Special Report in support of the Statement of Assurance concerning activities financed from the general budget for the financial year 1994 together with the Commission's reply, the Parliament's reply, the Council's reply, the Court of Justice's reply, the Economic and Social Committee's and the Committee of the Regions' reply

TABLE OF CONTENTS Paragraph reference

1. The conditions governing the production of the DAS 1.1 - 1.44

The Court's mandate 1.3 - 1.4

The accounts and operations covered by the DAS 1.5 - 1.8

The scope and limits of the DAS 1.9 - 1.26

The Court's auditing standards and methodology 1.27 - 1.44

2. Carrying out the audit 2.1 - 2.22

The constraints affecting the auditing work 2.1 - 2.10

The audit work carried out 2.11 - 2.22

3. The audit findings 3.1 - 3.151

General conclusion 3.1

The reliability of the accounts 3.2 - 3.100

The legality/regularity of the underlying transactions 3.101 - 3.151

4. Lessons to be drawn from the Statement of Assurance 4.1 - 4.17

The DAS audit results concerning the underlying transactions in respect of expenditure 4.1 - 4.4

Implications concerning the quality of the Community systems of financial administration 4.5 - 4.8

Remedial action required 4.9 - 4.17

ANNEXES: Page

Annex I: Evaluation of the financial impact of the serious formal errors of legality/regularity concerning commitments 49

Annex II: Brief description of the serious formal errors of legality/regularity concerning the commitments 50

Annex III: Evaluation of the financial impact of the substantial serious errors of legality/regularity concerning the payments 51

Annex IV: Brief description of the substantial serious errors of legality/regularity concerning the payments 52

Annex V: Evaluation of the financial impact of the serious formal errors of legality/regularity concerning the payments 55

Annex VI: Brief description of the serious formal errors of legality/regularity concerning the payments 56

Annex A: Charts and diagrams Nos I to VIII 57

CHAPTER 1 The conditions governing the production of the DAS

1.0. TABLE OF CONTENTS Paragraph reference

Introduction 1.1 - 1.2

The Court's mandate 1.3 - 1.4

The legal bases 1.3

The Court's general objectives 1.4

The accounts and operations covered by the DAS 1.5 - 1.8

The scope and limits of the DAS 1.9 - 1.26

A global assurance covering all of the accounts and underlying transactions 1.9

The DAS and other types of audit 1.10 - 1.16

The DAS and the audit of sound financial management (SFM) 1.17 - 1.19

The DAS and the exposure of deliberate irregularities 1.20 - 1.23

The audit of own resources based on the GNP and VAT 1.24 - 1.26

The Court's auditing standards and methodology 1.27 - 1.44

An audit covering all of the accounts and operations for the financial year 1.27

An experimental method 1.28

The assessment of the systems 1.29 - 1.31

Direct auditing of the underlying transactions 1.32 - 1.35

The statistical sampling method 1.36 - 1.37

The criteria selected by the Court 1.38

The definition and treatment of errors 1.39 - 1.43

Other auditing activities 1.44

INTRODUCTION

1.1. Following the entry into force of the Treaty on European Union on 1 November 1993, this is the Court's first Statement of Assurance (hereinafter referred to as the 'DAS` ()) concerning the reliability of the accounts and the legality and regularity of the underlying transactions for the financial year 1994. For this reason the Court deemed it expedient to describe, in this introductory part, the approach and methodology used in the audit work underlying the DAS in an adequately detailed manner so that the results of its audits and its conclusions can be understood.

1.2. The Court is moreover continuing to produce its Annual Report and other special reports for the consideration of the Council and Parliament in the context of the discharge procedure. The Annual Report on the financial year 1994 was published in Official Journal of the European Communities C 303 of 14 November 1995.

THE COURT'S MANDATE

The legal bases

1.3. Pursuant to the Treaties (), the Court of Auditors of the European Communities (hereinafter referred to as 'the Court`) has examined the accounts and underlying transactions for the financial year 1994 concerning activities financed from the European Union's general budget so as to submit to the European Parliament and the Council a Statement of Assurance concerning the reliability of the accounts and the legality and regularity of these operations ().

The Court's general objectives

1.4. The Court's objective was to be in a position to formulate an opinion, on the evidence of the audit work it had done, with regard to the following:

- whether the accounts, i.e. the consolidated revenue and expenditure account and balance sheet, are globally reliable, in the sense that they provide an accurate picture of the Community's assets, the financial position and the outcome of operations for the financial year ended 31 December 1994, in accordance with the provisions of the Treaties, the Financial Regulation and the provisions for the implementation thereof, as well as with generally accepted accounting principles where they are applicable to the public sector,

- whether the underlying transactions were generally legal and regular with respect to all of the legal provisions applicable.

THE ACCOUNTS AND OPERATIONS COVERED BY THE DAS

1.5. The accounts audited are those summarized in Volume IV (containing the consolidated revenue and expenditure account and financial balance sheet, as well as the explanatory notes) of the documents submitted by the Commission to the discharge authorities and, on 28 April 1995, to the Court of Auditors ().

1.6. The DAS covers the consolidated accounts for all of the activities covered by the European Union's general budget, which encompasses all of its revenue and expenditure. The Commission is required by Articles 78, 80 and 81 of the Financial Regulation governing the general budget of the European Communities () to draw up volume IV of the Communities' accounts, to which the DAS relates (), and Volumes II and III, which contain detailed information. These accounts are not published. Charts and diagrams Nos I to VIII in Annex A () summarize the principal budgetary implementation data recorded in these accounts for the financial year 1994.

1.7. The DAS covers all of the accounts and all of the underlying transactions, down to the level of final taxpayers and beneficiaries.

1.8. The implication of the DAS is that the Court is to express its opinion on the substance of the accounts, of the revenue and expenditure, and of the specific operations related thereto. Therefore, as regards expenditure, the Court has selected a definition of 'underlying transaction` which leads it to the conclusion that its audit powers extend as far as the level of the final beneficiary of Community funds, and include, where necessary, an audit of the material aspects of the operations financed. As regards revenue, the situation differs in that there are limitations on the audits that may be carried out at the level of the tax-payer. As regards traditional own resources, the audit does not extend to material operations, but only to the supporting documents relating to the establishment of the amounts due by taxpayers ().

THE SCOPE AND LIMITS OF THE DAS

A global assurance covering all of the accounts and underlying transactions

1.9. As required by the Treaty, the DAS is global in nature: it is not intended to produce a specific assessment or arrive at a quantified conclusion on any particular operational or geographical area of Community activity.

The DAS and other types of audit

1.10. The DAS applies to the 1994 accounts as they stand at present. The transactions belonging to the areas audited by the Court during the production of the DAS are likely to be subjected to further verification by other authorities, on the basis of the current regulations, particularly during the clearance of the EAGGF-Guarantee accounts.

1.11. The transactions underlying the accounts audited may be checked again at a later date by various Commission departments and, in certain cases, by the Member States, which may lead to a large number of corrections being made in future financial years which will be taken into account at the time they are made. The most significant of these corrections, in volume terms, are those made, sometimes rather late, as a result of the procedure of clearing the EAGGF-Guarantee paying agencies' accounts. Corrections are not confined to this area, however, because they may occur in all areas (Own Resources, Structural Funds, Research, etc.). The present volume of errors concerning the underlying transactions which have been identified within the context of the DAS may give some idea of the scale of the corrections yet to be made. The possibility of future corrections should not cast doubt on the intrinsic value of the assessment task carried out by the Court in connection with the DAS: it is in fact normal and desirable that such corrections should be made and taken into account by the departments and authorities involved during the financial years in which they arise.

1.12. Certain results from the work of other auditors have identified cases of irregularity and anomalies which the Court cannot take over as they are, in the context of the statistical method used for the DAS, but which it does take into account in its final assessment, especially as regards the traditional own resources.

1.13. Some of this other work leads to the identification of transactions in respect of which the aspects of legality and regularity, or the question of the correct entry in the accounts, pose a problem for one reason or another, but do not result in the necessary amending adjustments being made immediately (accounting adjustments, recoveries, etc.). Examples are cases of fraud and irregularities notified by the administrations in Member States (see the table in paragraph 3.110 for further information), or anomalies detected by the Commission's Financial Controller during his inspections.

1.14. These presumed irregular transactions are not always clearly identified or quantified, and frequently relate to previous financial years, which cannot necessarily be clearly distinguished. Nevertheless, for one reason or another, they are likely to affect the legality and regularity of the underlying transactions and the reliability of the 1994 accounts. The Court believes that it is rather to the Community system's credit that they have been identified, but it is concerned about the slowness of the follow-up of these matters (unsatisfactory presentation of the accounts, inefficient recovery procedures, etc.). All the same, this information on possible cases of irregularity also constitutes a significant indicator of the volume of irregularities at the level of the underlying transactions.

1.15. The Court has examined the extent to which the proportion of this information that results from the work of other auditors and concerns irregularities detected through audit procedures that comply with generally accepted auditing standards () generally corroborates the findings of its own work, which relates exclusively to the accounts and transactions for the financial year 1994. Nevertheless, the DAS is based solely on the findings of the Court's work. This is carried out in accordance with the Court's evaluation criteria, because the conditions under which it could rely on other auditors' work have not yet been fulfilled. Moreover, the information available concerning this other work, which often relates to previous financial years, often lacks the necessary level of accuracy. Furthermore, the findings of such work cannot be combined with the Court's findings. However, the latter, by virtue of their specific statistical nature, are already representative of all of the transactions for the financial year covered by the Court's audit, and therefore include those identified as being erroneous in audits not carried out by the Court.

