REPORT on the financial statements and management for the financial year 1995 of the European Foundation for the Improvement of Living and Working Conditions (Dublin Foundation) (97/C 81/02)

(Observations pursuant to Article 188c (4) second indent of the EC Treaty)

CONTENTS

Paragraph Page

THE FINANCIAL STATEMENTS OF THE EUROPEAN FOUNDATION FOR THE IMPROVEMENT OF LIVING AND WORKING CONDITIONS FOR THE FINANCIAL YEAR 1995 . 1 - 4 19

AUDIT OBSERVATIONS . 5 - 27 19

Introduction . 5 - 7 19

Background . 5 19

Scope of the audit . 6 19

Financial data . 7 19

Follow up of previous observations . 8 - 14 19

Separation of duties . 8 19

Imprest account . 9 19

Transfers of appropriations between titles . 10 20

Mission expenses . 11 20

Cash balances . 12 20

Current assets . 13 20

Ownership of the Foundation land . 14 20

Budgetary implementation and the revenue and expenditure account . 15 - 22 20

Transfer of appropriations . 15 - 16 20

Carry-overs and cancellations of appropriations . 17 20

Revenue . 18 20

Expenditure . 19 - 22 20

Conclusion . 23 - 27 21

ANNEXES 1 - 3 . 22

TABLE 1 . 24

Reply of the Foundation . 25

THE FINANCIAL STATEMENTS OF THE EUROPEAN FOUNDATION FOR THE IMPROVEMENT OF LIVING AND WORKING CONDITIONS FOR THE FINANCIAL YEAR 1995

1. This report is addressed to the Council and the European Parliament in conformity with Article 16 of Council Regulation (EEC) No 1365/75 (OJ No L 139, 30. 5. 1975, p. 1) as amended by Article 4 of Council Regulation (EEC) No 1947/93 (OJ No L 181, 23. 7. 1993, p. 13).

2. The Court has examined the financial statements of the European Foundation for the Improvement of Living and Working Conditions for the financial year ended 31 December 1995. In accordance with Article 16 of Council Regulation (EEC) No 1949/93 (OJ No L 181, 23. 7. 1993, p. 26) amending Council Regulation (EEC) No 1417/76 (OJ No L 164, 24. 6. 76, p. 16), the budget was implemented under the responsibility of the Administrative Board. This responsibility included the drawing up and presentation of the financial statements in accordance with the financial provisions as provided for by Articles 52, 54 and 55 of Council Regulation No 1949/93 (OJ No L 181, 23. 7. 1993, p. 26) amending Council Regulation (EEC) No 1417/76 (OJ No L 164, 24. 6. 1976, p. 16). The Court of Auditors is required by Article 188c of the Treaty establishing the European Community to examine these financial statements.

3. The Court undertook its audit in accordance with generally accepted auditing standards, in so far as they are applicable in the Community context and, accordingly, carried out such tests of the accounting records and such other procedures as the Court deemed necessary in the circumstances.

4. In the opinion of the Court the financial statements for the financial year ended 31 December 1995 are reliable and the underlying transactions are, as a whole, legal and regular.

AUDIT OBSERVATIONS

Introduction

Background

5. The European Foundation for the Improvement of Living and Working Conditions (Dublin Foundation) was established by Council Regulation (EEC) No 1365/75 (1) as a satellite body of the European Community with the task of contributing 'to the planning and establishment of better living and working conditions through action designed to increase and disseminate knowledge likely to assist this development`. The Dublin Foundation commenced operations in 1976.

Scope of the audit

6. The Court of Auditors has examined the accounts and financial management of the Dublin Foundation for the financial year 1995 in accordance with the provisions of the relevant Regulations (2).

Financial data

7. Available appropriations for the financial year 1995 amounted to ECU 12,5 million. Commitments entered into gave rise to ECU 9,3 million in payments and ECU 3 million in carryovers to the financial year 1996, the balance of ECU 0,2 million having been cancelled. Appropriations carried over from the previous year gave rise to ECU 1,9 million in payments and ECU 0,2 million in cancellations. Annex 3 attached to this report gives an analysis by title of the utilization of the appropriations for the year and for those carried over from 1994.

Follow up of previous observations

Separation of duties

8. The Court repeats the observation already made in previous years regarding the inadequate separation of duties between the authorizing officer and the accounting officer. This contravenes Article 15 of Council Regulation (EEC) No 1949/93 amending Council Regulation (EEC) No 1417/76, which states the fundamental principle that 'the authorizing officers and accounting officers are different individuals` and that 'the duties of Authorizing Officer, Financial Controller and Accounting Officer are mutually incompatible`.

Imprest account

9. A high proportion (in 1995 59 %, excluding salaries) of payments continue to be made prior to approval by a financial controller. The extent of the use of the imprest account is not in the spirit of the financial provisions. A more acceptable practice would be to limit the use of the imprest account to ongoing or small expenses, where the risk of irregularities is comparatively low. A written definition of ongoing and small expenses should be established by the Foundation in consultation with the Financial Controller.

