REPORT on the financial statements and management for the financial year 1996 of the European Centre for the Development of Vocational Training (Cedefop - Salonika), accompanied by the replies of the Centre (97/C 393/01)

CONTENTS

Paragraph Page

THE FINANCIAL STATEMENTS OF THE EUROPEAN CENTRE FOR THE DEVELOPMENT OF VOCATIONAL TRAINING FOR THE FINANCIAL YEAR 1996 1 - 4 2

AUDIT OBSERVATIONS 5 - 29 2

Introduction 5 - 8 2

Background 5 - 6 2

Scope of the audit 7 2

Financial data 8 2

Observations concerning budgetary implementation 9 - 13 2

Separation of duties 9 2

Imprest account 10 2

Transfers of appropriations 11 - 12 2

Carry-overs and cancellations of appropriations 13 3

Observations concerning the revenue and expenditure account and the balance sheet 14 - 21 Revenue 14 - 15 3

Expenditure 16 - 17 3

Balance sheet 18 - 20 3

Audit of the Centre's premises and staff situation 21 - 26 3

Temporary premises 21 3

Permanent premises 22 - 23 3

Staff 24 - 26 4

Conclusion 27 - 29 4

ANNEX - Tables 1 to 4 5

Replies of the Centre 8

THE FINANCIAL STATEMENTS OF THE EUROPEAN CENTRE FOR THE DEVELOPMENT OF VOCATIONAL TRAINING FOR THE FINANCIAL YEAR 1996

1. This report is addressed to the Council and the European Parliament in conformity with Article 12 of Council Regulation (EEC) No 337/75 (1) as amended by Regulation (EEC) No 1946/93 (2).

2. The Court has examined the financial statements of the European Centre for the Development of Vocational Training for the financial year ended 31 December 1996. In accordance with Article 18 (1) of Council Regulation (EEC) No 1416/76 (3) as amended by Regulation (EEC) No 1948/93 (4), the budget was implemented under the responsibility of the Management Board. This responsibility included the drawing up and presentation of the financial statements in accordance with the financial provisions as provided for pursuant to Articles 65, 67 and 68 of Council Regulation (EEC) No 1948/93 (5) amending Regulation (EEC) No 1416/76 (6). The Court of Auditors is required within the meaning of Article 188c of the Treaty establishing the European Community to examine these financial statements.

3. The Court undertook its audit in accordance with generally accepted auditing standards, in so far as they are applicable in the Community context, and, accordingly, carried out such tests of the accounting records and such other auditing procedures as the Court deemed necessary in the circumstances.

4. In the opinion of the Court the financial statements for the financial year ended 31 December 1996 are reliable and the underlying transactions are, as a whole, legal and regular.

AUDIT OBSERVATIONS

Introduction

Background

5. The European Centre for the Development of Vocational Training (Cedefop) was established by the Council Regulation EEC No 337/75 (7) as a satellite body of the European Community with the task of promoting vocational training at Community level. Cedefop commenced operations in Berlin in 1976 and moved to Salonika in 1995.

6. The same Regulation defines its role as that of assisting 'the Commission in encouraging, at Community level, the promotion and development of vocational and in-service training`, of contributing 'to the implementation of a common vocational training policy` and especially encouraging 'the exchange of information and the comparison of expertise`. Its main tasks in the field of vocational training are 'to compile documentation, to contribute to the development and coordination of research, to disseminate useful documentation and information, to encourage and support initiatives likely to facilitate a coordinated approach (specifically in respect of the approximation of standards and the mutual recognition of certificates) and to provide a forum for all those concerned`.

Scope of the audit

7. The Court carried out a financial audit of the 1996 accounts and has reviewed the Centre's decisions concerning its temporary and permanent premises and staff situation.

Financial data

8. Tables 1 and 2 summarize the financial statements of the Centre. Available appropriations for the financial year 1996 amounted to ECU 14,8 million. Commitments entered into gave rise to ECU 11,4 million in payments and ECU 2,1 million in carry-overs to the financial year 1997, the balance of ECU 1,3 million having been cancelled. Appropriations carried over from the previous financial year gave rise to ECU 4,2 million in payments and ECU 0,6 million in cancellations. Table 3 of this report gives an analysis of the utilization of the appropriations for 1996 as well as of those carried over from 1995.

