ANNUAL REPORT concerning the financial year 1996 (96/C 348/01)

The report, together with the institutions' replies to the Court's observations, was transmitted to the authorities responsible for giving discharge and to the other institutions.

Bernhard FRIEDMANN (President)

John WIGGINS

Giorgio CLEMENTE

Barry DESMOND

Patrick EVERARD

Armindo de Jesus de SOUSA RIBEIRO

Antoni CASTELLS

Jan O. KARLSSON

Hubert WEBER

Aunus SALMI

Jørgen MOHR

Kalliopi NIKOLAOU

François COLLING

Maarten B. ENGWIRDA

Jean-François BERNICOT

VOLUME II STATEMENTS OF ASSURANCE

TABLE OF CONTENTS

Page

Part I Statement of assurance concerning activities financed from the general budget

Chapter 19 Statement of assurance and supporting information 5

Chapter 20 Analysis of EAGGF-Guarantee and fisheries expenditure 21

Chapter 21 Analysis of Structural Fund expenditure 31

Part II Statement of assurance concerning the activities of the sixth and seventh European Development Funds

Chapter 22 Statement of assurance and supporting information concerning the activities of the sixth and seventh European Development Funds 39

Annex II (*) Financial information on the general budget, the balance sheet of the European Union and the European Development Funds

(*) The diagrams are all in this Annex.

THE INSTITUTIONS' REPLIES

Page

Part I Statement of assurance concerning activities financed from the general budget

Chapter 19 Statement of assurance and supporting information 16

Chapter 20 Analysis of EAGGF-Guarantee and fisheries expenditure 29

Chapter 21 Analysis of Structural Funds expenditure 36

Part II Statement of assurance concerning the activities of the sixth and seventh European Development Funds

Chapter 22 Statement of assurance and supporting information concerning the activities of the sixth and seventh European Development Funds 50

PART I Statement of assurance concerning activities financed from the general budget

CHAPTER 19(574*) Statement of assurance and supporting information

19.0. CONTENTS Paragraph reference

Statement of assurance

Information supporting the statement of assurance 19.1 - 19.40

Introduction 19.1

Scope of the audit 19.2 - 19.5

Reliability of the accounts 19.6 - 19.25

Understatement of amounts owed by Member States 19.6 - 19.7

Overstatement of claims on Member States related to the clearance of the EAGGF-Guarantee accounts 19.8

Understatement of cash account balances 19.9 - 19.11

Overstatement of commitments still to be settled 19.12 - 19.18

Understatement of commitments recorded in the budgetary accounts 19.19

Understatement of commitments related to the Structural Funds 19.20

Omission of off-balance sheet commitments related to multi-annual obligations for PHARE and TACIS operations 19.21

Failure to quantify commitments in respect of pension rights 19.22

Understatement of budgetary payments consisting of advances and payments on account 19.23 - 19.25

The legality and regularity of the underlying transactions 19.26 - 19.36

Errors affecting the legality and regularity of commitment transactions 19.26

Limitations on the audit work relating to payments 19.27

Errors affecting the legality and regularity of the transactions underlying payments 19.28 - 19.36

Accounting standards, policies and procedures 19.37 - 19.40

Accounting standards and policies 19.37 - 19.39

Accounting procedures 19.40

Statement of assurance concerning activities financed from the general budget for the financial year ended 31 December 1996

I. The Court has examined the consolidated accounts of the European Community for the financial year ended 31 December 1996. These accounts include the balance sheet as at 31 December 1996, the revenue and expenditure account for the financial year ended on the same date and the notes in annex, and were drawn up under the Commission's responsibility in accordance with the provisions of the Financial Regulations. They are summarized in Volume IV of the documents submitted by the Commission to the discharge authorities, and to the Court of Auditors on 30 April 1997(575). Pursuant to the Treaties(576), the Court of Auditors is required to provide the European Parliament and the Council with a statement of assurance as to the reliability of the accounts and the legality and regularity of the underlying transactions.

II. The Court carried out the audit in accordance with generally accepted international auditing standards, to the extent that these apply in the Community context. The audit of revenue was based on the amounts to be recovered and the amounts actually paid to the Community. The audit of expenditure was based on expenditure committed and the payments made. The audit comprised an appropriate range of audit procedures designed to examine, on a test basis, evidence relating both to the amounts and disclosures in the consolidated accounts and to the regularity and legality of the transactions underlying the accounts. It also included an assessment of the accounting principles used and significant estimates made by management, as well as the overall presentation of the accounts. The Court obtained through the audit a sufficient basis for the opinion expressed below.

* * *

Reliability of the accounts

III. The total amount of debtors representing amounts owed by Member States to the Community institutions, and disclosed in the consolidated balance sheet as 1 981,6 Mio ECU, is not accurately reflected in the accounts:

(a) One of the main components of the debtors' figure is understated owing to problems of completeness and valuation. This concerns the separate accounts operated by Member States under Community legislation for recording entitlements to customs duties and agricultural levies which are either unsecured or are contested. The total recorded in the balance sheet was 1 064,2 Mio ECU.

(see paragraphs 19.6 19.7)

(b) The debtors relating to the clearance of accounts of EAGGF-Guarantee expenditure are overstated by 264,1 Mio ECU, because certain repayments made by the Member States during 1996 were not taken into account.

(see paragraph 19.8)

IV. Bank account assets of the Communities, recorded in the balance sheet as 11 696,7 Mio ECU, are not accurately reflected in the accounts:

(a) Replenishments of bank accounts in certain third countries to a value of several hundred million ECU are recorded as expenditure instead of being recorded as an asset in the balance sheet.

(see paragraph 19.9)

(b) Community assets of at least 25,9 Mio ECU, the management of which has been entrusted to third parties, do not appear in the cash accounts in the balance sheet.

(see paragraph 19.10)

(c) The Commission has not performed reconciliations (39,3 Mio ECU) between the general ledger and the confirmations from the banks relating to the imprest accounts of the Mediterranean protocols.

(see paragraph 19.11)

V. The value of commitments still to be settled (47 489,2 Mio ECU) is understated by a net amount of at least 715 Mio ECU. This figure is made up of both overstatements and understatements:

(a) The total value of commitments from differentiated appropriations still to be settled at the end of 1996 is overstated by at least 587 Mio ECU because it includes commitments that were no longer required to meet future payments. In addition, no information was provided by the Commission to demonstrate that a further 466 Mio ECU of outstanding commitments were required to meet future payments.

(see paragraphs 19.12 19.18)

(b) The value of certain other commitments still to be settled at the end of 1996, as well as the value of the commitments of the year, are understated by some 1 302 Mio ECU due to the practice of the Commission of committing in the accounts less than the full amount actually committed in the fields of cooperation and fisheries. Furthermore, these amounts are not disclosed in the schedule of off-balance sheet commitments.

(see paragraph 19.19)

VI. The multi-annual obligations disclosed as off-balance sheet commitments (91 134,5 Mio ECU) are inaccurately stated:

(a) The accuracy of the amount (88 500 Mio ECU) shown for multi-annual obligations for Structural Funds as off-balance sheet commitments is doubtful because the underlying calculations were found to contain numerous errors.

(see paragraph 19.20)

(b) Multi-annual obligations of some 4 200 Mio ECU for PHARE and TACIS operations have been omitted from the off-balance sheet commitments.

(see paragraph 19.21)

(c) The obligations of the Communities in respect of pension rights acquired by its personnel are mentioned in the off-balance sheet commitments, but have not been quantified.

(see paragraph 19.22)

VII. The total value of advances or payments on account registered during the year as budgetary payments which were not definitive at the end of the year is understated by a net amount of some 19 000 Mio ECU.

(see paragraphs 19.23 19.25)

Legality and regularity of the underlying transactions

VIII. The substantive legality and regularity of commitments is affected by the errors described at V (b) above, because the amounts actually committed breached the limits of the commitment appropriations fixed by the budgetary authorities.

(see paragraph 19.26)

IX. The most probable estimate of the rate of substantive errors concerning the transactions underlying payments is about 5,4% of the total recorded budgetary payments of the order of 77 000 Mio ECU.

(see paragraph 19.30)

X. The audit again showed a high incidence of formal errors affecting payments. In these cases there were failures to comply with the applicable regulations and other conditions.

(see paragraphs 19.33 19.36)

XI. In a number of cases, estimated to represent 4,3 % of Community payments, it was impossible for the Court to obtain sufficient evidence to reach a firm opinion as to the correct use of Community funds.

(see paragraph 19.27)

XII. - Except for the effects of the matters summarized in paragraphs III-VII above, the Court is of the opinion that the accounts for the financial year 1996 reflect reliably the Union's revenue and expenditure for the year and financial situation at the end of the year. - The Court is of the opinion that the transactions underlying the revenue entered in the accounts for the financial year, taken as a whole, are legal and regular, within the limits specified in paragraphs 19.4 and 19.5. - Except for the effect of the matters discussed in paragraph VIII above, the Court is of the opinion that the commitment transactions for the financial year are, taken as a whole, legal and regular. - Because of the effect of the matters described in paragraphs IX-XI above the Court declines to provide positive global assurance as to the legality and regularity of the transactions underlying the payments for the financial year.

16 October 1997

B. Friedmann

President

European Court of Auditors 12, rue Alcide De Gasperi, L-1615 Luxembourg

INFORMATION SUPPORTING THE STATEMENT OF ASSURANCE

Introduction

19.1. This third statement of assurance (referred to throughout this report as the DAS)(577) concerns the reliability of the accounts of the European Community and the legality and regularity of the underlying transactions for the financial year 1996.

