Report

on the financial statements of the European Environment Agency (EEA - Copenhagen) for the financial year ended 31 December 1999 together with the Agency's replies

(2000/C 373/02)

CONTENTS

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THE COURT'S OPINION

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

2. The Court has examined the financial statements of the European Environment Agency for the financial year ended 31 December 1999. In accordance with Article 14(1) of Council Regulation (EEC) No 1210/90 the budget was implemented at the responsibility of the Executive Director. This responsibility includes the drawing-up and presentation of the financial statements(2) in accordance with the internal financial provisions provided for in Article 14 of Council Regulation (EEC) No 1210/90. The Court of Auditors is required under Article 248 of the Treaty establishing the European Community to audit those accounts.

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

4. This examination has enabled the Court to obtain reasonable assurance that the annual accounts for the financial year ended 31 December 1999 are reliable and that the underlying transactions, taken as a whole, are legal and regular.

MAIN OBSERVATIONS ON THE IMPLEMENTATION OF THE BUDGET OF THE EUROPEAN ENVIRONMENT AGENCY FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 1999

Analysis of the implementation of the budget

5. Final appropriations for the financial year amounted to 18,5 million euro, and gave rise to commitments totalling 18,3 million euro, 9,2 million euro of which were for operating expenditure (Title III).

6. A total of 6,0 million euro of appropriations was carried over (i.e. 33 % of commitments), mainly concerning operating expenditure totalling 5,4 million euro. By way of comparison, appropriations carried over from the financial year 1998 to the financial year 1999 totalled 5,8 million euro, including 4,6 million euro for operating expenditure. Of these carry-overs, 0,7 million euro (i.e. 12 %) lapsed.

Charging of VAT

7. Until December 1998, the general Financial Regulation required expenditure to be charged inclusive of VAT as the latter, once refunded, could be used again. Since that date(3), the general Financial Regulation has required expenditure to be charged net of VAT. The Court calls upon the Agency to incorporate this new procedure into its own internal rules.

Inventory

8. The Agency should ensure that the inventory is checked at least once a year with a view to checking its completeness and to writing down computer equipment which has become obsolete.

Staff management

9. The Court's audit revealed shortcomings in the keeping of staff files which had led to the salaries of two recently-recruited members of staff being established incorrectly. The Agency should check all its staff files on a regular basis to ensure that they are comprehensive and that the corresponding data are valid.

Management of contracts with topic centres

10. In order to achieve its objectives, the Agency signed contracts with various topic centres which had been selected in the Member States. The contracts are based on a standard document, to which annexes of a more technical nature are added. Inconsistencies were observed between the basic document and the technical annexes, in particular as regards the nature and duration of the work.

11. These contracts are funded by means of appropriations entered in Title III of the Agency's budget, which covers operating expenditure. As has already been observed, a very large proportion of these appropriations is carried over (see paragraphs 5 and 6). The management of these carry-overs, which should be given priority owing to the risk of cancellations, partly explains why some contracts are signed very late in the year. Thus, commitments totalling at least 1,9 million euro were made after 15 November 1999 under the heading of operating expenditure.

12. The extent and recurrent nature of this situation should provide an incentive for the Agency to improve its system for monitoring the implementation of its annual programme with a view to ensuring that as few appropriations as possible are carried over and thus that the principle of annuality is observed more strictly.

13. Shortcomings also appear in the financial management of contracts. The procedures for processing payment requests would benefit from greater formality and stricter application. Financial files need to contain documents in support of payment requests, not just a certificate indicating that work has actually been carried out as planned.

14. The contracts are financed from commitments under various budget headings which correspond to the various topics to be covered. Payments are charged in such a way that the commitments concerned are used one after another, with the result that it is impossible to reconcile the implementation of commitments with the progress made on the corresponding works.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 27 September 2000.

For the Court of Auditors

Jan. O. Karlsson

President

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

(2) Under Article 13(3) of Council Regulation (EEC) No 1210/90, the accounts for all the Agency's revenue and expenditure for the financial year 1999 were drawn up on 20 March 2000 and were sent to the Agency's management board, the Commission and the Court of Auditors and the latter received them on 5 April 2000. The summary form of those financial statements is published in the tables annexed to this report.

(3) See Article 27(2a) of the Financial Regulation applicable to the general budget of the European Communities, as amended by Council Regulation (EC, ECSC, Euratom) No 2548/98 of 23 November 1998, OJ L 320, 28.11.1998.