Observations concerning budgetary implementation

Separation of duties

9. The Centre has put in place adequate procedures for the separation of duties of authorizing officer, accounting officer and imprest holder (8).

Imprest account

10. A high proportion (in 1996 74 %, including salaries) of payments continue to be made prior to approval by the Financial Controller. Last year (9) the Court recommended that the use of the imprest account be limited to ongoing or small expenses, where the risk of irregularities is comparatively low. A Management Board decision defining which kind of expenses may be paid through the imprest account has been established and came into force on 1 January 1997.

Transfers of appropriations

11. The value of transfers of appropriations between different budget lines in 1996 was ECU 891 600 (6 % of the initial budget), down from ECU 922 000 in 1995.

12. Following consultations with and the approval of the different services in the Commission (DG IX, DG XIX and DG XX), the Centre transferred ECU 30 000 from budget line 1 1 7 6 'Other services and work sent out for translation and typing` to a newly-created budget line 1 1 1 0 'Auxiliaries`, and ECU 40 000 from budget line 1 1 0 0 'Basic salaries` to a newly-created budget line 1 1 1 2 'Local agents`. These new budget lines were created by the Centre. The Court acknowledges the reasons for making these transfers, but notes that they are contrary to paragraph 4 (a) of Article 21 of Council Regulation (EEC) No 1948/93 which states: 'appropriations may be transferred only to budget headings for which the statement of expenditure has authorized appropriations or carried a token entry`. The same budget lines are also included in the 1997 budget with approval of the Budgetary Authority.

Carry-overs and cancellations of appropriations

13. The volume of appropriations carried over has decreased in 1996. Nearly 77 % of final appropriations for 1996 were paid out in 1996 as compared with 61 % in 1995. The percentage of commitments made and carried over to 1997 was 14 % (28 % in 1995). The percentage of cancellations was 9 % compared with 10 % in 1995. Table 4 shows the carry-overs from the 1996 initial budget by title and their subsequent use.

Observations concerning the revenue and expenditure account and the balance sheet

Revenue

14. The EU subsidy for the Centre for 1996 was ECU 14 625 000. The Centre actually requested and received ECU 14 410 000.

15. In 1996, for the first time Norway and Iceland paid the Centre ECU 96 135 as a contribution for their participation in the work programme.

Expenditure

16. Article 46 of Council Regulation (EEC) No 1416/76 as amended by Regulation (EEC) No 1948/93 stipulates that contracts may be made by direct agreement where the contract involves an amount not exceeding the limit of ECU 12 000. In the case of at least 17 study contracts and five fixed asset purchases, contracts over that limit were made without following the tendering procedure as described in Article 45 of the Regulation, however all payments were approved by the Financial Controller.

17. The result of a study of delays in the submission of work by contractors for 1996 showed that 55 % of the contractors did not respect the contractual deadline. None of the minutes of management meetings contained any evidence of a review of the performance of contractors in meeting contractual deadlines.

Balance sheet

18. The Centre made an up-to-date inventory list as foreseen in Article 52 of Council Regulation (EEC) No 1416/76 as amended by Regulation (EEC) No 1948/93 (10). Fixed assets of ECU 1 443 431 recorded in the 1996 balance sheet represent the historic cost of materials and furnishings.

19. At the year end, cash balances held by the Centre were ECU 4,1 million, down from ECU 5,9 million in 1995. The Centre is again taking responsibility for managing large cash balances. The Court recommends the Centre make its quarterly drawings from the Commission on the basis of its actual cash needs.

20. The balance sheet includes an amount of ECU 483 308 relating to 'VAT to recover`, of which ECU 251 434 relates to the year 1995 but not yet recovered due to the move to Salonika. The Court asks the Centre to do the necessary to recover this amount as soon as possible. With regard to the 'VAT to recover for 1996`, the Centre is recommended to explain to the responsible tax authorities every detail related to this procedure to avoid funds being cancelled or excessive delays in reimbursement.

Audit of the Centre's premises and staff situation

Temporary premises

21. As the Court observed last year (8), the Centre had to invest ECU 120 000 to fit out the premises to make the temporary building functional and 'ready for use`. At the time of the audit (May 1997), the Centre 'explained that these costs were incurred to improve the conditions for efficient functioning of the Centre`, but was unable to explain who was liable to bear these costs.