Scope of the audit

19.2. Transactions in certain areas audited by the Court are subject to further verification by other authorities, in particular during the clearance of the EAGGF-Guarantee accounts.

19.3. The DAS itself contains no conclusions as to the degree of compliance with the principles of sound financial management. This is something which the Court continues to assess and report separately as part of its other work.

19.4. Certain cases of deliberate irregularity to the detriment of the Community finances including, for example, the failure to declare dutiable imports cannot, by their very nature, be detected by the usual auditing procedures. The Court is not therefore in a position to give any assurance concerning the absence of cases of this type. However, as part of its financial audit of own resources, during 1996 the Court carried out a specific audit of the procedures for the establishment and recovery of customs duties and agricultural levies in cases of fraud and irregularity. The results of this audit are described in Chapter 1 of this annual report.

19.5. Because of the macroeconomic nature of the statistical data on which the GNP and VAT own resources (accounting for about 80 % of Community revenue) are based, the Court concentrated on assessing the adequacy of the procedures applied for compiling these data and guaranteeing their reliability. For the other principal element of own resources, customs duties and agricultural levies (accounting for about 17 % of Community revenue), it was not possible to provide an assurance that all taxable imports have actually been declared and have generated the corresponding revenue. Accordingly, the Court's audit focused on assessing the adequacy of procedures applied for ensuring that the Community's entitlement to customs duties and agricultural levies is properly established as soon as the conditions provided for by the customs regulations concerning entry into the accounts of the entitlement and notification to the debtor have been met.

Reliability of the accounts

Understatement of amounts owed by Member States (paragraph III(a) of the statement of assurance)

19.6. The consolidated balance sheet (Item III (a)) shows total debtors of 1 981,6 Mio ECU, representing the amounts due to the Community institutions by Member States as at 31 December 1996. Of this total, 1 064,2 Mio ECU(578) comprises entitlements to customs duties and agricultural levies established by Member States which they have entered into separate (revenue) accounts. Article 6.2(b) of Council Regulation (EEC) No 1552/89 of 29 May 1989(579) sets out the criteria under which Member States use the separate accounts. The Member States are responsible for keeping the separate accounts and report on them to the Commission once a quarter.

19.7. Taken as a whole, the Court found that the separate accounts are still affected by significant errors which have a material impact on the completeness of the total debtors' figure disclosed in the consolidated balance sheet. In particular, the Court found that insufficient procedures were in place to ensure that all entitlements to customs duties and agricultural levies that are established and which are either unsecured or are contested are properly brought to account in the separate accounts at an appropriate valuation. The Court is not able to quantify the extent to which the separate accounts and hence the total debtors' figure may be understated, but considers that the amount of the understatement in the separate accounts is likely to be material.

Overstatement of claims on Member States related to the clearance of the EAGGF-Guarantee accounts (paragraph III(b) of the statement of assurance)

19.8. The Commission chose to follow up on one Court observation by replacing the forward estimates of debts related to the clearance of the accounts drawn up in 1995 with recovery orders. Nevertheless, on the basis of the data calculated at the end of 1995, the total debt thus shown on the assets side of the balance sheet at 31 December 1996 (792,2 Mio ECU)(580) is overstated by 264,1 Mio ECU, since the revenue actually collected in the form of negative expenditure that had been declared in the October 1996 statements of each Member State concerned had not been taken into account.

Understatement of cash account balances (paragraph IV of the Statement of Assurance)

19.9. Within the field of cooperation with Latin American, Asian and Central and Eastern European countries, projects are covered by financing agreements with authorities in the beneficiary countries. It is the established practice of the Commission to charge to the budget appropriations transfers made to replenish bank accounts opened by project management within the beneficiary countries. Local project costs are subsequently paid from these bank accounts. This money remains the Commission's property until it is properly paid out for the approved purposes. In view of this the Court considers that the Commission's practice is consistent neither with normal accounting practice nor with the relevant provisions of the Financial Regulation which apply to actions covered by financing agreements. The financing agreements stipulate more and more often that the balances on the bank accounts involved remain the property of the Community. Furthermore, paragraph 7 of Article 111 of the Financial Regulation states that 'payments made in the currency of the recipient State shall be subject to a clearance procedure before they are finally booked to the budget appropriations. Clearance shall consist of an examination by the Commission to establish that validation, authorization and payment have been properly effected, in accordance with this Financial Regulation`. All this implies that amounts replenished but not yet cleared should be reflected in the Commission's balance sheet. The Court is not in a position to estimate the outstanding amounts concerned, but it is likely that they are of the order of several hundred million ecus. The fact that the Commission does not share the Court's interpretation of the relevant articles of the Financial Regulation suggests that there is a need to clarify its Title IX, which specifically relates to external aid, in the context of a general revision of this Regulation.

19.10. In connection with the MEDIA programmes (heading B3-2010), at the end of the financial year 1996 the Commission transferred 25,9 Mio ECU to a bank account opened by a services company providing technical assistance in implementing these programmes. Moreover, this account is designed to receive interest paid by the bank, as well as repayments from recipients to whom loans have been granted. Although these funds remain Community property, they are not shown in the balance sheet's cash accounts. Furthermore, and as a result of the foregoing, Community follow-up and control procedures are not applied with regard to the utilization of these funds and such utilization is subject only to the prior approval of DG X officials, who, de facto and in breach of the procedures stipulated in the Financial Regulation, are performing the duties of both authorizing officer and accounting officer, in contravention of the same provisions of the above Regulation.

19.11. At the request of the Court, the Commission sent out questionnaires and reminders for the purpose of reconciling the bank account balances with data confirmed by the banks themselves. To date, in respect of the bank accounts for aid to Mediterranean countries, five out of a total of seven banks have replied, but no reconciliations have been carried out by the Commission. In the absence of such reconciliations and in view of the materiality of these differences, the accuracy of the related balance sheet figures (39,3 Mio ECU) cannot be confirmed.

Overstatement of 'commitments still to be settled` (paragraph V(a) of the statement of assurance)

19.12. At the end of 1996, some 60 000 commitments against differentiated appropriations totalling 47 911,7 Mio ECU remained to be settled, 422,5 Mio ECU of which were covered by payment appropriations carried over from 1996 to 1997.

19.13. The Court audited a sample of 173 outstanding commitments amounting to 982 Mio ECU that had been selected from pre-1995 outstanding commitments to which no payments had been charged for two successive financial years. The population thus sampled contains 8 518 balances amounting to 6 212 Mio ECU; 2 060 of these balances, totalling 944 Mio ECU, went back to before 1992 and no payments had been charged to them for the last three financial years.

19.14. The findings of the Court's audits, with which the Commission authorizing departments were directly associated, lead it to conclude that the Commission was unable to provide evidence that some 17,0 % of the sums relating to these outstanding commitments, totalling 1 053 Mio ECU, still related to an obligation to make further payments; the Court is also of the opinion that at least 9,4 % of the amounts of these outstanding commitments, i.e. some 587 Mio ECU, no longer related to an obligation to make payments.

19.15. Moreover, operations that have been blocked for legal reasons, and which therefore probably no longer relate to actual obligations, but which the Commission is unable to cancel are estimated by the Court to amount to approximately 14 % of the commitments, or a total of some 864 Mio ECU.

19.16. The time limits for implementing commitments were often exceeded, sometimes by several years. Of the commitments remaining to be settled at the end of 1996, some 9 000 concerned cases where the settlement deadlines had expired.

19.17. Separate work carried out by the Court in a specific field corroborated these findings. For example, a selective audit in the field of TACIS and PHARE programmes, which focused on around 100 of the 600 operations committed between 1990 and 1994, makes it possible to estimate that the sum of the commitments outstanding under these programmes that were no longer justified at the end of 1996 is of the order of some a hundred Mio ECU (see Volume I, paragraphs 14.12 14.15).

19.18. Although there were some clear improvements in certain fields, the situation regarding outstanding commitments thus leaves little room for satisfaction otherwise. Measures should be taken by the authorizing officers and the budget and financial control departments in order to ensure that outstanding commitments reflect the Community's real obligations in a reliable manner in future. To this end, the Commission should, in addition to putting the situation in order by cancelling all commitments that no longer relate to formal legal obligations, include an estimate in its financial statements of the volume of those of its outstanding commitments that are unlikely to result in a payment in subsequent financial years. The payment appropriations to be entered under forthcoming budgets could thus be better estimated.

Understatement of commitments recorded in the budgetary accounts (paragraph V(b) of the statement of assurance)

19.19. In certain areas covered by differentiated appropriations the Commission has adopted inconsistent practices as a result of which some effective obligations are not reflected as commitments in the budgetary accounts. This situation results from the fact that the commission decided to enter into obligations which were not covered by the commitment appropriations in the budget. As a result the commitments remaining to be settled at the end of 1996 (581), as well as the total amount of the commitments of the financial year 1996, are understated by 1 302 Mio ECU. This includes:

(a) 685 Mio ECU for financing decisions in respect of Cooperation with Mediterranean countries and India (see Volume 1, paragraphs 13.11 13.16), and

(b) 617 Mio ECU relating to international fisheries' agreements (see Volume 1, paragraphs 9.18 9.19).

These multi-annual obligations were not even disclosed in the schedule of off-balance sheet commitments which form part of the accounts (582).