Transfers of appropriations between titles

10. The Foundation continued to make transfers of appropriations between titles in 1995 (see paragraph 16). This is contrary to Article 21 of Council Regulation (EEC) No 1417/76 as amended by Council Regulation (EEC) No 1949/93.

Mission expenses

11. The Court notes that the observations made last year have not been taken into account in spite of the Foundation's positive reply. A review of missions to Brussels in 1995 revealed that in a number of cases insufficient or no documentation was provided to the Court in order to demonstrate that all such missions were necessary and that other means of communication had been considered.

Cash balances

12. The Court notes that the observation made in last year's report has been taken into account, since cash held by the Foundation at the year end was in line with its requirements for the next quarter.

Current assets

13. The Foundation has finally recovered the two amounts mentioned in the 1994 report, totalling ECU 32 216, which had been outstanding for a number of years.

Ownership of the Foundation land

14. The question of the ownership of the land on which the Foundation is located is to date still not settled. However, lawyers representing the Foundation are studying a proposal of the Irish Government granting a long-term lease to the Foundation.

Budgetary implementation and the revenue and expenditure account

Transfer of appropriations

15. The value of transfers of appropriations between different budget lines in 1995 was ECU 1 494 000 (11,9 % of appropriations entered into the budget), up from ECU 756 000 (6,5 %) in 1994.

16. The transfer of ECU 500 000 made out of title 1 (staff expenses) into title 3 (operating expenses) enabled the Foundation to carry forward appropriations which would otherwise have had to be cancelled following Article 6 (1) of Council Regulation (EEC) No 1949/93 amending Council Regulation (EEC) No 1417/76. As stated in paragraph 10, the Court is of the opinion that such transfers between titles are not consistent with the Financial Regulation.

Carryovers and cancellations of appropriations

17. Annex 3 shows that the payment rate is 75 % for the account as a whole, but only 54 % for title 3 'operating expenditure`. Table 1 shows the carryovers from the 1995 budget by title and their subsequent use in 1996. Carryovers for title 3 amounted to 45 % of initial appropriations. By the end of March 1996, only 20 % of the carryovers had been used.

Revenue

18. The EU subsidy for the Foundation for 1995 was ECU 12,5 million. The amount actually requested and received was ECU 2,5 million on 26 April 1995, ECU 2 million on 14 June 1995, ECU 4,3 million on 12 October 1995 and ECU 1,3 million on 31 December 1995, making a total of ECU 10,1 million. The remaining ECU 2,4 million was in excess of cash requirements and not requested from the Commission in line with the recommendation made by the Court last year. As in previous years this pattern of funding is not consistent with Article 26 of Council Regulation (EEC) No 1417/76 as amended by Council Regulation (EEC) No 1949/93 which requires payment to be made by the 15th day of each quarter.

Expenditure

19. Article 63 of Council Regulation (EEC) No 1949/93 of 30 June 1993 amending Council Regulation (EEC) No 1417/76 of 1 June 1976 stipulates that contracts for more than ECU 12 000 shall be concluded after an invitation to tender has been issued. The following exceptions were noted:

- a contract for ECU 533 072 to conduct a European survey on working conditions was awarded by direct agreement,

- in a sample of 26 contracts selected for the audit, six were awarded by direct agreement using Article 46 of Council Regulation (EEC) No 1417/76 of 1 June 1976 as amended by Council Regulation (EEC) No 1949/93 of 30 June 1993; in three cases (one involving the supply of computers, the others study contracts) Article 46 was used to avoid the invitation to tender procedure.

20. Two examples were found where expenditure had already been invoiced before the commitment was made. In one case the framework contract between the Foundation and the contractor only started on 1 January 1995, but invoices relating to November and December 1994 were included in the commitment made in 1995.

21. In an audit sample of 10 study contracts, five of the final reports were received months after the deadline set in the contract. The management should consider whether the Foundation's procedures for following-up outstanding reports need to be reviewed.

22. During the course of its audit, the Court noted the following cases in which documents had been modified by the use of correction fluid:

- the date of an invoice for DM 45 365 (ECU 23 817) faxed to the Financial Controller was deleted using correction fluid and changed by hand from 17 January 1995 to 17 December 1994. The Financial Controller gave his approval on the basis of this fax and the date change resulted in the expenditure being accounted for in the carryovers of 1994 and not in the appropriations of 1995,

- the amount on a recovery order was deleted using correction fluid and changed by hand from ECU 1 680,16 to ECU 4 741,97. It is unclear which figure was approved by the Financial Controller.

Conclusion

23. There is an inadequate separation of duties between accounting officer and authorizing officer. See paragraph 8.

24. The extent of the use of the imprest account is not provided for by the financial provisions. See paragraph 9.

25. The Foundation has continued to make transfers of appropriations between titles contrary to the financial provisions. See paragraph 10.

26. Insufficient or no documentation was provided to the Court for a number of missions to Brussels to demonstrate their being justified. This is a matter which requires urgent attention.

