REPORT ON THE ACCOUNTS AND MANAGEMENT FOR THE 1994 FINANCIAL YEAR OF THE EUROPEAN FOUNDATION FOR THE IMPROVEMENT OF LIVING AND WORKING CONDITIONS (DUBLIN FOUNDATION), ACCOMPANIED BY THE REPLY OF THE FOUNDATION

(95/C 354/02)

TABLE OF CONTENTS

Paragraph reference

Page

INTRODUCTION

1.1 - 1.4

9

Background

1.1 - 1.3

9

Scope of the audit

1.4

9

FOLLOW UP OF PREVIOUS OBSERVATIONS

2.1 - 2.3

9

Separation of duties

2.1

9

Imprest account

2.2

9

Computerized inventory system

2.3

9

BUDGETARY IMPLEMENTATION AND THE REVENUE AND EXPENDITURE ACCOUNT

3.1 - 3.8

9

Transfer of appropriations

3.1 - 3.3

9

Carry-overs and cancellations of appropriations

3.4 - 3.6

9

Revenue

3.7

10

Mission expenses

3.8

10

THE BALANCE SHEET

4.1 - 4.2

10

Current Assets

4.1 - 4.2

10

CONCLUSION

5.1 - 5.3

10

ANNEX

11

Reply of the Foundation

12

1. INTRODUCTION

Background

1.1. The European Foundation for the Improvement of Living and Working Conditions ('the Foundation') was established by the Council Regulation (EEC) No 1365/75 (1) as a satellite body of the European Community. The Foundation, which commenced operations in Dublin in 1976, is dependent both on the Commission and on its Management Board for its operation and administration. The aim of the Foundation is to contribute to the planning and establishment of better living and working conditions through action designed to increase and disseminate knowledge likely to assist this development.

1.2. The Court of Auditors has examined the accounts and financial management of the Dublin Foundation for the financial year 1994, in accordance with the provisions of the relevant Regulations (1).

1.3. Available appropriations for the financial year 1994 amounted to ECU 11,6 million. Commitments entered into gave rise to ECU 8,3 million in payments and ECU 2,1 million in carry-overs to the financial year 1995, the balance of ECU 1,2 million having been cancelled. Appropriations carried over from the previous year gave rise to ECU 2,6 million in payments and ECU 0,3 million in cancellations. The Annex attached to this report gives an analysis by title of the utilization of the appropriations for the year and for those carried over from 1993.

Scope of the audit

1.4. In 1995 the scope of the Court's work was limited to a financial audit of the 1994 accounts.

2. FOLLOW UP OF PREVIOUS OBSERVATIONS

Separation of duties

2.1. The inadequate segregation of duties between the authorizing officer and the accounting officer persists. The Foundation hopes to be able to implement during 1995 a replacement computerized accounting system which should solve this problem. Discussions have been taking place to ensure that the new system will be the same as for the new satellite bodies. The Commission should give priority to the provision and installation of such a system in all of the bodies concerned.

Imprest account

2.2. A high proportion of payments are being made prior to approval by a financial controller. During the year 76 % of payments (excluding salaries) were made through the imprest account. The Financial Controller (DG XX) decided that, as a result of the additional work burden caused by the establishment of eight new satellite bodies, the Foundation should make greater use of the imprest system.

Computerized inventory system

2.3. Foundation staff updated the records during 1994 by writing off numerous obsolete items. The total at the year end agreed to that shown in the accounts. The Court's previous recommendations have been implemented.

3. BUDGETARY IMPLEMENTATION AND THE REVENUE AND EXPENDITURE ACCOUNT

Transfer of appropriations

3.1. The value of transfers of appropriations between different budget lines in 1994 was ECU 756 000 (6,5 % of appropriations entered into the budget), down from ECU 2 227 600 (19 %) in 1993.

3.2. In 1994 transfers were made between titles with Administration Board and Commission approval, although this is clearly not in accordance with Council Regulation (EEC) No 1417/76 as amended by Council Regulation (EEC) No 1949/93, and in particular Article 21(3) governing transfers of appropriations.