Understatement of commitments related to the Structural Funds (paragraph VI(a) of the statement of assurance)

19.20. At 31 December 1996, the Commission showed a sum of 88 513,9 Mio ECU for off-balance sheet commitments made relating to Structural Funds (aid planned for and not committed for the 1994-99 period at 1996 prices), including an amount of 8 476,8 Mio ECU for Community initiatives. These sums represent the difference between the Structural Fund spending scheduled for the 1994-99 planning period and the accumulated commitments for the 1994-96 period recorded in Sincom. As was the case for the preceding year, these commitments include commitments relating to previous planning periods which should have been omitted from this calculation. The result is that the amounts recorded under off-balance sheet commitments are understated. The data on which the amounts entered under the off-balance sheet commitments for the Structural Funds are based, and which were made available to the Court for the purpose of the audit, also call for further observations, the most important being the lack of reconciliation between the figures used by the central accounting departments and those used by the authorizing departments. The overall impact of the anomalies detected in the amount entered under the off-balance sheet commitments is an understatement of at least 2 000 Mio ECU.

Omission of off-balance sheet commitments related to multiannual obligations for PHARE and TACIS operations (paragraph VI(b) of the statement of assurance)

19.21. The obligations laid down in the multiannual indicative programmes in the context of the PHARE and TACIS programmes, and not yet reflected as commitments in the budgetary accounts, have not been disclosed in the schedule of off-balance sheet commitments which form part of the accounts (583). The amounts concerned are about 2 900 Mio ECU for PHARE and 1 300 Mio ECU for TACIS at 31 December 1996. In the case of PHARE the agreed programmes are signed by the Commission and third countries concerned. In such cases, it could even be argued that these obligations should be recorded as commitments in the budgetary accounts, because differentiated appropriations are designed to cover multi-annual obligations of this kind.

Failure to quantify commitments in respect of pension rights (paragraph VI(c) of the statement of assurance)

19.22. In 1996, the Commission provided for the first time an overview of the operation of the Communities' pension scheme in the explanatory notes to the off-balance sheet commitments. It did not, however, provide any figures. The 1996 presentation is, nevertheless, an improvement on that for the financial year 1995, when a mere token entry was entered under the off-balance sheet commitments. The Commission has undertaken to carry out an actuarial assessment during 1997 that will take account of all the necessary factors with a view to determining and incorporating, in accordance with international accounting standards, the amount that should be shown in the financial statements.

Understatement of budgetary payments consisting of advances and payments on account (paragraph VII of the statement of assurance)

19.23. Since 1995, in response to requests made by the Court and the European Parliament, the Commission has made a distinction in its accounting system between the year's payments in the form of advances/payments on account and those comprising definitive payments. This should enable the Commission to draw up a statement of non-definitive payments in its revenue and expenditure account at the end of the financial year(584).

19.24. By using the identification parameters in the Sincom accounting system, the Court calculated that the non-definitive payments made for the financial year 1996 amounted to 19 068 Mio ECU. The figure of 1 736 Mio ECU published by the Commission in the 1996 revenue and expenditure account(585) was thus understated by some 17 000 Mio ECU owing to design errors in the computation systems and computer programs used by the Commission to produce this figure (notably the exclusion from non-definitive payments at the end of the financial year of advances/payments on account not yet charged to commitments already settled).

19.25. Furthermore, the result arrived at by the Court is affected by the fact that, in spite of the instructions issued in this regard by the accounting officer's and Financial Controller's departments, the authorizing officers did not always clearly identify the amounts that were not definitive. Transactions totalling at least 2 000 Mio ECU, mainly in the fields of external policies and structural measures, are not identified in the accounts as being part payments that are not definitive, the result being that the total for these has been understated by the same amount.

The legality and regularity of the underlying transactions

Errors affecting the legality and regularity of commitment transactions

Substantive(586) legality and regularity errors concerning commitments (paragraph VIII of the Statement of Assurance)

19.26. The cases where obligations effectively entered into by the Commission breached the limits of the commitment appropriations fixed by the budgetary authorities are identified in paragraph 19.19.

Limitations on the audit work relating to payments (paragraph XI of the statement of assurance)

19.27. In a number of cases in the sample of payments - estimated to represent some 4,3 % of the Community budget in 1996 - it was impossible for the Court to obtain sufficient evidence to reach a firm opinion as to the correct use of Community funds. The main causes of the lack of assurance on individual transactions are:

(a) in the area of public storage of agricultural produce, problems in reconciling monthly declared figures with the underlying supporting documents and general weaknesses in stock-taking procedures, leading to uncertainty as to the amount chargeable to the Community budget;

(b) unforeseeable legal or physical circumstances in Member States which resulted in the Court not having access to the documents essential for its audit.

Errors affecting the legality and regularity of the transactions underlying payments

Substantive legality and regularity errors concerning payments (paragraph IX of the statement of assurance)

19.28. As the Court made clear in paragraph 1.32 of its 1994 DAS report(587), its audit has to cover all stages in the management of Community funds, starting with the Commission's central accountancy and ending with final recipients in the Member States and elsewhere. The Court's audit for the purposes of the Statement of Assurance is aimed at establishing whether the rate of error detected in its sample of transactions verified down to the level of final recipients is low enough to enable it to provide a positive global assurance that the accounts are reliable and the underlying transactions legal and regular. On the basis of extrapolations of its sample results, it provides estimates of the rates of substantive error detected in order to support its conclusions. These estimates should be regarded as indications of orders of magnitude, associated with upper and lower limits at a level of 95 % confidence, rather than as precise measurements.

19.29. The total unextrapolated value of substantive errors relating to payments - also taking into account errors occurring outside the sample - is 273 Mio ECU. These errors do not necessarily result from an intent to defraud the Communities. They may also not lead to recovery of the wrongly paid amounts. In the cases concerning the EAGGF-Guarantee, the Court's findings should be taken into account by the Commission when it clears the annual accounts. In the cases concerning the Structural Funds, where there is no comparable clearance procedure, the specific error detected may be corrected in the accounts of current programmes. Where there is evidence that the beneficiary has not acted in good faith, it is up to the national authorities to recover the amounts concerned and reimburse the Community budget. Because it is an extrapolation of the sample results, the Court's estimate of the most likely volume of substantive errors cannot of course serve to identify specific amounts to be recovered.

19.30. The overall rate of substantive errors - quantifiable errors directly affecting the amount of the transactions underlying Community funds disbursed - is estimated to be in the range of 3,5 to 8,3 % of total payments: the most likely estimate is 5,4 % of total payments. The error rate for the EAGGF-Guarantee remains, as for the past two years, below the average for the budget as a whole. The Court notes the steps taken to improve financial management in this area. Similar improvements should be made in respect of the Structural Funds, to provide adequate assurance on the proper use of resources so as to reduce the error rate, which still remains higher than the average for the budget as a whole. The Commission decisions to improve the application of Articles 23 and 24 of the Structural Funds Regulation (EEC) No 2082/93(588) are moves in the right direction.

19.31. The estimated level of error in the transactions underlying the payments for the financial year 1996 is so high that the Court declines to provide positive global assurance as to the legality and regularity of the transactions concerned.

19.32. The majority of the substantive errors affected the eligibility of operations financed by the Community budget. Other substantive errors concerned the reality or the accuracy of the expenditure presented for such financing, the accuracy of the calculation of the amount of the Community contribution, and the existence or quality of the supporting documents on which the payments were based. In terms of impact on the amounts financed, the errors occurred in most cases in Member States (90 %), mainly at beneficiary level (60 %) and also at the level of local (20 %) and central (10 %) authorities responsible for managing the operations. See paragraphs 20.9 20.10 for further analysis of those errors found in the field of the EAGGF-Guarantee and paragraphs 21.16 21.17 for further analysis of those errors found in the area of the Structural Funds. In the case of the Structural Funds, the estimated value of the errors does not necessarily affect the payments made by the Commission in the form of advances. However, as the underlying transactions were financed with EU funds there is a risk that the general budget will be permanently affected by such errors if they are not detected and corrected.

Formal legality and regularity errors concerning payments (paragraph X of the statement of assurance)

19.33. Many formal errors - errors without any directly quantifiable effect on the amounts of the transactions underlying the Community funds disbursed - were found in the main fields of Community expenditure (EAGGF-Guarantee and Structural Funds - see paragraphs 20.11 20.12 and 21.18 21.19 respectively for further analysis), as well as in other fields, such as development cooperation with the countries of the Mediterranean, Latin America, Asia and Central and Eastern Europe and administrative expenditure. The incidence of formal errors was most marked in the field of the Structural Funds.

19.34. These formal errors comprise, for the most part (70 %), cases where the regulatory conditions laid down concerning the subsequent implementation of the measure financed were not complied with and, to a lesser extent (20 %), cases where the management or control procedures stipulated in the Community Regulations were not applied. Taken as a whole, these errors originate mostly at Member State level (80 %), and mainly at the level of central (35 %) and local (25 %) bodies responsible for managing the operations.

19.35. The formal errors that arose at Community institution level (20 %) are mainly cases where the management and control procedures were not complied with.

19.36. The formal errors that arose at Member State level are characterized by the following:

(a) The majority of the many formal errors concern the failure of the recipients or bodies implementing the measures to meet their obligations, particularly as regards keeping separate accounts for measures financed from the Community budget or maintaining the quality of the documents supporting expenditure declarations.

(b) The other formal errors relate principally to shortcomings in the establishment and implementation of regulatory controls, which are the responsibility of the relevant authorities in the Member States.

