REPORT on the financial statements of the European Training Foundation (ETF-Turin) (Financial year 1996), together with the Foundation's replies (97/C 393/07)

1.1. This report is addressed to the Governing Board of the European Training Foundation in accordance with Article 11 (4) of Council Regulation (EEC) No 1360/90 of 7 May 1990 (1).

1.2. The Court has examined the financial statements of the European Training Foundation for the financial year 1996. In accordance with Article 11 (1), of Regulation (EEC) No 1360/90, the budget was implemented under the responsibility of the Director. This included the drawing-up and presentation of the accounts (2) in accordance with the Centre's internal financial provisions, as laid down in Article 11 (3) of Regulation (EEC) No 1360/90. Article 188c of the Treaty establishing the European Community requires the Court of Auditors to examine these accounts.

1.3. The Court carried out its audit in accordance with generally accepted auditing standards in so far as these apply in the Community context. It carried out tests on the account books and records and such other audit procedures as were considered necessary in this context. The main observations resulting from the Court's audit are given in the second part of this report.

1.4. The financial statements for the financial year 1996 were reliable and, on the whole, the legality and regularity of the underlying transactions were guaranteed.

MAIN OBSERVATIONS ON THE IMPLEMENTATION OF THE BUDGET OF THE EUROPEAN TRAINING FOUNDATION (ETF TURIN) FOR THE FINANCIAL YEAR 1996

Budgetary accounts

1.5. Under the current system, it is possible to make untraceable ex-post alterations to entries. This system, together with the systematic use of imprest accounts, may lead to spending in excess of available appropriations.

Imprest account

1.6. The Foundation is still using an imprest account (Titles I and II) to settle most of its expenditure (52 %). No significant reduction has yet taken place. Moreover, because all documentation has to be sent to the Financial Controller in Brussels, expenditure is regularized late (two to three months late). Moreover, an additional advance of ECU 0,5 million was paid into the imprest account without any prior authorization.

Carry-overs

1.7. Carry-overs from 1995 to 1996 amounted to ECU 2,1 million. An amount of ECU 0,4 million (17 %) was not utilized because the amounts concerned had not been accurately calculated (mission expenses, recruitment expenses, etc.).

Appropriations for the financial year

1.8. For current appropriations, the payment rate varied from one title to another. It was 85 % for Title I (staff), 71 % for Title II (administrative expenditure) and 35 % for Title III (operational expenditure). Carry-overs to 1997 concerned Title II (ECU 0,7 million), Title III (ECU 2,7 million) and, more particularly, the purchase of computer equipment, specific measures (Tempus), vocational training, seminars and study meetings (54 %).

Exchange differences

1.9. Exchange losses of ECU 1,1 million were mainly caused by the appreciation of the Italian lira.

Financial control

1.10. Given the large amounts that have to be recorded and audited, the appointment of an on-the-spot Financial Controller would help to solve some of the problems mentioned below (in particular that of subsidies that were not entered in the accounts, see paragraph 1.11).

Extra-budgetary subsidies (Phare, Tacis and Tempus)

1.11. The Foundation manages funds made available by the Commission on the Commission's behalf and in the framework of the Phare, Tacis and Tempus programmes. This very large amount (approximately ECU 200 million for 1996) for certain items of expenditure was not recorded in the accounts of the Foundation (but in separate accounts). The Court calls on the Foundation to integrate the operations concerning the management of these funds into its own accounts. The Court reserves the right to examine the management of these funds, and in particular the bank accounts, during future audits.

Awarding of contracts

1.12. The procedure followed by the Foundation for drawing up its contracts is fairly complex. It would be useful if it was simplified. It may be pointed out that the (non-operational) Foundation contracts are frequently concluded by private treaty and that this procedure is not always justified.

1.13. Payments under contracts for the Phare, Tacis and Tempus programme are made without the Financial Controller's prior approval (see paragraph 1.10) because he considers this expenditure to be Commission expenditure (see paragraph 1.13). In addition, it must be pointed out that in 1996 the Foundation checked the implementation of only a part of these contracts. From 1997 on, the Foundation has started to use outside auditors. However, their brief does not appear to cover all the programmes managed by the Foundation.

ACPC

1.14. The Foundation had not yet set up an Advisory Committee on Procurements and Contracts (ACPC). A proposal establishing such a committee was in the process of being approved.

This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 15 and 16 October 1997.

For the Court of Auditors

Bernhard FRIEDMANN

President

(1) OJ L 131, 23. 5. 1990, p. 4.

