Report

on the financial statements of the European Training Foundation (ETF - Turin) for the financial year ended 31 December 1998, together with the Foundation's replies

(1999/C 372/06)

CONTENTS

>TABLE>

The Court's opinion

1. This report is addressed to the Governing Board of the European Training Foundation in conformity with Article 11(4), of Council Regulation (EEC) No 1360/90(1).

2. The Court has examined the financial statements of the European Training Foundation for the financial year ended 31 December 1998. In accordance with Article 11(1), of Council Regulation (EEC) No 1360/90, the budget was implemented under the responsibility of the Director. This responsibility included the drawing-up and presentation of the financial statements(2) in accordance with the internal financial provisions, as provided for in Article 12 of Council Regulation (EEC) No 1360/90. The Court of Auditors is required under Article 248 of the Treaty establishing the European Community to examine these accounts.

3. The Court performed its audit in accordance with its auditing policies and standards. These have been adapted from generally accepted international auditing standards to reflect the specific characteristics of the Community context. Accordingly, the Court carried out such tests of the accounting records and other auditing 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 which ended on 31 December 1998 are reliable and that the underlying transactions, taken as a whole, are legal and regular.

Main observations on the budgetary implementation of the European Training Foundation for the year ended 31 December 1998

Phare, Tacis and MEDA subsidies not included in the budget

5. The Foundation manages funds made available by the Commission in the context of the Phare and Tacis funds allocated to the Tempus programme. The corresponding amounts (around ECU 395 million in 1998) were not recorded in the Foundation's budget, but in separate accounts (see specific annual report 1997(3). Moreover, the balance (ECU 35,8 million as of 31 December 1998) of around 30 bank accounts available to the Foundation for the management of these programmes was not shown in the Foundation's financial statements. After discussions with the Court and the Commission, the Foundation agreed to include this information in an annex to its budget as of 1999.

6. The Foundation did not publish its budget and its organisation chart in the Official Journal of the European Communites as required under Article 13 of its Financial Regulation.

7. The Foundation's regulation was amended in July 1998 to include the MEDA programme (Mediterranean actions).

General (SI X) and budgetary accounts (SI 2)

8. Overall, the introduction of the SI 2 budgetary system has improved the internal control procedures.

9. During the evaluation phase of the SI 2 system, it was found that it had been introduced before all tests had been completed ("program and system testing and data validation"). Consequently, several problems had to be resolved during the year and the IT department was obliged to intervene several times and make manual corrections to the programs and database.

10. Moreover, the "service level agreement" with the Commission should be signed so as to establish the respective responsibilities and degree of responsibility of the parties involved.

11. The SI 2 system is to include the general accounts as of the financial year 1999.

Appropriations carried forward

12. Appropriations amounting to ECU 3,5 million were carried forward from 1998 to 1999 (22,3 % of the Foundation's budget). They mainly concern Title III (ECU 2,6 million). The majority of the carry-overs concerned national observatories and professional training.

13. A significant number of carry-overs concerned 28 contracts (overall value: ECU 0,8 million) which entered into force or were signed during the months of November and December 1998. Given that a total of 67 service contracts (in receipt of financing totalling ECU 1,6 million from the Foundation's budget) were signed during 1998, this phenomenon reveals a certain lack of balance in the organisation and planning of the Foundation's activities.

14. A detailed audit of the appropriations carried over from 1998 to 1999 on commitments under the budgetary item "national focal points" shows that seven commitments, amounting to ECU 0,22 million, or 48,7 % of the carry-overs under this item, exclusively concerned expenditure to be carried out during the financial year 1999. A similar observation can be made with regard to an additional sample of four carry-overs totalling ECU 0,06 million and involving other items under Title III of the Foundation's budget. It follows that the principle of annuality was not complied with. All the amounts unduly carried over should have been cancelled on 31 December 1998.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 7 October 1999.

For the Court of Auditors

Jan O. KARLSSON

President

(1) OJ L 131, 23.5.1990, p. 1.

(2) As required under Article 11(3) of Council Regulation (EEC) No 1360/90, the detailed accounts for all the Foundation's revenue and expenditure for the financial year 1998 were drawn up on 31 March 1999 and forwarded to the Foundation's Governing Board, the Commission and the Court of Auditors. These accounts were received by the Court on 6 April 1998. A summarised version of these financial statements is presented in the tables attached to this report.

(3) OJ C 406, 28.12.1998, p. 38.

Table 1

Balance sheet for the financial years 1998 and 1997

>TABLE>

>TABLE>

Table 2

Revenue and expenditure account for the financial years 1998 and 1997

>TABLE>

Foundation's replies

"Hors budget"subventions - Phare, Tacis, Tempus and MEDA

It is confirmed that the Foundation, following an exchange of views with the Court of Auditors and the Commission, is now including all funds received through Conventions with the Commission in an Annex to the budget. This enhances transparency and allows a complete overview regarding the monies handled by the Foundation.

The Foundation has published its 1998 budget in full on the Internet. In addition, it has published in the Official Journal of the European Communites the information that the full budget can be seen on the Internet. The Commission and the European Parliament encouraged this measure, because it maintains and even broadens publicity and equal access for all European citizens to the budget, as is clearly the objective of Article 13 of the Financial Regulation. At the same time this has led to a significant cost saving for the Foundation, which is very important bearing in mind the increasing budgetary constraints.

General Accounting (SI 2X) and Budgetary Accounting (SI 2)

We agree that globally speaking SI 2 has improved budgetary accounting and control. It is also correct to state that the previous system, based on Excel, had been kept until the end of the year. The Court of Auditors itself mentions the various deficiencies still existing in the SI 2 system at that time. The experience gained at year-end together with the continuing efforts of the development experts will lead to a better result this year and will avoid manual interventions of the kind mentioned by the Court of Auditors. So there is and will be good progress.

A service-level agreement with DG XIX (the systems supplier) has been prepared and negotiated. It is expected to be signed soon, not only with the Foundation but also with the other agencies participating in the SI 2 common support service.

All efforts are being undertaken to extend SI 2 to general accounting and, despite the very short timescale, to ensure its operational start in January 2000.

Carry overs

The comments of the Court of Auditors concerning the annuality of the budget are well understood. While the explanations for the difficulties to comply with this principle are manifold (late approval of the budget (this year in March only), complex procedures, lengthy procurement cycles), the Foundation is firmly committed to respecting the principle of annuality of the budget. In any event, the planning and execution process will be optimised in order to reduce the number of activities starting late in the year. It should be noted that the principle concerns activities under the Foundation's core budget, while many activities under "conventions" have a multiannual perspective, which is much more appropriate for the kind of activities we are involved in.