Accounting standards, policies and procedures

Accounting standards and policies

19.37. In previous reports, and in particular in its DAS reports for 1994 and 1995(589), the Court underlined the need for the adoption of accounting policies to ensure completeness and consistency in the information presented in the consolidated accounts (including consistent treatment by different institutions), and to improve their informative value. In its DAS report for 1995, the Court referred to an external study carried out for the Commission on appropriate accounting standards for the Community's accounts whose results had not yet been made available to it. Having now had an opportunity to review the study, the Court notes that it identified areas in the balance sheet accounts where greater consistency in the accounting treatment is needed. These findings confirm those of the Court itself regarding the accounts of recent years, including those of 1996. The Commission is currently drawing up a manual for the consolidation of its accounts which aims to deal with the problems identified.

19.38. In the Court's view, there remains a need for a clear statement of the accounting principles and policies applicable to the accounts of the European Community. This statement might, for example, indicate the fundamental basis of the revenue and expenditure account (for instance, a cash basis or an accruals basis), define the principles applicable to the valuation of balance sheet items (notably, providing for the depreciation of fixed assets) and define a framework for appropriate reconciliation between these two accounts. In preparing this statement of accounting principles the Commission should consider the Directives applicable to enterprises within the Community, and the standards promulgated by the international bodies setting accounting standards, particularly those applicable to the accounts of public sector bodies.

19.39. The establishment of comprehensive accounting policies is not an end in itself. It is the means of providing the basic framework for financial reporting from which the Commission should be able to produce a set of financial statements which are responsive to the needs of their users, the budgetary authorities. In particular, the Commission should be able to provide the budgetary authorities with financial statements which are not only concise and easy to understand, but also enhance the transparency of the Commission's operations, and provide a clearer indication of the Commission's financial position as at 31 December 1997.

Accounting procedures

19.40. Much of the information presented in the balance sheet and in the off-balance sheet commitments is based on information which is not processed by the basic accounting system, but which is provided to the accountant of the Commission on an ad hoc basis. The Court's observations in the context of the DAS, particularly on items such as fixed assets and off-balance sheet commitments, show that these procedures too often fail to ensure that complete and accurate information is included in the accounts. The Commission should ensure that clearly defined accounting procedures are laid down in these areas, the application of which will result in the provision by authorizing officers in operational directorates-general of the information required for incorporation in the accounts.

REPLIES OF THE COMMISSION

INFORMATION SUPPORTING THE STATEMENT OF ASSURANCE

Reliability of the accounts

Understatement of amounts owed by Member States (paragraph III(a) of the statement of assurance)

19.7. The Commission feels that following their introduction in 1990, the B accounts were kept in a manner which improved significantly once the initial problems had been solved. Appropriate rules were introduced to make management more transparent. As these accounts are kept at local level, there are sometimes odd errors, mostly of a formal nature. However, these anomalies cannot lead to the general conclusion that the accounts are not reliable.

The Commission agrees with the Court that the separate account cannot include all Community entitlements. Moreover, it feels that, to some extent, this account overestimates the actual entitlements of the EU because some amounts have been entered in it for a long time although there is no hope of recovering them in reality.

In order to resolve this problem, the Commission, on 3 July 1997, presented a proposal for the amendment of Regulation No 1552/89 with a view to strengthening the procedure for writing off unrecovered debts within a very specific time limit.

Overstatement of claims on Member States related to the clearance of the EAGGF-Guarantee accounts (paragraph III(b) of the statement of assurance)

19.8. It is true that, following an error, total entitlement was overstated by 264,1 Mio ECU at 31 December 1996. However, as soon as the error had been discovered, the Commission cancelled the recovery orders in question.

The Accounting Officer's department is establishing a monitoring system to prevent this error from being repeated.

Understatement of cash account balances (paragraph IV of the statement of assurance)

19.9. Article 111(7) of the Financial Regulation applies under the financial protocols which involve a paying agent. Cash advances to the accounts of the financial institution as referred to in Article 111(7) of the Financial Regulation appear in the balance sheet until they are cleared by being charged to the budget.

However, when aid is granted unilaterally and not covered by a financial protocol, the procedure in Article 111(7) does not apply and the budget is implemented in accordance with Articles 40 to 53 of the Financial Regulation as provided in Article 105(1) of the Financial Regulation.

The Commission also feels that a clearer wording of the Financial Regulation would avoid the differing interpretations noted here. It will endeavour to secure such clarification when the Financial Regulation as a whole is recast. In this connection, it will take into account the comments made by the Court in Opinion 4/97 relating to the seventh series of amendments to the Financial Regulation.

19.10. In 1996, the Commission (DG X) signed a contract with an intermediary organization (MEDIA programme assistance, PMA, specialist in financial management). A bank account was opened requiring two signatures:

- Holder: MEDIA assistance SC;

- Signatures : every transfer order must be initialled by the Commission (DG X) and signed by the contractor. This means that the holder cannot carry out any transaction on this account without the signature of a Commission representative (DG X);

- Bank interest: must be transferred each quarter to the Commission's bank account;

- The advance written approval of the Commission (DG X) is required for opening, transferring, closing and any change in the operation of the account. The owner undertakes not to invoke any right to this account in the event of cancellation or at the end of the contract.

The case referred to by the Court comes under the general problem of payments made by financial intermediaries, of the technical assistance bureaux type, which then distribute the funds to the financial beneficiaries. The Accounting Officer's department would like to come together with authorizing departments and the Court of Auditors to analyse ways of dealing with these transactions in terms of the utilization of budgetary appropriations and of the presentation in the balance sheet of the funds held by financial intermediaries. This analysis should be taken into account in the identification of the general accounting principles applicable to the Union's financial statements which the Commission is undertaking as a preliminary to the publication of the consolidated financial statements for 1997.

19.11. Details on the reconciliation of the balances with figures in the general account were given to the Accounting Officer in mid-July 1997.

The Commission is considering what measures should be taken so that, in due course, the Accounting Officer will be in possession of the information required to ensure that the amounts entered in the accounts are reliable and that any differences and anomalies are corrected.

Overstatement of 'commitments still to be settled` (paragraph V(a) of statement of assurance)

19.12 19.14. The Commission is aware of the problem of commitments outstanding and of the need for more systematic monitoring. The instructions given to the Accounting Officer in recent years reflect the Court's concern.

19.15. As stated in 19.12-19.14, the Commission agrees with the Court that when commitments do not tally with actual obligations they should be cancelled. Nevertheless, it is not always possible to do this quickly.

As pointed out by the Court, when commitments are blocked because judicial proceedings are in progress, the Commission must wait for the judicial authority's decision before cancelling the commitment.

In some cases, cancellation is not possible until the programme or project has been cancelled, and then only with the beneficiary's agreement.

A number of commitments were cancelled by the Commission on its own initiative at the beginning of the following year or after the Court's inquiry.

19.17. At the beginning of this year, a procedure was put in place to close programmes which had expired. Expired programmes and contracts were identified and an audit programme and a plan to recover unused bank balances were prepared. At the end of June 1997, 78 expired centralized programmes had been closed, 1586 expired centralized contracts had been analysed (of which 937 were closed) and 148 commitments were cancelled (partially and finally) representing 34 172 059 ECU. Twenty-one final audits of decentralized programmes were launched and recovery orders were issued for over 2 Mio ECU. The commitments relating to the expired programmes will be cancelled after the final audits.

This work can only be done with existing human resources. Concentrating more on this activity could therefore be detrimental to the performance of other tasks (for example, longer payment times).

19.18. In response to internal instructions and the Court's inquiry, most of the departments involved have been closely monitoring outstanding commitments in 1997 and have cancelled commitments and closed programmes as necessary. Some authorizing departments have even prepared a special programme for clearance and systematic monitoring. The Commission will ensure that that this work continues as part of the routine activities of the units in question.

The Commission will examine the Court's suggestion that the accounts should contain estimates of payments which will probably not be made.

Understatement of commitments recorded in the budgetary accounts (paragraph V (b) of the statement of assurance)

19.19. In its reply to paragraphs 13.11-13.16 and 9.18-9.19 of the Court of Auditor's Annual Report for 1996, the Commission outlined the reasons why it considers these transactions regular.

It is prepared to provide information on these two cases in a note to the balance sheet.

The Commission is nevertheless aware of the general problem raised by the Court. It may review all the relevant provisions in the forthcoming recasting of the Financial Regulation referred to at paragraph 19.9.

Understatement of commitments related to the Structural Funds (paragraph VI(a) of the statement of assurance)

19.20. The Commission is currently comparing the programming figures by objective and by Member States with the DGs responsible for the Structural Funds with a view to making the necessary corrections. The various tables have been sent to them for checking and comments.

Omission of off-balance sheet commitments related to multiannual obligations for PHARE and TACIS operations (paragraph VI(b) of the statement of assurance)

19.21. The MIPs (multiannual indicative programmes) are not legally binding on either the Commission or the partner country and thus should not be regarded as budgetary commitments. The financial information which the programmes contain is intended merely as a guide. The purpose of the MIPs is to serve as a basis for detailed planning and scheduled discussions between the Commission and the partner country. These discussions result in the annual national operational programmes which lead to budgetary commitments.

Since the programmes are also agreed with the beneficiary country and thus imply a political commitment, the Commission will examine how these details should be shown, if appropriate, in the off-balance sheet information.

Failure to quantify commitments in respect of pension rights (paragraph VI(c) of the statement of assurance)

19.22. The Commission confirms its intention to show an estimate of the overall financial obligation for pensions in the financial statements at 31 december 1997.

However, the final results of the actuarial study will not be available until the end of 1998.

Understatement of budgetary payments consisting of advances and payments on account (paragraph VII of the statement of assurance)

19.23 19.24. It is true that Table 15 of the revenue and expenditure account and financial balance sheet contains errors. These errors are due to the definition of data in the extraction programmes which are used for the production of the information. The programmes will be reviewed and corrected.