3.3. Net transfers of ECU 250 000 were made out of title 1 (staff expenses), ECU 46 000 into title 2 (administration expenses) and ECU 204 000 into title 3 (operating expenses). Furthermore, since all transfers between titles were made during the last quarter of the year, it would appear that this was intended to make possible the carrying forward of these appropriations, excluded for title 1 appropriations (Article 6.1 of Council Regulation (EEC) No 1949/93).

Carry-overs and cancellations of appropriations

3.4. In January 1995 the Financial Controller refused to approve 1994 commitments for ECU 303 000 on the basis that they related to 1995, and for ECU 538 280 on the basis that they related to study contracts for which the tender procedure had not been applied. As a result these amounts had to be cancelled. A new tender procedure for awarding study contracts was set up during the year and will be implemented in 1995.

3.5. The payment rate is 72 % for the account as a whole, but only 49 % for title 3 'operating expenditure'. Table 1 shows the carry-overs from the 1994 budget by title and their subsequent use in 1995. Carry-overs for title 3 amounted to 34 % of initial appropriations. By the end of March 1995, only 29 % of the carry-overs had been used. The budget line 'studies and pilot schemes relating to living and working conditions' showed initial appropriations for ECU 1,9 million. Of these only ECU 408 951 of payments were made. Transfers of 171 000 ECU were made to this budget line during the year, ECU 1,17 million was subsequently carried over and ECU 538 655 were cancelled.

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3.6. The budget is primarily intended to show the funding requirements of the Foundation for the year in question. In 1994 appropriations entered into the budget totalled ECU 11,6 million and funds received to meet expenditure arising from these appropriations totalled ECU 11,2 million. Payments for the year amounted to ECU 8,3 million and at the year end the Foundation found itself with cash balances exceeding ECU 4,7 million, over half of the year's payments. Thus the Foundation's annual budget bears little resemblance to its actual cash requirements, and has resulted in it holding large cash balances throughout the year for which it has no immediate need. This situation should be avoided and the Foundation should make its quarterly drawings from the Commission more closely in line with its actual cash needs.

Revenue

3.7. The EU subsidy for the Foundation for 1994 was ECU 11,2 million. The amount actually requested and received was ECU 1,5 million on 6 April 1994, ECU 2,5 million on 7 July 1994 and ECU 6,9 million on 10 October 1994, making a total of ECU 10,9. The balance of ECU 0,3 million represents the 1993 year end surplus carried forward. As in previous years this pattern of funding is not consistent with Article 26 of the Foundation's Financial Regulation which requires payment to be made by the 15th day of each quarter and in accordance with actual requirements.

Mission expenses

3.8. An analysis of mission expense claims revealed that 170 missions were made to Brussels. The necessity for all these missions to Brussels should be reconsidered with a view to exploring alternative means of communication and reducing the level of mission expenses.

4. THE BALANCE SHEET

Current assets

4.1. All amounts shown in the accounts under this heading were agreed to supporting documentation.

4.2. Included in VAT recoverable are two items totalling ECU 32 216 which have been outstanding for over three years. At the end of each financial year a reminder has been sent to the Member States' departments concerned, but no responses have been received. Management action is required to resolve this situation.

5. CONCLUSION

5.1. Imprest accounts are increasingly being used.

5.2. The Council Regulation does not provide for transfers between titles. However, the Management Board proposed and the Commission has approved them.

5.3. The Court repeats the observation made in its previous reports, namely that payments from the Commission to the Foundation do not comply with the financial provisions applicable. As a result the Foundation often holds large cash balances. This situation could be avoided by making quarterly drawings from the Commission more closely reflect actual cash requirements.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 30 November 1995.

For the Court of Auditors

André J. MIDDELHOEK

President

(1) - Council Regulation (EEC) No 1365/75 on the creation of the Foundation (OJ No L 139, 30. 5. 1975) as amended by Council Regulation (EEC) No 1947/93 (OJ No L 181, 23. 7. 1993).

- Council Regulation (EEC) No 1417/76 on the financial provisions applying to the Foundation, (OJ No L 164, 24. 6. 1976) as amended by Council Regulation (EEC) No 1949/93 (OJ No L 181, 23. 7. 1993).

