REPORT concerning the financial statements of the European Monitoring Centre for Drugs and Drug Addiction (EDMC-Lisbon), together with the Centre's replies (97/C 81/07)

(For the period from 1 November 1994 to 31 December 1995)

1.1. This report is addressed to the Management Board of the European Monitoring Centre for Drugs and Drug Addiction in accordance with Article 11 (11) of Council Regulation (EEC) No 302/93 of 8 February 1993 (1).

1.2. The Court of Auditors has examined the financial statements of the European Monitoring Centre for Drugs and Drug Addiction for the financial years 1994 and 1995. The budget was implemented under the responsibility of the Director of the Centre in accordance with Article 11 (8) of Council Regulation (EEC) No 302/93 (2). His responsibilities include the preparation and presentation of the accounts (3) in accordance with Article 11 (10) of Council Regulation (EEC) No 302/93 (4), as amended by Council Regulation (EC) No 3294/94 of 22 December 1994 (5). Article 188c of the Treaty establishing the European Community requires the Court of Auditors to audit these accounts. This report constitutes the first audit of the Centre.

1.3. The Court conducted the audit in accordance with generally accepted auditing standards in so far as they are applicable in the Community context. The Court carried out checks on the accounts and accounting records and also applied such additional auditing procedures as it considered necessary in this context. The main observations resulting from the Court's audit are presented in the second part of this report.

1.4. The financial statements for the financial years 1994 and 1995 are reliable and the underlying operations were carried out, on the whole, in accordance with the rules concerning legality and regularity.

Main observations concerning the implementation of the budget of the European Monitoring Centre for Drugs and Drug Addiction for the financial years 1994 and 1995

Commission subsidy

1.5. During the financial year 1995, the Monitoring Centre issued a recovery order and drew down only 57 % (ECU 3 million) of the subsidy. The Court takes the view that the Monitoring Centre should also have issued a recovery order for the ECU 2,3 million included in the balance sheet (ECU 5,3 million in total) in order to be able to meet commitments carried over to the financial year 1996 (ECU 2,8 million).

Subsidy from the Portuguese Government

1.6. A total of ECU 614 015 (including interest) placed at the disposal of the Monitoring Centre by the Portuguese Government for the fitting-out of the Centre's headquarters does not appear under revenue in the budget, but only in the balance sheet.

Budget accounts

1.7. The present system allows a posteriori changes to be made to entries with no subsequent record of their having been made. The system may lead to spending in excess of available appropriations.

Imprest account

1.8. During 1995 the Monitoring Centre carried out a large share of its spending (45 %) via imprest accounts. The systematic use of imprest accounts does not comply with Article 43 of the Centre's Financial Regulation, which only allows this procedure for certain categories of expenditure. Furthermore, the regularization of these cases of expenditure via imprest accounts was delayed as the supporting documents had to be submitted to the Financial Controller in Brussels.

Appropriations carried over

1.9. Substantial amounts were carried over from 1995 to 1996, namely ECU 2,8 million, or 52 % of the Centre's budget. The bulk was connected to expenditure on Reitox (European Information Network on Drugs and Drug Addiction) (36,7 %), studies, consultation and training (30,5 %). Some appropriations carried over from 1994 to 1995 (total: ECU 4,607 million) had to be cancelled (ECU 0,368 million, or 8 % of all appropriations carried over).

Separation of duties

1.10. Bearing in mind that different management tasks are being carried out by one and the same person (e.g. the administrator of imprest accounts is also the Accounting Officer, the personnel manager also manages contracts), such duties are not being kept separate.

Financial Controller

1.11. In view of the present situation, the appointment of a Financial Controller to work directly for and in the Monitoring Centre might improve the internal control system.

This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 28 October 1996.

For the Court of Auditors

Bernhard FRIEDMANN

President

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(1) OJ No L 36, 12. 2. 1993, p. 5.

(2) OJ No L 36, 12. 2. 1993, p. 6.

(3) As required by Article 11 (10) of Council Regulation (EEC) No 302/93, the accounts for all revenue and expenditure of the Monitoring Centre for the financial year 1995 were prepared on 15 April 1996, on which date the accounts were signed by the Executive Director of the Centre and submitted to the Commission, to the Management Board and to the Court of Auditors. These accounts were received by the Court on 28 June 1996. The abridged version of these financial statements is presented in the tables annexed to this report.

(4) OJ No L 341, 30. 12. 1994, p. 7.

THE CENTRE'S REPLIES

The following comments are made in response to the principal observations of the Court of Auditors concerning the implementation of the EMCDDA budget for the financial years 1994 and 1995 (points 1.5 to 1.11 of the Court's observations).