1.16. For example, an analysis of the audit reports produced by the Commission in the social field highlighted the difficulties experienced by the Court when it attempts to take over such results, as they are, for its own purposes. In fact, these reports frequently draw attention to cases of incorrect or ineligible expenditure but they generally do not quantify clearly enough the financial impact thereof. Moreover, they also note cases which are still awaiting bilateral discussion with the Member States concerned, so no definitive conclusion can be drawn as to their existence. Analysis of these audit reports in the social field alone has resulted in an estimate of about ECU 130 million as the financial impact of possible errors which had not been settled at the end of 1994 and linked, in general, to expenditure under financial years prior to 1994. Identification and clearer quantification of the errors in these reports, as well as a precise indication of the financial years during which the sums in question were expended, would make it easier for the Court to take these results into account when producing the DAS.

The DAS and the audit of sound financial management (SFM)

1.17. The DAS itself contains no conclusion as to the degree of compliance with the principles of sound financial management. This is something which the Court is continuing to assess separately, as part of its other work, in particular in the context of its annual and other special reports.

1.18. The audit of the legality and regularity of the underlying transactions means that the Court must satisfy itself that such transactions comply with Community rules, and in particular the Financial Regulation. This latter provides on several occasions (e.g. as stated in Articles 2, 28 (2) (f), 38 (1) (d), and 47 (b)), that transactions must adhere to the principles of sound financial management, economy and cost-effectiveness. It might therefore be concluded that, in the strict sense, observance of the rules of sound financial management is an aspect of legality and regularity which the Court should incorporate into its verifications in support of the DAS.

1.19. The lack of objective evaluation criteria, particularly in the basic regulations, in addition to the number and complexity of the elements to be considered, has led the Court to exclude any general assessment of the financial management from the auditing objectives in respect of the legality and regularity of the underlying transactions examined for the purpose of producing the DAS. This aspect will continue to be examined in the Court's other work.

The DAS and the exposure of deliberate irregularities

1.20. Certain cases of deliberate irregularity to the detriment of the Community finances cannot, by reason of 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 non-existence of cases of this type.

1.21. Nevertheless, the audit work the Court undertakes in connection with the DAS may lead - and has led in certain cases - to the uncovering of pointers to cases of deliberate irregularity when these are

- present in the field of transactions selected in the Court's samples,

and

- of a sort such that they can be detected through audit procedures carried out in accordance with generally accepted auditing standards.

1.22. Cases of deliberate irregularity detected in this manner are treated, at the financial audit level, as 'errors` affecting the legality and regularity of the underlying transactions, and, therefore, the actual content of the DAS. In any event, the Court will still continue to deal with these cases in the appropriate manner, outside the DAS framework.

1.23. This is also the context in which the Court follows up other cases of deliberate irregularity, such as, for example, those uncovered in the field of tourism which are at present the subject of judicial enquiries, which the Court envisages examining later, in a future report.

The audit of own resources based on the GNP and VAT

1.24. Because of the macro-economic nature of the statistical data on which the GNP and VAT own resources - which account for about 80 % of Community revenue - are based, the Court has limited its examination to assessing the suitability of the procedures for drawing up these data and guaranteeing their reliability.

1.25. As the Court stated in its Annual Report concerning the financial year 1992 (), the macro-economic aggregate which the GNP represents, and the VAT assessment base, are not the product of traditional accounting, but of a national statistical accounting system using macro-economic data. The Court's audit in this sector was essentially qualitative, its purpose being to evaluate the quality of the systems and procedures set up to determine and collect this type of revenue.

1.26. The audit was particularly directed towards assessing the workings of the procedures leading to the drawing up of the GNP figures and the basis for calculating the VAT, and was carried out at the Commission and in the relevant central administrations in the Member States. This audit did not deal with the accuracy of the macro-economic data on which the GNP and VAT own resources were calculated, and the opinion delivered by the Court in the DAS does not cover this particular aspect.

THE COURT'S AUDITING STANDARDS AND METHODOLOGY

An audit covering all of the accounts and operations for the financial year

1.27. The Court has adopted an auditing method which conforms to the generally accepted standards applicable to public accounts (), including in particular the carrying out of tests intended to ensure that its audit results are statistically representative overall and have a solid factual basis.

An experimental method

1.28. Never having had any prior experience of having to deliver a global statement covering simultaneously the reliability of the accounts and the legality and regularity of the underlying operations, the Court adopted an exploratory approach, which consisted of implementing new auditing procedures adapted to its work, the purpose of which was:

- firstly, to implement auditing procedures experimentally and to evaluate them so as to draw immediate lessons therefrom, and to make any improvements necessary for audits in subsequent financial years,

and

- secondly, to enable the Court to have valid financial audit results to support the DAS concerning the financial year 1994.

The assessment of the systems

1.29. At the time of its founding, the Court decided to adopt for its audit work the auditing method of examining internal control systems. The aim of systems analysis is, inter alia, to reduce the volume of substantive tests on the transactions pertaining thereto and thereby make for more efficient and economic use of auditing resources. In the case of the audit underlying the DAS, which covers the whole budget, it is impossible to make an in-depth assessment every year of the multitude of systems and sub-systems involved in the management and control of Community transactions, particularly in the complex areas where the administration is shared with the Member States. Moreover, the Court's evaluations of the systems to date have generally resulted in its observing significant quality differences between the numerous systems used, and therefore, in order to make an assessment of the whole of the population audited, the Court has not been able to base a significant part of its audit confidence on the quality of these systems.

1.30. The Court therefore concluded that the most economical approach to the DAS-related audit was for it to limit itself to the minimum analysis needed to understand the systems related to the samples selected (which, in any case, cover the most important fields of activity subject to its audit) and not to try to reduce the volume of tests in the light of the number of systems it has found to be satisfactory.

1.31. Of course, the Court will continue to analyse and assess the systems thoroughly within the scope of the specific financial audits it decides to conduct on a cyclical basis in the areas concerned. Once these analyses and assessments, combined with the results of the work carried out in support of the DAS, lead the Court to believe that it is able to base part of the global assurance it is seeking on the control systems it considers valid, it will subsequently be in a position to reduce the size of the samples of transactions to be audited in the areas concerned.

Direct auditing of the underlying transactions

1.32. The DAS-related work involves, inter alia, a programme for the direct auditing of the underlying transactions, the purpose of which is to seek assurance as to the reality and the legality and regularity of these transactions, as well as the accuracy with which the corresponding accounting transactions are recorded in the accounts at all levels of management of Community funds, i.e. starting with the Commission's central accounts and ending with final beneficiaries and tax-payers.

1.33. The Court selected a number of accounting transactions in the central accounts of the Community institutions, and mainly in the Commission's central computerized accounting system (SINCOM), using the statistical sampling method described below. As regards transactions connected with EAGGF-Guarantee expenditure, the selection was made on the basis of the Member States' monthly expenditure statements, on which the data entered in the Community accounts are based.

1.34. The connection between the data in the accounts and the underlying transactions is not always immediate because, in the majority of cases, the data entered relate to an aggregate of data entered at lower administrative levels, and therefore correspond to a very detailed set of underlying transactions. The Court's audit was therefore carried out starting at central management level, using a method which allowed it to follow the individual accounting transactions selected in the central Community accounts through to the basic management level and, consequently, to the corresponding underlying transaction at final beneficiary or taxpayer level.

1.35. When programmes are co-financed by the Community and the Member States, especially in the field of the Structural Funds, where most of the payments are advances/payments on account, there is often no direct link between payments made by the Commission and payments received by the final beneficiaries for such time as the programme has not been closed. In order to be able to give an opinion as to the legality and regularity of the underlying transactions, the Court, in such cases, carried out a random sampling check of the expenditure declared by the Member States in support of their applications for an advance.

The statistical sampling method

1.36. The statistical sampling method used by the Court to enable it to draw its audit conclusions with regard to all of the accounts and underlying transactions covered by the DAS was the monetary unit sampling method, (hereinafter referred to as 'MUS`) which, in financial terms, is a type of sampling where the probability of selection is proportional to the size of the operations.

1.37. As regards expenditure, discrete samples were drawn, firstly, to cover expenditure committed, including outstanding commitments from preceding financial years, and, secondly, expenditure carried out. In the case of revenue, a similar sample was drawn to cover revenue derived from traditional own resources. As already explained in paragraphs 1.24 to 1.25, owing to the nature of VAT and GNP own resources the audits included an evaluation of procedures and tests of an analytical type.

The criteria selected by the Court

1.38. The Court has set a minimum initial objective of ensuring, if the results of its work justify this, with a 95 % degree of confidence, that any errors affecting the reliability of the accounts, or the legality and regularity of the underlying transactions, do not exceed overall 1 % of the value of the reference amount selected by the Court - in this case, the initial budget (i.e. approximately ECU 70 000 million). The resulting unacceptable error threshold therefore amounts to ECU 700 million.

The definition and treatment of errors

1.39. Any operation which has not been entered in the accounts in a satisfactory manner or carried out in accordance with the legal provisions and regulations applicable constitutes an error. Given the difficulty in the Community field of tracing a specific borderline between the concepts of legality and regularity, and the fact that the consequences of non-compliance with these are the same with respect to the DAS, it was decided not to make a distinction between these two concepts, but to organize the work in such a way as to ensure that the operations were at the same time both 'legal and regular`. The concepts of legality and regularity taken into account are those relating to compliance with all the Community provisions and with the provisions applicable elsewhere, notably certain national provisions in the Member States, in order to ensure observance of the Community provisions.

