States' relatively low level of funding in this area may not necessary reflect a low concern for gender issues but might indicate that activities to promote gender equality are funded under the other policy field".

Gender mainstreaming in the Structural Funds, and in the European Social Fund in particular, involves integrating a gender perspective into every stage of the process, the planning of measures and interventions, their implementation, their monitoring and evaluation.

The abovementioned Communication represents the Commission's answers to this, formulating recommendations to both improve the situation and address current obstacles.

In particular, the Communication indicates investment in human and social capital in the knowledge society as one of the priority fields, recommending that future interventions should focus on preventing the exclusion of women from this areas, promoting high quality training and employment for women in the ICT and R&D sectors.

Other:

-1- The Commission Staff Working Paper "Building the Knowledge Society: Social and Human Capital Interactions" (SEC(2003)652) developed with the support of the ESDIS High Level Group, contains a specific section on gender. This section highlights the ICT-related gender gaps (in ICT education, ICT professions and ICT use) and identifies some key aspects to be addressed in this respect. Those aspects have been taken up by the Greek Presidency, which tabled a draft Resolution on Social and Human Capital extensively addressing the aspect of gender in the knowledge society.

-2- The European Commission supported the organisation of the Conference "Gender and the Information Society", organised by the Greek Presidency on 5th and 6th May 2003 (http://www.equalitycongresses.gr/ index-eng.html). The conclusions of the conference fed into an Informal Meeting of the Ministries for Gender equality, who underlined the importance of the subject. The Presidency conclusions of this meeting highlighted different aspects to be taken into consideration by the Member States.

The issue is being taken up by the Italian Presidency, which will propose a resolution on 'Women and ICT' to the Competitiveness Council.

68. Increase preventive checks on ESF measures. (Casaca - 141)

Commission's reply: The Commission's audit programme for 2003 comprises 50 ESF audits:

- 35 systems audits for the period 2000-2006,

- 15 closure audits for the period 1994-1999.

At the end of 2003 the coverage rate for ESF programmes from the programming period 2000/2006 will come to:

- 33% for Objective 1 (but 83% for ESF-led objective 1), - 57% for Objective 3,

- 81% for EQUAL.

The Commission's Structural Funds audit strategy for the period 2000/2006 tends towards a single audit approach and is based on more effective cooperation with the national control authorities to obtain a reasonable assurance of a very high number of management and control systems in the fifteen Member States. This is based on the regulatory framework for 2000/2006 which increases the responsibility of the Member States in the first instance for the financial control of assistance, prosecuting irregularities and making the financial corrections required (Articles 38 and 39 of Council Regulation (EC) No 1260/1999).

h) Environment, public health and consumer policy

69. Systematise use of strategic environment assessments in order to improve the impact of environment programmes (Casaca - 114)

Commission's reply:

Directive 2001/42/EC on the assessment of the effects of certain plans and programmes on the environment must be transposed into national legislation by 21 July 2004. Thereafter, a systematic assessment will be required of the likely significant environmental effects of a wide range of plans and programmes which authorities in Member States are required to prepare or adopt. Environment programmes will be covered by the Directive insofar as they meet the criteria which it contains. Other plans and programmes which meet those criteria will also be covered.

The impact of environmental (and other) proposals made at Community level will be assessed in the Commission's preliminary impact assessment and extended impact assessment procedures.

i) Penalty payments

70. Inform regularly Parliament of decisions taken under the infringement procedure and explain reasons for extending the deadlines. (Casaca - 116)

Commission's reply:

The Commission's responsibility for monitoring the application of Community law is set out in Article 211 of the EC Treaty. The monitoring task is entrusted exclusively to the European Commission in its exclusive role as "guardian of the Treaty".

Article 226 provides that the Commission may take action against a Member State for failing to fulfil an obligation under the Treaty. Over the years the Commission has significantly developed the pre-litigation phase, commonly known as the "infringement procedure". Measures have been issued by the Commission to organise administrative details of the procedure such as time limits. The Commission's internal procedures and working methods were devised to ensure compliance with the principles of collective responsibility, comprehensive examination and equal treatment throughout the case-handling process.

Each year, the Commission draws up a report on the monitoring of the implementation of Community law, in response to requests made by the European Parliament (Resolution of 9 of February 1983) and the Member States. This report is published in the Official Journal and on the European Communities' "Europa" server at the following address:

http://europa.eu.int/comm/ secretariat_general/sgb/infringements/19report_2001_en.htm

The report concerning 2002 is being prepared.

Under Articles. 211 and 226 of the EC Treaty it is the Commission's task as "guardian of the Treaty" to start infringement procedures. Parliament is informed about all the procedures via the annual report on monitoring of Community law referred to above.

71. Inform Parliament of new deadlines for Member States to comply with EU legislation; (Casaca - 116)

Commission's reply:

The Commission has been sending an annual report to Parliament for the past 20 years. It regularly updates the part of the Europa site on the monitoring of the application of Community law. The Commission exercises its power of discretion recognised by the Treaties and by the Court of Justice when it extends the deadlines granted to the Member States under the ex-226 procedure, giving priority to voluntary compliance. Whenever the legal base changes during examination of a case, the ex-226 procedure must go back to the first stage. If regularised infringement cases were kept open, this could prove counterproductive.

See also reply to paragraph 70.

72. Propose legislation differentiating types of infractions and set specific timeframes for dealing with infringements according to their complexity and seriousness. (Casaca - 118)

Commission's reply:

When implementing the White Paper on "Governance - better monitoring of the application of Community law" of 11.12.2002 (COM(2002)725), the Commission explored a number of approaches, along the lines of Parliament's suggestion, which it intended to follow in the months to come to beef up its measures to bring the disputed procedures into line, either by means of prevention or by accelerating the process where necessary.

(See also reply to paragraph 75).

73. Propose a system of fines incorporating together a lump sum and a daily fine. (Casaca - 119)

Commission's reply: This question, which was raised in connection with the "UK beef" infringement (where the Commission decided to drop a case under Art. 228 after the Member State concerned had complied with the previous judgement only after the oral hearing had taken place and shortly before the Advocate General was due to deliver his opinion), is now being examined with a view to rendering the Article 228 procedure more efficient in the light of the experience gained. The Commission will not fail to pass on the results of its deliberations to Parliament and the Court of Auditors.

74. Explain immediately why a distinctive procedure is applied in the structural funds area (automatic suspension of payment in case of investigation). (Casaca - 120)

Commission's reply:

The Commission is regularly informed of infringements which are likely to have consequences for the Community budget in order to be able to deal with them appropriately. In the Structural Funds a special system is provided for by the Structural Funds regulation. Interim payments from the Structural Funds are conditional on the absence of a Commission decision to embark on an infringement procedure (Article 32(3)(f) of Regulation 1260/99), i.e. a decision under Article 226 of the Treaty to send a letter of formal notice. Article 32 of the Structural Funds regulation allows the Commission to suspend payments in such cases. A suspension of payments is legally different from the imposition of a lump sum or a penalty payment, since the former concerns an advantage not granted as opposed to a financial penalty. As the Structural Funds account for the second biggest part of the budget, this mechanism can be extremely effective. Payments are not normally suspended before an investigation is launched, but in accordance with Art. 32(3)f) of Regulation 1260/99 only once an infringement procedure has started.

75. Strengthen legislation enforcement capacity by harmonising procedures and reduce delays before infringements of EU legislation are punished. (Casaca - 121)

Commission's reply:

The Commission informed the EP in this context of its intention to better monitor the application of Community law by its Communication of 11.12.2002 (COM(2002) 725). This Communication lays out detailed actions for achieving this objective.

. Measures preventing infringements such as:

- improving cooperation between the Commission and the Member States

- monitoring and facilitating the proper transposal of directives

- improving the transparency and the knowledge of Community law

- increasing cooperation before the expiry of the transposition deadline

- improving the notification of transposition measures

- providing more information on Community law

. Measures improving the monitoring and application of Community law and taking action against infringements:

- prioritising infringements according to their seriousness

- closer cooperation between the Member States and the Commission in investigating infringements (Article 10 EC Treaty)

. Measures preventing repetition of infringements, including:

- better information of citizens' rights for reparation in case of infringements as recognised by the jurisprudence of the Court.

See also paragraph 118 (White Paper).

j) External Policies

76. Make significant improvements in implementation of the 35% benchmark for social infrastructure in the education and health areas (Casaca - 124).

Commission's reply:)

In 2002, 31.4% of overall aid was allocated to the sector "Social Infrastructure and Services". This percentage increases to 34.5% when including the sector "Multisector aid for basic social services", and will indeed exceed the benchmark when the relevant elements of our structural adjustment programmes with conditionalities linked to the social sector are included.

77. Continue to inform and consult EP from July 2003 on (at every stage) on progress on the Millenium Development Goals process (reducing poverty through targeting of education and health); (Casaca - 126)

Commission's reply:-

This information is provided in the Commission's Annual Report on the EC Development Policy and the Implementation of External Assistance in 2002 (COM(2003)527 final). Following the Council conclusion and the recommendations of the European Parliament the new Annual Report keeps a focus on results achieved by the countries and by the projects. Special attention has been paid to achieving the Millennium Development Goals. In cooperation with the Member States and the OECD/DAC, the Commission has selected ten key indicators, and intends to monitor the progress towards achieving them in the case of each partner country.

78. Implement immediately thorough and effective training programmes (specially in the area of audits) for the deconcentrated delegations; (Casaca - 127)

Commission's reply:

The Commission has taken a number of measures to ensure that its staff in Delegations have sufficient expertise in this area and hence a smooth transfer of responsibility from HQ to delegations and a regular feedback to headquarters. The Commission's approach has been to ensure that HQ would be equipped to provide support and backstopping to the delegations. A comprehensive training programme for staff in HQ and Delegations was launched early 2003. Furthermore, a number of measures have been taken such as drawing up standard terms of reference for the audit contracts (for further information please see the Commission's reply to 31 of the EDF 2001 Discharge).

79. Transfers from line B7-6000 (Community contributions for developing countries through NGO) to line B7-6002 (decentralised co-operation) to be made from more suitable lines; (Casaca - 128)

Commission's reply:

In the PDB 2001, the Commission proposed the merger of budget lines B7-6000 and B7-643 (now B7-6002). This proposal was not adopted by the budgetary authority, which nevertheless decided to place the Decentralised Cooperation line (new nomenclature B7-6002) in the same chapter as B7-6000. Since the budgetary request made by the Commission in PDB for the B7-6000 line included the needs of B7-6002, it was decided to propose the transfer of the additional funds needed for this line from B7-6000.

80. Streamline procedures in administration of line B7-6000; (Casaca - 129)

Commission's reply:

Tendering and selection procedures have considerably improved over the last two years. Selections are now made within 6 to 7 months as required by the legal base B7-6000.

The three calls for proposals issued in late 2002 were closed on 13 March, 19 March and 2 April 2003 respectively. 1 409 proposals were received as a result. The procedure for evaluating these 1 409 proposals should be completed by the end of the third quarter. The applicants will be informed of the financing decisions at the start of the fourth quarter.

The Commission would point out that 99.5% of the commitment appropriations were used in 2002.

81. Full co-operation in connection with working group's activities on the budgetary assistance to the Palestinian Authority expected; and compensation from any state/organisation destroying Community-owned property; (Casaca - 131)

Commission's reply:

Pursuant to the decisions adopted during the many meetings between Parliament and the Commission, the Commission regularly provides Parliament with information on the funds for the Palestinian territories (every two months on average). These funds have been audited regularly in accordance with the provisions and procedures laid down.

The Commission will give any contribution required to the work of the working group composed of Members from AFET, COBU and COCOBU. The Commission was present at the first meeting of the working group in Strasbourg on May 14 and will be present at the following meetings.

82. Reform the accounting and payment system in its external offices, agencies and delegations (in view of the complaints expressed by the European Reconstruction Office in Kosovo); (Casaca - 132)

Commission's reply:

As far as the Delegations are concerned, in the course of 2002 the Commission introduced CRIS, the new information system for budgetised external assistance programmes. In the near future CRIS will also be extended to the EAR.

83. As regards MEDA, to step up efforts to ensure greater efficiency in the use of appropriations & reduction in 'dormant' commitments (cost of the past); (Casaca - 133)

Commission's reply:

The level of dormant commitments had already slightly diminished in 2001, and the 2002 result for MEDA dormant commitments will bring further evidence of real improvement in absolute terms (for example, in Turkey the absorption of the "reste à contracter" exceeded new commitments by 50%.).

84. Ensure that actions are properly monitored and that actions/projects are audited and evaluated concerning SAF in the Mediterranean countries; (Casaca - 134)

Commission's reply:

The Commission is taking the necessary measures. In particular, audits are foreseen for all actions agreed since the beginning of 2001, and harmonised guidelines for budget support have been issued.

85. Define which actions should be given priority for funding, in agreement with the beneficiary countries, avoiding large numbers of micro-projects; (Casaca - 135)

Commission's reply:

The Commission's development communication identifies 6 key sectors for poverty reduction. This policy gives the Commission the possibility, in dialogue with the recipient country, to agree on the sectors that are most appropriate for the country in question, aiming to achieve maximum impact without diluting its efforts in too many different sectors or approaches.

86. Submit report before EP's first reading of the 2004 budget on progress in the beneficiary countries regarding institutional reforms; (Casaca - 136)

Commission's reply:

Information on progress regarding institution building is provided in the Annual Report on the EC Development Policy and the Implementation of External Assistance in 2002 (COM(2003)527 final).

87. Establish (Casaca - 137):

- the added value of Structural Adjustment Facility in the Mediterranean countries (SAF);

Commission's reply:

The SAF is being implemented in the framework of an exercise for transparent monitoring of operations. First of all it fits into a system of interdepartmental cooperation, which itself is subject to centralised management (not delegated to beneficiaries) for monitoring operations, checking compliance with conditionalities and granting any waivers. A methodological guide to programming and implementation of budgetary aid spells out the role of the departments involved at the various stages of preparing, implementing and following up operations.

It also means intensifying methodological exchanges on cross-cutting issues such as evaluation and appraisal of management and control systems in the beneficiary countries. In this respect, since end-2001 a specific thematic network, the Budgetary Aid Thematic Network (BATN), systematises these exchanges between the departments concerned. The BATN also circulates information on thinking within the Commission and at international level.

- a harmonised approach for all beneficiary countries;

Commission's reply:

Harmonised guidelines for budget support have been issued (March 2002).

- improved transparency in the decision making process;

Commission's reply:

The SAF is being implemented in the framework of an exercise for transparent monitoring of operations. First of all it fits into a system of interdepartmental cooperation, which itself is subject to centralised management (not delegated to beneficiaries) for monitoring operations, checking compliance with conditionalities and granting any waivers. A methodological guide to programming and implementation of budgetary aid spells out the role of the departments involved at the various stages of preparing, implementing and following up operations.

It also means intensifying methodological exchanges on cross-cutting issues such as evaluation and appraisal of management and control systems in the beneficiary countries. In this respect, since end-2001 a specific thematic network, the Budgetary Aid Thematic Network (BATN), systematises these exchanges between the departments concerned. The BATN also circulates information on thinking within the Commission and at international level.

- improved quality of monitoring of financial management in beneficiary countries and expert evaluation of the assistance.

Commission's reply:

A greater focus on evaluation is already part of the general reform. Evaluations of selected MFA programmes are planned to take place from 2003 onwards, and all SAFs approved since 2000 include financial provision for a final independent evaluation.

88. Improved justifications for budget transfers in heading 4 of the financial perspective in respect with the priorities and budget guidelines by EP (Casaca - 138)

Commission's reply:

As concerns the quality of justifications of the transfers, services are aware of the need to improve them and efforts are being made in order to improve their presentation.

The Commission endeavours to provide with each transfer request the information relevant to the budget authority and on which it can base an informed decision. Whenever asked for, the Commission is ready to undertake every effort to provide the respective rapporteurs and committees with the additional information they may wish to obtain before taking their decision.

89. To allow EU delegations sufficient time to give opinions on proposals made by NGOs and shorten interval between NGOs' submission and signing of contracts; (Casaca - 139)

Commission's reply:

The delegations are consulted on the NGOs' proposals in the light of the time limits allowed by the legal base for B7-6000, which states that "The decision as to whether an operation is to be supported shall normally be taken within six months of the date of receipt of the application. If appraisal shows an application to be incomplete, the six-month period shall run from the date of receipt of the information required".

In 2002,

the departments administered three calls made in 2001:

1- Call for development education projects closed on 19 March 2002

2- Call for "projects" in the developing countries closed on 15 April 2002

3- Calls for block grants closed on 29 April 2002

The selection committee met on:

1- 30 September 2002

2- 9 October 2002

3- 27 November 2002.

It will be seen that selection took 6 to 7 months. This is far better than for the first call for projects in 2000 and for previous financial years.

Because of the new procedures (call for proposals), the department has to inform the NGOs of the decision which the selection committee is to take in less than 7 months.