(2) In accordance with Article 11 (3) of Council Regulation (EEC) No 1360/90, the accounts of all the revenue and expenditure of the Foundation for the financial year 1996 were drawn up on 30 March 1997, the date on which the accounts were signed by the Director of the Foundation, and sent to the Commission, the Governing Board and the Court of Auditors. These accounts were received by the Court on 30 March 1997. The tables attached to this report show an abridged version of these financial statements.

ANNEX

TABLE 1 BALANCE SHEET FOR THE FINANCIAL YEARS 1995 AND 1996

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TABLE POSITION>

Note: It should be noted that the Foundation manages fund (± ECU 200 million) on behalf of the Phare, Tacis and Tempus programmes by means of 21 bank accounts which are not included in either the budgetary accounts or in the balance sheet or outturn accounts.

Source: Prepared by the Court on the basis of the Foundation's data.

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(1) This amount corresponds to the fixed assets.

(2) In the 1995 financial statements the part of the Commission subsidy still to be paid at the end of the year was a part of the outturn. With effect from 1996, in agreement with the regulations, this sum is indicated under the liabilities.

REPLIES OF THE EUROPEAN TRAINING FOUNDATION

1.5. Budgetary accounts

The Foundation shares the opinion of the Court of Auditors. Since the beginning of 1996 the Foundation, together with a number of EU Agencies, has been actively involved in the preparations for the establishment of a new, computerized budgetary and accounting system. Work is well under way including configuration, testing and training of the system. Implementation will start in January 1998 with full completion projected for June 1998.

It should be stressed that monthly financial reports are sent to the competent services in the Commission, in accordance with the relevant articles of the Financial Regulation. The budget has never been exceeded during the period under review.

1.6. Imprest account

As of June 1997, the use of the imprest account has been considerably reduced as it is no longer used for the payment of salaries.

The imprest account has not received an additional advance without authorization. The Foundation regrets the fact that an amount of ECU 0,5 million, concerning a regularization of expenses, was registered by mistake as an increase in the imprest account. This registration error was corrected in the following months.

1.8. Appropriations for the financial year

In 1996, for the second year running the Budgetary Authority put part of the Foundation's budget in reserve. ECU 2,5 million of the Foundation's budget was held in reserve and was released only in September 1996 leaving, a short time for commitments and consequently for payments before the end of the budgetary year.

An analysis of the commitments made at the end of 1996 indicates a level of commitment of 89 % for Title I, 99 % for Title II and 95 % for Title III. The commitments of Title I, were proportional to the percentage of the staff employed in 1996 (measured in man-years). Furthermore, changes in exchange rates were at the origin of a number of budgetary savings.

1.10. Financial control

The Foundation shares the opinion of the Court of Auditors. It should be noted that since June 1997, the Foundation's financial control has been transferred to the Joint Research Centre in Ispra.

1.11. Extra-budgetary funds (Phare, Tacis and Tempus)

The Foundation draws the Court's attention to the fact that all transactions effected under these funds have been registered in separate accounts and the Commission services have been provided with regular reports in accordance with the Conventions signed between the Commission and the Foundation.

1.12. Awarding of contracts

The Foundation has to deal with three different sources of funding (its own budget, Phare, and Tacis), each of which are subject to different procurement procedures. Where possible the Foundation has tried to harmonize these rules and this is an ongoing process. However, complete harmonization of the procedures is not possible.

The Foundation will take great care to conclude direct agreements only when strictly needed and under the exceptional circumstances foreseen by Article 46 (a, b, c, d, e,) of the Foundation's Financial Regulation. However, we would like to draw the Court's attention to the fact that certain activities carried out by the Foundation, by their very nature, require ad hoc procedures. These activities are intrinsically linked to the Foundation's work with a network of key partners within the partner countries. It is impossible to assign the tasks to outside parties.

1.13. Payments for Phare, Tacis and Tempus contracts

Regarding the Court's recommendation to integrate the funds for the administration of Phare and Tacis programmes into its accounts, the Foundation will search for a solution in cooperation with the Commission.

During 1996 the verification of contract implementation was done in accordance with the conventions signed with the EU Commission. All contracts have been subject to desk-monitoring by the appropriate services of the Foundation involving collecting and examining supporting documents. From 1997 onwards, audits will be carried out for Tempus projects (Phare and Tacis) and Phare vocational training programmes. For Tacis vocational training programmes, audits have not yet been planned.

1.14. ACPC

The establishment of an Advisory Committee on Procurement and Contracts was conditional on the adoption by the Governing Board of the Foundation's Financial Regulation which lays down the general conditions for the ACPC (Title XVI of the implementing rules, Article 88). As this was adopted by the Board in September 1996 and the implementing rules only subsequently in February 1997, the establishment of the ACPC during 1996 was not possible. However, the Board, adopted the ACPC Regulation on 31 July 1997 and the first meeting of this Committee took place on 11 September 1997.