1.40. When the Court processed its audit findings, it classified the errors according to the way in which they affected the legality/regularity of the transactions or the reliability of the accounts, or both. Moreover, in each of these categories a sub-classification was made according to the type of error. Furthermore, a distinction was made between those errors that must be considered to be substantial, owing to their direct implications with respect to the reliability of the accounts or the value of the underlying transactions, and those errors which may be described as formal because they do not have a direct and measurable detrimental impact on the Community budget. In both categories, the errors are classified as serious or less serious after an analysis of the principles concerned and the facts observed. Only serious errors were taken into account for the purpose of issuing reservations under the DAS. Errors deemed less serious (not too serious and insignificant) were notified () individually to the administrators concerned, including those at the Commission and in the Member States, so that appropriate measures could be taken. Finally, a distinction was also made according as the errors originated at central management level at the Commission or were made by a third party, particularly a Member State.

1.41. Based on the results of the work carried out on the sample findings, global conclusions were drawn, as well as conclusions based on the type, origin and degree of seriousness of the errors, concerning all of the Community accounts and operations relating to the financial year 1994. By applying the statistical extrapolation method selected, the Court assessed the most likely error affecting the accounts and operations for the financial year, and the magnitude of the maximum and minimum errors, according to the degree of confidence selected, was taken into account.

1.42. Alongside these extrapolated results, the magnitude of the known errors affecting the financial year 1994 was taken into consideration. These errors were detected in transactions located both within and outside the samples, as well as during other Court audits unconnected with those specifically relating to the DAS. Errors detected by other auditors are not included in the quantified audit findings presented in this report for the reasons stated in paragraphs 1.12 to 1.16 and 2.1 to 2.3.

1.43. The Court therefore intends to present the outcome of its work in such a way as to provide a complete, objective and measured picture of the implementation of the budget, in accordance with the request made by the European Parliament in its observations concerning the discharge in respect of the budget for the financial year 1993 ().

Other auditing activities

1.44. The Court also carried out additional checks of the main horizontal aspects of the execution of the budget (financial balance sheet, computerized accounts, revenue and expenditure account).

CHAPTER 2 Carrying out the audit

2.0. TABLE OF CONTENTS Paragraph reference

The constraints affecting the auditing work 2.1 - 2.10

The use of other auditors' work 2.1 - 2.3

Timetable constraints 2.4 - 2.6

The lack of readily accessible data relating to the underlying transactions 2.7 - 2.10

The audit work carried out 2.11 - 2.22

The audit work concerning revenue 2.11 - 2.12

The samples of expenditure operations audited 2.13 - 2.17

Other work 2.18 - 2.22

Audit of the general accounts and of the consolidated balance sheet as at 31 December 1994 2.18 - 2.19

Global consistency checks 2.20

The review of the SINCOM computerized accounting system 2.21 - 2.22

THE CONSTRAINTS AFFECTING THE AUDITING WORK

The use of other auditors' work

2.1. The Court was able to rely on work carried out by other auditors only in a few cases as far as its DAS-related work on the financial year 1994 was concerned, irrespective of whether such work had been carried out in the Community institutions or the Member States.

2.2. This is because, in general, the Court does not always have adequate information about such work, i.e. the areas covered, the resulting findings and the measures taken in response. Furthermore, in the rare cases where satisfactory information is available, the conditions concerning the approach and the audit procedures applied in such work are not generally satisfied, so that the Court cannot take over these results as they are within the framework of the statistical evaluation used for the DAS (see in particular paragraphs 1.12 to 1.16).

2.3. Regarding the work of the National Audit Institutions (NAIs), it became clear that their audit approach to Community spending differs greatly from one country to another, as regards both objectives, methods, extent and depth, and frequency. As the Court must issue a homogeneous Statement of Assurance in respect of all operations charged to the Community budget, it has not been able to rely on the work of the NAIs in order to provide the 1994 DAS. When the NAIs' audit work proves to be compatible with its own objectives and methodology, the Court will attempt to rely on that work, provided it can obtain satisfactory access to the underlying documentation.

Timetable constraints

2.4. The timetable applicable to the Court's audit in respect of the DAS is very tight and has to take into account the concentrated implementation of a large number of commitments and payments at the end of the financial year under audit, together with the date for presenting the accounts and the date on which the draft report supporting the DAS is to be submitted to the Commission.

2.5. The audit for the DAS consists notably of checking a representative sample of underlying transactions, the definitive identification of which is only possible after the final commitments and payments involved have been implemented at the end of the supplementary periods stipulated in the Financial Regulation (15 January of year n + 1 in principle, but also 31 January, or even the end of February in the case of some transactions). Furthermore, although the work could be started on the basis of the provisional revenue and expenditure accounts and balance sheets, which the Commisssion was able to provide, very usefully, in advance, the Statement of Assurance relates to accounts which are forwarded in their definitive version to the Court by 1 May n + 1 at the latest.

2.6. In order for the Court to be able to submit the DAS at the same time as its Annual Report, by 15 November of the year n + 1, at the latest, after a bilateral discussion procedure which allows those auditees that are subject to the discharge decision (the Commission and the other institutions involved) to voice their views on the findings of the work, the DAS audit had to be concentrated into the initial months of the year n + 1.

The lack of readily accessible data relating to the underlying transactions

2.7. Comprehensive data relating to the underlying transactions at beneficiary (or tax-payer) level are generally either rare or very difficult to gain access to, and even if they are available they are in formats which differ greatly from one area or Member State to another. In the Court's view, the efficiency and effectiveness of the management and control of Community operations, whether carried out by the Commission or national bodies, as well as the efficiency and effectiveness of the Court's audit, are significantly diminished as a result of this situation.

2.8. About two-thirds of the expenditure under the general budget of the Communities consists of measures (notably the EAGGF and the Structural Funds) for which management is shared between the Commission and the Member States. About one quarter of the Communities' own resources consists of customs duties and agricultural levies, commonly known as traditional own resources, which are collected by the Member States. The transactions underlying the Community accounts in these fields are widely dispersed throughout the Communities and are managed by a wide variety of bodies, at national, regional and local level, in the Member States.

2.9. As a result, the data relating to these transactions are processed by a wide variety of usually complex systems, not all of which are computerized, and they are stored in a wide variety of forms. Even in the areas of the EAGGF-Guarantee and customs duties, which are by definition the sole responsibility of the European Community, the data are collected within systems which are designed for national purposes and which sometimes do not provide a clear link with the declarations made to the Commission to justify Community financing. In the field of the Structural Funds, where operations are co-financed by public bodies in the Member States, comprehensive data in any coherent form often do not exist, or are extremely difficult to obtain. Under such conditions, administrative and accounting tasks are rendered extremely difficult and efficient and effective techniques, such as risk analysis-based procedures, are very difficult to put into effect.

2.10. In the Court's view, it ought to be feasible to take steps to rationalize the data recorded in the Member States regarding Community operations and to consolidate such information into readily accessible computer systems which would serve the purposes of national administrative bodies, the Commission and the Court. In the 'information age`, the trend towards increased decentralization and shared management of Community operations in Member States is no barrier to the provision of relatively detailed comprehensive data for the use of the national bodies in charge of the day-to-day management and audit of such operations, and for those holding ultimate responsibility, i.e. the Commission and the Court of Auditors.

THE AUDIT WORK CARRIED OUT

The audit work concerning revenue

2.11. The own resources are divided into two broad categories:

- 'traditional own resources`, which are collected at source and are sub-divided into two main categories: customs duties and agricultural levies, on the one hand, and sugar levies, on the other,

- 'VAT and GNP resources`, the amount of which is determined largely by macro-economic statistical data.

2.12. With regard to the own resources as a whole, exhaustive checks were carried out in respect of the reliability, legality/regularity and accuracy of the Commission's accounts. In the case of the traditional own resources, the audit of the Commission's accounts was conducted, using the same statistical sampling method as for expenditure, on the basis of a sample of 119 transactions which were audited down to the level of the underlying operations in the Member States. As already explained in paragraphs 1.24 to 1.26, the audits concerning the VAT and GNP resources concentrated on the quality of the procedures used to determine the amounts.

The samples of expenditure operations audited

2.13. Concerning expenditure, the Court carried out a direct audit of transactions selected at random using its own statistical sampling method, just as it did for the traditional own resources.

2.14. In this field, the total number of underlying transactions audited was 1 432, 563 of which related to payments, 632 to commitments made during the financial year and 237 to commitments to be cleared at the beginning of the financial year. The method adopted of selection proportional to size showed that the Court's analyses had produced samples whose structure reflected that of the total population from which the samples were drawn in terms of spread throughout the budget areas or geographical regions.

2.15. The audit involved examining the legality/regularity of these transactions, as well as the accuracy of the corresponding accounting entries at all of the levels of administration of the activities under the Community budget, i.e. from central management level at the Commission down to the level of the financial beneficiaries where necessary.

2.16. In financial terms, the audit at the level of the Commission's central management covered a significant volume of the transactions for the financial year. For example, the net total value of the payments examined amounted to approximately ECU 21 500 million, i.e. almost 36 % of the total payments for the financial year. As regards the commitments entered into during the financial year, the net total was around ECU 30 000 million, or some 44 % of the total amount of the commitments for the financial year. In the area of commitments outstanding from previous financial years, the work covered approximately ECU 4 200 million in all, i.e. about 15 % of the total value of the commitments involved.

2.17. At the level of the underlying transactions, the financial volume actually audited is much less, in as much as most of the transactions selected at central level are linked to numerous underlying transactions, at least one of which was examined in depth in every case.