Permanent premises

22. The Centre and the Greek State signed on 22 June 1995, a basic agreement regarding the construction of the permanent building. According to this agreement, the Centre will pay to the Greek State ECU 6 879 750 in four equal instalments of ECU 1 719 937. The first two were paid on 1 September 1995 and 1 September 1996 and the third payment is due on 1 September 1997. This third instalment has to be approved by the Budgetary Authority and the last instalment will be paid when the building is handed over.

23. If approval is given by the Budgetary Authority before 1 September 1997, the Centre will have paid to the Greek State ECU 5 159 811 for the construction of the permanent building. The construction of the building was planned to commence on 30 March 1997. At the time of the audit (May 1997), the tendering procedure, which is managed by the Greek authorities, was not yet finalized nor were any contracts signed. As a consequence, no financial data or budget related to this investment was available for audit.

Staff

24. In 1996, the staff complement table authorized 81 posts (permanent and temporary positions), of which: 25 A, 11 LA, 15 B, 27 C and 3 D. At the time of the audit (May 1997), 78 persons were actually working in Salonika, of which: 60 officials and temporary officials (25 A/LA, 10 B, 23 C and 2 D), 7 national experts, 5 local agents, 3 auxiliaries, 2 interims and 1 'stagiaire`.

25. Another three persons are working at Cedefop's office in Brussels, one person is seconded to Eurostat for a cooperative project, three persons were still in Berlin, four staff members are on special leave (CCP) and one person has been ill for many months. Many new members of staff have been recruited during 1996.

26. The Court has been informed of an investigation by the Greek tax authorities concerning, among others, tax and social security payments for local staff put at the disposal of Cedefop by a company in Salonika.

Conclusion

27. In the case of at least 17 study contracts and five fixed-asset purchases, contracts over the limit of ECU 12 000 were made without following the tendering procedure as described in Article 45 of Council Regulation (EEC) No 1416/76 as amended by Regulation (EEC) No 1948/93 (see paragraph 16).

28. The Centre once again holds large cash balances. This situation should be avoided by making quarterly drawings from the Commission on the basis of actual cash needs (see paragraph 19).

29. The Centre is recommended to make sure that the work concerning the permanent premises is progressing in conformity with the contract (see paragraph 23).

This report was adopted by the Court of Auditors in Luxembourg at the Court's meeting of 12 and 13 November 1997.

For the European Court of Auditors

Bernhard FRIEDMANN

President

(1) OJ L 39, 13. 2. 1975, p. 1.

(2) OJ L 181, 23. 7. 1993, p. 11.

(3) OJ L 164, 24. 6. 1976, p. 1.

(4) OJ L 181, 23. 7. 1993, p. 15.

(5) Report on the financial statements and management for the financial year 1995 of the European Centre for the Development of Vocational Training (Cedefop - Salonika).

ANNEX

TABLE 1 BALANCE SHEET AT 31 DECEMBER 1996

>TABLE>

>TABLE>

Source: Prepared by the Court on the basis of data provided by Cedefop.

>TABLE>

>TABLE>

>TABLE>

REPLIES OF THE EUROPEAN CENTRE FOR THE DEVELOPMENT OF VOCATIONAL TRAINING

The nature of the observations of the Court of Auditors makes it possible for the Management Board of the Centre to react in a direct manner. The Board will follow the structure of the Court's observations and conclusions. The numbering of the annotated paragraphs corresponds to that used in the Court's report.

12. The Centre thanks the Court for the understanding shown for the indicated transfers, which were necessary for smooth functioning in the Greek context and points out the exceptional nature of these operations which will not recur under normal circumstances.

16. Concerning the procedure to call for tenders the following points should be taken into account:

(a) Some ongoing contracts are based on earlier calls for interest and for tender. In the case of the documentary network, for which contracts are mostly above ECU 12 000, these were signed in most cases with the same specialized institutions as in previous years. A high degree of continuity is needed in this work and a yearly call for tenders with the possibility of frequent changes in contractors would be very disruptive and, due to the need for training and a period of introduction, inefficient. Nevertheless the performance of the contracts is carefully evaluated and a call for tenders (on the basis of the call for interest recently made by the Centre) will be launched in cases where it is considered that this performance is not satisfactory.