The legality and regularity of the underlying transactions

Errors affecting the legality and regularity of commitment transactions

Substantive legality and regularity errors concerning commitments (paragraph VIII of the Statement of Assurance)

19.26. As stated at 19.19, the Commission considers that these decisions are regular.

Limitations on the audit work relating to payments (paragraph XI of the statement of assurance)

19.27. Like the Court, the Commission was also unable to form a clear idea in a number of the cases mentioned. This was because some of the Court's sectoral letters to Member States informing them of the cases examined were sent too late for the Member States to have a reasonable length of time to reply. In these cases, the Commission has only the information provided by the Court and does not have the viewpoint of the beneficiary Member State, which it needs in order to adopt its position or to decide whether an on-the-spot inquiry is necessary. The Commission regrets that the overall results arrived at by the Court are based on a number of cases on which the Commission has been unable to express a fully informed opinion.

(a) With regard to the problem specifically mentioned by the Court, the following comments can be made:

Article 3(3) of Regulation (EC) No 1663/95 requires certifying bodies to report on the statements of intervention operations and on whether the financial interests of the Community are protected. In the light of the results of the certification procedure for 1996, the Commission has circulated Member States' certifying bodies with a guideline for the audit of intervention storage in 1997, is pursuing improvements in the management of intervention stocks with several paying agencies and has initiated an exercise paying particular attention to year-end stocktaking procedures.

The introduction of accreditation criteria for paying agencies and the recent adoption of Regulation (EC) No 2148/96 (Evaluating and monitoring public intervention stocks) should ensure the early introduction of improvements in the management and control of intervention stocks.

Errors affecting the legality and regularity of the transactions underlying payments

19.28 19.36. The Commission takes note of the overall results of the DAS. It agrees with the Court that the number of errors is still too high. It believes that because of the degree of uncertainty inherent in any statistical method and because it will be some years before the DAS audit has acquired sufficient maturity to determine clear trends in rates of error, the Court's findings must be interpreted with caution.

The general rate of error found by the Court covers very different situations, namely 90 % of the transactions carried out in the Member States and 10 % of transactions falling under the Commission's exclusive responsibility.

For the EAGGF-Guarantee, where fund management structures are relatively simple, the Commission has been able to rapidly implement reforms which already seem to be bearing fruit. Indeed, the Court acknowledges these improvements (see Introduction p. 0.35).

The situation with regard to the Structural Funds is more complex. The many levels of intervention (Community, central government, region, district, contractor, etc.), numerous procedures and the complexity of the structures lend themselves to a higher rate of errors. However, this is not necessarily a sign of less efficient management. The financial implications of such errors for the Community budget are generally neither certain nor easy to assess.

In spite of these difficulties, the Commission is equipping itself with the necessary means to improve management. On 23 April 1997, for instance, it adopted a document on the eligibility rules for the Structural Funds. On 15 October 1997 it also approved a regulation laying down specific rules for the Member States with regard to monitoring the Structural Funds (see paragraph 21.6). These measures should produce the necessary improvements in the near future.

Lastly, it would be interesting to use the rate of error found by the Court as a way of establishing the level of performance of Community management in relation to that of other administrations. Unfortunately, the lack of an audit similar to the DAS in the Member States and the special features of the Structural Funds, which have a unique comanagement system, do not allow a real comparison to be made.

19.32. The Commission notes and endorses the Court's remark that in the case of the Structural Funds, the estimated value of errors categorized by the Court as substantive errors concerning payments does not necessarily affect the payments made by the Commission in the form of advances. The Commission continues to consider that errors of this kind should be categorized separately from the generality of substantive errors. However, the Commission regards these errors with proper seriousness and it corrects or requires the correction of all errors coming to its notice.

The Commission notes with interest the cases raised by the Court in the area of EAGGF-Guarantee. In the majority of cases, the Court's findings match the Commission's own and appropriate corrective measures will be taken in the framework of the clearance of accounts procedure. Thus it is reasonable to assume that no significant loss to the Community budget will remain.

However, the Commission points out that the risk of errors resulting from human error is difficult to eliminate entirely unless every single transaction was checked. For these obvious cost/efficiency reasons, such an approach is not possible.

Accounting standards, policies and procedures

Accounting standards and policies

19.37 19.39. As the Court proposes, the Commission feels that the accounting principles which govern the preparation of the accounts of the European Union should be formalized. The Commission will establish its accounting policy bearing in mind the specific character of what constitutes a public institution and will be guided by the principles contained in the fourth and seventh directives and international standards where these are transposable to the public sector and the practices applied by international organizations. On this point the Commission's Accounting Officer would like to thank the Court for the documentation provided. The Commission's aim is to reach an agreement with the Court on the reference standards and how they impact on the structure and the presentation of the financial statements as a preliminary to the production of the revenue and expenditure account and the consolidated balance sheet for 1997.

Accounting procedures

19.40. The Commission, with the help of an outside consultant, has prepared a consolidation manual. The other institutions will be asked to approve the manual before it is applied to the consolidated balance sheet of the European Union. This manual will enable the Commission to determine the scope of the consolidation of the accounts both in the Commission and for all the institutions and to present information in a standardized form in accordance with generally accepted accounting practices.

CHAPTER 20(590*) Analysis EAGGF-Guarantee and fisheries expenditure

20.0. CONTENTS Paragraph reference

Introductory information 20.1

Accreditation of paying agencies and the certification of accounts 20.2 - 20.5

Reliability of the accounts 20.6 - 20.7

Analysis of the Court's audit findings on the legality and regularity of the transactions underlying payments 20.8 - 20.12

Substantive errors 20.9 - 20.10

Formal errors 20.11 - 20.12

Areas of limited assurance 20.13

Identification of an area of particular risk 20.14

General conclusions 20.15 - 20.17

INTRODUCTORY INFORMATION

20.1. EAGGF-Guarantee and fisheries expenditure represented in 1996 some 51,3 % by value of total budgetary payments (about 39 430 Mio ECU) and includes the entire expenditure of subsection B1 - EAGGF-Guarantee (39 081 Mio ECU), title B2-5 - Other agricultural operations (81 Mio ECU), title B2-9 - Fisheries and the sea (17 Mio ECU) and chapter B7-80 - International fisheries agreements (251 Mio ECU). The expenditure for subsection B1 - EAGGF-Guarantee - accounts for 99 % of total expenditure in this field and is exclusively managed by the paying agencies in Member States. 1996 was the first year of application of new rules for the paying agencies and for the clearance of accounts procedure. These rules were introduced by Council Regulation (EC) No 1287/95 of 22 May 1995(591) (amending Council Regulation (EEC) No 729/70(592)) and the related implementation rules were established by Commission Regulation (EC) No 1663/95 of 7 July 1995(593).

ACCREDITATION OF PAYING AGENCIES AND THE CERTIFICATION OF ACCOUNTS

20.2. In its DAS for the financial year 1995(594) the Court indicated the importance of the new procedures for a more effective monitoring of EAGGF-Guarantee expenditure. The certification of accounts, and related accounts clearance decision of the Commission, concern the 'integrality, exactitude and veracity` of the accounts and form the basis for certain financial corrections. The complementary assessment of compliance with EU regulations both at the level of the paying agencies and the final beneficiaries, essential for the evaluation of the legality and regularity of the underlying transactions, will continue to be undertaken by the Commission at a later stage, and further financial corrections may be made in respect of expenditure incurred up to 24 months prior to notification of such corrections.

20.3. The key elements of the new procedures are the formal accreditation of paying agencies by the Member States and the certification of the annual accounts by a certifying body. The annual accounts of expenditure charged to EAGGF-Guarantee, as well as the certificates and reports of the certifying body, must be sent to the Commission by 10 February of the following year. By 31 March the Commission is required to communicate to the Member States the results of its verifications of the information supplied as well as any proposed amendments. The accounts clearance decision shall be taken by 30 April of the same year and determines the amounts recognized as chargeable to EAGGF-Guarantee.

20.4. Despite these requirements, for 1996 the Commission only adopted a partial decision on 5 May 1997(595). At the statutory deadline no definitive accounts clearance decision could be taken:

(a) for those Member States whose certified accounts had not yet been delivered (United Kingdom and Greece);

(b) and for those paying agencies for which the evaluation made by the Commission of the certification report or a subsequent visit to the agency revealed, either that the audit work was not sufficient or that there were particular problems which needed clarification (this concerns all paying agencies in France and Portugal, three central and one regional paying agencies in Spain, the German Länder of Rheinland-Pfalz and Sachsen and three out of four Italian paying agencies).

20.5. The Commission's decision of 5 May 1997 covered therefore only 12 936,6 Mio ECU or some 33 % of the total EAGGF-Guarantee expenditure. For the other paying agencies that account for some 67 % of the total expenditure declared, the definitive clearance of accounts decision on the recognized expenditure for 1996 was taken on 31 July 1997(596). Table 20.1 indicates the amounts covered by each of the clearance decisions, including the amounts of the financial corrections.

RELIABILITY OF THE ACCOUNTS

20.6. The Court has considered the implications of the operation of the new system in the DAS context. Satisfactory implementation of the system should improve the reliability of the accounts. In addition the audit procedures required of the certifying bodies might contribute to a better judgment on the operation of the controls over legality and regularity, but there is as yet insufficient information about this aspect of the new procedures. For 1996 the system has achieved a certain measure of progress, but much remains to be done. Certifying bodies in a number of Member States issued audit opinions qualified to some degree in respect of one or more of the paying agencies.

