Statement of Assurance relating to the activities of the sixth and seventh European Development Funds for the financial year 1994

NOTE TO THE READER The following Statement of Assurance relating to the EDFs (EDF-DAS), which concerns the reliability of the accounts and the legality and regularity of the underlying transactions, is based on a Special Report which is attached to this DAS and enlarges on each of the points made in the Statement.

Part 3 of this Special Report provides details of the results of the audit performed by the Court.

Statement of Assurance relating to the activities of the Sixth and Seventh European Development Funds for the financial year 1994

THE COURT'S MANDATE

1. The Treaty establishing the European Community has entrusted the Court of Auditors with the audit of the operations of the European Development Funds. In this context, 'the Court of Auditors shall provide the European Parliament and the Council with a statement of assurance as to the reliability of the accounts and the legality and the regularity of the underlying transactions`.

ACCOUNTS AND TRANSACTIONS COVERED BY THE DAS

2. The accounts which have been examined are those published in the form of the Communication from the Commission to the Court of Auditors, Parliament and the Council under the reference COM(95)180 final of 5 May 1995.

THE COURT'S STATEMENT

3.In the Court's opinion:

(a)for the reasons set out in paragraph 4, the EDF accounts as at 31 December 1994 imperfectly reflect the financial situation (available capital) and the operations of the EDFs that are being implemented because of certain accounting methods used and owing to a lack of information needed for proper understanding of certain figures;

(b)in respect of the legality and regularity of the underlying transactions, as explained in paragraphs 5 and 6, most of the difficulties encountered stem from a legal framework which in some instances is ill-suited to the conditions under which the EDFs are implemented.

THE AUDIT RESULTS

Main observations relating to the reliability of the accounts

4. Despite the Commission's recent efforts, the accounts are still affected by the use of certain accounting practices and by the delays inherent in the accounting procedure:

(a)the way in which the appropriations are presented lacks clarity and the absence of an analytical framework does not always enable immediate follow-up of the programmes decided on by the Budgetary Authority. No adequate explanation is given in the notes to the financial statements for appropriations which cannot be mobilized (174,5 Mio ECU) (1), a transfer of appropriations liable to be made up again (12 Mio ECU) (2) and the amount of appropriations to be restored (45,5 Mio ECU) (3). As the system for managing the appropriations lacked discipline, in 1994 it enabled 24 Mio ECU (4) of appropriations to be created without any grounds;

(b)the primary commitments are underestimated in respect of recent transactions (75,4 Mio ECU) (5);

(c)the commitments remaining to be settled are overestimated because of delays in clearing old operations. Whereas the financial statements show balances for commitments to be closed of 68,2 Mio ECU, the Court's audit shows that this amount is markedly underestimated (6);

(d)as a result of delays in accounting, the figures shown in the accounts for secondary commitments underestimate the true situation by 140 Mio ECU (7);

(e)significant payments (at least 813 Mio ECU) (8) are made to the recipient States on bank accounts requiring two signatures, one of which must be the Commission's. The situation regarding the mobilization of the sums thus transferred, which is indicative of the degree of implementation of the aid, is not mentioned in the notes to the financial statements;

(f)the accounting system treats the advances paid to contractors as definitive expenditure, but this situation is not explained in the notes to the financial statements (9);

(g)owing to administrative delays, expenditure amounting to 35 Mio ECU (10) which should have been charged to development projects is included in the assets on the balance sheets of the EDFs. Furthermore, the cash accounts include 3,1 Mio ECU (11) the availability of which is uncertain (bank transfers not received and insolvent banks);

(h)in addition to the known errors indicated in paragraph (g) above, the most likely amount of the substantial errors affecting the reliability of the accounts is estimated, from the results of the sampling procedure, at 31 Mio ECU for payments.

Main observations relating to the legality and regularity of the underlying transactions

5. As regards the underlying transactions, the regulations are not always applied strictly:

(a)appropriations of 18,5 Mio ECU (12) were used in 1994 without having been transferred beforehand to the Stabex instrument;

(b)supplementary financial support amounting to 13 Mio ECU (13), funded from the support for structural adjustment facility, was mobilized in accordance with a procedure reserved under the Convention for traditional development projects;

(c)some transactions present difficulties as regards eligibility, by virtue of the origin of the financing (17 Mio ECU) (14), or the fact that the transactions involved do not comply with either the financing agreements (5,3 Mio ECU) (15) or the tendering rules (2,2 Mio ECU) (16);

(d)the suspense accounts shown as balance-sheet assets include 6,1 Mio ECU (17) of payments which are not backed up by supporting documents;

(e)the payments relating to irregular commitments (paragraph 3.3(b)) are affected by the same flaws as those affecting these commitments (13 Mio ECU) (18);

(f)in addition to the known errors indicated in paragraphs (d) and (e) above, the most probable amount of the substantial errors affecting the legality and regularity (19) of the payments of the financial year is estimated at 46 Mio ECU. The most probable value of the 1994 payments affected by the legal flaws whose direct impact on the amounts entered in the accounts cannot be quantified is estimated at 85 Mio ECU.

6. Many of the observations made in paragraph 5 above stem for the most part from a regulatory framework which is in some instances ill-suited to the conditions under which the EDFs are implemented. Other areas, such as global authorizations (paragraph 3.29(a)) (20), the conditions of eligibility for Stabex transfers (paragraph 3.51)(20) and prior authorization in particular of operations concerning delegated appropriations (secondary commitments) (paragraphs 3.52 to 3.55)(20), also need to be clarified.

This Statement of Assurance was adopted by the Court of Auditors in Luxembourg at its meeting of 9 November 1995.

For the Court of Auditors André J. MIDDELHOEK President

(1) OJ L 34, 7.2.1994.

(2) OJ C 303, 14.11.1995.

(3) Annual Report concerning the financial year 1979, part two, paragraph 4.9, third indent and the Commission's reply.

Annual Report concerning the financial year 1985, paragraph 10.50.

Annual Report concerning the financial year 1989, paragraph 1.105 and the Commission's reply.

(4) OJ L 386, 31.12.1994, pp. 24 and 26.

(5) OJ 352 of 31.12.1994, p. 82.

(6) Doc. 6449/95 FIN 150.

(7) (COM(95) 98 Final of 29.3.1995.

(8) OJ L 125, 8.6.1995.

(9) Council Regulation (EEC) No 599/91 of 5 March 1991.

(10) OJ L 49, 21.2.1989, p. 26.

(11) Letter from the Commission to the Danish Permanent Representation, D(95) LK/jm/AF/176.

(12) SEC(95) 1013, 11.7.1995.

(13) Council Regulation (EC) No 1287/95 of 22 May 1995 (OJ L 125, 8.6.1995, page 1).

(14) Paragraphs 3.21; 3.23; 3.24.

(15) Paragraph 3.22(a).

(16) Paragraph 3.22(b).

(17) Paragraph 3.15.

(18) Paragraphs 3.29(b), (c) and (d).

(19) Paragraph 3.32.

(20) Paragraphs 3.35 and 3.36.