Other work

Audit of the general accounts and of the consolidated balance sheet as at 31 December 1994

2.18. The checks carried out by the Court in order to achieve the general audit objectives set for this field basically comprise:

- examination in the cash management system and general accounts of payment operations which were selected from the central sample,

- examination of the main items on both the asset and the liability sides that are included in the Community institutions' balance sheets and in the European Union's consolidated financial balance sheet, as well as a selection of other items,

- checking the consistency of the data in the general accounts and the consolidated balance sheet with the data contained in the subsidiary accounts or provided by other services.

2.19. The purpose of these verifications was to check that the financial balance sheets were in agreement with the accounting records, that the various assets and liabilities actually existed, that the transactions were legal and regular, that the financial statements gave a fair picture of the financial situation and that generally accepted accounting principles had been applied wherever they were applicable to the public sector.

Global consistency checks

2.20. The Court continued to implement a programme for the computerized production of illustrative charts and diagrams for the Annual Report concerning the financial year 1994 from data-bases containing the basic accounting data. At the same time, the Court carries out a global reconciliation which enables it, in the context of the DAS, to verify the comprehensiveness of the information in the Commission's revenue and expenditure account and to check that this information agrees with the underlying data in the SINCOM central accounting system.

The review of the SINCOM computerized accounting system

2.21. The Court also audited the data concerning budgetary expenditure generated by the SINCOM computerized accounting system by carrying out a series of tests designed to ensure that the data recorded in SINCOM were correct, that they had been processed correctly by the computerized system and during the manual operations carried out by the officials authorized to operate the system, and that they were faithfully reproduced in the Commission's budgetary expenditure accounts.

2.22. This work also enabled the Court to check that the MUS samples were representative of the data-base from which they had been drawn, by comparing the results of its tests on the whole of the data in the SINCOM data-base with the results of identical tests on the MUS samples.

CHAPTER 3 The audit findings

3.0. TABLE OF CONTENTS Paragraph reference

General conclusion 3.1

The reliability of the accounts 3.2 - 3.100

The consolidated revenue and expenditure account 3.2

The reservations concerning the consolidated revenue and expenditure accounts 3.3 - 3.43

Accounting for revenue and expenditure as negative transactions 3.3 - 3.4

Accounting for advances/payments on account 3.5 - 3.14

Failure to enter EAGGF-Guarantee expenditure 3.15 - 3.17

The discrepancy between legal obligations and accounting commitments 3.18 - 3.26

Other observations concerning the consolidated revenue and expenditure account 3.27

Final production of the budgetary accounts 3.28 - 3.32

The Sincom accounting system 3.33 - 3.41

The balance for the financial year 3.42 - 3.43

The European Union's consolidated balance sheet 3.44 - 3.100

Harmonization of the accounting methods 3.47 - 3.51

The Commission's balance sheet 3.52 - 3.91

Observations on the execution and entry in the accounts of payments 3.52

Reservations concerning tangible fixed assets (Brussels, Luxembourg and delegations) 3.53 - 3.61

Property assets in Brussels 3.56

Advances and payments on account for fixed tangible assets (premises in the process of being purchased) 3.57 - 3.58

Movable assets in Brussels 3.59 - 3.60

Movable assets outside the Community 3.61

Observations on participations and loans 3.62

Observations on the bank accounts 3.63 - 3.69

Bank accounting 3.63

Specific bank account 3.64 - 3.65

Auditing of bank reconciliations (NOSTRO) 3.66 - 3.69

Observations on the imprest accounts 3.70

Reservations concerning claims on Member States 3.71 - 3.76

The separate accounts concerning customs duties and agricultural levies 3.71 - 3.73

Claims connected with the clearance of the EAGGF-Guarantee accounts 3.74 - 3.76

Observations on potential claims connected with the establishment of frauds and irregularities 3.77 - 3.80

Reservations concerning the actual volume of commitments outside the balance sheet 3.81 - 3.90

Multiannual decisions and obligations 3.82 - 3.84

The time-lag in the accounting period relating to the EAGGF-Guarantee 3.85 - 3.87

Guarantee granted for a bank loan 3.88 - 3.89

Commitments relating to swap transactions 3.90

Observations on the explanatory notes concerning the balance sheet 3.91

The financial balance sheets of other Community institutions and organizations 3.92 - 3.100

Reservations concerning the tangible assets 3.92 - 3.99

Observations on the bank accounts 3.100

The legality/regularity of the underlying transactions 3.101 - 3.151

Revenue-related transactions 3.101 - 3.121

Traditional own resources 3.101 - 3.113

Customs duties and agricultural levies 3.104 - 3.109

Sugar levies 3.110 - 3.113

The own resources based on VAT and GNP (Gross National Product) 3.114 - 3.121

The VAT-based own resource 3.115 - 3.116

The own resource based on the Gross National Product (GNP) 3.117 - 3.121

The Gross National Product (GNP) as an assessment base 3.117 - 3.119

The own resource based on GNP (supplementary resource) 3.120 - 3.121

Expenditure-related transactions 3.122 - 3.151

Cases of expenditure in respect of which the Court cannot give an assurance 3.122 - 3.136

The impossibility of auditing certain items of EAGGF-Guarantee expenditure 3.123 - 3.129

In Denmark 3.123 - 3.126

In the United Kingdom 3.127 - 3.128

In Spain 3.129

The lack of an adequate audit trail 3.130 - 3.132

Particularly unreliable systems which are likely to include errors 3.133 - 3.134

The absence of assurance for various reasons 3.135 - 3.136

Errors affecting the legality/regularity of the expenditure 3.137 - 3.151

Errors affecting the legality/regularity of the commitments entered into during the financial year 3.139 - 3.143

The substantial legality/regularity errors concerning commitments 3.139

The formal legality/regularity errors concerning commitments 3.140 - 3.143

Errors affecting the legality/regularity of the transactions underlying the payments 3.144 - 3.151

The substantial legality/regularity errors concerning payments 3.144 - 3.147

The formal legality/regularity errors concerning payments 3.148 - 3.151

GENERAL CONCLUSION

3.1. The Court is of the opinion that:

(i)the accounts as drawn up at 31 December 1994 accurately reflect the revenue and expenditure, as well as the financial situation, of the Union; the informative value of these accounts should however be improved in several important respects on which the Court has reservations;

(ii)the Court's examination of the revenue entered in the accounts in respect of traditional own resources did not reveal any significant errors; however, it is obviously not possible to give an assurance that all chargeable imports have actually been declared and have yielded the corresponding revenue;

(iii)regarding the expenditure, there are too many errors in the transactions underlying the payments entered in the accounts for the Court to be able to give a positive global assurance as to their legality/regularity.

THE RELIABILITY OF THE ACCOUNTS

The consolidated revenue and expenditure account

3.2. The consolidated revenue and expenditure account gives a true picture of the Union's revenue and expenditure, but nevertheless calls for the following reservations.

The reservations concerning the consolidated revenue and expenditure accounts.

Accounting for revenue and expenditure as negative transactions

3.3. As a result of the actual out-turn for negative revenue and expenditure, the total volume of payments amounts to ECU 63 580,8 million instead of the ECU 60 304,8 million which appears in the revenue and expenditure account.

3.4. The Court has always been critical of the recording of revenue as negative expenditure and of expenditure as negative revenue. Although the corresponding operations are provided for in the Community regulations and recording such revenue as negative expenditure - at the initiative of the Commission - is subsequently approved during the adoption of the budget, such devices still impair the informative value of the accounts. Some revenue or expenditure authorizations are still presented and entered in the accounts as negative values and above all there is nothing to tell anyone reading the accounts of their impact. At bugetary implementation level, negative revenue and expenditure amount to ECU 1 472,4 million (costs of collecting traditional own resources) and ECU 1 803,6 million (negative EAGGF-Guarantee expenditure), respectively.

Accounting for advances/payments on account

3.5. The accounting information concerning the ECU 13 000 million of payments in 1994, which consist of advances/payments on account, is not separately presented in Volume IV.

3.6. Advances/payments on account made under the general budget in 1994 and still not settled during subsequent years represent some ECU 13 000 million out of a total of ECU 22 825,8 million of payments for Titles B2 to B7 (operating budget, excluding the EAGGF-Guarantee). Although the Commission has included some supplementary information in the financial statements for 1994, it does not show to what extent the implementation of the general budget (at beneficiary level) is still incomplete.

3.7. In significant areas of operational expenditure in Part B of the general budget, mainly in the areas of the Structural Funds, Development Aid and Research and Energy, many of the budgetary payments are made on condition that certain criteria are subsequently met. They often consist of advances/payments on account which represent a specified percentage of the total expenditure envisaged for a particular operation. In very many cases an initial payment on account is followed by further payments on account.

3.8. When the operation concerned (at programme or project level) is completed, often several years after the initial advance/payment on account has been made and the relevant criteria have been met, the final payment is made and the preceding advances/payments on account can be considered settled.

3.9. The Commission has introduced two tables (Nos 12 and 13) into Volume IV of the 1994 financial statements, which provide additional information in the context of multiannual commitments against which payments are still to be made. These tables show, respectively, the amount of advances/payments on account (made since 1990) not yet settled at the end of 1994, and the amount of payments (on account and final) which were settled during the year.

3.10. The magnitude of the amounts (at least ECU 45 000 million) of advances/payments on account outstanding at the end of 1994 should not necessarily be interpreted as an indicator of deficient management. The legal context applicable to the management of the Community funds concerned makes the existence of significant amounts of provisional expenditure inevitable. The disclosure of such information was made possible - following the Court's long-standing recommendation - by the introduction into the SINCOM accounting system, of information indicating the nature of individual payment transactions.