The Commission would point out that 99.5% of the commitment appropriations were used in 2002.

k) Financial Instruments

90. Ask for a complete and detailed overview of the cost incurred by the European Investment Bank for the treasury management of the Guarantee Fund for external actions and submit an evaluation on possible savings if it were to carry out the treasury management of the Guarantee Fund itself. (Casaca - 146)

Commission's reply:

The legislation currently in force does not provide for a negotiation on a "cost plus" basis, nor is the EIB obliged to provide corresponding cost information to the Commission. Therefore, the Commission has negotiated a new degressive fee structure with the EIB for the management of the Guarantee Fund for External Actions, on a commercial basis.

The Commission considers it inappropriate to speculate on the costs of managing the Guarantee Fund in a way other than set out by the Council Regulation relating to the matter.

91. See to it that the European Investment Fund (EIF) submit convincing proposals by 31.05.2003 at the latest on how the performance of the ETF Start-up facility could be improved; (Casaca - 147)

Commission's reply:

In response to European Parliament's request, the EIF has submitted the following information: "In view of the current state of the early stage venture capital market in Europe, it is hard to identify particular changes to ETFSU that would allow it to function significantly better. It is a market-based instrument, deriving its additionality from the fact that it operates on both a pro- and counter-cyclical basis and leverages significant amounts of private funding, thus ensuring that investments are made on a commercial basis. If private funding is hard to obtain (as is currently the case), there will inevitably be an impact on the performance of ETFSU (as has happened). A significant improvement in this performance cannot therefore be expected until market conditions are more favourable and investors become more willing to co-invest in seed and early stage funds. It is hoped that this will be the case starting in 2004, although this will clearly depend to a large extent on overall economic developments."

92. Along with EIF, speed up reporting on the programmes managed by the EIF. (Casaca - 148)

Commission's reply: The Commission services will continue the practice of keeping the Rapporteur regularly informed prior to the completion of the formal Commission procedure. In addition, the Rapporteur will receive quarterly reports on the progress in implementing the financial instruments under MAP. The Commission wishes however to point out that, given the number of actors involved in the implementation of the financial instruments, data collection and, in particular, verification place unavoidable time constraints on the production of the official reports.

l) Other remarks

93. Produce clearer guidelines in order to ensure coherence between the annual activity reports on directors-general annual declarations and reports produced by the directors-general (Casaca - 150).

Commission's reply:

As the Synthesis report of the 2002 AAR points out (COM(2003)391 of 9.7.2003), the Commission has drawn lessons from the experience in 2001 and considered recommendations made by the Court of Auditors and the Internal Auditor. Building on the experience gained from the first exercise, the 2002 exercise shows methodological improvements in several respects:

- Different parts of the Annual Reports have been improved and new sections added, e.g. for the purposes of presenting the follow-up to the previous recommendations of the Internal Audit Service and the European Court of Auditors and to the action plans of the 2001 Annual Reports and Synthesis.

- A major effort was made to clarify the scope of the declarations and reservations (concept of materiality, i.e. definition of the threshold of importance beyond which a deficiency needs to be considered for a reservation) in a communication adopted in January [5].

[5] COM(2003)59 of 21.01.2003

- A peer review of potential reservations was organised at the level of Directors General prior to the submission of the Annual Reports and declarations. The peer review achieved a better understanding of the guidelines and increased the level of consistency in the use of reservations, principally because a review of issues common to all services or some groups of services (e.g. structural funds, research) was carried out.

94. Transfer any administrative appropriations that will probably not be used by year end to lines of operational expenditure (Casaca - 151)

Commission's reply:

The Commission already transfers unused appropriations from BA lines to B operational lines when administrative appropriations are available and operational appropriations need to be increased. A transfer across different headings would be more difficult, especially as possible availability of unused appropriations is often known only very late.

95. Equal opportunity:

- Promote the incorporation of equal opportunities in all areas of Community policy, (Casaca - 152)

Commission's reply:

The EU action on gender equality is based on a dual approach including gender mainstreaming and specific actions. Articles 2 and 3 of the Treaty provide the legal basis.

The Community Framework Strategy on Gender Equality (2001-2005) spells out the Treaty obligations with regard to gender mainstreaming in detail and contains concrete self-obligations of the Commission departments regarding the actions and objectives in the time until 2005. The Framework Strategy has 5 priority objectives.

1. Equality in economic life

2. Equal participation and representation

3. Equality in social life

4. Changing gender roles and stereotypes

5. Equality in civil life

In the proposal for the new European Employment Strategy, the dual approach is confirmed by the introduction of a fourth pillar on gender equality , combined with gender mainstreaming in the other pillars (employability, adaptability and promotion of entrepreneurship).

Gender is also mainstreamed in the social inclusion process. In the "Objectives in the fight against poverty and social exclusion - 2003" it is stated that: "Member States will underline the importance of mainstreaming equality between women and men in all actions aimed at achieving those objectives by taking into account the gender perspective in the identification of challenges, the design, implementation and assessment of policies and measures, the selection of indicators and targets and the involvement of stakeholders".

For the European Structural Funds, the following initiatives are to be taken into account:

. EQUAL initiative

. Communication "Implementation of gender mainstreaming in the Structural Funds programming documents 2000-2006" (COM 2002 748 final)

- Science and research: Communication on women and science, with for the first time a fixed minimum of 40% women participation in scholarships, committees and other groups.

- Education and vocational training: Socrates and Leonardo programmes contain specific gender equality projects and mainstreaming; launch of the "second chance schools"

- Violence against women, trafficking and sexual exploitation: initiatives in the framework of the justice and home affairs activities of the Community, and information and awareness raising campaign

- Support for assisting spouses in agriculture and specific funding possibilities for women in rural areas

- Support for women entrepreneurs.

At the Spring Council in Brussels on 20 and 21 March 2003 the Heads of Government reconfirmed their commitment to gender equality and gender mainstreaming and in order to monitor progress they requested a gender report to the European Spring Council on developments towards gender equality and orientations for gender mainstreaming of policy areas. The first report will be presented to the 2004 Spring Council.

- Provide relevant training for staff at every level, (Casaca - 152)

Commission's reply:

The training unit of DG ADMIN develops specific training courses on equal opportunities and non-discrimination (e.g. training in equal opportunities policy for HR managers and practitioners; equal opportunities practices for selection and competition selection boards).

As well as these specific courses, the issues of equal opportunities and non-discrimination are also covered in standard courses such as Starting and Learning Together, Management Training Programme, Personal Development for C Category Staff.

Trainers are also required to screen their training material to ensure conformance with equal opportunities and non-discrimination policies, such as the use of gender-neutral language in text and general content, avoidance of stereotyping in examples, etc.)

- Insure that at least one person is trained and responsible for gender mainstreaming; (Casaca - 152)

Commission's reply:

Training courses were arranged in 2000 for "Gender Mainstreaming Officials" and others involved in the gender mainstreaming of the Commission's policies.

- Provide for the 2004 budget a clear breakdown of financial management, detailing the overall amounts earmarked for promotion of equal gender opportunities under all budget headings; (Casaca - 153)

Commission's reply:

1. Programmes for women are currently financed under Heading 3 by the Programme "Community framework strategy on gender equality" 2001-2005 (lines B3-4012 and B3-4012A) adopted by Council Decision 2001/51/EC of 20 December 2000, with a financial reference amount of EUR50 million.

2. Gender budgeting:

In the budget field we can state that "gender mainstreaming", that is the integration of the gender dimension in all policies in order to establish gender equality, has become an increasingly important political topic in recent years both at EU level and throughout the Member States. Great efforts will still be required to consolidate the idea. The Commission must first be clear what "gender mainstreaming" actually means as far as the budget is concerned. Every international organisation and the European Union too should know how public expenditure affects and influences women, men and gender relations. "Gender budgeting" does not mean creating separate budgets for women. It is about identifying and analysing the distribution of available public funds and resources from the angle of gender equality. What are the effects on men compared with women? Are inequalities reduced or increased?

The practical application of gender budgeting with quantifiable criteria raises a number of questions. How, for instance can the gender equality impact of a given EU policy and of the resources deployed under this policy be measured? How do we define the benefits for women which we wish to identify statistically by gender budgeting? By the number of projects and the project resources that benefit women? Or by reference to grants for projects with added value for women?

In the first stage the right statistics and reliable data play the decisive role. Therein perhaps lies the explanation of why the Commission's efforts on gender budgeting have not yet got very far. To compile the necessary information the Commission needs gender-specific statistics. In many areas entirely new types of statistics and sources of information would be required in order to secure the necessary information. And it must be borne in mind that producing tailor-made statistics and specific information sources is a lengthy, extremely complex and expensive process which is not easy to put in motion politically and materially in times of limited resources. For the European Commission the situation is made all the more difficult by the fact that in many policy areas it depends on information from the Member States. They continue in many cases to supply only aggregated data which cannot be used for gender-specific analysis. Past attempts to secure statistical and financial information about the gender-specific use of EU funds in the Member States have frequently failed, because the necessary information is either not available, not complete or not comparable. Even within the Commission the necessary expertise needs to be built up or expanded. We still have a great deal to do on the matter of gender budgeting under the budget policy.

m) OLAF

96. Inform immediately about external investigation in the same way as about internal investigations, inform OLAF about the judicial and/or disciplinary follow-up measures initiated once the investigation file has been received. (Casaca - 142)

Commission's reply:

Improving information flows between OLAF and the Commission in connection with external investigations will also be examined under the plan of action announced by President Prodi on 25 September last.

OLAF is planning to provide an equivalent level of information on external investigations as is currently the case for internal investigations, while respecting the need to protect the confidentiality of investigations and the provisions of EC Regulation 1073/1999.

As regards the follow-up of final reports on investigations, it should be borne in mind that in accordance with the Regulations the Commission systematically informs OLAF of the action taken. As regards judicial follow-up, as previously stated in response to point 22, OLAF is the interlocutor with the judicial authorities. As provided by Regulation 1073/99, the Commission regularly informs OLAF on a case-by-case basis of the disciplinary follow-up initiated by the Commission.

97. Prepare a legislative proposal, which would enable the administration to exclude a third party convicted of fraud from public tender; (Casaca - 143)

Commission's reply:

Article 93 of the new Financial Regulation excludes candidates or tenderers from participation in a procurement procedure if, amongst other cases (six listed in Article 93(1)(e) and two in Article 94), they have been convicted of "fraud, corruption, involvement in a criminal organisation or any other illegal activity detrimental to the Communities' financial interests". The Early Warning System (EWS) will first be used to store information on the candidates or tenderers excluded. The extension of the contracts and contractors database to excluded candidates or tenderers will be operational from 2004.

The Council adopted a common position on 20 March 2003 on the Commission proposal for a new Directive on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts. Article 45 of the proposal provides for the exclusion from participating in public contracts of those candidates or tenderers who have been convicted by a definitive judgement, of which the contracting authority is aware of, e.g. of fraud within the meaning of Article 1 of the Convention relating to the protection of the financial interests of the European Communities established by the Council Act of 26 July 1995.

The development of a system of information for the exclusion of candidates or tenderers from public contracts does not fall within the ambit of the proposed directive. The directive only provides for the Member States to designate the authorities and bodies competent to issue the documents, certificates or declarations necessary for the candidates or tenderers to show evidence that they are not convicted of a crime or do not fall under other grounds of exclusion enumerated in the directive. Cooperation is however foreseen if need be. Contracting authorities will rely primarily on the documents provided by the tenderers but a contracting authority has the right to seek assistance from competent authorities in the other Member States if they have doubts concerning the personal situation of the candidates or tenderers. In the light of the application of Article 45 the Commission will assess the need for the development of a system of exchange of information.

98. Transmit by end of April 2003 to the European Parliament and the Council a progress report on the Office's activities, accompanied by the Supervisory Committee's opinion, together, where appropriate, with proposals to modify or extend the Office's tasks. Include in this report legislative proposals aiming at an improvement of OLAF's investigation powers and procedures, notably a better protection of the right of defence of persons investigated and an enhancement of the role of the OLAF Supervisory Committee. (Casaca - 144/145)

Commission's reply:

The report in question (COM(2003)154) was approved by the Commission on 2 April 2003 and submitted as required by Regulation 1073/1999 to the OLAF Supervisory Committee for its opinion. It has also been sent to the chairman and the rapporteur for the fight against fraud of Parliament's Budgetary Control Committee. The OLAF Supervisory Committee submitted its opinion on the report to the Commission on 3 July 2003. The report in question was formally transmitted to the European Parliament on 31 July 2003. The issues raised in Parliament's resolution are covered in the report.

Under the plan of action announced by President Prodi, the Commission will take into account the opinion of the OLAF Supervisory Committee and the report which Parliament wishes to adopt and which the Committee on Budgetary Control is currently working on, in order to put forward proposals for legislation to enhance the independence of OLAF, improve existing procedures, ensure greater protection for the rights of defendants and persons under investigation, and consolidate the role of the OLAF Supervisory Committee.

II. European Parliament Resolution on EDF

Ownership:

1. Outline in the next annual report on the EC development policy the scope for interpretation of the concept of ownership in beneficiary countries and whether it has a negative influence on EU priorities for development policy (Sørensen - 1).

Commission's reply :

In line with its commitment to a partnership approach based on local ownership, the Commission uses countries' own national development strategies (Poverty Reduction Strategies in low-income countries) as the starting point. The EC's Country Strategy Papers set out the Community's response to this, taking account of other donors' plans.

2. Provide information in the next annual report on the EC development policy on the involvement of representative parliamentary institutions, civil society organisations and minorities in the drawing up of the countries' development policies and endeavour to ensure that real and effective consultation is taking place (Sørensen - 2)

Commission's reply :

The requested information is provided in the Annual Report on the EC Development Policy and the Implementation of External Assistance in 2002 (COM(2003)527 final).

Budget support:

3. Keep Parliament's competent committee regularly informed of the results achieved by budget support operations as regards social development (Sørensen - 5);

Commission's reply :

The requested information is provided in the Annual Report on the EC Development Policy and the Implementation of External Assistance in 2002 (COM(2003)527 final).

4. Inform Parliament in the next annual report on the EC development policy on conditions and circumstances to be fulfilled in order to have the assurance that budget support is an adequate instrument (Sørensen - 7).

Commission's reply :

Information on the use of Sector Wide Approaches and Budget Support are outlined in EuropeAid Cooperation Office's 'Guide to the programming and implementation of budget support for third countries' of March 2002, the 'Guidelines for European Commission Support to Sector Programmes' of February 2003, and in the Annual Report on the EC Development Policy and the Implementation of External Assistance in 2002 (COM(2003)527 final).

Public finance management:

5. Monitor closely the quality of public finance management in beneficiary countries (Sørensen - 11);

6. Keep the use of budget support at a minimum until it has got evidence that public finance management in beneficiary countries is able to reduce the inherent risk of the budget support (Sørensen - 12);

7. Publish in the next annual report on the EC development policy guidelines against which progress in the management of public finance in each of the countries concerned can be assessed as well as performance indicators for measuring progress towards these guidelines (Sørensen - 13);

Commission's reply :

To improve the monitoring of the quality of public finance and to guarantee the quality of the mechanism for the management and control of public finance in the ACP countries concerned, the Commission is introducing a procedure based on the following aspects:

a) Analysis

In collaboration with other donors, primarily the World Bank, the Commission tends to link its contribution to general reviews to evaluate public finances. To refine and supplement the analyses resulting from these reviews, the Commission is making increasing use of audits based on "compliance tests" which evaluate expenditure and assess whether it complies with the rules and procedures in force. [Deliberations now under way on these tests will consider making their use general and systematic through the establishment of standard terms of reference. In the medium term, the Commission's objective, like that of the World Bank and the IMF, is to use an all-round framework for the analysis of public finances which is common to all donors. A framework of this type, which will use existing instruments of analysis in a coherent and coordinated fashion, is now being introduced under the Public Expenditure and Financial Accountability (PEFA) programme.] Work is also underway within the DAC/OECD working group.

b) Regular monitoring

From September 2003 the Delegations in the ACP countries will report every six months on the monitoring of the management of public finances using a standard form developed by Headquarters. These reports, based on the results of analyses by donors and/or national authorities, will review key aspects of the management of public finances programming, implementation of expenditure, internal and external controls, management of revenue, the cash-flow, debts, etc. This monitoring will also identify ongoing action plans relating to public finances and follow their implementation.

c) Performance indicators

The Commission, in collaboration with the World Bank under the PEFA programme, is now considering the introduction of performance indicators for the management of public finances. The objective is to tighten up the relevant conditions in the financing proposals by going further than the traditional indicators already used (in particular the rate of implementation) and thus turning budget support into a more effective instrument for influencing the reform of the management of public finances.

Moreover, the Commission, working with beneficiary government and other donors, puts a high emphasis on development of national action plans through a policy dialogue and on supporting its implementation and measuring progress in Public Finance Management (PFM) improvements over time. Such realistic, well-sequenced action plans, including pertinent performance indicators to measure improvements in the quality of PFM, are to become integral part of Poverty Reduction Strategy Papers (PRSP) and their implementation and evaluation of progress are also part of annual PRSP cycle.

Documented evidence in improvements in PFM measured by progress on agreed reforms and performance indicators will be an incentive for sustaining budgetary support, whereas lack of progress will be a clear sign for reducing or even stopping budgetary support.