ANNEX

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REPLY OF THE FOUNDATION

2.2. & 5.1. Increased use of the imprest account was made at the request of Financial Control for reasons of cost-efficiency. The system used previously resulted in significant courier costs and caused delays. It also necessitated Financial Control's making frequent missions.

Application of imprest account procedures to all costs which allow the use of provisional commitments has cut management costs and reduced delays. It has also led to a more significant role for the Authorizing Officer in the conduct of budgetary expenditure.

3.2. & 5.2. Prior to 1994, having had regard to the relatively small amounts entered, appropriations were classified only by chapter, article and item with the Financial Regulations providing for transfers between chapters. The Financial Regulation thus provided for full transferability between all elements of the Foundation's budget. The fact that, since 1 January 1994, at the instigation of the Court, the Foundation now further classifies appropriations by title would not appear to render invalid the principle underlying the Financial Regulations, i.e. that of full transferability of appropriations.

3.3. It should be noted that some elements of title 1 appropriations may be carried over to the next financial year in full conformity with Article 6.7 of Council Regulation (EEC) No 1949/93.

3.4. Publications: The ECU 303 000 referred to commitments in favour of the Office of Official Publications with regard to delivery of the Foundation's publications programme for the year 1994 which were submitted for visa on 20 December 1994. Prior to this time documents of this nature had always been visaed by the Financial Controller.

On 12 January 1995 the Financial Controller refused to approve the commitments on the grounds that 'as these were costs for which the contractual commitment would be in 1995, these costs could not be incurred during the budgetary year 1994, according to the Financial Regulations'.

The Foundation holds that the commitments in question fulfilled the requirements of the Financial Regulation with regard to the contracts which the Foundation wished to have concluded with the Office of Official Publications before the end of the financial year 1994 and therefore, in accordance with long standing practice, should have been visaed.

Study contracts: At its meeting on 25 March 1994, the Administrative Board of the Foundation approved the introduction of new procedures based on framework contract tenders in awarding study contracts. While approving the new procedures the Administrative Board, recognizing that they would take up to a year to implement, stressed that no delays should occur in the implementation of the 1994 work programme and during a transitional period, the current practice should continue to apply. The adoption of this new procedure had been discussed with Financial Control.

The practice at that time had been to use a tender procedure only for highly specified work. In most cases contracts were made by direct agreement (Article 46 of the Financial Regulation) after consultation with members of the Board. This procedure had proved efficient, economic and was transparent.

On 24 January 1995, the Financial Controller sent a note whereby visa of contracts amounting to ECU 538 280 submitted on 20 December 1994 was refused on the basis that 'the Foundation published an invitation for manifestation of interest and the results of this invitation must be utilized even if the selection procedure is not completely finalized. The reference to Article 46 is not relevant in this case'.

The Foundation holds that notwithstanding, the fact that Financial Control wished to amend the long-standing basis on which contracts were awarded, a transitional period should be allowed as had been understood from discussions between the Foundation and Financial Control. Subsequently all those contracts which were resubmitted for visa under the 1995 budget were approved.

3.6. & 5.3. In line with past recommendations of the Court of Auditors the Foundation has, in recent years, requested payments of its subsidy to cover commitments for the financial year. This has resulted in cash balances arising at the year end which were surplus to operational requirements. This procedure will now be revised to ensure that subsidy requests are on the basis of actual cash requirements.

3.7. With regard to the timing of the payments and following measures undertaken by the Commission, this is now in accordance with the Financial Regulations. With regard to the amounts of the payments, this aspect was raised and answered under point 3.6.

3.8. In both the administrative and operational fields the Foundation maintains very close liaison with the Commission's services. The Foundation strives to ensure that all missions, including those to Brussels, are only undertaken when absolutely necessary. Notwithstanding this the Foundation is exploring alternative means of communication in order to identify if costs can be reduced.

4.2. Appropriate actions have now been taken with regard to the two items concerned.

5.1., 5.2. & 5.3.See remarks above.