(b) Contracts for preparing new monographs describing the vocational education and training systems in the Member States (or for updating existing ones) are subject to the usual rules, i. e. a restricted invitation to tender is organized. In the case of the monographs, this list is drawn up following consultation with members of the Management Board. An exception to this rule was made during 1995 and 1996 in relation to monographs concerning the new Member States and the EEA countries, when it was thought more appropriate to take the decision directly following consultation with members of the Management Board.

As planned, the Centre launched a general call for an expression of interest for participation in networks and the performance of study contracts. This was published in the Official Journal of the European Communities (C 214 of 16 July 1997) and the results of this call are now being processed.

17. Delays in completing transactions in relation to contracts in many cases derive from defective administrative procedures, particularly the failure of contractors to forward in time the necessary invoices for payment. Delays were also incurred sometimes in signing contracts, allowing work on them to begin only some months after the date initially planned which had knock-on effects. In other cases delays were due to the need for intensive and time-consuming discussion between the contractor and Cedefop on the basis of the contractor's draft report. In cases in which the contracting institution may be co-funding the activity itself, or obtaining some funding from another source, Cedefop cannot always dictate the timetable. This is particularly so, when the price that Cedefop is paying is lower than the market might dictate for the work involved.

Nevertheless, Cedefop will try to avoid delays. In the case of unreasonable delays the Centre indicates to the contractors that these imply serious disadvantages for them, as far as the prospects for future cooperation are concerned. The new list of interested persons/institutions, which will be the result of the recent call for expression of interest, should enlarge the options available to the Centre for the future award of contracts and therefore make it easier to insist that contractors and their institutions comply strictly with the rules and timetable laid down. A business-like approach will be maintained.

19. The Management Board notes the improvements in 1996 and considers that further progress is possible. It will intensify its efforts to that end. The Centre has improved its procedure by adding to every quarterly drawing from the Commission subsidy a detailed statement with respect to the current supply of means of payment and the total payments expected during the subsequent four months. The difference between these shows the balance of the real demand and, as a result, a permanent excessive cash balance will be avoided.

20. The Centre immediately initiated action after the audit of the Court of Auditors and is pressing for reimbursement. The corresponding records for reclaiming from the German financial authorities the value-added tax (VAT) paid in 1995 and 1996 by the Centre have been submitted. The Centre has made contact with the responsible tax authorities in Greece and has been informed in detail on the procedure and appropriate preparation of the records for reclaiming value-added tax (VAT) paid in previous years. In the mean time, the records concerning the financial years 1995 and 1996 have been prepared and forwarded to the authorities.

21. The Centre draws to mind that

- the quickly refurbished temporary premises are not an optimal solution (e. g. the available surface area is only +/- one third the size of the future new building),

- new needs arose after Cedefop's relocation (particularly, investment in the infrastructure for electronic equipment),

- neither the initial agreement nor the Greek law is clear on who should bear such costs. Legal advice confirmed the uncertainty. The Centre had to make modifications to run operations efficiently. The Centre recognizes that it would have been better to make arrangements beforehand on any additional investment. The owner has taken note of these additional investments made by Cedefop and has shown a generous attitude in new issues (e. g. extra meeting facilities). The Centre also will try to receive compensation in the settlements at the end of the present rental contract.

23. The Centre agrees that the preparatory time was very long, but is confident that matters will now proceed rapidly. The calendar for the coming period delivered by the Greek authorities is as follows:

>TABLE>

The Centre expects that the Budgetary Authority will lift the reserve in the 1997 budget and that the Centre will be able to comply with its contractual obligations vis-à-vis the Greek Government. Hopefully, the progress will be substantial enough to pay the third instalment before the end of 1997. This would also be of importance because in the budget proposal of 1998 there is no request for another instalment.

24-25. There are indeed many new staff members recruited and several persons working in the Centre on different contracts on top of the table of posts. The social measures related to the transfer came to an end (May 1997) and the Management Board will assess the staff situation at the end of 1997.

26. The expectations are that the results of this investigation will not have consequences for the Centre.

27. As explained, a new extensive call for interest has been undertaken with success.

28. This situation has been improving over the last years and this trend hopefully will continue in 1997.

29. The Centre did its utmost, and will continue to do so, to ensure that it will have a high-quality new building and to obtain good value for good money. The cost of the new building could be less than the initial estimates. The prospects are positive (see paragraph 23).