It should be stressed that the approach described above is a long-term. To boost the effectiveness of its monitoring, the Commission is working in close collaboration with the other donors involved in the budgetary aid. This coordination allows for synergy and avoids duplication.

8. Stress the importance given by the discharge authority to sound management of budget execution in the negotiations with authorities in the beneficiary countries (Sørensen - 14);

Commission's reply :

The Commission, working with beneficiary government and other donors, puts a high emphasis on development of national action plans through a policy dialogue and on supporting its implementation and measuring progress in Public Finance Management (PFM) improvements over time. Such realistic, well-sequenced action plans, including pertinent performance indicators to measure improvements in the quality of PFM, are to become integral part of Poverty Reduction Strategy Papers (PRSP) and their implementation and evaluation of progress are also part of annual PRSP cycle.

Documented evidence in improvements in PFM measured by progress on agreed reforms and performance indicators will be an incentive for sustaining budgetary support, whereas lack of progress will be a clear sign for reducing or even stopping budgetary support.

Sector programmes and multi-donor approach:

9. Address the problems related to control and monitoring of programmes provided in conjunction with other donors (Sørensen - 15)

Commission's reply :

The Financial Regulation requires the Commission to keep track of all its financial expenditure. This obligation cannot be delegated. It applies to operations financed through multilateral organisations or Member States. It translates into an article in the EC-UN and EC-Worlds Bank Framework agreements, respectively (the clause on verification). The latter reserves the right for the Commission to verify underlying documents "on the spot", by "walking-through" of the audit systems of the partner/executioner for the EC funds. Guidelines for co-operating with Member States executing agencies, including on the verification/audit, will be developed by the Commission during 2003.

10. Establish measurable indicators for progress drawn up in relation to objectives and a solid and reliable baseline (Sørensen - 16);

11. Obtain sufficient guarantee that the planned programme falls inside EU development objectives (Sørensen - 16);

12. Ensure that the financial reporting system used by the multilateral organisation corresponds to the standards of the European Court of Auditors and that accounts will be forwarded on time (Sørensen - 16);

13. Ensure appropriate reporting, accounting and auditing mechanisms (Sørensen - 17);

14. Control and follow up on the accounts provided by the multilateral organisation, monitor relevant audit reports and inform the European Court of Auditors and the discharge authority on the results (Sørensen - 18);

Commission's reply :

On 13 February 2003 the Management of Aidco adopted new "Guidelines on European Commission Support to Sector Programmes" following the Commission's decision to move to a broader use of this approach. These guidelines have been prepared by Aidco with the active participation of DG Dev, and were approved by DG Relex.

The main objectives of these Guidelines are i) to define the major principles governing EC support to Sector Programs; ii) to provide operational guidance to EC staff in supporting the development of Sector Programs in partners countries and in the design and implementation of the EC financial contribution.

In the operational guidelines explicit reference is made to the issue of indicators. They include namely, as an annex, the Guidelines for the Use of Indicators in Country Performance Assessment (December 2002) the Commission has produced in collaboration with Member States and other donors. These are part of an ongoing process of work being conducted with other donors and partner governments in the context of the DAC initiative on harmonisation. They provide guidance on the choice of indicators, on issues regarding the reliability and quality of data, on the setting of targets for different indicators and on the interpretation of the evolution of indicators. In addition, there is a growing database of sector specific material to accompany these guidelines. It is considered essential that they are consulted in the process of assessing performance measurement or monitoring systems for Sector Programmes.

On the other hand the Sector Programme itself has of course as a key feature a set of indicators for monitoring of results within the sector. During preparation of EC support to a sector policy these indicators the partner government proposes, have to be assessed and the EC works with government to introduce improvements over time. It is stated that indicators should be firstly consistent with those developed for the PRSP (or its equivalent), secondly focused on the outcome level as well as on inputs and activities and thirdly differentiated by gender.

During the preparation of such a support programme to sector policy the crucial issue is the clarity and realism of the policy as well as the underlying principles on which it is based. Therefore the partner country's sector policy should be properly assessed, considering amongst others the question whether the objectives and underlying principles of the strategy are consistent with the development objectives of the Commission. These objectives are established in the Treaty, confirmed in the Cotonou Agreement and the relevant Country Strategy Paper and implemented through the National Indicative Programme and the final Financing decision on the support programme for a sector policy. The coherence between the basic documents and downstream the actual EC measure is guaranteed by three gate-watcher procedures such as the Quality Support Group of Aidco, the Interservice Consultation and the opinion of the EDF Committee.

As far as auditing is concerned article 53.7 of the Financial Regulation states:

"Where the Commission implements the budget by joint management, certain implementation tasks shall be entrusted to international organisations as specified in the implementing rules. These organisations shall, in their accounting, audit, control, and procurement procedures, apply standards which offer guarantees equivalent to internationally accepted standards".

The application of the Trust Funds and Co-financing framework Agreement signed with the World Bank follow this scenario.

15. Provide information in the next annual report on the EC development policy on audit reports received from multilateral donors, (conclusions and recommendations, what action the Commission has taken on them) (Sørensen - 19);

Commission's reply :

The implementation of a project co-financed by an international organisation is undertaken as per general agreement between the European Commission and International organisations (see replies to 9 and 10). Contrary to other types of contracts, no external audits are required in the case of international organisations to which the provisions of the verification clause included in the EC-UN and EC-World Bank Framework agreements apply.

16. Report in the next annual report on the EC development policy on cooperation and coordination with international donors (Sørensen - 19);

Commission's reply :

The requested information is provided in the Annual Report on the EC Development Policy and the Implementation of External Assistance in 2002 (COM(2003)527 final). The chapter "Co-ordination, Complementarity and Coherence" shows the progress in the field of EC cooperation with other donors: E.g. a new framework has been signed with the World Bank, and the revision of the EC-UN Framework Agreement for EC funding of UN projects was completed. In addition, each regional chapter contains a specific section focussing on the implementation of the "Three Cs".

17. Access to all documentation (including national internal audit reports) by ECA (Sørensen - 20)

Commission's reply :

Concerning the Court of Auditors access to documentation and visits on the spot, the Commission applies the rules of Article 70 of the Financial Regulation for the 8th EDF and Article 115 of the Financial Regulation for the 9th EDF.

ACP States' Supreme Audit Institutions' participation in the audit of the EDF:

18. Analyse the set up, independence and efficiency of the Supreme Audit Institutions in beneficiary countries (Sørensen - 23);

19. Inform in the next annual report on the EC development policy on how it is going to involve Supreme Audit Institutions in the audit process and to establish a programme and timetable for this process (Sørensen - 24);

Commission's reply :

The Commission recognises that the national control and audit structures must be more closely involved in the analysis and evaluation of the use of public funds from budgetary and non-budgetary resources. It has already begun to include them in the joint reviews (donors/ government) of public finances and its own evaluations and audits. It also promotes their role indirectly by stipulating in the financing agreements that the public accounts and legislation should be submitted to them.

Institutional support for these structures is a new field for the Commission, which is both complex (the allocation of material and human resources to these structures is inadequate) and politically sensitive (the terms of reference for these structures may be curbed by the political authority whose interest in strengthening them varies widely). The Commission employs a progressive approach in experimenting with a number of institutional support projects (e.g. for the ISCs in Senegal, Chad and Madagascar which may be beefed up); any conclusions will subsequently be used for drawing up a general structured support plan.

Complementarity:

20. Inform Parliament by 1 June 2003 on disbursements to management committees and put forward proposals as to how this area may be rationalised (Sørensen - 28);

Commission's reply :

This information has been provided in a letter sent by Mr Bonacci to Ms Theato on 20 June 2003.

EuropeAid Cooperation Office's annual activity report:

21. Clarification on the difficulty to reconcile the statement of assurance of DG and the need to strengthen the external audit function;( Sørensen - 29)

Commission's reply :

A new approach on external audits has been introduced already in 2003 (External Audit Programme 2003). Its implementation and effectiveness will be carefully assessed so that further improvements can be made for 2004. However, this is just one of a number of measures being introduced to strengthen internal controls. The declaration of assurance relies on the best judgement of the Director- General, based on various instruments and tools. While there was an identified need to reinforce the audit approach, - to adapt it to a changing environment and accrue its effectiveness as one component of the overall control system - the Director-General considered that the information in his possession was sufficient to enable him to have reasonable assurance regarding the implementation of projects and programmes in 2002.

22. To present a breakdown of the concept of "reasonable assurance";(Sørensen - 31)

23. Improvement in the methodology and guidance to allow the declaration to represent a more faithful indication of state of play; (Sørensen - 33)

Commission's reply :

On 21 January 2003, the Commission adopted a communication (COM(2003) 28 final) on the review of the implementation of activity-based management in the Commission, including clarification of the methodology for the establishment of Annual Activity Report. In particular, the guidelines attached thereto clarify, on the one hand, the purpose and scope of the declaration and, on the other hand, the use of reservations. It is specified that only material deficiencies can be object of reservations (quantitative as well as qualitative materiality indicators are given) and that the reservation shall contain specification or their cause, assessment of the potential impact, details of planned or taken corrective measures.

24. The Court of Auditors should analyse the 46 audits carried out and to forward the results to the discharge authority (Sørensen - 34);

Reform of the management of the external assistance:

25. Inform Parliament by 1 June 2003 of the results of the evaluation of the actual organisational structure of the management of the external assistance (Sørensen - 37);

Commission's reply :

The Information Note on Aid Effectiveness as discussed at the May GAERC meeting has been forwarded to the Parliament on the 2nd of June.

Reliability of the accounts:

26. Disclose the extent of implementation of macro-financial aid and provide transparent, exact and full information on this aid type (Sørensen - 42);

Commission's reply :

The Commission takes note of the EP worries related to the improvement of the information on implementation of macro-economic support and will take them in consideration in the forthcoming chart of accounts of the 9th EDF. The chart of accounts of the 9th EDF provides for a code to identify all budget support operations.

The revenue and expenditure accounts already present this information for resources from the 8th EDF used under the Cotonou programming.

Legality and regularity of the underlying transactions:

27. Ensure before next discharge tangible improvements on internal control systems (Sørensen - 45);

Commission's reply :

Concerning audits, AIDCO has undertaken a complete overhaul of the system already during 2002. The new approach is being introduced already in 2003. It is of course just one of a number of measures being introduced to strengthen internal controls - some of them, such as a clearer definition of responsibilities between services, form part of the Commission-wide reform programme. The audits will complement the reinforcement of the Delegations in relation to financial management and the authorisation of payments, and the regular certification of accounts.

Since this is a new exercise, it will be carefully assessed with a view to introducing improvements for 2004.

28. Transmit as soon as available to its competent committee all documents necessary on progress in improvements and/or problems encountered during the process (Sørensen - 46);

Commission's reply :

Concerning the prompt transmission of documents, the key documents relating to financial management of the EDF in 2001 have all been provided to Parliament as soon as they became available.

29. Supply at the beginning of next year's discharge procedure a list of all documents and correspondence relating to the subjects under investigation (Sørensen - 48);

Commission's reply :

The Commission will provide full documentation, particularly in the Annual Report on 2002.

Deconcentration and audits:

30. Provide information before 1 July 2003 on audits policy in the framework of deconcentration as regards:

- inherent risks in development aid programmes,

- the overall control environment;

- control mechanisms to be applied to and by, intermediaries, other donors and beneficiary countries;

- Headquarters control on delegation's controls (Sørensen - 50).

Commission's reply :

An information note covering the information requested has been sent to Parliament.

31. Take account of the need for specialised staff in the areas of social development, health and education (Sørensen - 51);

Commission's reply :

The Commission has taken a number of measures to ensure that its staff in HQ and Delegations have sufficient expertise in the areas of social and human development. This includes a significant reinforcement of the staffing of headquarters as well as in deconcentrated delegations. This allows us ensure a smooth transfer of implementation responsibility from HQ to delegations and a regular feedback to headquarters in charge of policy formulation, programming and monitoring exercises and technical backup. In a first phase and in view of the budgetary constraints, the Commission's approach has been to ensure that HQ would be equipped to provide timely policy advice, programming and sectoral and thematic support and backstopping to the delegations. A number of measures have been taken from revised policy and programming documents to the development of tools such as common sectoral and thematic indicators for monitoring progress. Stronger partnerships with Member States and with international organisations have been developed in key areas. Other measures include a reorganisation of EuropeAid Cooperation Office (early 2003) creating a unit in each geographical directorate dedicated to the provision of advice and support in the social sectors. Furthermore, a thematic network for social sectors has been established in Europe Aid Cooperation Office charged with the elaboration of operational manuals and guidelines including in particular health and education. Finally, a comprehensive training programme for staff in HQ and Delegations focusing on sector-wide-approaches including in the sectors of health and education was launched early 2003.

32. Make sure that financial audits are supervised, co-ordinated and monitored by the Headquarters (Sørensen - 53);

Commission's reply :

The Commission has taken steps to improve the quality of the decentralised audits, in particular:

- by drawing up a guide to the methods to be used at headquarters and in the delegations

- through a series of training courses for headquarters and the delegations

- by drawing up standard terms of reference for the audit contracts.

The Commission fully shares the Court of Auditors' opinion that a computer system is needed to provide an overview of the audit activities carried out and/or supervised by the delegations. To this end the Commission has set up the CRIS-Audit system, of which a pilot version will be field tested and should be fully operational soon thereafter.

Human Rights:

33. Inform before 1 June 2003 on the nature and scope of the problem and on measures which have been or which will be taken in the short term to resolve the identified weakness and in the longer term to give declared horizontal objectives [6] the necessary organisational structure (Sørensen - 55);

[6] human rights, equality between men and women, environment and conflict prevention

34. Inform before 1 June 2003 on the criteria for suspending aid due to violation of the Human Rights and how many times this has happened (Sørensen - 56);

35. Better define criteria and benchmarks by which the outcome of activities can be better assessed (Sørensen - 57);

Commission's reply:

A letter was sent to Parliament on 2 June, covering all Human Rights information requested under paragraphs 55 - 57 of the Sorensen report.

Budgeting the EDF:

36. Forward by mid-2003 the Commission's communication on the implications of budgetising the EDF (Sørensen - 61);

Commission's reply :

The Communication was adopted in October 2003 and forwarded to the Parliament.

37. Capability to recover amounts unduly paid to national authorities or final beneficiaries; (Sørensen - 62)

Commission's reply :

The OLAS accounting system identifies the payment and clearance of advances. It is by analysing uncleared advances that the Commission can issue a recovery order for amounts which are not justified or which the departments responsible consider ineligible.

Other issues:

38. Ensure as soon as possible compliance with the interest rate ceiling set in the Lomé Convention for EIB loans and to explain the reasons for any exceeding of this ceiling (Sørensen - 63);

Commission's reply :

The Commission considers that it has provided all the information needed to explain the apparent anomalies mentioned by the Court of Auditors in its annual report for 2001. The Commission has applied Article 234 of the Lomé Convention.

39. Edit more rigorously the next edition of an annual report on the EU's development policy; (Sørensen - 64)

Commission's reply :

Following the Council conclusion and the recommendations of the European Parliament, new chapters have been introduced in the Annual Report and in particular more material included on development policy. The more analytical approach adopted is reflected in a now uniform structure for all the geographical chapters, which should make it easier to draw comparisons between different regions. With regard to the implementation of EC development policy, special attention is paid throughout the report to analysing what kind of progress has been achieved in reaching the priorities of EC development policy as defined in the Development Policy Statement of November 2000. Moreover, qualitative assessments, e.g. concerning project results, identify weaknesses and put forward proposal to correct them.

40. The 35% for social infrastructure must be allocated "mainly" to education and health in coming years; (Sørensen - 65);

Commission's reply :

The breakdown of 2002 commitments by sector was sent to Parliament by Mr Nielson on 18 June 2003.

41. As for Commission's work on the methodology on reporting progress towards the MDGs, inform and consult Parliament without delay at every stage of the process; (Sørensen - 67);

Commission's reply :

The requested information is provided in the Annual Report on the EC Development Policy and the Implementation of External Assistance in 2002 (COM(2003)527 final).

42. Implement training programmes (for delegations), especially in the area of audits; (Sørensen - 68);

Commission's reply :

The Commission has taken a number of measures to ensure that its staff in Delegations have sufficient expertise in this area and hence a smooth transfer of responsibility from HQ to delegations and a regular feedback to headquarters. The Commission's approach has been to ensure that HQ would be equipped to provide support and backstopping to the delegations. A comprehensive training programme for staff in HQ and Delegations was launched early 2003. Furthermore, a number of measures have been taken such as drawing up standard terms of reference for the audit contracts (for further information please see the Commission's reply to 31 of the EDF 2001 Discharge).

43. Donor harmonisation for sound financial management; (Sørensen - 69)

Commission's reply :

A task force was established in 2001 by the Development Assistance Committee in the OECD to work on the harmonisation of donor practices, and the Commission has participated actively in its work. The conclusions of this Task Force, including best practices on auditing, were endorsed by all bilateral and multilateral donors in February 2003.

44. Monitor the quality of actions carried out under budget support; (Sørensen - 70)

Commission's reply :

Budget support is generally linked to the implementation of growth and poverty reduction strategies adopted by the beneficiary countries. It is in following up the implementation of these strategies that the Commission is gradually developing its monitoring of the quality of the actions supported and the results obtained at national level (support for national monitoring systems; agreements between partners - in particular the Member States - on joint monitoring; and introduction of result indicators.)

