Report

on the financial statements and management of the European Foundation for the Improvement of Living and Working Conditions (Dublin Foundation) for the financial year ended 31 December 1999 together with the Foundation's replies

(2000/C 373/07)

CONTENTS

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THE COURT'S OPINION

1. This report is addressed to the Council and the European Parliament, in accordance with Article 16 of Council Regulation (EEC) No 1365/75(1), as amended by Article 1(4) of Council Regulation (EEC) No 1947/93(2).

2. The Court has examined the financial statements of the European Foundation for the Improvement of Living and Working Conditions for the financial year ended 31 December 1999. In accordance with Article 1(16) of Council Regulation (EEC) No 1949/93(3) amending Council Regulation (EEC) No 1417/76(4), the budget was implemented under the responsibility of the Administrative Board of the Foundation. This responsibility includes the drawing-up and presentation of the financial statements(5), in accordance with the internal financial provisions provided for under Article 1(52), (54) and (55) of Council Regulation (EEC) No 1949/93 amending Council Regulation (EEC) No 1417/76. The Court of Auditors is required under Article 248 of the Treaty establishing the European Community to examine these accounts.

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

4. Subject to the reservations mentioned in paragraph 6, this examination has allowed the Court to obtain reasonable assurance that the accounts for the financial year ended 31 December 1999 are reliable and that the underlying operations are, taken as a whole, legal and regular.

MAIN OBSERVATIONS CONCERNING THE IMPLEMENTATION OF THE BUDGET OF THE FOUNDATION FOR THE IMPROVEMENT OF LIVING AND WORKING CONDITIONS (DUBLIN FOUNDATION) FOR THE FINANCIAL YEAR 1999

Implementation of the Budget

5. The budget for 1999 amounted to 14,8 million euro as against 14 million euro in 1998, representing an increase of 6 %. Of this total, 14,5 million euro was committed, 3,6 million euro was carried over to the financial year 2000 and 0,3 million euro was cancelled.

6. Almost all of the commitments carried over, totalling 3,4 million euro, or 94 % of carry-overs, relate to Title III, which groups together the Foundation's operational activities. Nevertheless, in the case of three commitments, the total of 0,5 million euro to be carried over was determined on the basis of the appropriations available, rather than on the basis of the real value of the purchase orders actually issued up to 31 December 1999. This is not consistent with the Financial Regulation.

7. The late implementation of the procedures for drawing up the contracts and the difficulties experienced in completing the corresponding activities on time meant that the Foundation could not manage the appropriations available with the discipline required. As a result the amount carried over rose by more than 12 % compared with the previous year. In the case of operational expenditure, the appropriations carried over were significantly in excess of the payments for the financial year.

8. The scale and persistence of this under-implementation of the appropriations for the year show the shortcomings in the Foundation's monitoring of its annual programme. The Foundation should improve its monitoring arrangements in order to minimise carry-overs of appropriations and adhere more closely to the principle of annuality.

Budgetary and general accounting systems

9. At the end of the first quarter of 2000 the Foundation had still to take the measures needed to render the SI2 budgetary accounting system operational.

10. The general accounting system previously used by the Foundation was taken out of service in February 2000. Since then, the accounts have been kept manually, with all the awkwardness and risk that that entails. At the end of March 2000, the Foundation had not yet done anything to rectify this situation.

Imprest account

11. The amounts paid via the imprest account represented 20 % of payments made in 1999, 1, 2 million euro of which was expenditure on staff, 0,6 million euro was administrative expenditure and 1,1 million euro was operational expenditure. The Court must point out that this mode of payment, because of the intrinsic risks of managing it, should, according to the Financial Regulation, be the exception rather than the rule. It must therefore call upon the Foundation once again to reduce its use of the imprest account to a minimum and to stick to the normal modes of payment.

Charging of VAT

12. Until December 1998 the general Financial Regulation required expenditure to be charged inclusive of VAT, since VAT, once it had been refunded, could be used again. Since that date(6), the general Financial Regulation has required expenditure to be charged net of VAT. The Court calls upon the Foundation to incorporate this new procedure into its own internal rules.

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

For the Court of Auditors

Jan. O. Karlsson

President

(1) OJ L 139, 30.5.1975, p. 1.

(2) OJ L 181, 23.7.1993, p. 13.

(3) OJ L 181, 23.7.1993, p. 26.

(4) OJ L 164, 24.6.1976, p. 16.

(5) As required under Article 16 of Council Regulation (EEC) No 1365/75, as amended by Regulation (EEC) No 1947/93, the accounts for all the Foundation's revenue and expenditure for the financial year 1999 were drawn up on 28 March 2000 and forwarded to the Foundation's Management Board, the Commission and the Court of Auditors. These accounts were received by the Court on 3 April 2000. A summarised version of the financial statements is presented in the tables attached to this report.

(6) See Article 27(2a) of the Financial Regulation applicable to the general budget of the European Communities as amended by Council Regulation (EC, ECSC, Euratom) No 2548/98 of 23 November 1998, OJ L 320, 28.11.1998, p. 1.

Table 1

Balance Sheet as at 31 December 1999 and 1998

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Table 2

Revenue and expenditure account for the financial years 1999 and 1998

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The Foundation's replies

6. Following an examination of relevant documents, it is clear that the carry-overs in question were based on orders despatched by the Foundation before the end of the financial year in relation to specific requirements of the Foundation for goods and services in the implementation of its Work Programme. For the three commitments mentioned, the orders carried over were provisional. The Foundation will examine the problem and seek to prevent a recurrence.

7. As indicated by the Court, only 6 % of carry overs related to Title I (Staff) and Title II (Administration), i.e. 236000 euro. The level of appropriations carried over in relation to Title III (3404000 euro) is a natural consequence of the relation of the Foundation's annual budgeting cycle to its operational cycle (which involves programme design, programme initiation, outline project design, tendering, detailed project design and implementation). Appropriations are in general fully committed by the end of the financial year with the relevant project being completed and fully paid for by the end of the subsequent financial year.

8. Following completion of a reorganisation programme and an examination of planning and control procedures, the Foundation would hope to effect an improvement in the timing of the utilisation of available credits with a corresponding reduction in the level of carry-overs.

9. The Foundation can report that, subsequent to the provision of necessary expertise by the Commission's technical services, the SI2 budget ledger system is now operational in the year 2000. To date the system has operated satisfactorily.

10. The interim general ledger system employed by the Foundation in 1999 and at the time of the Court's audit was based on the usage of an Excel computer programme. The Foundation is currently examining the feasibility of the installation of a fully computerised general ledger system ("Sage"). It is intended to customise this package to meet the specifications necessary for Irish electronic fund transfer operations.

11. In recent years, the Foundation has sought to improve its administrative practices in order to reduce usage of the Imprest Account. According to Foundation records, usage of the Imprest Account has decreased as follows:

- 1997: Imprest Account expenditure was 40 % of total expenditure, excluding salaries

- 1998: Imprest Account expenditure was 37 % of total expenditure, excluding salaries

- 1999: Imprest Account expenditure was 21 % of total expenditure, excluding salaries.

In accordance with the Court's suggestion, the Foundation will seek to reduce usage to the minimal level possible.

12. The Foundation will draw this matter to the attention of the appropriate Commission service in order that, if necessary, consideration can be given to effecting an appropriate amendment to the Foundation's Financial Regulation.