From a general point of view, attention should be drawn to the fact that 1995 was the first year in which the EMCDDA was operational. It did not then have any material infrastructure, nor did it have the human resources needed to carry out its duties properly.

(a) The Commission subsidy (point 1.5 of the Court's observations)

The EMCDDA issued an initial recovery order for ECU 4 million for the 1995 financial year, taking into account the fact that the left-over appropriations in respect of the subsidy had been set aside by the budget authority.

The EMCDDA fully shares the Court of Auditors' opinion on the need to issue a recovery order for all the appropriations included in the balance sheet in respect of the subsidy in question and it is indeed doing this for the 1996 financial year.

(b) Subsidy from the Portuguese Government (point 1.6 of the Court's observations)

The EMCDDA acted in accordance with the instructions received from the Commission's Financial Controller (the latter also being the EMCDDA's Financial Controller).

(c) Budget accounts (point 1.7 of the Court's observations)

Like most of the decentralized agencies, in its start-up phase the EMCDDA followed the guidelines provided by the European Commission in this respect, guidelines intended to make it possible for the agencies to immediately meet the urgent requirements in this field. The EMCDDA is, however, aware that the system in question (based on Excel files) is only a short-term solution and that a more efficient accounting system is necessary.

At the end of December 1995, the decentralized agencies (including the EMCDDA), with the European Training Foundation in Turin playing the role of coordinator, launched a call for tenders for the purchase of an integrated computer system for the budget accounts and the general accounts. As this call for tenders was unsuccessful as no suitable offers were made, the European Commission and the decentralized agencies (including the EMCDDA) agreed that the latter would, as of 1 January 1997, use Sincom 2, the computerized accounts system developed by the Commission. The EMCDDA will start trials of this system before the end of 1996.

(d) Imprest accounts (point 1.8 of the Court's observations)

In accordance with Article 43 of the EMCDDA's Financial Regulation and in the spirit of Article 54 of the Financial Regulation applicable to the general budget of the European Communities and Article 82 of the implementing rules, the EMCDDA has, in the first instance, used the imprest accounts for those categories of expenditure cited in Article 54 of the said implementing rules.

As far as the percentage of expenditure effected via the imprest accounts in 1995 is concerned (45 %), it should be taken into account that, during this start-up phase, administrative expenditure (which included expenditure suitable for being effected via imprest accounts) accounted for a far greater proportion than did operating expenditure (see point (e)).

The gradual restoration of the balance between administrative expenditure and operating expenditure which has been taking place throughout 1996, coupled with the development of a system of financial programming (see point (e)), will lead to a significant reduction in the use of imprest accounts.

(e) Appropriations carried over (point 1.9 of the Court's observations)

Almost all the appropriations concerned come from title III of the EMCDDA budget, concerning the carrying out of the latter's mission.

By dint of the fact that the EMCDDA's scientific staff, called on to implement the activities 'covered` by this title, did not take up their duties until October 1995 and, more specifically, as the EMCDDA only adopted the 1995 to 1996 operational programme, which governs the financial implementation of these activities for 1995, in mid-November of that year, it was decided that the appropriations should be carried over in order to guarantee the resources needed to carry out the abovementioned activities which could not, for good reason, be carried out during 1995.

For subsequent financial years, the EMCDDA will set up a system for programming and monitoring the implementation of its budget and work programme in such a way as to improve use of the resources allocated and in particular to ensure that appropriations are carried over only in exceptional circumstances.

(f) Separation of duties (point 1.10 of the Court's observations)

The very limited human resources available to the EMCDDA in 1994 and 1995 made it impossible to ensure full application of the principle of the separation of duties as referred to by the Court of Auditors.

The separation of the duties of Authorizing Officer, Financial Controller and Accounting Officer, as required by Article 16 of the EMCDDA's Financial Regulation, were, however, guaranteed.

The EMCDDA has, and does, make every effort to ensure that the principle of the separation of duties is respected when carrying out the various administrative tasks concerned.

In this context, it is, as far as possible, taking into account the requirements indicated by the Court of Auditors for the purpose of defining its short-term human resources requirements in order to be able to ensure that the administrative tasks referred to by the Court, (administrator of advance funds, accounting officer, personnel management and contract management) are carried out by different people.

Proposals to this effect will be submitted to the EMCDDA's Management Board.

(g) Financial Controller (point 1.11 of the Court's observations)

When the EMCDDA's Financial Regulation was adopted in June 1995, the Management Board announced its opposition to the idea of delegating the duties of Financial Controller to one of the EMCDDA's staff (following the European Commission's opposition to the idea).

Furthermore, as the European Commission's Financial Controller acts as the EMCDDA's Financial Controller, the feasibility of having a Financial Controller on the premises would be the Commission's responsibility and would have to be examined within the context of the general approach favoured by the other decentralized agencies.