Statement of Assurance concerning activities financed from the general budget for the financial year ending 31 December 1995

Statement of Assurance concerning activities financed from the general budget for the financial year ending 31 December 1995

1. The Court has examined the consolidated accounts of the European Community for the financial year ended 31 December 1995. These accounts, which include the balance sheet as at 31 December 1995, the revenue and expenditure account for the financial year ended on the same date and the notes in annex, were drawn up under the Commission's responsibility in accordance with the provisions of the Financial Regulation. 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 1996. Pursuant to Article 188c of the Treaty establishing the European Community, 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.

2. The Court carried out the tasks conferred upon it to the best of its ability in accordance with internationally generally accepted auditing standards, to the extent that these apply in the Community context. This audit comprised, inter alia, sampling-based audit procedures designed to determine whether all of the revenue had been collected and all of the expenditure paid out in a legal and regular manner. The revenue audit was based on the amounts to be recovered and the amounts actually paid to the Community. The expenditure audit was based on expenditure committed and the payments made.

2.1. The DAS covers all of the accounts and all of the underlying transactions, down to the level of taxpayers and final beneficiaries. (Paragraph 1.7 of the attached report)

2.2. The DAS is global in nature. It is not in itself intended to produce a specific assessment or arrive at a quantified conclusion on any particular operational or geographical area of Community activities. (Paragraph 1.9 of the attached report)

2.3. Transactions in the areas audited by the Court during the production of the DAS are likely to be subject to further verification by other authorities on the basis of the regulations currently in force, particularly during the clearance of the EAGGF-Guarantee accounts. (Paragraph 1.11 of the attached report)

2.4. Certain audit results from previous work by other auditors have identified cases of irregularity and anomaly which the Court takes into consideration in its final assessment, but which the Court cannot take over unchanged in the context of the statistical method used for the DAS. (Paragraph 1.12 of the attached report)

2.5. 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 separately as part of its other work, in particular in the context of its annual and other special reports. (Paragraph 1.13 of the attached report)

2.6. Certain cases of deliberate irregularity to the detriment of the Community finances cannot, by their very nature, be detected by the usual auditing procedures implemented in accordance with generally accepted auditing standards. The Court is not therefore in a position to give any assurance concerning the absence of cases of this type. (Paragraph 1.14 of the attached report)

2.7. 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 suitability of the procedures applied for compiling these data and guaranteeing their reliability. (Paragraph 1.15 of the attached report)

2.8. It is obviously not possible to provide an assurance that all taxable imports have actually been declared and have generated the corresponding revenue. (Paragraph 1.16 of the attached report)

Reliability of the accounts

3. The consolidated revenue and expenditure account accurately reflects the European Union's revenue and expenditure, but, despite the substantial improvements noted by comparison with 1994, still calls for the reservation expressed in paragraph 4. (Paragraph 3.5 of the attached report)

4. The consolidated summary of budgetary implementation and the off-balance-sheet commitments were overstated because they included commitments that no longer corresponded to actual obligations. Only a system of regular monitoring at close intervals would be able to solve this problem, but this was still all too often unsatisfactory at authorizing officer level. (Paragraph 3.10 of the attached report)

5. The European Union's consolidated balance sheet accurately reflects the Union's financial situation, but, despite the substantial improvements noted by comparison with the financial year 1994, the following reservations are still called for as regards the balance sheets of the Commission and the other institutions. (Paragraph 3.46 of the attached report)

6. The Court must once again express a reservation regarding the value of the Commission's tangible fixed assets (318,6 Mio ECU for movable property in Brussels, Luxembourg and the Delegations). This reservation cannot be lifted until the sums concerned can be calculated more accurately i.e. after the completion of the physical inventory procedures currently under way (expected to be completed in June 1996) and the entry into force of a new accounting and regulatory framework. (Paragraph 3.67 of the attached report)

7. The Court reiterates its reservation as to the exhaustiveness of the separate accounts concerning customs duties and agricultural levies. (Paragraph 3.68 of the attached report)

8. The Court once again expresses a reservation concerning the value of the movable assets (97,9 Mio ECU) entered in the respective balance sheets of the European Parliament, the Economic and Social Committee and the Committee of the Regions. (Paragraph 3.89 of the attached report)

Legality/regularity of the underlying transactions

Expenditure

9. The Court's audit of the substantial aspect of the legality/regularity of the commitments did not reveal any serious errors. (Paragraph 3.127 of the attached report)

10. The Court is of the opinion that the very rare formal errors affecting the commitments had no significant effect on expenditure during 1995. The formal errors mainly affected the rules on decision-making and commitment. They originated mainly at Community institution level. (Paragraphs 3.128 and 3.129 of the attached report)

11. In several areas, representing about 2,3% of Community payments, the Court is unable to express any sort of opinion. This unsatisfactory situation is due to the extent of 1,1% to the unreliability of the systems in place for the management of the transactions the Court was required to audit and to the extent of 1,2% to the inadequacy of the information made available to the Court. (Paragraph 3.122 of the attached report)

12. The most probable cumulative amount for the very numerous substantial errors concerning transactions underlying the payments which had measurable implications for the amounts financed from the general budget was around 4 000 Mio ECU (5,9% of the amounts involved). The nature of these serious substantial errors varied greatly. The majority of them, however, affected the eligibility of the operations for Community financing. They also affected 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. They occurred in most cases at Member State level (90%), and mainly at the level of the local organizations responsible for managing the operations (22%), and at beneficiary level (54%). Thirty-six per cent of the total amount of these errors concerned the EAGGF-Guarantee and 42% the Structural Funds. In the case of the EAGGF-Guarantee, the Court's global estimate could not, on its own, be used to supply a basis for the recovery, by country and by specific field, of the funds that have been wrongly disbursed. It does however give some clue as to the checks that will need to be carried out during the clearance of the accounts. 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. The frequency of these errors confirms, as a general principle, the need for an intensified effort both by the Community departments and by the Member States concerned to check that each and every declaration of expenditure is actually based on eligible expenditure. (Paragraphs 3.131 and 3.133 of the attached report)

13. The Court considers that the frequency of formal errors affecting the payments has continued to be much too high. This frequency reflects above all the inability of the various levels of administration concerned to abide by the management and control procedures, as well as the conditions laid down in the regulations applying to the various measures financed. These formal errors mainly concerned the fulfilment of their obligations by beneficiaries or by the organizations involved in implementing the measures, the existence or the quality of the information concerning the measures financed, the procedures for authorization by the budget authority or the authorizing officer and the rules on invitations to tender. These errors originated mostly at the level of the Member States, and chiefly at the level of the central and local organizations responsible for managing the operations. (Paragraphs 3.135 and 3.136 of the attached report)

14. The Court's audit enabled it to obtain reasonable assurance that the accounts for the financial year 1995 accurately reflect the Union's revenue and expenditure and financial situation, subject to the facts summarized in paragraphs 3 to 8.

This audit, which was carried out within the limits specified in paragraphs 2.7-2.8 also allowed the Court to obtain a reasonable assurance as to the legality and regularity of the transactions underlying the revenue entered in the accounts for the financial year.

Although the Court's examination enabled it to obtain a reasonable assurance that the operations underlying the commitments for the financial year were legal and regular, it cannot provide a positive global assurance as to the legality and regularity of the transactions underlying the payments for the financial year, by reason of the facts summarized in paragraphs 11 to 13. (Paragraphs 3.1, 3.2 and 3.3 of the attached report)

24 October 1996

B. Friedmann President

The Special Report annexed hereto contains detailed comments concerning this Statement of Assurance.

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