III. European Parliament Resolution on ECSC

1. Publication by the end of 2003 of overview of work undertaken by the ECSC since it was established in all official languages (Langenhagen - 2);

Commission's reply :

The Commission has begun the procedures required to carry out such a study and will call in an outside consultant for this purpose. The Commission will keep the budgetary authority properly informed about the progress of this project.

2. Publication by the end of 2003 of overall assessment of research originally funded by the ECSC (Langenhagen - 3)

Commission's reply :

Before the ECSC Treaty expired, the Commission organised the "International Conference on Technology for Coal Mining Preparation and Utilisation: Results of the ECSC Coal Research Programme" in Luxembourg and published the contributions made.

The Commission also published a book on the "50 Years of ECSC Coal Research" which was widely distributed. This publication, issued in German, French, English and Spanish, presented and analysed the following technical achievements:

- mining techniques and infrastructure (exploration, mine planning, shaft construction, heading, underground working, transportation, underground communication and data transfer, and environmental protection in mining);

- coal use (processing, coking technology, combustion and gasification, and flue gas cleaning);

- and cross-sectional results (outgassing, ventilation, climate control, rock control, coal chemistry and physics, and information technology).

This publication also examined the spin-off effects outside the European coal industry.

3. Prudent financial management of the ECSC must apply to the 'ECSC in liquidation » (Langenhagen - 4)

Commission's reply :

The Commission will continue, as in the past, to follow the principles of prudent financial management, which are also set out in Council Decisions 2003/75/EC and 2003/76/EC. The financial activities are audited annually by external auditors as well as the Court of Auditors.

4. Information and update of « Expiry of the ECSC Treaty: Impact on the Administrative Costs at the Commission' (submitted to the Committee on Budgetary Control by Commissioner Schreyer on 8 March 2001) (Langenhagen - 5);

Commission's reply :

The Commission presented in March 2001 information on staff working on ECSC related-activities and prospective evolution from 2003 to 2007. The Commission undertakes to check whether this information is still valid or should be updated and to inform the budgetary authority on the result of this investigation. Final figures on the 2003 implementation are a prerequisite for this update.

5. Information on a regular basis of the outcome of Annual Policy Strategy of redeployment of staff currently involved in administering the activities of the ECSC and/or of the 'ECSC in liquidation'(Langenhagen - 5);

Commission's reply :

All staff that had been employed in the administration of the ECSC, have been re-deployed to other services, the exercise having been finalised with the 2003 allocation of resources.

6. Reports on a regular basis on progress on implementation of the decisions in applicant countries (Langenhagen - 7)

Commission's reply :

On research the Commission will keep the budgetary authority properly informed of the participation of the new Member States in the Coal and Steel Research Fund in the light of the results of the first calls for proposals.

7. Review all outstanding commitments before the end of 2003 (Langenhagen - 8)

Commission's reply :

The Commission undertakes to review all outstanding commitments related to ECSC coal and steel research on a semestrial basis. As every year the Commission reviews in 2003 the outstanding commitments.

In so far as readaptation aid and supplementary social aid for the coal industry are concerned, the relevant rules provide that the Member States have four and five years respectively from the year of the aid decision in which to request the payment of the aid awarded. Any aid not paid within the relevant period is subsequently cancelled (by dates that are also specified in the rules). The Commission ensures that the various deadlines are respected. Cancellations are also executed if the examination of a final payment request or other information supplied by the Member State reveals that part or all of the aid awarded can not be paid.

8. Cancel any amounts in respect of which it is unlikely that there will be any movement in the future (Langenhagen - 8)

Commission's reply :

The Commission cancels regularly budgetary commitments for which it is unlikely that there will be any movements in the future. As such, any aid not paid within the relevant period is subsequently cancelled. The Commission ensures that the various deadlines are respected. Cancellations are also executed if the examination of a final payment request or other information supplied by the Member State reveals that part or all of the aid awarded can not be paid.

9. Explanation why it has not yet improved the accounts relating to loans to officials (Langenhagen - 9)

Commission's reply :

The Commission will analyse the problem in order to find the best accounting procedure.

10. Presentation of the missing reports on loans for officials (Langenhagen - 9)

Commission's reply :

The European Commission recognises not having produced separate annual reports from 1996 to 2002 on loans for officials. A report covering the period 1996-2002 was however issued on 26 March 2003 and transmitted to the European Parliament and Council.

On 24 March the Commission adopted the Building Loans report for the period 1996-2002. A copy was transmitted by e-mail to the secretariat of the COCOBU of the European Parliament on 1 April 2004.

11. Publication of performance measurement system in future ECSC and "ECSC in liquidation" financial reports with a view to securing comparative data on yield (Langenhagen - 10);

Commission's reply :

These data will be published in the Annual Financial Reports for ECSC i.L. The report for 31.12.2002 is currently being prepared.

12. Ensure maximum transparency when disclosing data affecting the value of the ECSC's assets (Langenhagen - 11);

Commission's reply :

Council Decision 2003/76/EC of 1 February 2003 states that these financial statements are to be annexed to the financial statements drawn up by the Commission annually under Article 275 of the EC Treaty and the Financial Regulation applicable to the general budget of the European Communities.

IV. European Parliament Resolution on Agencies

1. Carry out an assessment of the impact of the transfer of competence in respect of the accession countries from the ETF to CEDEFOP and, if necessary, submit proposals relating to the transfer of human and financial resources (Blak - 10 CEDEFOP)

Commission's reply:

The Commission would like to underline that it has addressed the impact of the transfer of competencies in respect of the accession countries from the ETF to Cedefop in its recent Communication COM (2003) 287 final of May 22 2003 on the European Training Foundation (see section 4.3.3. Cooperation between the ETF and Cedefop). In the period leading up to the likely accession of ten countries, the Commission recommends that the two Agencies together establish immediately an exit-entry strategy for each candidate country likely to join in 2004, as these would cease to be partner countries for the Foundation, but instead upon accession they would become members of Cedefop. This strategy should be established in Autumn 2003 and be fully implemented in 2003/2004.

The Commission considers that a transfer of data and information concerning the countries to accede on 1 May 2004 between the ETF and CEDEFOP will take place as part of the above exit-entry strategy. A transfer of human resources is not envisaged. Obviously, financial resources to meet enlargement have been allocated to Cedefop. As far as resources for the ETF are concerned, two points should be noted. Human resources have been reduced in the period of 2000-2003 from 124 to 99 posts in order to take into account the impact of enlargement. Financial resources in the ETF will remain stable in 2003 and 2004 reflecting the increased activities of the ETF in the remaining three candidate countries, notably for Turkey.

2. Make an overall study of activities currently deployed by various community bodies that may overlap in order to propose appropriate solutions (Blak - 30 CEDEFOP, 29 EUROFOUND, 40 EAR).

Commission's reply :

The possible overlap or duplication between the work of the ETF and CEDEFOP has been assessed both in the external evaluation of Cedefop carried out in 2001 as well as in the external evaluation of the ETF (see above COM(2003)287 final). The external evaluations have confirmed what the Commission has always underlined, that there is no overlap between the two Agencies which have a separate geographical coverage and quite different missions and tasks. Concerning the latter, Cedefop contributes to the Community's vocational training policy through transnational cooperation within the EU, while the ETF supports the Commission in the design and implementation of VET reform activities in third countries as part of the Community's external policies' framework.

The Commission in recent years has ensured that tools are in place for the Agencies to achieve maximum synergy and complementarity (e.g. a framework for cooperation decided in 2001, a joint annex to each Agency's annual work programme, establishment of an ETF/CEDEFOP working group, etc).

There is a close constant collaboration between DG Empl and Eurofound. Eurofound discusses its draft work programme prior to each year with DG Empl and the work of Eurofound is taken into account when preparing DG Empl's own programme. Equally, there are quarterly meetings between the relevant DG Empl Operational Unit and Eurofound staff on the implementation of each others respective work programme. Eurofound also has a similar agreement with OSHA in Bilbao (cf Pt 6 below.)

3. Make proposals aiming at better value for money through a cost/benefit analysis, and avoiding any unnecessary proliferation of agencies; for bodies entrusted with similar tasks, setting up Common Boards. (Blak - 27 CEDEFOP, 26 EUROFOUND, 37 EAR)

Commission's reply :

The two recent external evaluations of CEDEFOP and the European Training Foundation highlight the added value of the work of these two agencies. These evaluations did not find any overlap in the work done by the Centre and the Foundation, which have different missions and geographical areas; this fact is reflected by differences in the composition of their Management Boards.

The Commission has always insisted that there be no overlap or duplication in the work of the two agencies and has ensured that they have tools offering maximum synergy and complementarity. Before the definitive accession timetable was set, the first phase of this cooperation began in 1997 and was designed to guarantee that the Foundation use CEDEFOP as a source of information on matters such as best practices in Member States. A second phase began in 2001, when the Commission and the two Management Boards, with a view to the accession process, adopted a framework for cooperation between the two agencies. This framework determines the scope, the principles, the priorities and the arrangements for cooperation between them in order to prepare for accession, and at the same time spelling out for the acceding countries the role of each agency. The cooperation framework is also designed to avoid any possible duplication and guarantee maximum synergy and complementarity between the agencies.

The Commission has called on the two agencies to put in place a number of instruments to facilitate better cooperation, namely the cooperation framework, the common annex to each annual work programme, joint six-monthly reports for Parliament and the working party. The Commission much appreciates the view expressed by the evaluator of the Turin Foundation that these instruments strengthen cooperation and have really made it possible to provide a clearer cooperation base.

Also at the Commission's behest, the two agencies have together put in place an exit - entrance strategy for each candidate country which will be joining in 2004, given that upon accession the countries concerned will cease to be partners of the foundation and will become members of CEDEFOP. This strategy must include a precise timetable and be based on the following principles/axes:

- the Fondation will make available to CEDEFOP its information, its know-how and its sources of information on the candidate countries which will be joining in 2004 (e.g. the databases on the vocational education and training organisations in the candidate countries, the lists of organisations of social partners, etc.);

- each agency should capitalise on the investment of the other. This applies to the national monitoring centres that the Foundation has set up in the candidate countries, which already have valuable experience as structures in transnational cooperation. They are along-term investment by the Community and should, even before the probable accession in 2004, be prepared and adapted by the Foundation so as to facilitate their integration as national contact points into CEDEFOP's ReferNet network upon accession, For the other candidate countries the Foundation should rely on its experience, acquired after the possible integration of the first wave of countries in ReferNet. They should prepare the monitoring centres of these countries in an appropriate manner and familiarise them with the functions and activities of ReferNet to give them every possible chance of being selected by CEDEFOP upon accession;

- enhanced thematic cooperation. Although CEDEFOP and the Foundation do not have the same internal organisation (thematic for one, geographic for the other), it would be useful, in particular for the Foundation, if it could benefit from CEDEFOP's expertise in its own work, not only in the candidate countries but in all the partner countries. The thematic networks should be extended to incorporate the candidate countries wherever possible, where their expertise should be made available. This applies, for instance to CEDEFOP's Training of Trainers Network.

The functioning of the Agencies related to DG Empl has been found satisfactory by internal and external control bodies (e.g., European Court of Auditors). All Agencies have in place a system of external evaluation of their work programmes and the results of such evaluations are publicly available.

With regard to monitoring and evaluation, the Agencies undertakes monitoring on a daily basis, and has set up an evaluation unit within the Agencies. The results of the Agency's evaluations are fed into new programmes and projects undertaken by the Agency whenever relevant.

4. By 31 July 2003, to reconsider the composition and working methods of administrative boards, and to put forward appropriate proposals and to examine whether provision could be made for joint administrative boards for bodies with similar responsibilities. (Blak - 28 CEDEFOP, 27 EUROFOUND, 38 EAR)

Commission's reply:

The Commission has already adopted the amended basic regulation for the agencies (J.O. L 245, 29/09/2003.)

A modification of the CEDEFOP's basic regulation concerning the articles relating to the composition and functioning of its Board is in progress, in close cooperation with DG EMPL, which is carrying out a similar exercise for the other two Agencies who have tripartite boards, namely Bilbao and Dublin.

This revision proposes strengthening the functions of the Bureau of the Centre's Management Board, as part of the enlargement of the Board following the accession of new Member States.

It is not possible to set up a common Board for CEDEFOP and ETF for the following reasons:

- CEDEFOP has a tripartite board as an Agency working in the social area (vocational training policy) while the ETF has a board composed by Member States exclusively since the Agency works in the external relations' policy area;

- representatives in the Board of CEDEFOP should have experience and skills relating to the vocational training policy area while the ones nominated in the Board of the ETF should also have an external relations and third country aid programme experience. The profile therefore of the members of each Board required for the efficient functioning of the Board and fulfilling of its tasks should be quite different.

The Commission considers that the composition of the administrative boards of agencies is a crosscutting issue, which should be addressed in the follow-up to its Communication ''The operating framework for the European Regulatory Agencies" (COM (2002) 718 final). In view of enlargement, the Communication argues in favour of an administrative board of reduced size, with a composition reflecting the balance between executive at Community level and the expertise of the Member State executives (notwithstanding representative of the interested parties). At the moment, this document is under consideration by the European Parliament and the Council. Possible action in this field should be undertaken in the light of upcoming discussions with these Institutions.

As for the functioning of the administrative boards of Eurofound and Cedefop, DGs Empl and EAC are preparing legislative proposals to be presented to the Council. At present, the directors of Eurofound and OSHA are invited to participate in each others' administrative board meetings as observers.

Taking into account that the tasks of the Governing Board of the European Agency for Reconstruction, as defined by Article 4 of Council Regulation (EC) No 2667/2000 are of such specific nature in following up administrative and operational matters in relation to the implementation of CARDS assistance in Serbia and Montenegro (including Kosovo) and FYROM, the Commission considers that there is no clear advantage to explore for joint administrative boards with other Agencies.

5. Submit by 31 July 2003 an amendment to the constituent acts of the agencies to ensure that the directors of Community bodies may in future be appointed only with the approval of Parliament; (Blak - 29 CEDEFOP, 28 EUROFOUND, and 39 EAR)

Commission's reply :

As the present Director of the European Agency for Reconstruction has been appointed for a period which reaches the date of expiry of the legal basis of Council Regulation (EC) No 2667/2000, and whereas a proposal on the future status of the Agency beyond this should be taken, according to Article 14 of Agency regulation, on the basis of a proposal to be submitted by the Commission at the latest by 30 June 2004, the request made by Parliament is not opportune at this stage.

In its Communication ''The operating framework for the European Regulatory Agencies" (COM (2002) 718 final), the Commission proposed making formal appointment of candidates for the post of Directors dependent on a hearing before the European Parliament. At the moment, this document is under consideration by the European Parliament and the Council. Possible action in this field should be undertaken in the light of the upcoming discussions with these Institutions.

6. Include in its action programme the proposals to ensuring that overlapping between the activities of Commission's services and those of the agencies is avoided. (Blak - 31 EUROFOUND, 30 EUROFOUND, 41 EAR)

Commission's reply :

No overlap currently exists between DG EAC and CEDEFOP. Both the medium-term priorities of the Centre and its annual work programme provide detailed information on the type of contribution the Centre provides to the Community's vocational training policy and more generally to its partners.

The work programme of EUROFOUND is adopted by its Administrative Board in agreement with the Commission. More specifically concerning the relations between EUROFOUND and OSHA, the Agencies concluded in 2001 a Memorandum of Understanding and, in 2003, a Collaboration Agreement identifying areas of common interest and foreseeing actions to ensure a maximum of synergy was signed.

7. Ensure that the agency has the required manpower and technical support in order to operate the imposed computer/accounting system (SI2) on the Foundation. (Blak - 3 EUROFOUND)

Commission's reply :

The Commission's technical services are involved in ongoing activities relating to development and improvement of the SI2 accounting System.

As SI2 is an application which complies with their financial regulations and reflects the specific Community context, the Agencies chose it themselves. The Commission (DG BUDG) provides the Agencies and the Committees with the source code of the SI2 application. Management of the application and changes to it are coordinated and financed by the CSS (inter-Agency and Committee collaboration). The Commission (DG BUDG) has accommodated the Common Support Service since June 2000.

8. Initiate an administrative investigation for mismanagement and, where appropriate, to launch disciplinary proceedings. (Blak - 8 EAR)

Commission's reply :

An investigation has taken place and a report has been submitted to the SG, DG ADMIN and DG BUDG.

9. When employing experts, to ensure compliance with the relevant rules of the Financial Regulation. (Blak - 9 EAR)

Commission's reply :

An agency's compliance with the relevant rules of its Financial Regulation is the concern of the sponsoring DG. DG Budget, which is responsible for examining these regulations when they are adopted, will not fail to provide assistance for their interpretation and development.

The procedure followed for employing the experts respected strictly the provisions of the "Manuel of instructions on contracts for works, supplies and services concluded for the purposes of Community co-operation with third countries", adopted by the Commission on 10/11/1999 (SEC(1999)1801/2).