20.7. For example, the Court notes that the paying agencies of the United Kingdom presented the final accounts only on the 22 May 1997 to the certifying body, which issued a qualified opinion. Reconciliation problems had persisted between the records of the operational systems within the paying agencies managing the different schemes and the accounting records. Furthermore, accounting records for some of the paying agencies had not been reconciled with those of the coordinating body, responsible for the monthly declarations to the Commission. These declarations continue to be submitted on the basis of advances to the paying agencies rather than the actual payments made by them to beneficiaries, contrary to Regulation (EC) No 296/96(597). It is doubtful whether these problems will be completely resolved before the 1998 financial year. Difficulties with certification were also experienced in a number of other Member States and are currently under investigation by the Court.

ANALYSIS OF THE COURT'S AUDIT FINDINGS ON THE LEGALITY AND REGULARITY OF THE TRANSACTIONS UNDERLYING PAYMENTS

20.8. Since agricultural guarantee expenditure still accounted in 1996 for more than half of total payments from the general budget, more than half of the transactions tested in the Court's sample were in this area. The Court considers that, in conjunction with other relevant information in its Annual Report, including particularly its assessment of the area aid payments scheme for arable crops (see points 3.1 to 3.79), it has sufficient information to draw certain broad conclusions relating to EAGGF-Guarantee expenditure as a whole.

Substantive errors

20.9. One in ten of the EAGGF-Guarantee transactions contained in the 1996 sample audited were affected by substantive errors. However, most errors had a relatively small impact on the amounts paid and the rate of most likely error, in terms of the effect on total EAGGF-Guarantee expenditure, is estimated for 1996, as in the two previous years, to be lower than the rate for the general budget as a whole (see point 19.30). All errors detected in the Court's sample originated in the Member States; in terms of impact on the amounts paid about 70 % occurred at the level of administrative bodies and about 30 % at the level of final beneficiaries.

20.10. The main error types detected by the Court which account for the vast majority of substantive errors are:

(a) errors relating to the eligibility of the expenditure. These errors concern mainly:

(i) differences between actual and declared quantitative data (land surfaces, products or livestock). A significant number of errors (however, with relatively small impact on the amounts paid out) were noted in area aid schemes where the final beneficiaries claimed for areas greater than those actually sown;

(ii) payments in respect of produce or beneficiaries not fulfilling eligibility requirements;

(iii) transactions effected outside the eligibility period;

(b) errors in calculating the amount of Community support. These errors concern mainly:

(i) application of incorrect rates (aid rates, exchange rates, coefficients, etc.), incorrect calculation methods, and EU contributions to the financing of total costs exceeding maximum limits. Errors of this kind had little impact on the amounts paid out;

(ii) failure to apply overall reductions in the aid rates required by the regulations. This type of error occurred essentially in Spain where the national authorities did not apply the required penalties of 137 Mio ECU in relation to the overshoots of the base area qualifying for per hectare aid for arable crops. On 3 September 1997 the Commission, in application of Council Regulation (EC) No 1422/97 of 22 July 1997(598), adopted Regulation (EC) No 1716/97(599) which retroactively exempted Spain from the application of these penalties in respect of the 1995/96 campaign;

(c) absence or unreliability of essential evidence required to justify payments, such as proof of arrival of goods at final destination in the field of export refunds.

Formal errors

20.11. The incidence of formal errors in the context of EAGGF-Guarantee expenditure is significant although it is estimated to be less than the incidence of formal errors elsewhere in the budget. The majority of the errors occurred at the level of the paying agencies although in some cases delay in the promulgation of regulations was a contributory factor.

20.12. The most significant types of formal errors relate to:

(a) failure to comply with regulatory conditions stipulated for carrying out the measure financed by the Community budget:

(i) non-compliance with regulatory deadlines for payments to beneficiaries or for transfer of premium rights;

(ii) incomplete supporting documents (mainly in the context of export refunds);

(iii) non-compliance with other Community rules (maintenance of registers, incomplete contracts, incorrect declarations supporting compliance with minimal yield requirements, etc.);

(b) inadequate implementation and execution of regulatory management and control procedures to be performed by the paying agencies, mainly concerning on-the-spot checks at the level of the final beneficiaries for the area aid schemes.

AREAS OF LIMITED ASSURANCE

20.13. As explained in paragraph 19.27, in certain areas the responsible authorities were unable to provide sufficient evidence which would allow the Court to obtain assurance as to the correct use of Community funds. This particularly affects the following areas:

(a) in the area of public storage in Italy, Ireland and the United Kingdom deficiencies such as inadequate physical checks on quantities were noted by Court auditors and by the certifying bodies. The Court also takes note of the fact that certifying bodies have limited the scope of their audit opinions in respect of public storage in Spain and Portugal;

(b) in the area of the storage of sugar, in Denmark changes in stock measurement methods led to uncertainty as to the amount chargeable for the financial year, while in Sweden storage claims were affected by the incorrect treatment of surpluses and shortages;

(c) in the area of ewe and goat premiums in Greece, weaknesses in the control system were noted and the actual livestock situation could not be verified in the absence of a reliable register.

IDENTIFICATION OF AN AREA OF PARTICULAR RISK

20.14. Council Regulation(600) (EC) No 2466/96 delayed until January 1997 the entry into force of the second stage of the integrated administrative and control system (IACS) which included the establishment of an alphanumeric system for the identification of agricultural parcels eligible for support under area aid schemes. Reliable cross-checks of agricultural parcels were in place in very few Member States for campaign 1995/96 (see also points 3.1 to 3.79). In respect of the livestock schemes, delays in the development of computer systems in most of the Member States reduced the effectiveness of checks on the eligibility of the aid claims (see points 4.18, 4.45 and 4.82). The Court therefore notes that, for those Member States who had not completed the implementation of the IACS system for campaign 1995/96, the absence or inadequacy of such checks prolonged the risk that parcels were declared more than once or that ineligible claims for livestock remained undetected.

GENERAL CONCLUSIONS

20.15. Control measures for EAGGF-Guarantee expenditure, which is characterized by a highly decentralized management, have been systematically tightened over the last few years, and clear responsibilities defined both for the Commission and for the paying agencies. Nevertheless, the Court's audit shows that the implementation of these control procedures, which are intended to detect and correct errors in declarations by beneficiaries prior to actual payment of the aid has proved inadequate in certain cases. It is essential that the paying agencies concerned implement and execute all the control procedures effectively.

20.16. The Commission should continue to press for the implementation each year in all Member States of the first stage of the new clearance of accounts procedure within the time schedule established by regulation. The audit carried out by the certifying bodies is a key element in the Commission's monitoring of the performance of the paying agencies, including the full functioning of their internal audit services and other internal control systems. It is important that the Commission succeeds in its aim of accelerating the implementation of the second stage of the clearance of accounts procedure which includes the assessment, by its own services, of compliance with Community regulations, given that it can no longer make corrections in respect of transactions which occurred more than two years previously.

20.17. These improvements in a posteriori audit arrangements must be accompanied by the completion of the installation of effective management controls in all the agricultural markets concerned. The IACS in respect of arable crops and livestock premiums must operate effectively throughout the EU, and the land holding registers in respect of other crops (vines, olive oil) must be completed with the minimum further delay (See also points 3.1 to 3.79). Successful completion of these steps will represent important progress in reducing the remaining errors and removing the areas of uncertainty which still affected agricultural guarantee expenditure in 1996.

REPLIES OF THE COMMISSION

ACCREDITATION OF PAYING AGENCIES AND THE CERTIFICATION OF ACCOUNTS

20.4 20.5. On 31 July 1997, the Commission was able to clear the accounts of all the paying agencies, the Member States having forwarded the necessary information, and having undertaken the required additional audit work. It is hoped that with the experience of the first year of the new certification procedure, the Member States will take effective steps to submit their accounts and certificates within the stipulated deadlines.

RELIABILITY OF THE ACCOUNTS

20.6 20.7. The first implementation of the certification procedure has been encouraging given that 1996 was the first year, and is expected to continue to improve and to give increasing assurance that the Member States' control systems are operating effectively. The Commission will actively pursue this. In previous years, the accounts prepared by Member States' paying agencies were not audited prior to their submission to the Commission. The new certification procedure, which is intended to be based on an audit of accounts to international standards prior to their submission, has given improved credibility to paying agencies accounts for 1996.

In this first year, the rigour of the certification procedure has also placed paying agencies under a new and explicit financial discipline requiring, in many cases, changes to existing arrangements. Many of these changes were achieved by the close of the certification procedure; some will require a longer time scale for their resolution. Although certain audit opinions were qualified, none justified the exclusion of the accounts from the clearance decision. The Commission has already established some financial corrections for 1996. The investigations carried out under the compliance phase of the clearance of accounts procedure may result in further financial corrections.

The United Kingdom had particular difficulties in the preparation of accounts for 1996 which, arising from the implementation of a new computerized accounts system, were unrelated to the new certification procedure. The Commission is monitoring closely the situation with particular regard to compliance with the accreditation criteria laid down in Commission Regulation (EC) No 1663/95. As of 16 October 1997, the United Kingdom paying agencies will submit monthly declarations of expenditure based on actual expenditure.