3.11. The Commission introduced these measures principally in order to enable it to ensure improved monitoring of advances/payments on account. Such measures are to be welcomed, particularly in the light of the problems revealed when the Court last reviewed the question of the recovery of amounts owing to the Community ().

3.12. Although the inclusion of some information on payments on account not yet settled in the annual accounts represents a degree of progress, the Court considers that the current presentation and disclosure of such transactions is not yet adequate because the Communities' financial statements do not disclose all the information which is necessary for a full understanding of the degree to which implementation of the general budget of the Communities for the financial year, as well as for prior years, remains provisional.

3.13. The further information required is the following:

(i)the degree to which budgetary payments in a financial year consist of advances/payments on account;

(ii)the 'evolution` during a financial year of unsettled advances/payments of account;

(iii)the years in which the unsettled advances/payments on account originated.

3.14. It should be possible to use the data already introduced into the accounting system to provide such information. The following table illustrates how the Court considers such information should be presented in the annual financial statements at the level of budget headings and for the budget as a whole.

Failure to enter EAGGF-Guarantee expenditure

3.15. EAGGF-Guarantee expenditure amounting to ECU 45,8 million is not included in the accounts for the financial year 1994 and the budgetary principle of annuality was thus not observed.

3.16. In order to meet certain items of expenditure declared by the Member States in accordance with the regulations, the Commission, at the end of December 1994, drafted a document requesting transfers of appropriations from Chapter B1-12 (olive oil) to Chapters B1-16 (products of the wine-growing sector), B1-37 (clearance of previous financial years) and B1-40 (income support). Because of administrative delays, it was not possible to carry out the transfers before 31 December 1994 (the final date laid down in Article 104 of the Financial Regulation). Budget headings B1-1640, B1-370, B1-1623 and B1-1630 were thus not allocated sufficient appropriations.

3.17. In January 1995 the Commission entered a negative commitment of ECU 45 865 228,22 so as to rectify advances paid to Italy (ECU 18 519 746,48) and France (ECU 27 345 481,74). These were the two countries which, in 1994, declared the largest amounts under the budget headings that lacked sufficient appropriations. This expenditure was charged to the 1995 budget, heading B1-3700 (clearance of previous years), when the Commission decided, in February 1995, on the basis of an ad hoc clearance of the accounts, to enter this expenditure declared by Italy and France during 1994.

The discrepancy between legal obligations and accounting commitments

3.18. The revenue and expenditure account does not give a fair view of the European Union's legal commitments at the close of the financial year 1994, since certain accounting commitments set out in it no longer relate to legal obligations.

Table 3.1 - Proposed presentation (1) of information relating to payments on account

>TABLE>

>TABLE>

3.19. The revenue and expenditure account relating to the budget for the financial year 1994 gives the amount of the commitments to be cleared on 31.12.1994 as ECU 34 942 million (). Part of these accounting commitments, the exact amount of which could not be defined sufficiently precisely by the Court, but which is probably not negligible, still appear in the accounts, although they are not justified by legal obligations.

3.20. The Court in fact carried out analytical and direct checks of those commitments where there was a strong likelihood that they no longer corresponded to existing legal obligations. Such commitments are termed 'dormant`, i.e., according to the criteria established by the Court, they are commitments entered into prior to 1990 for which no payments have been charged for three consecutive years, i.e. between 1992 and 1994.

3.21. The outcome of the Court's analyses is as follows:

- these dormant commitments number 3 040 and account for an approximate total financial volume of ECU 1 185 million

- of these, there are 644 commitments at least 10 years old, i.e. entered into before 1985, totalling approximately ECU 368 million overall

- there are 98 particularly old commitments, which are at least 14 years old, i.e. entered into before 1981, and account for a total of some ECU 34 million.

3.22. These commitments relate mainly to measures under the Structural Funds and development aid.

3.23. In the development aid sector, the efforts made by the Commission during the financial year 1994 led to the cancellation of 1 367 commitments which no longer related to legal obligations, with a total value of ECU 177 million. For the purpose of the audit, the Court selected 81 of the 160 residual dormant commitments as at 31.12.1994. It was established that 66 of them totalling some ECU 8,5 million were no longer justified and that they should also have been cancelled.

3.24. In the field of the Structural Funds, there are some 27 dormant EAGGF-Guidance commitments totalling about ECU 3 million. Moreover, an analysis of the files in this area showed that, where measures financed under Regulation (EEC) No 355/77 are concerned, 438 projects totalling about ECU 54 million should have been closed and the balance cancelled.

3.25. In the regional and social sectors, there were, respectively, 1 872 and 502 dormant commitments, amounting to, respectively, ECU 1 045 million and ECU 59 million.

3.26. The Court calls upon the Commission to increase and extend the effort it has started to make in some sectors, such as that of development cooperation, so that the appropriate procedures for ensuring a regular periodic review of such accounting commitments may be set up as soon as possible, and those which no longer relate to legal obligations may be cancelled.

Other observations concerning the consolidated revenue and expenditure account

3.27. The Court's checks lead it to make the following observations.

Final production of the budgetary accounts

3.28. The revenue and expenditure account does not exactly reflect the amount of the initial appropriations entered in the budget, as shown in the final adopted version of the general budget of the European Union ().

3.29. Column 5/1 of the revenue and expenditure account includes the amounts made available as part of the EFTA countries' contribution as appropriations entered in the initial budget (see table E of Volume II of the revenue and expenditure account), instead of only appropriations entered in the 1994 budget.

3.30. The drawing-up of the 1994 charts and diagrams also allowed a small computational error of ECU 307 00 to be identified on page 25 of the revenue and expenditure account, Volume IV, in the column headed 'Total (appropriations available)` and 'Commitments undertaken during 1994`, but this error does not affect the overall total.

3.31. The reliability of the revenue and expenditure account is affected very slightly by errors in the charging to the financial year or to the correct budget heading which were detected during the Court's audit of the operations.

3.32. Such cases were few (some 10 commitments and payments within the sample selected by the Court and some operations outside) and difficult to extrapolate owing to the nature of the problems identified. Nevertheless, these 10 or so accounting errors directly affecting the reliability of the revenue and expenditure account are too high in number, as they were detected in a relatively limited sample of operations (a thousand or so of the sample commitment and payment operations), to enable the reliability of the revenue and expenditure account to be considered perfectly satisfactory in this respect.

The SINCOM accounting system

3.33. The entry of budgetary expenditure in the accounts by the computerized accounting system (SINCOM) has proved generally reliable.

3.34. The appropriation headings which are the basis for the revenue and expenditure account are in general consistent and coherent with the charging headings in the SINCOM file for the chart of accounts. It was also confirmed that the exchange rates used for the initial conversion of commitments and payments and for the monthly revaluation conform to the official rates published by the Commission (Info-ECU and OJ) and that the programs for revaluing outstanding commitments are based on suitable rates which comply with the regulatory provisions and result in the necessary adjustments at the level of consumption of the appropriations. Automatic controls programmed into the SINCOM system were verified to ensure that the amounts of commitments and payments made did not exceed the appropriations authorised. The commitments and the payments entered in the accounts are authorized, approved and entered in the accounts by the officials authorized to do so, in accordance with the regulatory provisions.

3.35. The system allows the Financial Controller's refusals of approval and the Commission's decisions to overrule, or not to overrule, such refusals to be identified in a satisfactory manner. The payments are properly charged to the financial year during which they are entered in the accounts.

3.36. The differences between the individual accounting components of the commitments and the commitment balances themselves are almost zero. The balances of individual commitments are properly recorded in the global file used to produce the revenue and expenditure account.

3.37. Nevertheless, the Court's audit of SINCOM calls for the following observations:

3.38. The amounts of the appropriations entered in SINCOM for the second Supplementary and Amending Budget for 1994 do not agree with the amounts approved by the budgetary authority. Significant discrepancies were noted in the amounts of some appropriations.

3.39. An exhaustive comparison was made between a listing produced from the SINCOM files of the supplementary budgets for 1994 and the budgets as published in the Official Journal. Discrepancies due to publication errors were noted in the amounts of the appropriations in 77 budget headings. Consequently, the exact amounts of these commitments and payment appropriations were not supported by the formal legal basis of the Budget as published in the Official Journal.

3.40. For budgetary transfers requiring the approval of the budgetary authority, some amounts entered in SINCOM could not be reconciled with the documentation available to the Court.

3.41. A reconciliation was made between a print-out from SINCOM of the details of budgetary transfers and the documentation available on those transfers that had been approved or notified to the budgetary authority. The amounts involved in three of these transfers could not be satisfactorily agreed.

The balance for the financial year

3.42. As emerges from the calculation of the final result of the implementation of the European Union's 1994 budget (revenue and expenditure account and financial balance sheet relating to the transactions under the budget for the same financial year, Volume II, page 11), the balance of the financial year includes an amount of ECU 2,1 million resulting from the contribution to the Community budget by the countries of the European Free Trade Association, who are also members of the European Economic Area. This amount constitutes the difference between the contributions paid (ECU 90,7 million) and the expenditure for the same financial year under this head (ECU 88,6 million).

3.43. Owing to a lack of detailed instructions concerning the handling of this balance of ECU 2,1 million in the chart of accounts, and for the sake of prudence, the Commission's accounting services should have entered this amount in a suitable account on the liability side of the financial balance sheet, pending the clearance of the EFTA and EEA accounts, rather than incorporating it in the balance for the financial year.