10. Fully inform the Parliament on the possible disciplinary measures. (Blak - 16 EAR)

Commission's reply :

The investigation report is now available and it is being assessed by all services concerned. Should a disciplinary measure need to be taken, the Parliament would receive adequate information.

11. Propose phasing out future EU funds to the energy sector in Kosovo if the present situation continues (Blak - 18 EAR).

Commission's reply :

The Commission has already started a progressive phase out of the Energy sector in Kosovo as demonstrated by the decreasing assistance amounts earmarked in the Multi-annual indicative programme for this province. In 2002, EUR55 million were allocated to this sector, followed by EUR14 million in 2003 and an indicative allocation of no more than EUR10 for 2004. These funds will be targeted to increase the sustainability of the energy sector and consolidate the EC investment to date. The European Agency for Reconstruction will be directly responsible for implementing these funds and be paying utmost attention to ensuring that the disbursements in the energy sector are properly accounted for.

12. Consider whether the fact that the Agency occupies various sites is the most appropriate solution (Blak - 20 EAR)

Commission's reply :

The Council regulation 2667/2000 of 5 December 2000 on the European Agency for Reconstruction provided that the Agency's general services shall be located at its site in Thessaloniki. Consequently the Governing Board of the Agency established operational centres in Pristina, Belgrade, Podgorica and Skjope. The spread of the Agency between various locations is related to the nature of the work undertaken by the Agency which requires close coordination with the local authorities and beneficiaries of the assistance in the field, as well as to the extensions of its mandate since its creation.

In its Communication "The operating framework for the European Regulatory Agencies" (COM (2002) 718 final), the Commission proposes that the seat of each regulatory agency should be specified in the instrument of establishment. This stems from the premises that the choice of each agency's location should take into account objective factors (access to specific infrastructures / expert knowledge in a given area etc.) that are specific to the tasks to be performed by the agency and its field of expertise. This should help in defining the best geographical location for each regulatory agency's seat.

- * *

V. COUNCIL RECOMMENDATION

a) Commission reform

1. Sustain efforts in the process of administrative reform, especially reform of financial management systems (Council 1).

2. React promptly, by taking the necessary corrective action to address ECA's observations (Council 2).

Commission's reply:

The Commission is continuing its efforts to implement the reform process it has begun. Detailed information is available in the last updating on implementing the White Paper (Progress), which was published in January 2003 (COM/2003/0040 final/2); the Synthesis of the Annual Activity Reports and Declarations of Directors-General for 2002 gives an overview of achievements during the year (COM(2003)391 final).

The main projects in progress include:

1. Development of a new accounting framework : on 17 December 2002 the Commission adopted a Communication on Modernisation of the Accounting System of the European Communities (COM(2002)755). It includes a specific plan of action. The Commission's first priority when modernising its accounting system is to respect the 2005 deadline.

2. Implementation of Internal control standards: major efforts have already allowed important achievements and all DGs should be able to achieve as much as possible, full compliance with the baseline requirements of the 24 Internal Control Standards by end 2003.

3. Annual activity reports and Annual declarations: guidelines were issued for the 2002 Annual activity reports and Annual declaration and allowed to clarify the scope and the materiality of reservation and to improve consistency. For 2003, further improvements will be added, based on the experience gained in 2001 and 2002 (support reservations by concrete evidence, explain reservation impact on assurance). Moreover, the Synthesis for 2001 and 2002 include action plans which are currently implemented.

As recognised in the 2002 Synthesis report of Annual activity reports and Annual declarations, the impact of the reform on the Commission's functioning is in progress and will further consolidate in the next exercises. A great effort is being deployed to make available the resources needed to thoroughly implement the reform, in particular through the Annual Policy strategy exercise.

More details can be found in Annex.

As regards follow-up to the Court of Auditors' recommendations, the Commission lists in its plan of action those which it can act on and the corrective measures envisaged. On this point the closer attention the Court pays to the follow-up to its earlier observations makes it possible to measure the efforts made by the Commission and its achievements.

3. Set a timetable for measures to improve financial management included in the action plan for 2001 and report back on the implementation of this action plan (Council 2)

Commission's reply :

The Commission does all it can to achieve financial management of the highest level, reacting inter alia to the recommendations made by its internal and external auditors and by the discharge authority. Both the annual activity reports from the Directors-General and the Commission's summary report are accompanied by action plans to remedy the shortcomings identified and give an account of the measures taken to follow up the recommendations. The Synthesis of the Annual Activity Reports 2002 of the Commission's DGs and services (COM(2003)391 of 9.7.2003) contains the state of implementation of the actions laid down in the 2001 Synthesis (Part 5.2. of the 2002 Synthesis and corresponding table). It reports both on completed and ongoing actions. Some of the latter have been reviewed and/or complemented and are presented, accompanied by indication of responsible services and a timetable, in Part 5.3. of the 2002 Synthesis and in the corresponding table.

4. Show greater rigour in its estimates and tailor its budgeting to real needs, with Member States' assistance (Council 4).

Commission's reply :

The Commission recognises that the budgets for the Structural Funds in the initial years of the current programming period were over-optimistic relative to the capacity of Member States to implement the programmes. This was due in part to over-optimism from the national authorities directly responsible for implementing the programmes on the ground, as their upwardly biased payment forecasts reveal. The difficulties encountered with the transition to the new rules of the period 2000-2006 were obviously under-estimated.

The Commission will take account of past experience in its future budget proposals with a view to tailor proposed budgets to real needs, as it has recently done in its PDB 2004.

5. Continue to be active in the administrative cooperation between Member States, particularly in protecting the Community's financial interests (Council 9).

Commission's reply :

In the Structural Funds sector, the Commission and the Member States co-ordinate their audit plans to avoid overlap and use one another's audit information, and the Commission relies to a greater extent on the work done by national audit bodies. The single audit concept is already being implemented to a large extent under audit coordination protocols. A further development now under discussion with the Member States is a "contract of confidence" into which the Commission would enter with Member States for particular programmes or all programmes in the country concerned, whereby the Member State would guarantee a satisfactory level of audit of management and control systems for the Structural Funds.

Moreover, Articles 17 to 19 of Council Regulation (EC) No 515/97 of 13 March 1997 on mutual assistance between the administrative authorities of the Member States and cooperation between the latter and the Commission to ensure the correct application of the law on customs and agricultural matters (OJ L 82, 22.03.1997, p. 1-16) set out the Commission's role towards the Member States for combating fraud in the customs and agricultural sectors.

In general, the Commission's approach in this area is based on partnership with the Member States and on complementarity with national measures. The Commission's role consists of:

- providing Member States with the tools they need to combat fraud in optimum conditions and share the experience gained in these fields, in particular through computerised communication systems (Anti Fraud Information System - AFIS) or data bases (Customs Information System - CIS);

- supplementing the measures undertaken by the Member States, which bear the main responsibility for tracking down irregularities and conducting inquiries, by coordinating cases with a Community dimension, adding its contribution to cases reported by the Member States and providing the operational and technical assistance required;

- organising Community investigations in third countries under mutual administrative assistance agreements and protocols concluded between the Community and certain third countries (around 40 agreements in force).

In practice, the Member States are obliged to report to the Commission:

- any information they have on suspected goods and methods or practices used to breach legislation in these fields;

- any information on shortcomings or gaps that become apparent from the application of that legislation.

The Commission communicates to the Member States any information that would help them to enforce the legislation in question.

Where a Member State becomes aware of an operation which constitutes, or appears to constitute, a breach of Community legislation that is of relevance at Community level (ramifications in other Member States or similar operations likely to have been carried out in other Member States), it sends the Commission any information it needs (documents, copies, extracts of documents) to coordinate the steps taken by the Member States.

The Commission then conveys this information to the other Member States [possibly in the form of an MA (Mutual Assistance) report] via the secure communication network AFIS. In some cases, it may be suggested that the Member States take precautionary measures or guarantee the amounts involved.

However, the procedure set out in Regulation (EC) No 515/97 for helping to detect irregularities does not affect the recovery procedure or the arrangements for mutual assistance for the purposes of recovery.

- * *

b) Own resources

6. End the repeated sizeable surpluses produced by budget implementation in recent financial years , by taking the necessary steps to make budgeting more reliable. (Council 1).

Commission's reply:

The main reason for the low implementation of payments in 2001 was the under-implementation in the Structural Funds). This was essentially due to a mismatch between the forecasts of payment claims (EUR 28.2 billion) the Member States sent to the Commission (and on which the budget was based) and the payments actually claimed by the Member States (EUR 20.5 billion). In turn, the low level of payment claims by the Member States stemmed in large part from delays in the adoption and launching of the new 2000-2006 programmes.

The Commission is very conscious about the problem, and has launched several actions to improve budgetary forecasting and the management of a possible budgetary under-implementation.

Firstly, for the Structural Funds, the Commission has been working with the Member States in order to improve their own payment forecasts. It has simplified the systems used to transmit Member States' forecasts and now ensures a wider circulation of the forecast request it sends annually, which includes all the managing authorities of the programmes in the Member States. It also updates the forecasting information regularly, and informs rapidly the budgetary authority of the outcome of the annual forecasting exercise. This includes an analysis of the accuracy of the forecasts. Moreover, the Commission has also developed internal forecasting tools which it uses to prepare the budgets. In result, as the 2003 execution already shows for the new 2000-2006 programmes which account for the major part of the Structural Funds budget, the match between budgets and execution has improved very considerably.

Secondly, the Commission has developed its annual budget implementation plan (including monitoring and a mid-year revision procedure) as an early warning instrument regarding possible under-implementation problems. For the Structural Actions, this is largely based on the internal forecasting tool mentioned above. This has already produced palpable results. The Commission is currently considering to propose a rectifying budget for 2003 to adjust the available appropriations for the Structural Funds -for what regards the completion of the pre-2000 programmes, given that, as indicated above, the execution of the new 2000-2006 programmes is now satisfactory - with the actual implementation forecast, as revised in October 2003.

7. Obtain further progress, particularly with regard to management and supervision of customs warehouses, to recovery of uncollected debts and interest payable and to separate accounting for customs debts (B accounts). (Council 2).

Commission's reply:

The Commission underlines the fact that Member States are primarily responsible for the management and the surveillance of customs procedures, for the recovery of customs debts and the making available to the EU budget and for keeping the Own Resources accounts. As in the past, the Commission will continue to include topics, selected on the basis of risk-analysis techniques, which relate to customs arrangements, recovery and accounting procedures, in its annual control plan. It welcomes the continuing cooperation from the Member States in the implementation of this control plan and the subsequent follow-up activities.

Delegates of the Customs Code Committee have been reminded of the Court's findings and been asked to take the appropriate actions.

8. Define clearly its role in coordinating administrative cooperation with Member States. (Council 3).

Commission's reply:

A regulation is being prepared on mutual administrative assistance and exchange of information which will cover cross-border VAT fraud; it is intended to provide the Commission, and more particularly OLAF, with a specific legal basis for its role of coordinator of mutual assistance activities with the aim of making its role more effective.

c) Common Agricultural Policy

9. Make estimates of budgetary requirements more reliable in close cooperation with Member States. (Council 1).

Commission's reply:

The Commission estimates the initial agricultural budgetary requirements almost one and a half year before the start of the budget year through its Preliminary Draft Budget (PDB) for the year in question. Since the budgetary procedure requires such a long lead-time of preparation, these estimates are subject to uncertainty due to the structural and the fluctuating nature of the parameters, which influence agricultural expenditure. One month before the start of the budget year, the Commission presents to the Budget Authority its Amending Letter (AL) to the already presented PDB. The AL serves to update the budget requirements outlined in the PDB.

The estimates of budgetary requirements are based on hypotheses with regard to developments in agricultural markets (levels of production and demand, price developments etc.) but they are also influenced by the implementation rate of direct aid schemes, by the pace of execution of rural development programmes which rely particularly on information and implementation forecasts supplied by the Member States as well as by other factors such as changes in EUR/$ exchange parity rates.

Therefore, receiving timely, complete and regularly updated information on all these elements is primordial to the reduction of the uncertainty linked to the estimates of budgetary requirements needed for the financing of the CAP. The various EU regulations, through which CAP measures are implemented, require the provision of this information to the Commission. Member States collaborate and supply the required information, albeit sometimes late or incomplete, thus, directly affecting the accuracy of the estimates of budgetary requirements.

The Commission tries, without further burdening existing procedures, to reinforce this collaboration within the framework of the various management committees and the EAGGF-Guarantee committee. It should be noted that the EAGGF-Guarantee's budget implementation rate averaged approximately 97.2% of initial credit appropriations for the last 3 budget years, a rate which is deemed satisfactory, given the fluctuating nature of the parameters affecting the establishment of the estimates of budgetary requirements.

10. Work actively with Member States in refining their control systems, especially for schemes where aid is geared to quantity produced, in particular for cotton and olive oil. Commission to improve the presentation of inspection results under the integrated administration and control scheme (IACS), to distinguish between random and risk-based checks. (Council 2).

Commission's reply:

Through its audits of agricultural expenditure, conducted in the context of its clearance of accounts procedure, the Commission pursues a very active role in improving Member States control systems.

The production aid schemes are followed up closely by the Commission services. As concerns olive oil, important new control requirements are applicable as from marketing year 2001/2002 and the development of the olive cultivation Geographic Information System (GIS) is ongoing. As concerns cotton, a new CMO regulation has been introduced as from marketing year 2001/2002. Moreover, the Commission presented on 23 September a reform proposal for both schemes. The Communication "Accomplishing a sustainable agricultural model for Europe through the reformed CAP - the tobacco, olive oil, cotton and sugar sectors", can be found on the internet at:

http://europa.eu.int/comm/agriculture/ capreform/com554/index_en.htm

All IACS-related aid applications are subject to a 100% administrative control, which includes full computerised cross-checks. Regarding the selection of farmers subject to on-the-spot checks, a minimum level of random selections became a regulatory requirement only as of 2002, but a distinction between random and risk based checks was in fact incorporated into IACS statistics as early as 2000 for the financially most important sector of arable crops. More generally, presentation of statistics for both arable crops and animal premiums has been progressively enhanced since 2000.

11. Lay down a set of common guidelines for administration of rural development measures. (Council 2).

Commission's reply:

In accordance with Article 53(2) of Regulation (EC) No 445/2002 and the previous Regulation (EC) No 1750/99, the Commission adopted guidelines in 2000, which were updated in 2002 on common indicators for monitoring the planning of rural development and expenditure in this field for the period 2000-2006.

12. Press Member States to ensure that paying agencies comply with approval criteria, particularly as regards information technology security. (Council 3).

Commission's reply:

Since the Council's Discharge Resolution 2001, studies of Certifying Body and co-ordinating body reports show an increased level of information security implemented in the Paying Agencies.

The following actions have also been taken to press Member States to ensure that the Paying Agencies comply with approval criteria, particularly as regards information technology security: A change to the legislation concerning the rules for the clearance of the accounts of the EAGGF Guarantee Section, and for computer security in particular, is envisaged during the coming months. The proposal aims to bring up to date, and tighten the requirements for information technology security.

Furthermore, a letter has been sent to the co-ordinating bodies in each of the Member States asking them:

- to report to the Commission before 15.09.2003 on the status of the implementation of the recommendations arising from previous Commission IT security audits; and

- to remind the Certifying Body in each Member State to include in their annual report a section on IT security in the Paying Agencies, based on the above legislation.

d) Structural measures

13. Equip itself as quickly as possible with appropriate instruments to improve budget forecasts. (Council 1).

Commission's reply: The Commission has already taken a number of steps aimed at improving the quality of Member States' forecasts. It has conducted a survey amongst Member States on the procedure and improved it in the light of the replies received. It now sends the requests for information to Member States and informs the programmes' management authorities at the same time. It streamlined the systems used to collect and analyse the data. It produces annually a widely disseminated report on the quality of the forecasts. The Commission will keep on co-operating with Member States to improve the quality of the forecasts.

Despite the fact that Member States' forecast have systematically overestimated significantly the need for funds, they remain the best information on payment needs that the Commission gets from sources closer to the execution of the programmes on the ground. This is the consequence of the shared management and there is no radical alternative to that bottom up approach. Thus the Commission keeps on devoting significant efforts to improve the forecasts in co-operation with the Member States. In view of poor forecasts in the past, the Commission has repeatedly written to the States to remind them of the importance of having good-quality forecasts of the implementation of each programme within the time limits laid down.

Although some States are consistently wayward in their payment forecasts, others might overestimate requirements one year and, by way of compensation, underestimate them by the same amount the following year. In 2002 for example the payment appropriations for the Cohesion Fund had to be replenished and not all requests could be met after two years of considerable over-implementation.

So far, due to their over-estimation bias, the forecasts have been of limited value for budgeting but the potential value of the forecasts justifies continued efforts towards their improvement. The Commission corrects the forecasts received from Member States in the light of its own information. For 2004 the amounts in the Budget are smaller than those returned by the Member States in their forecasts.

The Commission does not have any data on the Member States' "absorption capacity". The technical means necessary for estimating this capacity would first have to be developed. We do not consider that the criterion of the Member States' "absorption capacity" gives any added value to the estimate of payment appropriations required, apart from providing a very rough assessment of the probability of the Member States' forecasts.