Table 1

Balance sheet as at 31 December 1999 and 1998

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Table 2

Revenue and expenditure account for financial years 1999 and 1998

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The agency's replies

VAT. Payments and refunds

The Court states that:

"7. Until December 1998, the general Financial Regulation required expenditure to be charged inclusive of VAT as the latter, once refunded, could be used again. Since that date, the general Financial Regulation has required expenditure to be charged net of VAT. The Court calls upon the Agency to incorporate this new procedure into its own internal rules."

The Agency's comments are:

The Agency will be in contact with the Commission services, together with the other Agencies also concerned, to establish the terms for the review of its Financial Regulation and to have the adequate amended provisions adopted in 2001.

Inventory

The Court states that:

"8. The Agency should ensure that the inventory is checked at least once a year with a view to checking its exhaustiveness and to writing down computer equipment which has become obsolete."

The Agency's comments are:

The inventory is continuously updated and regularly verified. But as noted correctly by the Court the obsolete equipment, still kept at the premises, is not declassified. The Agency has now established a mechanism for clearing the obsolete inventory by requiring its framework contractor to take one obsolete computer back for each new one delivered.

Personnel Management

The Court states that:

"9. The Court's audit revealed shortcomings in the keeping of staff files which had led to the salaries of two recently-recruited members of staff being set incorrectly. The Agency should check all of its staff files on a regular basis so as to ensure that they are comprehensive and that the corresponding data are valid."

The Agency's comments are:

Systematic control of the personnel dossiers, that were established with the support of Commission DG Personnel, has been established. A first review has allowed correction of the errors detected by the Court.

Thematic Centres. Management of contracts

The Court states that:

"10. In order to achieve its objectives, the Agency signed contracts with various topic centres which had been selected in the Member States. The contracts are based on a standard document, to which annexes of a more technical nature are added. Inconsistencies were observed between the basic document and the technical annexes, in particular as regards the nature and length of the work."

The Agency's comments are:

The consistency between the basic texts and the technical annexes is being checked and corrections made where necessary. And routine controls are being established as future ETCs are now being defined and contracted for operation in 2001.

The Court states that:

"11. These contracts are funded by means of appropriations contained in Title III of the Agency's budget, which covers administrative expenditure. As has already been observed, a very large proportion of these appropriations are carried over (see paragraphs 5 and 6). The management of these carry-overs, which should be given priority owing to the risk of cancellations, partly explains why some contracts are signed very late in the year. Thus, commitments totalling at least 1,9 million euro were made after 15 November 1999 under administrative expenditure."

The Agency's comments are:

Commitments are made early in the year to gain the maximum amount of time to develop and deliver the required work. Nevertheless, the possibility to commit additional resources during the late part of the year helps to use efficiently the limited resources available, as some adjustments in the scope of work may be required and extra operational funds may be made available to the ETCs' work that helps also to build up the Member States' capacities.

The Court states that:

"12. The extent and recurrent nature of this situation should provide an incentive for the Agency to improve its system for monitoring the implementation of its annual programme with a view to ensuring that as few appropriations as possible are carried over and thus that the principle of annuality is observed more strictly."

The Agency's comments are:

It is the intention to minimise this carry-over. Nevertheless, as expressed under the previous point, part of the work may be only contracted, for efficiency reasons, at the end of the year. And besides the ETCs are in operation over a full year, a 12 month cycle, while new funds, under the current new year budget, will only come to them in February at the earliest, which results in some payments being carried over to the next year.

The Court states that:

"13. Shortcomings also appear in the financial management of contracts. The procedures for processing payment requests would benefit from greater formality and stricter application. Financial files need to contain documents in support of payment requests, not just a certificate indicating that work has actually been carried out as planned."

The Agency's comments are:

The EEA has developed procedures for handling requests for payment and for the "signoff" of each subvention. Nevertheless we recognise the value of the Court's proposal and are in the process of adapting these procedures further to include supporting documents, for example progress reports or extracts from technical reports, as well as the statements in the financial dossiers.

The Court states that:

"14. The contracts are financed from commitments under various budget headings which correspond to the various topics to be covered. Payments are charged in such a way that the commitments concerned are used one after another, with the result that it is impossible to compare the implementation of commitments with the progress made on the corresponding projects."

The Agency's comments are:

The EEA will as far as possible plan the payment schedule against the budget credit lines consistent with the actual delivery of work, initially by asking for more information from ETCs on resources given to particular tasks. However, ETCs normally deliver a package of interconnected work over varying time schedules and there are limits to how closely the budget allocations can be aligned with progress in the work during the course of the work.