The European Union's consolidated balance sheet

3.44. The European Union's consolidated balance sheet, the consolidation of which is the sole responsibility of the Commission, gives a true picture of the Union's financial situation, but nevertheless calls for the following observations.

3.45. The audit of the consolidated balance sheet basically involves checking its arithmetical accuracy, as well as the correct consolidation of the balance sheets of the various Community institutions and organizations which comprise the framework for the consolidation. These checks did not reveal any anomalies.

3.46. Any Court observations on the financial balance sheets of the Commission and other Community institutions and organizations also concern, as a consequence of the way it is drawn up, the consolidated financial balance sheet.

Harmonization of the accounting methods

3.47. The presentation of harmonized financial statements and the application of uniform accounting methods and evaluation rules by the various entities included in the consolidation, are conditions, amongst others, which must be met before consolidation can take place. In the context of the Community's accounts, the Commission has been empowered to decide on the accounting methods and to harmonize the presentation of the financial statements (Article 21 of the rules for the implementation of certain provisions of the Financial Regulation of 21 December 1977).

3.48. It was observed, however, that the information included in the financial statements is not always uniform, or that the rules applicable to some operations are lacking.

3.49. For example, the separate presentation in the balance sheet of computer equipment, for some institutions only, could result in the balance sheet being misinterpreted, since this new presentation has only been applied by the Commission and the European Parliament. It should also be noted that even at the level of the Commission this presentation is not uniform, inasmuch as the computer equipment for the Joint Research Centre is included under equipment and furnishings. As a result, the amount entered in the balance sheet under equipment and furnishings is overstated, whilst the converse is true for computing equipment. The Court agrees that this new presentation has improved the information provided, but the Commission must, nevertheless, urge the other Community institutions and organizations to do the same.

3.50. There are no rules governing the presentation in the financial statements of contracts concerning property rights (for example, long leases or leasing contracts), which are often accompanied by a purchase option, or similar rights. These operations, therefore, are not always indicated in the accounts, whether in the balance sheet or the explanatory notes (see paragraphs 3.137 to 3.139).

3.51. Given that the various institutions are increasingly resorting to these financing methods, the Commission is requested to use the power conferred upon it by Article 21 of the provisions for the implementation of the Financial Regulation and draw up accounting rules so that, from now on, operations of this type, with certain characteristics, are entered in the financial statements in an appropriate manner.

The Commission's balance sheet

Observations on the execution and entry in the accounts of payments

3.52. The audit at central level - in the cash management system, bank accounting, general accounting and bank reconciliation system (NOSTRO) - of those payment transactions that were selected as part of the central sample and had resulted in disbursements did not reveal any errors worthy of mention in the DAS as regards the reliability of the accounts. With respect to those transactions selected which had not resulted in a movement of funds at central level, as was the case with the majority of the EAGGF-Guarantee transactions, for example, which actually correspond to settlements of advances, the entries in the general accounts were audited.

Reservations concerning tangible fixed assets (Brussels, Luxembourg and Delegations)

3.53. The Court must express a reservation regarding the value (ECU 254,2 million) entered in the Commission's balance sheet for movable property located in Brussels and Luxembourg.

3.54. The Court carried out an audit in respect of the value of the Commission's movable and property assets. The audit involved property amounting to some ECU 445 million in Brussels and Luxembourg, as well as in offices in the Community and at the Delegations outside the Community.

3.55. These consisted of properties owned by the Commission (ECU 134 million), advances and payments on account for tangible fixed assets (ECU 12,1 million), vehicles (ECU 11,2 million), computer equipment (ECU 151,5 million) and other movable property (ECU 136,4 million). The total number of movable assets is approximately 450 000. The Court's work led to the following observations (for details, see Chapter 13 of the Court's Annual Report concerning the financial year 1994) ().

Property assets in Brussels

3.56. The total financial balance sheet value of the amounts shown and substantiated in the notes accompanying the balance sheet is reliable as regards the movable assets owned in Brussels as at 31 December 1994, excluding the amount considered for the fitting-out of the Breydel building, for which a more satisfactory explanation should be given. In fact, there is a difference of some ECU 1,5 million between the amount entered in the financial balance sheet (ECU 8,5 million) and the payments recorded in SINCOM (ECU 10 million).

Advances and payments on account for fixed tangible assets (premises in the process of being purchased)

3.57. The Court welcomes the change that has been made to the accounting methods, i.e. the introduction into the Commission's financial balance sheet of the item 'Advances and payments on account for fixed tangible assets` (the counterpart of which on the liabilities side is entered under the heading 'Own capital`).

3.58. On the other hand, the Commission must make suitable arrangements to ensure that in future it has the means of showing exactly the amounts involved. At 31 December 1994 the value of the assets concerned amounted to about ECU 18,8 million (instead of ECU 12,1 million).

Movable assets in Brussels

3.59. The Court has no assurance that the amounts concerning movable assets shown in the financial balance sheet give a correct view of the assets owned by the Commission in Brussels and Luxembourg.

3.60. This observation is based on the fact that it is impossible to say with absolute confidence that numerous assets are present, owing to the lack of reliable information concerning their location and the practical impossibility of checking the value of the assets entered as such in the SYSBIEN data-base. The sum entered in the financial balance sheet for assets which are subject to this qualification is ECU 254,2 million (equipment and furniture and computer equipment).

Movable assets outside the Community

3.61. The inventories of property held at Delegations outside the Community (ECU 30,2 million) still contain the same problems which the Court has been criticizing since 1979 in its successive annual reports (). Until recently, none of the necessary checks were carried out at any stage of the process of transmission of data from the Delegations to the Commission's Accounting Officer. The anomalies that were uncovered, in spite of some corrective measures introduced in the meantime, put the Court in a situation where it is unable to obtain an assurance as to the value of assets held by the Delegations.

Observations on participations and loans

3.62. The breakdown between participations (ECU 15,2 million) and loans (ECU 54,3 million) of the amounts relating to the 'EC Investment Partners` financial instrument does not correspond to the facts because the exact amounts for participations and loans are, respectively, ECU 4,3 million lower and higher than the sums shown in the financial balance sheet.

Observations on the bank accounts

Bank accounting

3.63. The efforts made by the Commission in this area have produced positive results, in that the Commission has succeeded in overcoming the backlog in its bank accounting - the accounts are now reconciled every month - and an explanation is given of the differences between the numerical data used in the (subsidiary) bank accounting and the general accounts. On 31 December 1994, the bank balances according to both sets of accounts were identical.

Specific bank account

3.64. One Commission bank account, the balance on which is relatively small, is not recorded in the accounts.

3.65. The Annual Report concerning the financial year 1993 (paragraph 14.122) revealed the existence of a specific bank account which had been opened at a Belgian bank by the Commission in 1991, following the execution of an attachment order in respect of the rent for a building not shown in the Commission's accounts. Although the Commission undertook to do so in its reply, this bank account (BFR 8 million, i.e. ECU 0,2 million) and the corresponding debt are still not recorded in the accounts.

Auditing of bank reconciliations (NOSTRO)

3.66. The end-of-year bank reconciliations call for a number of remarks by the Court.

3.67. This year it was once again difficult to make use of the end-of-year banking reconciliations.

3.68. The bank balance and/or the accounting balance in NOSTRO were not the year-end balances for a large number of the bank accounts (see also the Annual Report concerning the financial year 1993, point 14.112 (a)).

3.69. The Court insists on the need for the Commission to pay more attention to coordinating the year-end work in this sector in the future, so as to facilitate not only the Court's audit work, but, above all, the year-end work of its own services as well.

Observations on the imprest accounts

3.70. The amount entered (ECU 7,5 million) for imprest accounts relating to financial protocols with the southern Mediterranean countries does not show the correct amount of the Community funds available in these countries at the close of the financial year.

Reservations concerning claims on Member States

The separate accounts concerning customs duties and agricultural levies

3.71. The magnitude of the errors and problems detected in the separate accounts concerning customs duties and agricultural levies does not allow the Court to conclude that the figure of some ECU 577 million entered in the financial balance sheet is reliable.

3.72. Separate accounts are communicated on a quarterly basis. They basically cover customs duties and agricultural levies which have not yet been recovered by the Member States and which are not covered by a guarantee, or which are guaranteed but have been challenged.

3.73. The separate accounts held by the Member States, which serve as the basis for the Commission's data, contain numerous errors and omissions, the main one being that they are not exhaustive. For example, at Antwerp in Belgium, a case of fraud involving ECU 49 million discovered and notified to the taxpayer had still not been entered in the accounts by the end of the financial year 1994. The checks carried out in various Member States revealed a variety of shortcomings in the way the separate accounts were kept, particularly in the United Kingdom, where, following the audits carried out, the national authorities called upon the services concerned to make the necessary improvements.

Claims connected with the clearance of the EAGGF-Guarantee accounts

3.74. The claims on Member States connected with the clearance of the EAGGF-Guarantee accounts for the financial years 1989 to 1991, amounting to ECU 2 000 million, are not shown in the accounts.

3.75. The Commission decisions of 30 November 1994 () and 21 December 1994 () resulted in negative corrections totalling approximately ECU 2 000 million, of which three quarters concerned milk quotas in Spain, Greece and Italy. These negative corrections correspond to budgetary revenue to be recovered. These corrections will be made in the financial years 1995 to 1998 by means of negative expenditure entries in Member States' monthly expenditure statements for the financial years concerned.