The Commission has consistently proposed appropriations below Member States' forecasts, based on best available knowledge at the time of budgeting. So far, implementation of the Structural Funds programmes has indeed trailed below expectations. The Commission will take this into consideration in its future proposals and has already done so in the PDB 2004.

14. Cooperate with Member States in identifying best practice in order to improve budget forecasts. (Council 1).

Commission's reply:

See reply to paragraph 13.

15. Continue its efforts to reduce the commitments outstanding. (Council 2).

Commission's reply: The pre-2000 outstanding commitments relate either to 1994-1999 programmes or to pre-1994 programmes. In 2002, the Commission endeavoured to reduce both significantly.

The Commission has presented a Communication on the budgetary implementation of the Structural Funds indicating the normal trend expected for outstanding commitments. The actual situation and our current forecasts are a fair reflection of this forecast.

Only the forecast for the reduction in outstanding commitments for programmes from the period 94-99 may diverge by a few months, consigning some of them to 2004. However, the Commission has adopted action plans and partial clearance measures for the programmes, payments or decommitments to reduce the "unusable" outstanding commitments as far as possible and use the maximum of payment appropriations provided for this purpose.

The outstanding commitments for the Structural Funds at the end of 2002 amounted to EUR60 373 million, which represents 2 years of commitment appropriations, of which around 1⁄4 concerned pre-2000 programmes. The Commission considers that this level of outstanding commitments is not alarming as they concern multiannual programmes involving substantial investment for which the regulation allows only two years to pay for the project after the year of commitment.

That is why the Commission wished to give priority to tackling the bad, i.e. the oldest outstanding commitments. Outstanding commitments for programmes from before 1994 were greatly reduced from EUR532 million at the beginning of 2002 to EUR128 million at the end of 2002.

Despite considerable efforts devoted to the clearance of the outstanding commitments associated with the 1994-99 period, they only decreased marginally in 2002 (from EUR 16 607 million to EUR15 437 million). This was because very few final payment claims were received from Member States in 2002. The Commission is currently analysing the files received and processing the payments or asking for additional information in the case of incompletely documented claims. Due to this concentration of final claims at the deadline, more payments will be delayed to 2004 than initially foreseen.

For the 2000-2006 programmes, the low level of payments in 2001, and to a less extent in 2002, have indeed led to outstanding commitments slightly higher than initially anticipated. However, under the rules of the period 2000-2006 the commitments are made annually almost automatically while the payments follow essentially the execution of the programmes. In fact, this means that the outstanding commitments are expected to increase until 2006, and to decrease until the end of the payment period as repeatedly indicated by the Commission (most recently in its Communication to the Council and EP of the Evolution of budget execution of the Structural Funds, in particular outstanding commitments (COM(2002) 528 final)).

As regards the Employment Policy in particular:

- Pre-1994 periods

At 31.12.2001 outstanding commitments came to EUR121 million and concerned 388 cases. At 30 June 2003 they had been reduced to EUR75 million and concerned 222 cases, a drop of 38% in volume and 43% in number. The residual outstanding commitments mainly consist of cases subject to legal proceedings.

- Period 1994-1999

Most of the outstanding commitments should be cleared in 2003 with the closure of the programmes on the basis of applications for final payment received in the first quarter of 2003.

- Period 2000-2006

Communication COM(2002)528 of 20.9.2002 sets out the trend in outstanding commitments over the whole period covered by Regulation No 1260/99: automatic commitments at the beginning of each year, advance of 7% of the total for the programme in the first year, interim payments under the N+2 rule.

As regards the Agricultural Policy in particular:

Pre 1994 period: On 31 August 2003, outstanding commitments for the period prior to 1994 came only to Euro 16,28 million. Most of these cases were blocked by legal procedures.

Period 1994/99: On 31 August 2003, outstanding commitments relating to the period 1994/99 amounted to Euro 2.436 million. Due to the complexity of the closure procedure and to the reception of most payment requests on the last days before the deadline of 31 March 2003, only a minor part of this amount will probably be cleared in 2003 (around Euro 420 million). The Budget Authority has already been informed of this situation.

Period 2000/2006: On 31 August 2003, existing commitments amounted to Euro 5.854 million. This amount is subject to the n+2 rule. Therefore, there is no risk of long lasting outstanding commitments.

16. Continue to decompartmentalise its management of structural measures and ensure that the common database for the Structural Funds functions effectively. Commission to improve the operation of follow-up procedures. (Council 2).

Commission's reply: As far as DG REGIO is concerned, the common database is fully operational today. Design changes are discussed and agreed by all 4 structural fund DGs, mostly through the Meetings of the heads of financial units. As for ensuring that the database (SFC) functions effectively, there is a "traditional" infrastructure guaranteeing that the base is permanently available to users in the Member States or within the Commission and a help desk providing primary support and control of access. User training is also available and is organised at the request of the Member States or DGs. There are also regular coordination meetings between the four DGs to ensure that the SFC application always meets users' needs. At these meetings the project owners responsible for tailoring the SFC to users' needs, will typically pass on the requests of both internal users and those in the Member States.

As for improving the follow-up procedures, this is one of the functional aspects linked to the application. The role of the Information Technology Unit is to develop the functions requested by the users, represented by the project owner or owners. Reports allowing administrators to provide a better follow-up and giving a full updated picture are regularly drawn up (as for example the N+2 and M+18 early warning reports).

17. Continue its efforts to simplify the management of structural measures programmes under existing legislation. (Council 2).

Commission's reply: In adopting the communication "on the simplification, clarification, coordination and flexible management of the structural policies 2000-2006" (C(2003)1255) on 25 April 2003, the Commission completed the simplification exercise for the management of the Structural Funds with the rules as they now stand. It has already started its deliberations on simplification of the future method for implementing the Structural Funds for the post-2006 programming period.

While the efforts towards simplification should continue, it should be noted that these efforts must be conducted in partnership between Commission and Member States, and that the existing legislation necessarily limits the scope for simplification under the present programming period.

As regards the Agricultural Policy, the closure of the remaining 16 dossiers concerning a total of Euro 16,28 million can only be done step by step because of ongoing legal procedures.

18. As regards the periods prior to 1994, take promptly the measures to close the last-remaining dossiers as soon as possible, if necessary by means of automatic decommitment. (Council 3).

Commission's reply: The last measures will be completed this year. In accordance with the rules, only measures still before the courts will remain open pending the appropriate court rulings. The rules do not allow automatic decommitment in these cases.

The RAL for programmes from before 1994 was greatly reduced, from 532 million EUR at the beginning of 2002 to 128 million EUR at the end of 2002.

For pre-1989 projects and those for the period 1989-1993, DG EMPL is continuing its clearance effort to close cases which have not yet been closed. However, a large number of cases are covered by Article 7 of Decision 83/673/EEC (suspected irregularities) which slows down the closure procedure.

19. As regards the period 94-99, continue efforts to secure consistent application of Regulation (EC) No 2064/97 and to ensure that the activities of the Commission departments responsible for monitoring the various structural measures are more efficiently coordinated. (Council 3).

Commission's reply: The Commission carried out audits of Member States' preparations for closure or 1994-99 in accordance with Regulation 2064/97 in 2001 and 2002 and after closing these programmes is undertaking sample audits of projects in order to test the reliability of the control systems established under Regulation 2064/97. Financial corrections will be made if errors are found. Close co-ordination between the Commission services on financial and control issues is assured through regular meetings of the financial directorates.

In 2002 DG EMPL completed its audit programme on the implementation of Regulation No 2064/97 which had the objective of evaluating the level of assurance to be achieved on the closure of the measures. The closure cases are now being analysed at DG EMPL, in particular the declarations of validity (Article 8) which are being analysed in the light of the obligations laid down by Regulation No 2064/97. DG EMPL's audit programme for 2003 provides for 15 closure audits from the second half of 2003 onwards (implementation will depend on the rate of closure of cases submitted late by the Member States); these audits will continue in 2004.

20. As regards the current period, support Member States in completing the introduction of the systems, ensuring that they operate efficiently and monitoring the proper application of the regulations. (Council 3).

Commission's reply:

The Structural Fund departments have audited, or are auditing the management and control systems for the new period in the Member States. An extensive report on the audit was for ERDF sent to Parliament in May 2003.

DG AGRI is currently undertaking the necessary audits. The Commission is continuously monitoring the effectiveness of these systems.

DG EMPL has drawn up an audit programme for systems introduced for the ESF's 2000/2006 programming period which will enable it by end 2003 to reach a coverage rate of 83% for the objective 1 measures it administers, 81% for EQUAL and 57% for objective 3. The management and control systems of the objective are also normally covered by the audit of regional structures implementing objective 3 or EQUAL. It will be able to add to these results when implementing the ESF audit strategy in 2004 (see points 42 and 68).

DG EMPL made a considerable effort in 2002/2003, in close cooperation with the other departments involved in the Structural Funds, to provide the Member States with any clarifications they needed on the rules and thus help them comply with the programming for 2000/2006.

21. Resolve the problems in the management system for the Community Fishing Fleet Register. (Council 4).

Commission's reply: The Front (Fleet Register On the NeT) application allows Member States to send in their fishing fleet data, ensure that it is followed up and look for information in the Fleet Register.

Stricter controls were introduced for the validation of new data to guarantee better quality. Improvements were also made so that the declarations to be corrected by the Member States were more visible and the messages for users were more understandable.

As for the quality control of the historical data of vessels in use, a dozen quality criteria were laid down. A follow-up report on irregularities is generated every week and sent to the Member States.

22. Extend its enquiries into possible deficiencies in the management and control system. (Council 4).

Commission's reply: See reply to the previous paragraph.

The ESF audit strategy described in points 42 and 68 allows our control resources to be more concentrated on risk systems than in the past by expanding on the Commission's audits where necessary. The Commission also invokes Article 39(2) when it considers that a Member State has not complied with its control obligations (Article 38(1)) or has not made the corrections required (Article 39(1) of Regulation No 1260/1999).

e) Internal policies

23. Take further efforts in the presentation of the section of the revenue and expenditure account. (Council 1).

Commission's reply:

The Commission is pursuing its efforts to improve the reporting on budgetary and financial management, in order to give a clear and complete picture of the budget implementation. As to carry-overs, they are managed in accordance with the strict rules of the Financial Regulation, and most of them relate to third party receipts.

24. Harmonise and clarify the rules for implementing the TEN-T programme, in particular the rules on eligibility costs, and to strengthen its management, control and evaluation system. (Council 2).

Commission's reply:

The Commission continues to harmonise and clarify the rules for implementing the TEN-T Programme and to strengthen controls in cooperation with Member States in accordance with their joint responsibilities in this area under the TENs Regulation.

In particular the following measures are on-going:

- The TEN users Handbook (for applicants) will be produced in 2003 to address interpretation issues

- The version 2003 of the Manual of Procedures TREN contains a specific part for the TEN's Programmes

- Integration of TENs into the central Informatic tool (PMS) will be completed before the end of 2003

- The new standard text of the Commission Decision from 2002 onwards includes a more developed technical annex 1 with more details concerning: technical activities covered by funding; estimated cost breakdown of activities, fixed rather than indicative timetables.

- The revision of the Commission Decision text from 2003 strengthens the role and responsibilities of the Member States in the implementation and the follow-up of the financial aid and particularly their competences in the fields of financial control, appraisal, monitoring and evaluation of projects in compliance with the TEN Regulation.

- In addition to the on-the-spot checks already performed by technical and financial officers prior to the final payment, a number of ex-post TEN-T audits have taken place or are planned for 2003, some of them together with the Court of Auditors. Moreover, a framework contract to be concluded by the end of 2003 with an external audit company will allow to increase considerably the number of ex-post audits undertaken by the Commission.

In the context of eligibility of costs related to references in the TEN-Regulation to studies, technical support measures, works etc., it is envisaged to establish a guide, based on practices in Member States, which will outline and clarify the nature of activities qualifying under these various definitions.

25. Take steps to simplify the financial complexity of RTD indirect actions and to introduce more effective sanctions mechanisms. (Council 2).

Commission's reply:

As a result of the recommendation concerning simplification and the introduction of sanctions, DG RTD and the other research DGs have drawn up an action plan in response to action 1 of the summary report on the annual activity reports for 2001. This plan was formally adopted by the Commission on 10 January 2003. It is followed up every quarter by all the DGs concerned.

In this connection, the Commission would also point to the efforts conducted jointly with the Council and Parliament during the legislative procedure for the 6th framework programme and the rules of participation relating to it.

As for simplification, the main factors involve cutting back on the detailed rules and introducing greater flexibility in the management of research projects. This measure is accompanied by reinforcing joint responsibility for members of consortia and tougher sanctions in the event of irregularities.

26. Strengthen auditing by the Directorate-Generals concerned. (Council 3).

Commission's reply:

The research DGs will continue their efforts of recent years and this aspect forms an explicit part of the action plan relating to action 1 of the summary report on the annual activity reports for 2001. Under the plan, the DGs will also take further steps in this direction by stepping up the control of documents as the resources available for on-site audits are relatively limited considering the number of contracts in force.

As regards the 6th framework programme, mention should be made of the decision by the legislator that the declarations of costs should always be accompanied by audit certificates issued by independent auditors. This will supplement the strategy of strengthening controls and audits when implementing the research programmes.

As for the recommendation to increase the number of audits at beneficiaries, the research DGs explicitly entered this in the action plan relating to action 1 of the summary report on the annual activity reports for 2001. It is therefore being followed up every quarter by all the DG concerned to confirm the desired increase in number and frequency.

f) External actions

27. Continue its efforts to increase the utilisation rate and to distribute payments more evenly throughout the year. (Council 1).

Commission's reply:

Between 1999 and 2002 payments on budget lines implemented by AIDCO have increased by 32% (1999: 2.513 bio Euro, 2000: 2.978 bio, 2001: 3.175 bio and 2002: 3.327 bio). This trend will be confirmed in 2003. The Commission will make every effort so as to distribute payments more evenly over the year.

28. Continue its efforts to reduce the level of outstanding commitments (OCs). (Council 1).

Commission's reply:

Analysis of EuropeAid's RAL is the subject of intensive and constant review at country level, regional level and in aggregate.

In 2003 a specific exercise was launched, whereby a more in depth analysis of the under-performing portfolio of budget commitments (old and low disbursement ratios, dormant not started, high levels not contracted amounts, etc) was carried, aimed at identifying under-performing projects for management decisions, e.g. corrective actions for speeding up implementation and/or abandon of certain activities and partial decommitment, or even anticipated closure of projects commitment.

Additionally to these specific portfolio review activities, two structural factors should in the future greatly contribute to prevent the building up of new significant stocks of old and dormant commitments requiring exceptional clearance action :

- the full operation of CRIS as from 1st January, as the single unified information system for the external assistance portfolio managed by EuropeAid, and sole interface with the accounting system;

- the entry into force of the new Financial Regulation: the n+1 rule for contracting actions launched directly by the Commission by way of calls for proposals, and the n+3 rule stipulated in article 166 2 for all contracts implementing Financing Agreements will no doubt contribute to speeding up contracting and prevent the building up of the part of the RAL consisting of uncontracted amounts.

The Humanitarian Aid Office has paid a great deal of attention to the overall reduction of the level of outstanding commitments. An action plan on the reduction of the RAL (Reste à liquider) and the reduction of payment delays was established in April 2002.

As a result, the amount of outstanding commitments was reduced at 31 December 2002 to an overall amount of 0,7 times the annual budget for humanitarian aid, which is 5 times lower then the average stock of outstanding commitments in the area of external aid.

Some of the RAL is legitimate, as commitments are made in anticipation of payments to be made in future. It is therefore important to make a distinction in the year of origin of RAL. The Commission uses the terms 'old' and 'sleeping' to describe the money that genuinely makes up a payment backlog. "Old commitments" are commitments made more then five years ago and "sleeping commitments" are commitments on which no action has been taken for the last two years. The amount of 'old & sleeping' RAL has been reduced to below 6% of the annual humanitarian aid budget.

29. Improve presentation of financial management, in particular with regard to the justification of transfers and to the implementation tables for external actions. (Council 1).

Commission's reply:

As concerns the quality of justifications of the transfers, services are aware of the need to improve them and efforts are being made in order to improve their presentation.

The Commission endeavours to provide with each transfer request the information relevant to the budget authority and on which it can base an informed decision. Whenever asked for, the Commission is ready to undertake every effort to provide the respective rapporteurs and committees with the complementary information they may wish to obtain prior to their decision making.

30. Complete the introduction of a satisfactory system for systematically auditing Community transactions at the level of intermediaries and final beneficiaries, and to use complete and reliable management information. (Council 2).

Commission's reply:

The Commission's activities funded under humanitarian aid and implemented by external parties are subject to financial audits. Overall, the aim is to have a two-year audit cycle involving an examination of the partners' systems and their use of these funds. The audit processes and methodologies are continuously under review and, in 2002, significant revisions were made to the procedures.

Fourteen audits were completed during the year, including six field audits, reporting on projects actually under way.

To increase its activity in this area, the Commission contracted a firm of professional auditors to scrutinise humanitarian aid projects, beginning in the second half of 2002. This led to a significant increase in the number of ongoing audits (50) by the end of the year, and the number of finalised audits will therefore increase substantially in 2003 and in future years.