ANALYSIS OF THE COURT'S AUDIT FINDINGS ON THE LEGALITY AND REGULARITY OF THE TRANSACTIONS UNDERLYING PAYMENTS

Substantive errors and formal errors

20.9 20.12. The Commission agrees that, as the Member States are responsible for executing payments charged to the Guarantee Fund, the errors detected occur in the Member States. A certain amount of error in the amounts claimed and paid has to be accepted, as the cost of exhaustively checking 100% of all aid claims would exceed the benefits. Much reliance is therefore placed in the EU instruments on the dissuasive effect of sanctions when incorrect claims are discovered, and of recoveries of irregular claims with penalties. The Commission continues, through the two stages of clearance of the accounts procedure, to ensure that the Member States implement effective control procedures, and that they apply the stipulated sanctions when irregularities are detected. The results of the Court's 1996 DAS audit in the Guarantee Section give some comfort that the Commission's efforts are bearing their fruit.

20.10. (b) ii. It is true that Spain had not applied the penalties in respect of the overshoots of the base area. However, by Regulation (EC) No 1422/97, the Council had provided for retroactive exemption from these penalties in respect of the 1995/96 marketing year in the event of exceptional weather conditions, which excluded any financial impact on the Community budget. Consequently, no penalties were to be applied to these regions. The clearance departments will ensure correct application of the exemption.

Areas of limited assurance

20.13. Checks of the clearance of the paying agencies' accounts made by the certification bodies were based on an analysis of a sample of public warehouses.

Checks of the compliance phase of the clearance of accounts of the EAGGF-Guarantee Section immediately revealed errors with respect to public storage and sheep premiums. In addition, a systematic programme of checks is being carried out on the position with regard to stock inventories in all Member States at the beginning of the 1996 financial year and at the end of the 1997 financial year.

IDENTIFICATION OF AN AREA OF PARTICULAR RISK

20.14. The Commission is monitoring very closely the full and effective introduction of the integrated control system. Those Member States which were unable to introduce all elements of the system in 1996 or 1997 were required to increase the proportion of claims checked on the spot.

GENERAL CONCLUSIONS

20.15. With the modification of Council Regulation (EEC) No 729/70, and the adoption of Commission Regulation (EC) No 1663/95, the Commission obtained an important reform in the financial management of EAGGF funds by Member States' paying agencies. In 1996 the Commission has worked closely with Member States in order to strengthen financial controls and to make explicit the responsibilities of paying agencies and certifying bodies. Inevitably, as improvements (e.g. the reliability of pre-payment controls; internal control procedures; and internal audit function) were introduced throughout the course of 1996, the situation at the close of the year was, overall, much better than at its opening. Thus, there has been substantial progress. The exceptions, in both the payment systems and the integrated control systems, will be closely monitored by the Commission, and appropriate financial consequences drawn for non-compliance in the clearance of accounts decisions.

20.16. The Commission has insisted that Member States submit the annual accounts of their paying agencies by the regulatory deadline of 10 February, in writing and in meetings convened to discuss the certification procedure with Member States. For 1997, the Commission will announce to Member States a measure based on budgetary discipline which will involve the retention of advances and which will be triggered where a paying agency fails to submit its accounts by the regulatory deadline.

20.17. The Commission is actively engaged in assisting the Member States concerned to introduce land holding registers, through aerial surveys and field identification systems. Those Member States which fail to meet the deadlines set for the implementation of these registers risk refusal of financing of part of the payments executed in the absence of effective management controls.

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CHAPTER 21(601*) Analysis Structural Fund expenditure

21.0. CONTENTS Paragraph reference

Accounts of the Structural Funds 21.1 - 21.6

Systems governing Structural Fund operations 21.7 - 21.15

Overall assessment in the context of the DAS 21.7

Expenditure systems and the risks of error 21.8 - 21.14

Control in Member States 21.8 - 21.9

Availability of information on expenditure 21.10 - 21.11

Closure procedures 21.12

Definition of eligibility 21.13

Impact of national legislation 21.14

Size of advance payments 21.15

Results of the 1996 DAS Audit 21.16 - 21.19

Remedial action 21.20 - 21.22

ACCOUNTS OF THE STRUCTURAL FUNDS

21.1. The Structural Funds and other structural instruments account for around 24 426 Mio ECU or some 31,8 % by value of total budgetary payments. During 1996 commitments made totalled 28 672 Mio ECU of which 16 345 Mio ECU remained open at the end of the year. Further details of budgetary amounts involved in the main Structural Funds can be found in Volume I, paragraphs 6.2-6.3, 7.6-7.14 and 8.1-8.5.

21.2. Structural Fund interventions mainly consist of operational programmes approved by the Commission on the basis of proposals from Member States and lasting for up to 6 years. These amounts are committed in annual tranches over the programming period in accordance with the relevant programming documents. The operations are co-financed, generally by public authorities in the Member States.

21.3. At the beginning of an operational programme, the Commission's first payment takes the form of an unconditional advance representing a specified percentage (generally 50 %) of the first tranche. Subsequent advances are then made when the Member States declare to the Commission that a given proportion of the previous advance(s) has actually been disbursed in line with the Community objectives and rules. There is no regulatory requirement that these declarations should show details of expenditure. At the end of the programming period a final settlement is made by the Commission of any outstanding balance following examination of an implementation report and the final declaration of expenditure provided by the Member State which is required to contain details of expenditure. The intermediate annual tranches are also closed through the payment of a final balance. The Commission decides on the closure of annual tranches on the basis of a review of annual progress reports prepared and submitted by Member States. These progress reports have no fixed format and content and do not, except for the Social Fund, generally contain details of expenditure. The Commission is therefore not able to identify and exclude ineligible expenditure on the basis of these reports.

21.4. Until 1995 the Commission's accounts made no distinction between the Structural Fund disbursements which represented advance payments and those which took the form of final settlements. Table 15 of the revenue and expenditure account, which should now provide such information, is not reliable, as the Commission recognizes in its reply to paragraphs 19.23 to 19.25. Moreover, because the commitments are divided into annual tranches their closure in the accounts does not imply either the closure of a programme or the establishment of definitive expenditure - the latter being limited, except for Social Fund programmes, to the accounting closure of the commitment covering the final tranche. Furthermore the closure in the accounts of commitments related to annual tranches is artificial and misleading because the Commission in certain areas (particularly EAGGF-Guidance) allocates payments relating to later tranches to commitments for earlier tranches (thereby closing them before paying the final balance) and/or fails to adjust commitments after reprogramming (see DAS report 1995, Volume I, paragraphs 3.34 to 3.35). Finally, the annual accounts contain no information on the different programme periods or tranches, and thus do not show the degree of execution of the successive programmes. No accounts are published of closed programmes or programme tranches.

21.5. There is thus no direct relationship between the operations at the level of the beneficiaries and the disbursements of the Commission, most of which are in the form of advances. Only when final settlements are made is there a clear and definitive link between the declared expenditure and total Commission disbursements.

21.6. The Court has sought to obtain a representative view of the expenditure presented as underlying the declarations. It has used random sampling methods to audit payments to final recipients. The errors found thus relate primarily to the transactions at the level of the intermediate administrative bodies or the final recipients; they do not imply that the Commission's advance payments are necessarily incorrect, because Member States in many cases declare more than the minimum required to justify the advances. Nevertheless there were a number of examples encountered in the course of the audit where it was clear that the amount of eligible expenditure supporting an expenditure declaration was insufficient to justify the payment made by the Commission at the time it was paid. In some cases correct declarations would have resulted in the postponement of Commission payments until later, but in others, where final settlements were concerned, the errors have a direct effect on the amounts of the Commission's payments.

SYSTEMS GOVERNING STRUCTURAL FUND OPERATIONS

Overall assessment in the context of the DAS

21.7. In its successive Annual Reports, and in its 1994 and 1995 DAS reports, the Court has drawn attention to deficiencies in the way in which Structural Fund operations are planned, managed and accounted for (see the chapters in Volume I dealing with the regional Development Fund, paragraphs 6.9 to 6.42 in particular, Social Fund, paragraphs 7.35 to 7.57 and EAGGF- Guidance, paragraphs 8.6 to 8.69). Objectives have not been set in a way which enables progress to be measured, there has been insufficient clarity in prescribing which expenditures can be eligible for Community assistance, reliable accounting systems have not been put in place and there have not been sufficient controls to ensure that expenditure declarations reflect only eligible expenditure. The Commission is taking important steps in the context of its SEM 2000 initiative to address these problems: new rules on eligibility have been agreed with the Member States, and the Commission has just adopted a Regulation aimed at improving the accounting and control framework.

Expenditure systems and the risks of error

Control in Member States

21.8. The high incidence of substantive errors of eligibility within the 1996 DAS sample of payments - errors which occurred in most Member States - confirms that the administrative and control systems currently in place do not ensure that all Community co-financed expenditure is eligible and that Community rules and regulations are applied. The main responsibility for proper financial management and control rests with Member States. Nevertheless, the Commission, in the exercise of its responsibility for the execution of the EU budget, should ensure that these establish adequate systems and controls which are consistently applied. If this is not achieved then the European taxpayer does not have reasonable assurance that Community funds are properly used.

21.9. In two significant areas of EAGGF-Guidance expenditure Community legislation requires that physical inspections be carried out for a predetermined percentage of recipients. The Court's audit work shows examples of the required action not being documented or not even being performed at all (see Volume I, paragraphs 8.44 to 8.45 and 8.65).

Availability of information on expenditure

21.10. Effective control and monitoring systems require sufficient detailed information on how funds are being used, but the Court has often found that such information is not available in the context of the Structural Funds at regional, national and Community levels. An obligation to provide such information would induce both final recipients and preparers of declarations to assess carefully the type of expenditure for which Community financing is being sought and its conformity with the rules and regulations.

21.11. Adequate information on expenditure would make it possible to identify a number of errors, such as ineligible expenditure, lack of co-financing, the presentation of budgeted or expected rather than actual expenditure, and multiple funding of the same project. Furthermore the information would provide the basis for the Commission and the Court to undertake effective risk oriented examinations of expenditure declared.