3.76. The Court reiterates its criticisms of such practices, which are not consistent with the financial regulations. Since this is connected with revenue to be recovered, the Commission should have applied the provisions laid down in Article 28 of the Financial Regulation, i.e. establish the estimated debts. This procedure would have made it possible to enter these debts on the assets side of the financial balance sheet, and would thus have made the Community accounts more transparent.

Observations on potential claims connected with the establishment of frauds and irregularities

3.77. Concerning sums that are likely to be recovered as a result of the cases of fraud and irregularity known to the Commission, the information provided in the Commission's financial statements under the heading 'potential claims` should be improved so as to give the reader of the financial statements an overview of all potential claims of this type. The 'potential claims` heading only covers the cases reported by the Member States themselves relating to the EAGGF-Guarantee. Cases affecting the own resources, which are mostly already entered in the financial balance sheet under the B accounts, are not given, and neither are those concerning the Structural Funds, which are included nowhere. However, declared cases relating to own resources and the Structural Funds imply potential recoveries for the Union amounting to at least ECU 500 million.

The data contained in it are the following:

>TABLE>

3.78. In its 1994 Annual Report on the fight against fraud (), the Commission presents financial information concerning fraud cases affecting the EAGGF-Guarantee, own resources and Structural Funds sectors. These data refer to the financial years 1991 to 1994 only, and cannot be substituted for those which were entered (EAGGF-Guarantee: claims at 31.12.1994 on the basis of cases of fraud declared since the inception of the EAGGF Guarantee), or which ought to be entered (own resources and Structural Funds) in Volume IV of the Union's accounts concerning potential claims, because they do not cover cases pre-dating 1991 for which recoveries are still outstanding. In any case, the report on the fight against fraud is not a financial statement but a descriptive report drawn up by a recently established coordination unit called UCLAF and is based on information furnished mainly by the Member States.

3.79. These data are insufficient to fill the gaps in the 'Potential claims` part of Volume IV of the financial statements, which only detail an amount of ECU 1 140,16 million to be recovered in the EAGGF-Guidance sector by Member States, as at 31.12.1994 (Volume IV, page 54, table 2).

3.80. In addition, one cannot assume that the information provided by the Member States is 100% correct and, above all, complete. There are good reasons for believing that the picture drawn by the Commission broadly understates the true extent of the phenomenon of declared fraud and irregularities. This doubt is encouraged by the fact that, for example, certain regulations governing the system of notification by the Member States entered into force only recently, or do not compel Member States to update their notifications regularly with regard to the action taken. What is more, in the Structural Funds sector, certain Member States (Italy and Belgium) have not notified anything in this regard since 1990. This doubt is also based on the present state of the system for the financial follow-up of cases of fraud, and on the conditions for recovery and refunding, which the Commission itself considers unsatisfactory ().

Reservations concerning the actual volume of commitments outside the balance sheet

3.81. Various potential European Union obligations, amounting to at least ECU 88 000 million, are not shown in the financial balance sheet, or even in the Annexes showing off-balance sheet commitments.

Multiannual decisions and obligations

3.82. The implementation of the Structural Funds falls within the ambit of agreements concluded beforehand with the Member States involved, i.e. the Commission's decisions approving the programmes. These acts establish the European Union's obligation with regard to the parties concerned by stipulating, for a multiannual term, the total amount of the Community contribution. Owing to the fact that the commitment of the appropriations is phased over several years as the annual tranches are implemented, the financial statements should, in order to ensure a true and fair view, show as off-balance-sheet commitments, or in the Annex to Volume IV concerning the European Union's potential obligations and charges, the amount of any obligations which have not yet given rise to corresponding accounting commitments.

3.83. The second phase of the reform of the Structural Funds began in 1994, and the decisions adopted at the time accordingly stipulated the total amount to be financed throughout this phase, i.e. from 1994 until 1999.

>TABLE>

3.84. For the three Structural Funds, the decisions taken in 1994 provided for the granting of total aid of more than ECU 84 765 million. The 1994 tranches gave rise during the financial year to accounting commitments amounting to slightly more than ECU 13 348 million. It follows that, at the close of the financial year, the obligations to be implemented during coming financial years amount to more than ECU 71 417 million. The following table gives the details of the figures.

The time-lag in the accounting period relating to the EAGGF-Guarantee

3.85. The European Union's legal commitments to Member States, amounting to approximately ECU 16 083 million, by virtue of payments made by the latter under the EAGGF-Guarantee between 16 October and 31 December 1994, are not shown in the off-balance sheet commitments.

3.86. Pursuant to Council Regulation (EEC) No 729/90, as last amended by Regulation (EEC) No 1287/95 (), expenditure by Member States in respect of EAGGF-Guarantee operations between 16 October and 31 December is to be reimbursed by the Commission during the financial year 1995.

3.87. Since this expenditure - once it has passed the subsequent clearance procedure - is irreversible under the European Union's general budget, the amount should be recorded in the off-balance-sheet commitments in the accounts for the financial year 1994. This is all the more necessary for complete and accurate information as, following the entry into force of the Common Agricultural Policy, particularly as regards arable crops, the expenditure incurred by the Member States during the period in question is, in volume terms, considerable. For example, at 31 December 1994 such expenditure amounted to a considerable sum, namely 43% of the EAGGF-Guidance appropriations for the financial year 1995. This remark does not affect the validity of the amounts of 1994 expenditure charged to the revenue and expenditure account, inasmuch as it includes payments made by the Member States between 16 October 1993 and 31 December 1993.

Guarantee granted for a bank loan

3.88. The risk taken on by the Community, following the granting of a guarantee of ECU 500 million to a banking syndicate for a loan to the former Soviet Union to finance the import of Community agricultural and food products (), is not shown in the off-balance-sheet commitments. The Community's guarantee covers, up to the amount of ECU 500 million and 98%, any loss of capital and interest in the event of the debtor's default. At 31 December 1994, the sum outstanding in respect of this operation amounted to ECU 132,6 million of capital.

3.89. Unlike the reimbursement guarantee on loans granted by the EIB from its own resources to non-Member States and the reimbursement guarantee on loans contracted by the European Communities, the sum set aside to guarantee the loan granted by the banking syndicate is not listed among the off-balance-sheet commitments (potential liabilities).

Commitments relating to swap transactions

3.90. The commitments concerning currency and interest rate swap transactions (receivables of ECU 975 million and interest deliveries of ECU 996,2 million), which are recorded in the suspense accounts of the 'Balance of Payments` balance sheet, are not shown in the Commission's off-balance-sheet commitments, even though the balance sheet of this financial instrument was consolidated within the Commission's financial balance sheet. The same can be said of the swap transactions involving NCI and Euratom financial instruments, the commitments in respect of which are not even recorded in the relevant financial statements.

Observations on the explanatory notes concerning the balance sheet

3.91. Generally speaking, an improvement was noted in the quality of the explanatory notes to the Commission's balance sheet. However, the Commission is requested to continue its efforts in this area.

The financial balance sheets of other Community institutions and organizations

Reservations concerning the tangible assets

3.92. The Court expresses reservations as to the value (ECU 121,1 million) of movable assets entered in the respective balance sheets of several Community institutions and bodies.

3.93. For the European Parliament, the amount entered in the financial balance sheet (ECU 86,9 million) does not correspond to the amount recorded in the IMMO database, which constitutes the inventory register. Moreover, the adjustments to be made following the last three-yearly physical check, which was completed in 1994, had not yet been incorporated in the financial balance sheet as at 31 December 1994.

3.94. For the Council, the adjustments to be made following the last three-yearly physical check, which was completed in 1994, had still not been incorporated into the amount entered in the financial balance sheet (ECU 28,6 million) as at 31 December 1994. According to the Council, these adjustments relate to some 1 250 items, which are still recorded in the inventory register but whose existence could not be confirmed.

3.95. In the cases of the Economic and Social Committee (ESC) and the Committee of the Regions, the amount entered in the financial balance sheet, which, as for the other institutions, was calculated by the properties department, is not based on the inventory register. The deficiencies noted with regard to the inventory register (e.g. entries in varying currencies, not converted into ECU, missing totals, blank pages, etc.) make reconciliation with the figure in the accounts almost impossible. Furthermore, no physical inventory check has been made for at least 12 years.

3.96. Neither the balance sheets, nor the notes to the balance sheets, of the European Parliament, the Council and the Court of Justice provide information as to the existence of significant property or similar rights (ECU 292 million), or as to property obligations (ECU 1 823 million).

3.97. The Parliament has concluded two long-lease contracts with an option to purchase (with respective terms of 27 and 20 years) which involve a building in Brussels (ECU 1 000 million, excluding interest), on the one hand, and a building in Strasbourg (ECU 443 million, excluding interest), on the other. There is no information concerning these transactions in the financial balance sheet or the related notes.

3.98. The total of the advances disbursed by the Council for the construction of the 'Consilium` building in Brussels amounted to ECU 292 million as at 31 December 1994, out of an estimated final cost at 31 December 1993 of ECU 332 million. These advances, which were charged to the budget, are not included in the balance sheet, and nor is the financial commitment in respect of the balance of about ECU 40 million shown in the off-balance-sheet commitments, in contrast with the Commission's practice (see paragraph 3.57).

3.99. On 15 November 1994, the Court of Justice signed an agreement with the Luxembourg State concerning its buildings. This agreement, though not described as such, evinces all the main features of a leasing-finance contract, and contains a property-transfer clause. Pursuant to this agreement, the Court of Justice has undertaken to make an annual payment of approximately ECU 634 million until, at the latest, 31 December 2015. Ownership of the buildings will be transferred automatically to the Court of Justice on the day when all of the payments made equal the Luxembourg State's sale price for the buildings. An independent expert will draw up a final detailed account for the total sales price, taking into account all the payments already made by the Court of Justice in the form of rent or capital payments. The financial commitment connected with this agreement (which may be estimated at some ECU 340 million if nothing more than the capital payments to be made until 2015 is taken into account) is not shown in the balance sheet or the notes.