As for the EuropeAid Cooperation Office, in connection with the further definition of an overall control and audit strategy, the approach relating to 'certification audits' will be further developed as well. 'Certification audits' provide assurance that expenditure, at the level of implementing organisations, is legal and regular. They are complementary to the external audits launched by the Commission.

Major improvements as regards the quality of certification audits have already been made with the revision in 2003 of the Practical Guide to EC External Aid contract procedures. Moreover, instructions on quality review of certification audits and on their use within a risk based selection of audits supervised by Commission staff will be established in order to create a comprehensive control model. The model would efficiently and effectively combine easy and workable controls built into the projects with risk oriented controls carried out by Commission staff. The Commission also intends to issue by the end of the year improved standardised Term of Reference for 'certification audits' and has started a training programme in the area of external audit that will improve the knowledge of the officials in Delegation in dealing with audits.

The Commission is equally taking measures to ensure adequate follow-up of the audit recommendations. With the devolution process to the Delegations, this is considered as an important component of the monitoring of project implementation. The introduction of a computerised system for registering information on the audit work on external programmes (CRIS Audit) should, in time, further improve the monitoring of audits and eventually the ability of Management to take action on the results of the audits, particularly as regards audit activities in delegations. The benefits of this application, which is now being field-tested, will only be visible in 2004.

31. Take additional steps to strengthen the internal control procedures of organisations responsible for handling Community funds, to define more specifically the minimum standards required of them, and to ensure that the overall monitoring of control systems, particularly in the areas of food aid and humanitarian aid, is effective. (Council 2).

Commission's reply:

Regarding the Commission's humanitarian aid, the Commission's Partner vetting, instructions, communication, dialogues, evaluation, monitoring, controls and audits are extensive and relatively exhaustive.

In the light of the reform, new financial regulations and implementing rules, a new Framework Partnership Agreement is being drafted.

NGOs are subject to an assessment of their financial internal control systems each time their headquarter operations are audited, which for most means at least once every two years. The assessment identifies if certain minimum financial controls are in place. This results in recommendations for improvement. The actions taken by the NGO for the previous assessment will be taken into account in the next assessment, hence there should be a cycle of continuous improvement generated.

Regarding food aid, a number of measures have been taken by the Commission to check the correct application of procedures:

- EuropeAid allocations: verification that tendering procedures are respected, with formal agreement on the award of contracts and external audit of this organisation,

- NGO financial allocations: obligation for the NGOs to carry out an annual audit as well as a final audit upon closure of the project and to send the report to the Commission (Article 16(4) of the General Conditions). These audits also include checks on whether the expenditure is incurred in conformity with the rules for awarding contracts,

- Direct allocations to governments: mid-term reviews, final reviews and audits are organised regularly, for both direct and indirect aid.

32. Verification clause agreement between the Commission and the United Nations to be clarified in order to ensure proper cooperation between the two institutions. (Council 2).

Commission's reply:

The renewed EC-UN Financial and Administrative Framework Agreement signed on 29 April 2003, integrates the EC-UN Verification clause agreement of 1994, and its clarifying agreement on the Implementing rules to the Verification clause agreement, agreed by an exchange of letters in 2001.

33. Improve the procurement system of the Tacis programme, in order to ensure maximum transparency and fair competition in tendering. (Council 3).

Commission's reply:

TACIS is a programme of technical assistance whose objective is to promote the transition of the beneficiary countries towards well-functioning market economies and to reinforce democracy and the rule of law.

The assistance is, in general, delivered in the form of grants financing technical assistance contracts.

When a project is launched a contractor is selected to deliver services to the beneficiary organisation.

The selected contractor is generally an organisation from the Member States, mainly from the private sector but also from the public sector or a non-profit organisation.

The contractor is normally the final recipient of the EU funds while the final beneficiary, receiving the assistance, is normally a government institution in the TACIS country.

The services delivered by the contractor aim to transfer know-how in eligible areas of cooperation which are:

- support for institutional, legal and administrative reform

- support to the private sector and assistance for economic development

- support in addressing the social consequences of transition

- development of infrastructure networks

- promotion of environmental protection and management of natural resources

- development of the rural economy

- support for nuclear safety

It should be emphasized that the forwarding of technical assistance implies the selection of contractors with a specific know-how that has been identified as not being available in the targeted beneficiary countries. This explains why selection of local companies in TACIS project is very exceptional.

However, the Commission would like to stress that the enforcement of the principle of equality of potential eligible contractors (including from beneficiary countries) has always been applied in TACIS procurement rules.

No statistics are held on the origin of the contractors, as the phenomenon of association of contractors and the constitution within consortia would not make these sufficiently relevant.

34. Allow sufficient time to delegations to prepare opinions on proposals made by NGOs and to shorten the time between NGOs' submission of proposals and the signing of the contracts. (Council 3).

Commission's reply:

The legal base for B7-6000 states that "The decision as to whether an operation is to be supported shall normally be taken within six months of the date of receipt of the application. If appraisal shows an application to be incomplete, the six-month period shall run from the date of receipt of the information required".

In 2002,

the departments administered three calls made in 2001:

1- Call for development education projects closed on 19 March 2002

2- Call for "projects" in the developing countries closed on 15 April 2002

3- Calls for block grants closed on 29 April 2002

The selection committee met on:

1- 30 September 2002

2- 9 October 2002

3- 27 November 2002.

It will be seen that selection took 6 to 7 months. This is far better than for the first call for projects in 2000 and for previous financial years.

Because of the new procedures (call for proposals), the department has to inform the NGOs of the decision which the selection committee is to take in less than 7 months.

g) Pre-accession aids

35. Remedy the under-utilisation of payment appropriations in the new pre-accession instruments area. (Council 1).

Commission's reply:

As far as it concerns ISPA, the implementation rate of 58% is already relatively high for an instrument that is only available since 2000. Projects that have been prepared during the last two years for ISPA, are now reaching the implementation stage, therefore the Commission is confident that the implementation rate for the forthcoming years will improve (in 2002, the rate increased already to 78 %). The Commission is closely monitoring the project preparation and provides - also with view of future accession- continuously support through Technical Assistance funds for improving the preparation of projects and for strengthening the administrative capacity in the ISPA beneficiary countries for the implementation. The activities cover among others technical preparation of projects, environmental impact assessments, feasibility studies, training on procurement, on public-private-partnerships, financial management and control.

36. Support candidate countries to develop an appropriate system of financial control, especially through the training of existing staff, and rectify the shortcomings in the procedures preceding conferral of decentralised management to delegations in these countries. (Council 2).

Commission's reply:

Ensuring full compliance with commitments made in the negotiations on financial control is a central concern for the Commission.

- In the area of External Audit there are nine Twinning Actions involving audit institutions in the current Member States.

- PHARE both through SIGMA and through Twinning massively supports Public Internal Financial Control; progress is closely monitored and is published on the Commission web-site.

- In the field of Protection of the Financial Interests of the Community PHARE support is being used to assist the candidates countries build up anti-fraud co-ordination structures. Furthermore PHARE support in the past, present and future in the fields of Justice and Home Affairs, Customs and Borders, has a direct bearing on increasing overall capacity in the fight against fraud.

- For PHARE (& ISPA) the transition to fully decentralised management to the national administrations (not to Commission Delegations), is underway according to rigorous guidance documents provided by the Commission. However, as this is a different context to Sapard the Commission did not start from zero as we already had decentralised management for both these instruments for several years.

- However, as one might expect, the rate of progress varies substantially in the different countries. The challenge must not be underestimated in countries that must also prepare for the structural funds with scarce human resources in the financial management and control field.

- Cyprus and Malta are expected to be granted full waiver of ex-ante control this year. The other eight countries should be making applications for their implementation agencies in the final quarter if this year and early next year.

- The obligation to complete the transition to fully decentralised management for PHARE by the date of accession is stipulated in a clause in the Accession Treaty.

- Progress for ISPA is being made at very least at an equal pace and DG Enlargement continues to closely co-ordinate with DG Regional Policy both in terms of methodology and process through joint guidance documents, joint seminars and joint audit missions.

- In compliance with the observations of the Court on SAPARD in the 2001 Annual Report, adequate Delegation capacity will be maintained in each new Member State for up to one year after accession. This will help ensure a high degree of follow-up and monitoring of the functioning of the systems under EDIS.

- The Commission will also give a high priority to Financial Control in the Monitoring Reports next November and in the Assessment Report on the implementation of commitments necessary for programming the structural funds.

This will pay particular attention to the progress made in financial management and control in the context of the Action Plans with a view to accelerating corrective action where required.

The Commission has organised two seminars for existing staff, one on the management of the SAPARD programme on 17-18/06/02 and the other on certification of the accounts on 7-8/11/02.

The Commission also endeavour to train and assist staff from the SAPARD paying agencies during their many visits.

The shortcomings in the procedures preceding the conferral of aid management to the countries covered by the SAPARD programme have been followed up during monitoring and certification of the accounts in 2002.

h) Administrative expenditure

37. Continue improving the system of compatibility, especially concerning application of the rules on the depreciation of buildings, the question of ensuring the reliability of the accounting inventory vis-à-vis the physical inventory, and the recording of advances and payments in the balance sheet accounts as soon as payments are made. (Council 2).

Commission's reply:

The improvement of the accounting for fixed assets is one the areas being dealt with as part of the modernisation of the accounting system project. The objectives are indeed to improve the reliability of the amounts presented under the heading of fixed assets. Under the accrual accounting principle which will be adopted by the Commission from 2005 onwards advances must be recorded as such in the balance sheet and done so at the time of the accounting event, in this case the payment.

38. Comply with the relevant tendering provisions. (Council 2).

Commission's reply:

The Commission is at present analysing the best possible option in order to reconcile the requirements of the new Financial Regulation with the specificities of the service required e.g. highly specialised legal advice, language skills, ability to respond quickly, sensitivity of information, conflict of interest.

39. European Schools encouraged to continue the efforts to achieve greater uniformity in the presentation of their accounts as well as the improvements in the recording of fixed-assets accounts and the property which is supposed to be entered on the inventory. (Council 4).

Commission's reply:

Progress has been made in harmonising the presentation of the accounts. The recommendation to include asset values in the balance sheet has in general been followed. The Commission and the Office of the Secretary General of the Board of Governors will keep these matters under review to ensure that the new procedures are fully implemented and refined.

i) Financial instruments & banking activities

40. Supply the information that led to the setting of the EIB's annual handling fee for the treasury management. (Council 1).

Commission's reply: The Commission has negotiated a new digressive fee structure with the EIB for the management of the Guarantee fund for external actions, on a commercial basis.

There is no obligation on the Commission to negotiate this fee structure on a "cost plus" basis, nor is the EIB obliged to provide such cost information to the Commission.

41. Ensure a fair geographical distribution of the measures between Member States and compliance with Community State-aid rules when decisions in favour of beneficiary SMEs are taken. (Council 2).

Commission's reply: In accordance with the Fiduciary and Management Agreements between the EIF and the Commission, the EIF shall endeavour to achieve a global geographic distribution of the amounts available under the three MAP financial instruments (ETF Start-up Facility, SME Guarantee Facility and Seed Capital Action), taking into account, in no specific order of priority, the following 4 criteria:

-

>REFERENCE TO A GRAPHIC>

the aim to achieve a balanced global country coverage for the three financial instruments taken together;

- the aim to allow each Member State to benefit from at least one financial instrument;

- the minimum size necessary for a specific operation to be viable;

- the characteristics of the different markets.

It should however be noted that the MAP financial instruments are market-based and demand-driven, and that this has a significant impact on the take-up of a given instrument in the eligible countries.

It should in any case be noted that the EIF has made a particular effort to promote the financial instruments in those countries where demand has been low.

SME Guarantee Facility: In accordance with the principle of subsidiarity, the Community's State aid rules place on Member States the responsibility to ensure that the aid awards to individual beneficiaries under various public aid schemes comply with the eligibility conditions and aid limits laid down in those rules and in the Commission's decisions approving the aid schemes. Therefore, the Commission requests that a declaration to this effect be annexed to the guarantee agreement signed between the EIF and the intermediary.

In the case that the SME Guarantee Facility operates through private intermediaries, the Commission has established with the EIF guidelines to ensure that State aid rules are respected.

ETF Start-up Facility: It should be noted that the EIF invests on a commercial basis, pari passu with other private and public investors, up to a maximum participation of 25%. There is therefore not an issue concerning compliance with State aid rules under this instrument.

42. Extend the use of verifiable indicators to all other measures financed by the Community budget, where appropriate. (Council 2).

Commission's reply: The Commission agrees on the usefulness of verifiable indicators in the context of systematic appreciation of the outcome of the measures financed from the Community budget. This is reflected by the Commission's efforts in recent years to generalise the use of systematic evaluation and to introduce Activity Based Budgeting. In this context, the Implementing Rules to the Financial Regulation specifies that for all proposals for programmes or activities occasioning expenditure for the budget, ex ante evaluation must be carried out covering, inter alia, the results expected and the indicators needed to measure them. Moreover, the Financial Regulation specifies that specific, measurable, achievable, relevant and timed objectives shall be set for all sectors of activity covered by the budget and that achievement of those objectives shall be monitored by performance indicators for each activity. These undertakings will increasingly provide information on the performance of Community measures.

j) Statement of Assurance

43. Ensure that by 2005, the Community has a reliable quality accounting system consistent with the best practices applied in the public sector and to ensure that the computer systems are secure. Inform the Council regarding the implementation of this reform. (Council 3).

Commission's reply:

The commission will inform the Discharge Authority quarterly on this issue. Mrs Schreyer presented to the COCOBU on 8 July the first "Information Note from Commissioner Schreyer to the Commission - Progress Report concerning the modernisation of the Accounting System of the European Commission."

44. Remedy without delay undue farm payments to final beneficiaries, interim payments in respect of structural action, and the cost declarations submitted by contractors in the context of the Fifth Framework Programme for Research and Development. (Council 4).

Commission's reply:

As regards farm payments, the Commission deals with control deficiencies, and particularly the risk of undue IACS-related aid payments to farmers, through its clearance of accounts procedure. In the event that its enquiries reveal a risk to the Community budget, financial corrections are applied. However, the Commission's audits also lead to many recommendations to ensure the efficiency and effectiveness of Member States' administrative and control procedures. Conversely, feedback received from Member States leads to improved Regulations and guidelines.

For interim payments in respect of structural actions, the Commission Structural Fund departments suspend payments to programmes if they consider that EU funds are at serious risk because of inadequate financial management and control systems.

For cost declarations submitted by contractors in the context of the Fifth Framework Programme for Research and Development, the Commission has implemented a specific action plan on action 1 of the synthesis of annual activity reports 2001. This includes continued intensification of on-the-spot audits. The audits can lead to adjustments of payments made. These adjustments, whose effectiveness is enhanced by the measures taken on the Reform of the Commission, are monitored regularly in the DGs concerned.

Moreover measures have been taken in order to ensure timely recovery of the undue funds paid on the basis of the cost declarations submitted by contractors in the context of the Fifth Framework Programme for Research and Development:

- Further strengthening of its systematic controls of the cost declarations

- Establishing a central follow-up database to monitor the progress of the recoveries

- Increase of the number of external audits undertaken.

45. Continue to improve auditing systems (in particular those operated by third parties involved), standard or internal supervisions and recovery of funds. (Council 5).

Commission's reply:

Shared management:

The Commission adopted a communication clarifying the role of Directors-General in the shared management within the legal framework currently in force and the scope of their responsibilities (C(2003)1830/2 of 17.06.2003). In parallel, specific requirements have been given to the Directorates-General and Services on how they should deal with this issue in the context of the 2002 Annual Activity Reports. Additionally, the 2002 Synthesis of the Annual Activity Reports (COM (2003) 391 of 9 July 2003) includes a specific ongoing action plan, which covers the following aspects:

- First, a legal analysis of shared management responsibilities between the Commission and the current and future Member States will be carried out. On this basis, the Commission will make by March 2004 appropriate recommendations to clarify the respective responsibilities of Member States and of the Commission in the case of shared management.

- In addition, concrete steps will be taken to promote convergence of audit methodologies and processes between DGs and services operating under shared management arrangements. Specific attention will be paid to the development of common standards at Community and national levels, and assurance protocols with Member States. To this effect, a communication will be prepared by March 2004.

- Finally, following the communication C(2003)1830/2 of 17.06.2003 and being a multi-annual task, an interservice group has been launched to analyse possible measures such as an assurance declaration by Member States, the provision of ex-ante disclosure statements by Member States, the aggregation of agencies for the certification process, controls over the certification process in Member States and the development of minimum standards for analysing risks related to new or amended secondary legislation.

Internal control standards:

The Commission's internal control systems are still evolving. The internal control standards provide the basis for these systems and DGs and services have reported in their Annual Reports progress made in complying with these standards. Overall, it is evident that there is a greater understanding of these issues and in particular of the fact that internal control is not limited to just financial matters, which have also been addressed through an intensive readiness assessment process due to the New Financial Regulation. General progress in implementing the standards continues to be made. The self-assessment process, coupled with increased awareness of management responsibility and the progress reported in implementing the standards represent major steps forward. As the Commission's internal control structures mature and awareness and understanding grows further, the governance process is likely to advance through more focused reporting on these matters in the Annual Report.