Closure procedures

21.12. As noted in paragraph 21.3 above expenditure in Structural Fund programmes remains non-definitive until the operational programmes are closed, at which time appropriate verification of all declared expenditure should occur. However, the first results of the Court's detailed audit work in this area in relation to the Regional Development Fund (see conclusion in Volume I, paragraph 6.39) indicate that the verification procedures in Member States in many of the cases examined could not be relied on to identify and exclude ineligible items from previously declared expenditure. There is thus a serious risk that the type of errors found in underlying transactions identified from declarations supporting advances will remain undetected in the definitive expenditure when programmes are closed, unless there is a substantial improvement in control procedures, in particular in Member States.

Definition of eligibility

21.13. The imprecise definition of eligibility criteria has on occasion led to differing interpretations by Member States. This imprecision, in conjunction with the absence of effective control and verification procedures, has led to the submission of ineligible expenditure by certain beneficiaries. Examples of this are given in relation to the Regional Development Fund (Volume I, paragraphs 6.45 and 6.46) and Social Fund field (Volume I, paragraphs 7.39 to 7.41 and 7.47). A further risk of error has resulted from the incorrect or inappropriate communication of eligibility criteria within Member States as illustrated within the Regional Development Fund (Volume I, paragraph 6.65).

Impact of national legislation

21.14. Activities which are co-financed by the Member States are often managed and accounted for on the basis of pre-existing national arrangements. These arrangements sometimes conflict with the relevant European legislation, resulting in beneficiaries presenting expenditure for reimbursement which under European legislation may be ineligible. Some operational programmes are also affected by charges and commissions imposed by national law which should be excluded from Community financing.

Size of advance payments

21.15. In general, payments of initial advances represent some 50 % of total expenditure for a particular annual tranche. The programming document which fixes the size of each tranche can overestimate a Member State's capacity to absorb expenditure quickly at the start of a programme thus resulting in larger advances than necessary. The size of such advance payments represents not only an inefficient use of Community funds from a treasury standpoint but can also lead to non-compliance with Community legislation defining time limits for transfer of funds from Member States to recipients. This is illustrated by the Court's findings in the Social Fund field (Volume I, paragraphs 7.13 and 7.14). If it becomes apparent that a Member State is not in a position to implement a programme according to the planned time scale, then the remaining amounts may be reprogrammed to subsequent years so accelerating the payment of the first advance in respect of the next tranche.

RESULTS OF THE 1996 DAS AUDIT

21.16. The rate of substantive error found in the Structural Funds budgetary area is, as in the last two years, estimated to be higher than that for the general budget as a whole (see paragraph 19.30). Over nine tenths by value of the substantive errors found in the Structural Funds audit area originated in Member States, of which some two thirds were at the level of the final recipients of Community funds, with almost all of the remainder occurring at local level.

21.17. The majority of substantive errors found fell into the following categories:

(a) expenditure not meeting the required eligibility criteria relating to the nature of the action financed, the type of costs claimed or the eligible period;

(b) expenditure claimed which had not been disbursed at the time of the declaration.

21.18. There was a very high incidence of formal errors involving breaches of the regulatory and control framework applicable to Structural Funds expenditure. Over four fifths of these errors originated in Member States: they were split roughly equally between central, local and final beneficiary levels.

21.19. Nearly two thirds of these formal errors concerned breaches of the following regulatory conditions stipulated for the subsequent implementation of the measure financed by the Community budget:

(a) national and final beneficiary accounting systems which do not provide for separate identification of expenditure of Community funds;

(b) a lack of complete or adequate data on underlying transactions.

REMEDIAL ACTION

21.20. An important first step towards ensuring adequate control of Structural Funds expenditure and therefore reducing the risk of loss to the Community or other error, is the provision of complete detailed information on the expenditure being financed. The Court notes that the Commission has launched studies in this direction in the context of SEM 2000. Such information could also be used for more efficient management of the programmes, more efficient and effective verification of the actions and better evaluation of progress towards Community objectives.

21.21. The Commission should maintain pressure on the Member States to establish effective administrative and control systems which enforce compliance with Community criteria. Such systems should include procedures for adequate and accurate communication of Community requirements, provide for adequate appraisal of requests for Community funding, and specify the arrangements for sufficient analysis and verification of the expenditure. The systems should also provide for regular effective monitoring of projects in qualitative and quantitative terms.

21.22. The action under way in the context of the SEM 2000 programme should result in some improvement in the management and control of the Structural Fund programmes during the second half of the current programme period. However, these changes do not address all the problems associated with the operation of the Structural Funds which have been identified in the successive reports of the Court and the Commission. For the next programming period running forward from the year 2000, the basic Regulations need to be reconsidered. While respecting the principle of subsidiarity in terms of the choice by the responsible administrations in the Member State of the detailed actions to be co-financed, the Regulations need to provide for:

(a) unambiguous definitions of eligible expenditure at the level of the Regulations;

(b) clear and comprehensive reporting and accounting arrangements;

(c) the proper discharge by the authorities in the Member States of their responsibilities for the control and certification of expenditure;

(d) the imposition of financial corrections where authorities use Structural Funds financing other than in accordance with the Regulations.

REPLIES OF THE COMMISSION

ACCOUNTS OF THE STRUCTURAL FUNDS

21.3. Member States' declarations of expenditure contain, in general, the same level of detail as the financial tables attached to the programming documents and to the Commission co-financing decisions.

In June 1995 the Commission drew up and sent to the Member States an annual report schema which also provides the basis for final reports. However, this is not and should not be a rigid framework imposed on the Member States: given the widely differing content of each programme, it is for the national authorities to furnish the information provided for in the schema, but the layout of the presentation is for them to decide.

It is not the purpose of these reports to allow the Commission to identify ineligible expenditure. This would not be practicable given the size of the programmes and of the sums involved. The Commission seeks to identify ineligible expenditure in other ways, for example by on-the-spot checks. However, the Commission emphasizes that the primary responsibility for ensuring that ineligible expenditure is not presented to the Commission for co-financing lies with the various authorities concerned in the Member States.

21.4. In its reply to paragraphs 3.34 and 3.35 of the DAS Report 1995, the Commission explained its position in relation to the Court's claim that it 'fails to adjust commitments after reprogramming`. Where reprogramming produces a situation where an existing financial commitment is now greater than the corresponding sum in the financial plan of the programme, the Commission, instead of decommitting the difference, makes an adjustment in the next commitment by offsetting the surplus. The Commission takes the view that this practice, which avoids unnecessary financial transactions, is fully justified.

As far as EAGGF-Guidance is concerned, according to current practice, each payment is posted to the oldest commitment still existing for the programme in question in order to reduce the number of accounting operations. Otherwise, the general system of accounts would become cumbersome: Community management of operational programmes could easily triple (decommitments, additional commitments as a result of these decommitments, recovery as a result of the decommitments, payments against new commitments, etc.). In a context of simplification of administrative procedures, this would not appear to make optimal use of staff.

Moreover, due to frequent modifications of financing plans, the running total for all commitments is corrected when the next instalment is committed and, therefore, the individual commitments no longer correspond to the annual instalments of the latest version of the programme. There can be no logical rule for posting successive payments to the annual commitment of instalments, as these commitments no longer relate to the annual instalments.

21.6. Member State final declarations of expenditure may, to the extent that the expenditure declared contains unidentified ineligible items, result in the Commission's paying too much. When such cases are discovered, the Commission makes or requires the necessary correction. The Member States are responsible for ensuring that their declarations do not include ineligible expenditure; the Commission is responsible for ensuring, within the limits of the resources available to it, that the Member States have put in place, and correctly apply, financial management, control and audit systems which tend to prevent such errors. The Commission adopted on 15 October 1997 a Regulation establishing detailed arrangements for the financial control by Member States of operations co-financed by the Structural Funds.

SYSTEMS GOVERNING STRUCTURAL FUND OPERATIONS

Control in Member States

21.8. Most of the errors categorized by the Court as 'substantive` have, for reasons which the Commission explained in its reply to paragraph 3.133 of the 1995 DAS, no adverse effect on the Community budget or accounts and require the Commission to make no financial recovery. The Commission continues to consider that errors of this kind should be categorized separately from the generality of substantive errors. However, the Commission regards these errors with proper seriousness and it corrects or requires the correction of all errors coming to its notice.

The Commission Regulation mentioned above aims inter alia at improving the accounting and control framework for management of Structural Fund operations in the Member States.

21.9. The Commission will take account of the Court's remark in planning its on-the-spot control activity in this area and in its regular consultations with the Member States about control activity.

Availability of information on expenditure

21.10 21.11. In the context of the Commission's SEM 2000 initiative, steps are being taken to address the problem of information on how funds are being used, by means of a set of minimum requirements for implementation reports. In the same context, the new Commission Regulation mentioned above includes specific provisions about the detailed information to be made available at the appropriate management level in the Member States. However, given the size of the programmes and of the amounts concerned, it would not be appropriate to require detailed information to be forwarded to the Commission on a systematic basis. The Commission requests and receives detailed information when it is needed, e.g. for the planning of an on-the-spot check.

Closure procedures

21.12. The Commission agrees about the importance of ensuring that programmes are closed on a correct financial basis. With a view to improving the quality of Member States' expenditure declarations at closure, the Commission Regulation includes a specific requirement for Member States to present, at the time of programme closure, a statement providing an independent conclusion as to the validity of the request for the final payment and the legality and regularity of the transactions underlying the final d