Observations on the bank accounts

3.100. The Court is unable to express an opinion as to the reliability of the amount for demand deposits (ECU 0,9 million) shown on the assets side of the ESC's financial balance sheet, given that the banking reconciliations up to 31 December 1994 had not been done.

THE LEGALITY/REGULARITY OF THE UNDERLYING TRANSACTIONS

Revenue-related transactions

Traditional own resources

3.101. Regarding the traditional own resources, the audits carried out on a sample of underlying transactions in the Member States did not uncover any elements that might cast doubt on the legality/regularity of the corresponding revenue, or which made it possible to uncover any substantial errors that were sufficiently significant to affect the Community budget at the level of entitlements established and collected. Nevertheless, it must be clear that the sample selected by the Court cannot be extracted from the whole of the population concerned, since, obviously, no authority has a list of imports containing those not declared to the customs authorities. The same problem arises above all in connection with taxes based on declarations. This being the case, it is not possible to make any judgment as to the completeness of the traditional own resources.

3.102. The audit work in respect of the traditional own resources included tests on the working of the national systems for the centralization of the underlying operations.

3.103. It should be noted that the sample of underlying transactions is selected on the basis of the sums recovered by the Commission. This approach does not, therefore, allow for any assessment of cases of exemption or application of a zero rate of customs duty or, a fortiori, undeclared transactions. During the audit of revenue from customs duties and agricultural levies, this drawback was overcome pragmatically for imports that were exempt or zero-rated by analysing transactions in respect of which no entitlement or levy had been established alongside those transactions in respect of which entitlements had been collected.

Customs duties and agricultural levies

3.104. The Court's audit of the transactions selected from the sample and its audit of other transactions, selected at random, did not reveal any major problems as regards the reliability and substance of the accounts. The main problems encountered concerned legality/regularity, particularly with regard to meeting the deadline for making funds available.

3.105. The most probable cumulative value for serious errors concerning customs duties and agricultural levies is not very high, being of the order of ECU 10 million.

3.106. The checks that were made during the audit of transactions sampled for the DAS also revealed various problems, especially concerning the deadlines for making own resources available. For example, in Denmark regular delays involving some 10% of the revenue established were noted in the two offices visited. In some offices in Greece the revenue received on the last day of the month is automatically carried forward to the next month. In the Netherlands, the entering in the accounts of entitlements established by means of periodic declarations is delayed in certain cases. The Commission should remind Member States that they must observe the time limits for making funds available and it must ensure that it receives the default interest owed.

3.107. It is, in fact, most likely that the greatest risk to revenue from customs duties and levies is non-declaration, which, by definition, escapes, to a very large extent, the investigations conducted for the purpose of producing the DAS. The amount of irregularities declared by the Member States to the Commission, as well as irregularities concerning transit that were not reported, represent about ECU 300 million, or 2% of customs duties and agricultural levies recovered. The extent of this phenomenon in the field of traditional own resources makes it essential to strengthen the fraud prevention and detection mechanisms.

3.108. It should be noted that, in practice, any import-related fraud is automatically accompanied by fraud relating to VAT on imports, which, in the final analysis, affects the VAT own resource. However, the impact of this loss, which may be estimated at about ECU 60 million, is relatively minor.

3.109. In the final analysis, errors and fraud also have an impact on the GNP resource, as a supplementary resource.

Sugar levies

3.110. The sample to be audited included nine transactions, one of which concerned a taxpayer located at the Ile de la Réunion. This could not be checked beyond the paying agency stage. Of the eight transactions actually audited down to taxpayer level, three were considered to be affected by errors.

3.111. The first error concerns the payment of the balance of the production levy by the United Kingdom one month after the time limit stipulated in the Regulation, which provides that the payments are to be prepared in October, ready for payment to the Commission in December. It was however noted that the 1993 balance, amounting to ECU 15 952 344, was only paid to the Commission in January 1994. Thus it follows that the revenue for 1994 was overstated by the amount of the balance. The same thing appears to have occurred in 1994, when the sum of ECU 14 974 768, which should have been paid over in December 1994, was, in fact, paid over in January 1995. Moreover, the sum owed in 1994 was not entered in the Commission's balance sheet under established entitlements to be recovered. Furthermore, default interest should have been received in respect of these late payments.

3.112. The audit of the balances of levies paid by France in December 1994 revealed that the supplementary levies, which should be booked to a specific budget item (item 1160), were, in fact, booked to item 1100 relating to sugar production levies. This booking error overstates the revenue entered under item 1100 by ECU 32 011 134, leaving a corresponding deficit under item 1160.

3.113. In Spain, a warehouse had not been approved by the administration and was, therefore, not on the official list of approved warehouses. As a result, no storage subsidies should have been received for the sugar sold out of this warehouse (nor should the storage costs have been reimbursed).

The own resources based on VAT and GNP (Gross National Product)

3.114. The own resources based on VAT and GNP do not call for any comments by the Court as far as the reliability of the calculations and the legality/regularity of the procedures used to determine the basic data are concerned.

The VAT-based own resource

3.115. The audits covered:

- calculation of the uniform rate and the various elements involved in its definition, and of the resulting twelfths,

- examination of the statements relating to the financial year 1993 which have an effect on the VAT receipts for the financial year 1994 through the balance mechanism,

- recovery and entry in the accounts of the twelfths, balances and adjustments,

- correct transposition into the various national legislations of the VAT Directives concerning harmonization between the Member States.

3.116. These various audits did not reveal any major problems that were likely to affect the Commission's accounts. It should, nevertheless, be emphasized that the Commission has expressed various reservations concerning the content of the statements, and has noted various cases where the VAT Directives have been transposed incorrectly. However, the financial impact of these situations may be very diverse, and to calculate it requires work which is often long and complex, to such an extent that it cannot be quantified.

The own resource based on the Gross National Product (GNP)

The Gross National Product (GNP) as an assessment base

3.117. The GNP is calculated on the basis of the national accounts drawn up in each Member State, using complex statistical and econometric methods, by the specialist public bodies which enjoy a monopoly in this area. The data supplied to the Commission by the Member States are checked twice, firstly by the Commission (EUROSTAT), on the basis of Article 19 of Regulation (EEC, Euratom) No 1552/89, and secondly, by the GNP Committee, in accordance with Article 7 of Directive No 130/85/EEC. In October 1994, the GNP committee delivered its opinion on the data relating to the financial year 1993, in which it said that 'the figures reflect the Member States' continuing and optimum efforts to produce comparable and representative data`.

3.118. The Court's audit of the reliability of the national accounts is limited by laws on statistical secrecy, and would, moreover, require a far greater number of personnel with specific expertise in the techniques of national accounting than are available to the Court. In addition, owing to its statistical nature, the GNP macro-economic aggregate does not lend itself to an audit concerning the legality and regularity of the underlying transactions with the objective of producing a DAS.

3.119. It was for this reason that the audits focused on the Member States' compliance with the regulatory concepts and procedures laid down in the Council Directive of 13 February 1989 (89/130/EC, Euratom) concerning the harmonization of the manner in which the Gross National Product is calculated at market prices (). The absence of solutions to the problems referred to in paragraphs 1.117 et seq. of the Court's Annual Report concerning the financial year 1994, and in particular the matter of reservations not lifted by the Commission, did not enable the objectives of exhaustiveness, reliability and comparability in respect of the GNP aggregates forwarded to the Commission by the Member States to be achieved as of the financial year 1994. The impact of these reservations, or of other unresolved problems, on the quality of the GNP assessment base and, consequently, on the VAT and GNP resources system, cannot be estimated owing to a lack of the appropriate resources.

The own resource based on GNP (supplementary resource)

3.120. With regard to this resource, the Statement of Assurance (DAS) focuses on the reliability and the legality/regularity of the methods used to establish the GNP own resource, and the following aspects are taken into account:

(a)the fixing of the own resources ceiling,

(b)the calculation of the uniform rate for the own resources 'supplementary assessment base`,

(c)the calculation of the sums owed by each Member State in respect of this supplementary resource,

(d)the calculation of the monthly twelfths to be paid, and their recovery and entry in the accounts,

(e)the calculation of the annual balances and adjustments to previous balances, and their recovery and entry in the accounts.

3.121. The checks carried out by the Court in respect of the abovementioned points did not give rise to any observations concerning the financial year 1994.

Expenditure-related transactions

Cases of expenditure in respect of which the Court cannot give an assurance

3.122. In several areas, representing about 14 % of Community spending, the Court is unable to express an opinion. This unsatisfactory situation is largely due either to the inadequacy of the information made available to the Court or to the unreliability of the systems in place for the management of the transactions the Court was required to audit. As a result, in those cases where the Court observed errors, the extrapolated numerical results given in this document may well underestimate the impact of these errors, since the extrapolations were made on the supposition, in the auditee's own interest, that there were no errors in the part of the budget on which the Court does not express an opinion.

The impossibility of auditing certain items of EAGGF-Guarantee expenditure

In Denmark

3.123. The Court did not receive from the Danish administration the adequate necessary data for it to prepare and carry out the audit work within a reasonable period of time after the accounts were closed. Accordingly, the Court cannot provide any assurance in respect of EAGGF-Guarantee expenditure in Denmark, which amounted to some ECU 1 300 milli