Internal audits:

The Internal Audit Service and the Internal Audit Capabilities have significantly developed their infrastructure since they were set up (training, methodologies, tools, staffing, etc.)

This effort will be pursued.

46. Resolve the methodological and scheduling problems, so as to improve the reliability and consistency of the annual activity reports and directors-general annual declarations. (Council 6).

Commission's reply:

As the Synthesis report of the 2002 AAR points out (COM(2003)391 of 9.7.2003), the Commission has drawn lessons from the experience in 2001 and considered recommendations made by the Court of Auditors and the Internal Auditor. Building on the experience gained from the first exercise, the 2002 exercise shows methodological improvements in several respects:

- Different parts of the Annual Reports have been improved and new sections added, e.g. for the purposes of presenting the follow-up to the previous recommendations of the Internal Audit Service and the European Court of Auditors and to the action plans of the 2001 Annual Reports and Synthesis.

- A major effort was made to clarify the scope of the declarations and reservations (concept of materiality, i.e. definition of the threshold of importance beyond which a deficiency needs to be considered for a reservation) in a communication adopted in January [7].

[7] COM(2003)59 of 21.01.2003

- A peer review of potential reservations was organised at the level of Directors General prior to the submission of the Annual Reports and declarations. The peer review achieved a better understanding of the guidelines and increased the level of consistency in the use of reservations, principally because a review of issues common to all services or some groups of services (e.g. structural funds, research) was carried out.

ANNEX - SPECIAL REPORTS 2001

The Annex hereto contains extracts, requesting Commission actions, of the Council's conclusions, with Commission responses thereto, on the Court of Auditors' special reports.

- Conclusions on Special Report No 1/2002 of the Court of Auditors concerning macro-financial assistance (MFA) to third countries and structural adjustment facilities (SAF) in the Mediterranean countries

Further harmonise the different available instruments for financial assistance with macro-economic purposes and to improve transparency and economic monitoring. Commission to ensure proper coordination in the use of the different available instruments.

Commission's reply: Although similar, these two instruments have different objectives and legal bases. The harmonisation exercise called for can thus cover only common factors relating to the implementation of these instruments, in particular:

- coordination with the Bretton Woods institutions,

- the macro-economic reference framework agreed with the beneficiary countries,

- the conditions or structural performance indicators.

Greater harmonisation along these lines is planned, in particular by:

- increasing interdepartmental coordination when planning and implementing measures,

- carrying out a detailed final evaluation of the most significant operations,

- developing the analysis of financial circuits and procedures relating to aid management in the beneficiary countries.

Streamline the principles, conditions and implementation modalities for all EU instruments of a macro-economic nature. Commission to take practical steps to improve the efficiency of the current decision-making process for EU macro-financial assistance.

Commission's reply:

In the case of Macro-Financial Assistance (MFA), the principles and conditions for implementing the operations were rationalised in line with the Council's conclusions of 8 October 2002 [8]. As for the practical procedures for implementing assistance, any simplification involves some standardisation of this instrument by means of a framework Council regulation permitting a significant streamlining of the decision-making procedure (in particular through use of qualified majority voting) and more flexible use of this assistance. As the Council has so far proved reluctant to consider such a prospect, the question could be re-examined in future, perhaps under the future Constitutional Treaty.

[8] See 2453rd meeting of the Council of the European Union (ECONOMIC AND FINANCIAL AFFAIRS), held in Luxembourg on 8 October 2002, PV CONS 50 ECOFIN 317, doc. Number: 12771/02.

Evaluate the effectiveness of conditionality and assess the contribution of macro-financial assistance to the implementation of the economic and stabilisation programmes in the beneficiary countries, and to report on them in the annual report to the Council and Parliament on the implementation of macro-financial assistance. Commission to envisage a similar assessment for the structural adjustment facilities in the Mediterranean countries or any other instruments of a similar nature.

Commission's reply: In the case of MFA, an evaluation plan will be gradually put in place by the managing departments with the support of a specialised administrative unit set up in September 2002. The first group of final evaluations could be launched by the end of the year for Serbia-Montenegro and Armenia.

They will concentrate on the following key issues:

- Macro-economic impact on the beneficiary country

- Value added by Community assistance

- Sustainability of the improvement in the beneficiary country's external position resulting from the assistance.

monitor the design of the actions under both MFA and SAF , and include clear and measurable conditionality consistent with adjustment and reform programmes agreed with the IMF or, where appropriate, the World Bank;

Commission's reply: MFA is conditional on the establishment and satisfactory implementation of a programme agreed between the International Monetary Fund (IMF) and the beneficiary country. The Commission also cooperates closely with the IMF and, where appropriate, the World Bank to ensure overall consistency and appropriate linkage between MFA and the facilities offered by those institutions.

This consistency is achieved as part of a transparent monitoring of operations which involves first of all a system of interdepartmental cooperation placed within the context of centralised management (not delegated to beneficiaries) for monitoring operations, verifying compliance with the conditions laid down and granting any waivers.

Finally, the annual implementation report pays particular attention to the monitoring of operations, especially the beneficiaries' compliance with the structural conditions.

define the added value of the complementary EU contribution and of the additional conditionality;

Commission's reply: MFA complements the financing made available by the international financial institutions (IFIs) concerned and, as a result, its macro-economic objectives are consistent with those agreed between those institutions and the beneficiary country. However, the economic policy conditions imposed and, in particular, those relating to structural reforms in key areas (such as privatisation, financial sector reform and the opening-up of trade) also stem from the economic cooperation framework existing between the European Union and the beneficiary country, as defined in a cooperation or association agreement.

monitor the financial management capacities of the beneficiary countries;

Commission's reply: In order to assess any risks, a more in-depth analysis of the systems for managing and monitoring assistance in beneficiary countries will in future be conducted by the Commission departments where this is necessary either as a result of the inadequate nature of information provided or following a significant change in the situation.

In the case of MFA, an operational assessment will be carried out on the basis of an analysis of the documents and, where necessary, the opinion of an outside expert following an on-the-spot visit.

strengthen the support and assessment of the reform policy in the beneficiary countries by developing guidelines for financial assistance instruments of macroeconomic nature, in particular for untied budget support, with regard to the phases up to and after agreement with the beneficiary countries on the assistance, its objectives, conditionality and performance indicators.

Commission's reply:

Because of the exceptional nature of MFA, these guidelines are laid down by Council decisions on a case-by-case basis and implemented by means of specific memoranda of understanding signed with the beneficiaries.

Report on the follow-up of these conclusions and to establish the aforementioned guidelines for financial assistance instruments of a macro-economic nature, in particular for untied budget support, by mid-2003.

Commission's reply: A departmental working paper has been drawn up and has been sent to the Council and the Court of Auditors on 3/9/2003.

- Special Report No 3/2002 of the Court of Auditors concerning the Community Initiative Employment - Integra

Transfer good practice to mainstream the results into the relevant policies.

Commission's reply: The Commission has taken into consideration the experience of Integra and has applied the Court's considerations when designing the Integra successor, EQUAL (ESF community initiative 2000-2006). The lessons drawn during the running of Integra were applied to EQUAL.

- Conclusions on Special Report No 4/2002 of the Court of Auditors on local actions for employment

Take national practices into account when disseminating the results of the activities of the Fund.

Commission's reply:

As indicated in its Communication on local development of November 2001, in its policies and actions in the field of local development the Commission intends, on the one hand, to take national practices into account when disseminating the results of the activities of the Fund and on the other hand, to fully respect the national administrative and constitutional arrangements of the Member States, in line with the principles of proportionality and subsidiarity.

Take into account the principles of proportionality and subsidiarity, in its policies and actions in the field of local development, respecting the national administrative and constitutional arrangements of the Member States.

Commission's reply: As indicated in its Communication on local development of November 2001, in its policies and actions in the field of local development the Commission intends, on the one hand, to take national practices into account when disseminating the results of the activities of the Fund and on the other hand, to fully respect the national administrative and constitutional arrangements of the Member States, in line with the principles of proportionality and subsidiarity.

- Conclusions on Special Report No 5/2002 of the Court of Auditors on extensification premium and payment schemes in the common organisation of the market for beef and veal

Inform on the findings of the report on the overall assessment of the CMO extensification payment scheme for beef and veal planned for 2004/2005, and to consider measures to address the points mentioned by the Court of Auditors in Special Report No 5/2002,

Commission's reply:

The Commission confirms its intention to inform the Council on the findings of the examination which will be carried out about the extensification scheme following the overall assessment of the CMO for beef and veal planned for 2004/2005. On this occasion, the Commission will examine to what extent measures are needed to address the points mentioned by the Court of Auditors in the Special report, in particular as regards the relation between the extensification scheme and the rural development measures.

- Conclusions on Special Report No 6/2002 of the Court of Auditors on the audit of the Commission's management of the EU oilseeds support scheme

Examine the extent to which Community aid payments may be recovered in cases where the aid has been paid in contravention of the rules.

Commission's reply:

The Commission's clearance of accounts procedure provides the means to ensure that undue payments are recovered and credited to the Community budget.

As undertaken in its reply on the specific case raised by the Court of Auditors, the Commission service responsible for the audit of direct aids opened a clearance of accounts enquiry following the Court's remarks and concluded that there had been no contravention of governing rules.

- Conclusions on Special Report No 7/2002 of the Court of Auditors on the sound financial management of the common organisation of markets in the banana sector

carry out, in the course of the overall evaluation of the common organisation of the markets in the banana sector scheduled for 2004, a detailed examination of all the components of aid for the banana sector;

Commission's reply:

In the first half of 2003 the evaluation of the CMO on bananas has been launched: a prior information notice on a tender for an ex-post evaluation contract was published on 18/02/2003 (OJ S 34). An evaluation steering group composed of 7 Commission DG and OLAF was set up in February and agreed the evaluation questions and the terms of reference by the end of June. The terms of reference include a detailed examination of all the components of aid currently implemented for the banana sector. The expected timetable is as follows:

- October 2003-April 2004: publication of the call for tenders, selection of the offers and signature of the evaluation contract,

- December 2004: final report.

Meanwhile the Commission will draft its report to be submitted to the European Parliament and the Council at the latest by 31 December 2004.

in consultation with the Member States, draw up instructions on the control procedures to be applied by Member States regarding the new single tariff system applicable to the import arrangements, and control and monitor their implementation.

Commission's reply:

According to Article 16 of Regulation (EC) n° 404/93, the single tariff system will enter into force at the latest by 1 January 2006.

The Commission has taken several initiatives in order to improve the control system of the net mass of bananas imported into the EU and in particular:

In the framework of Article 18.3 of Regulation No 1150/2000, on-the-spot-controls were carried out on the correct implementation of the relevant Community legislation in the main importing Member States; the internal control provisions of all other Member States were checked; the recovery procedure for all own resources due is in process. The problem was discussed with the Member States in meetings of the Advisory Committee on Own Resources on 4 December 2002 and 2 July 2003.

Following the results of these controls, an interservice working group was set up charged with the examination of possible measures for improving the current situation. Such measures might include the amendment of the Customs Code implementing provisions and the introduction of special provisions within the rules regarding the arrangements for importing bananas into the Community.

Annex to 1st Council's recommendation

OUTLINE OF THE FOLLOW-UP TO THE RECOMMENDATIONS IN THE ANNUAL REPORT OF THE COURT OF AUDITORS FOR 2001 RELATING TO REFORM OF THE COMMISSION

1. Development of a new accounting framework (Annual Report 2001, para 9.25.)

On 17 December 2002 the Commission adopted a Communication on Modernisation of the Accounting System of the European Communities (COM(2002)755). It includes a specific plan of action. It has undertaken to regularly inform the discharge authority and the Court of Auditors of progress in setting up the new accounting framework and the related DP system. The new accounting framework will solve a number of problems highlighted by the Court of Auditors.

2. Timetable for producing annual activity reports (Annual Report 2001, para 9.54.).

The Commission has brought the timetable for annual activity reports and declarations by Directors-General forward to make it easier for the Court of Auditors to examine them. Presentation of the reports and declarations for 2003 will be brought further forward still to comply with the deadline set by Article 60(7) of the Financial Regulation, i.e. 15 June.

3. Nature of reservations recorded in annual activity reports and declarations (Annual Report 2001, paras 9.71 to 9.91 and 9.97d)

The Commission has made a number of methodological improvements over the pilot exercise for 2001:

- new sections are devoted to follow-up to earlier recommendations by the Court of Auditors and the Internal Audit Service;

- the follow-up to plans of action in response to annual activity reports and the summary is set forth;

- the significance of the declarations and reservations is adjusted (COM(2003)28, 21.01.2003);

- before annual activity reports are produced, potential reservations have been put down for collective review by Directors-General to standardise the interpretation of reporting guidelines, improve the consistency of the approach to reservations and examine together such questions as concern several Directorates-General.

Other improvements and clarifications inspired by experience with 2002 will be incorporated in the guidelines for producing annual activity reports for 2003.

4. Recruitment of qualified staff (Annual Report 2001, para 9.65)

DG ADMIN has defined recruitment profiles relating to departmental needs and has asked EPSO to organise a recruitment competition by the end of 2003. Pending the adoption of the planned amendments of the Staff Regulations, it may be necessary to recruit more temporary staff on permanent posts.

The shortage of certain qualified staff will be made up as follows:

- from 2004, each Directorate-General or Service will be required in its annual management plan to give priority to fulfilling the needs of units handling internal controls and audit and subsequently each Commissioner should examine whether the existing acquis would allow for any measures not to be undertaken (if necessary, human resources will be redeployed to cover priority measures);

- by September 2003 each Directorate-General must identify training needs in relation to financial control, internal control and audit activities and notify DG ADMIN of them. Once ADMIN has looked at the situation, the Commission will produce a communication setting out the measures taken with proposals for measures to raise levels of professional qualification.

5. Internal control standards (Annual Report 2001, para 9.66)

The summary of activity reports and declarations by Directors-General for 2002 calls for a plan of action to ensure that minimum standards really are in place by 31.12.2003. Departments are asked to take stock of the progress they have made by September 2003. Specific support can be given to help them meet the deadline.

6. Recovery of funds wrongly paid (Annual Report 2001, para 9.67)

On top of the measures already taken, the summary of activity reports and declarations by Directors-General for 2002 puts the following on the agenda:

- every authorising officer by delegation, using appropriate performance indicators, must give an account of sums recovered in his annual management plan;

- DG BUDGET will develop computerised information systems to monitor attempts to catch up delays in recoveries and provide authorising officers by delegation with statistics;

- DG BUDGET will consolidate all information concerning the actions taken by the Commission services

- the Internal Audit Service will provide an independent and additional assurance on the follow-up to these recommendations.

Furthermore, following the adoption of the Communication "Improving the recovery of Community entitlements arising from direct and shared management of Community expenditure" of 3.12.2002 [9], a task force has been set up between OLAF and DG AGRI so as to weed out the backlog of entitlements related to the cases of irregularities reported by the Member States in the EAGGF Guarantee sector. This task force has made significant progress in determining the amounts actually recoverable. These amounts will be recovered in accordance with the rules governing the clearance of accounts procedure.

[9] COM(2002) 671.

7. Review of the organisation of the Audit Progress Committee (Annual Report 2001, para 9.56)

The membership and role of the Audit Progress Committee have not been changed in 2003. In 2004, a second member from outside the Commission will be appointed. The frequency of meetings and contacts with the Court of Auditors will be rising. The rules relating to conflicts of interest applicable will be extended to all members, and the secretariat will be reorganised within the Secretariat-General.

8. Legality and regularity of underlying operations (Annual Report 2001, paras 9.36 to 9.47)

Regarding shared management, an interdepartmental group is considering possible measures to involve the Member States more closely.

As regards shared-cost programmes, a plan of action adopted on 10.1.2003 is now operating to generate greater consistency between Directorates-General in contract management. Several Directorates-General have adopted corrective measures to reduce the risk of errors to the minimum.

Regarding co-financed programmes in general, an interdepartmental group is to work from the end of 2003 on the possibility of introducing flat-rate components in grants and subsidies, with a uniform control methodology.

9. Audits by Internal Audit Service

The Internal Audit Service is planning to present a general review of the quality of internal control systems in its annual report for 2003.

10. Statement of assurance by the Commission (Annual Report 2001, paras 9.71 and 9.100).

The significance of reservations and the declarations is being adjusted with the adoption of guidelines to flesh out the concept of materiality and the organisation of a collective prior review of all potential reservations to ensure the requisite consistency.

11. Support for operational departments by central departments (Annual Report 2001, para 9.97a))

In September 2002 the Commission instructed the ABM steering group to coordinate all strategic and policy questions relating to the Reform which cover ABM and aspects relating to human resources, the budget and audit. The role of Directors-General has also been reinforced, and two coordination groups have been set up (resources directors group and interdepartmental coordination group).

Also in September 2002, Directors-General were reminded in the 2001 summary of the need to implement the plan of action stemming from the Court's of Auditors' Annual Report's observations. Nearly all departments have reported progress on the 2002 activity reports. A specific measure to improve the monitoring of plans of action is in the 2002 summary.