27. A sample of payments audited revealed problems of contract management and inappropriate modification of key documents. See paragraphs 19 to 22.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 7 November 1996.

For the Court of Auditors

Bernhard FRIEDMANN

President

(1) Council Regulation (EEC) No 1365/75 of 26 May 1975 (OJ No L 139, 30. 5. 1975).

(2) Council Regulation (EEC) No 1365/75 of 26 May 1975 (OJ No L 139, 30. 5. 1975) on the creation of the Foundation, as amended by Council Regulation (EEC) No 1947/93 of 30 June 1993 (OJ No L 181, 23. 7. 1993).Council Regulation (EEC) No 1417/76 of 1 June 1976 (OJ No L 164, 24. 6. 1976) on the financial provisions applying to the Foundation, as amended by Council Regulation (EEC) No 1949/93 of 30 June 1993 (OJ No L 181, 23. 7. 1993).

ANNEX 1

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ANNEX 2

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ANNEX 3

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REPLY OF THE FOUNDATION

8. The Foundation has introduced a range of measures which separate the duties of the Authorizing and Accounting Officers. The Court has in previous reports acknowledged these initiatives.

The only remaining problem is the practice whereby the Authorizing Officer records expenditure in the existing integrated accounting system. This problem will be resolved when the Foundation acquires a new accounting system.

Following consultations in 1995, the Foundation participated in 1996 with other EU agencies in a joint-tendering procedure for the acquisition of a suitable accounting system. The result was, however, that none of the tenders fully met the requirements of the agencies. After intense contacts with the Commission Services it is now expected to acquire a suitable accounting system during 1997 from the Commission, following the recent completion of work on such a system which meets the technical, reporting and legal requirements of the agencies.

9. The Foundation contacted the Commission's services with regard to solutions to the problem identified. The Foundation has now been informed that this question will be discussed between the Commission and the European Parliament in the framework of the ongoing dialogue on the Financial Regulations governing the agencies.

10. Subsequent to the Court's last report the Foundation requested the Commission's services to clarify the Foundation's Financial Regulation with respect to the transfers in question. The Foundation is now advised by the Director-General of DG XIX that the transfers were in accordance with the Foundation's Financial Regulations (see also paragraph 16).

11. All missions in the Foundation are documented and approved by the Authorizing Officer having confirmed to his satisfaction that there is justification in conformity with the Foundation's work programme or administrative needs. In addition, documentation concerning agendas, timetables, participants lists, minutes, follow-up actions or, as appropriate, mission reports of meetings are available. The Foundation will review its procedures for recording and retrieving the necessary documentation relating to missions.

The establishing Regulation of the Foundation requires that it consult with the European institutions and that it involve the social partners in its work. There has been an intensification of exchanges with EU-level bodies in Brussels in recent years despite which the number of missions to Brussels has not increased commensurately. No missions are undertaken where other means of communication can be used. The telephone, Internet, e-mail and other electronic contacts are used to the maximum; a video-conferencing pilot project was launched in November 1995 and facilities will be introduced as finances permit. Experiments have also been made with computer-conferencing.

14. Following the receipt of a proposal from the Irish authorities, lawyers are currently preparing a revised lease.

16. It is noted in paragraph 10 that the Foundation is advised by the Commission that the transfers in question are fully consistent with the Financial Regulations; they enabled the Foundation to use, in the most effective way, the funds provided to it by decisions of the Budgetary Authorities. The Foundation does, however, appreciate the viewpoint of the Court and the Parliament and seeks to avoid the necessity for such transfers.

17. The rate of utilization of carryovers is governed by the nature of the contracts supporting the carryovers. These contracts were essentially in relation to studies with completion dates of 12 months of more.

18. The Foundation will again remind the Commission's services of the requirement to effect subsidy payments by the 15th day of each quarter.

19. In the case of the contract to conduct a European survey on working conditions, the relevant file shows that this contract was awarded from the framework contract for the 'Eurobaromètre standard` between the European Commission and INRA (Europe) which followed from an open tender procedure.

The award of contracts by direct agreement was fully in accordance with Article 46 of the Foundation's Financial Regulations which provides for this procedure and sets out the detailed criteria which must be met in this regard. These are adhered to.

In the case of the supply of computers Article 46 (d) was used because of specialized multilingual requirements and the Foundation's use of WordPerfect 5.1 for DOS (as recommended by the Commission's informatics department). Only one supplier had the required software and specialized multilingual keyboards and provided locally-based support.

The other two contracts relate to proposals for research. The Administrative Board of the Foundation at its meeting of 25 March 1994, authorized the introduction of new procedures, to become fully operational during 1995, for the award of contracts based on calls for expressions of interest, published in the Official Journal, and calls for tenders. The two contracts in question were entered into during the transition period stipulated by the Administrative Board.

20. The Foundation operates a decentralized ordering system. The two invoices in question were part of a series of orders placed by an operational unit for which the total orders exceeded the funds committed. Appropriate steps will be taken to avoid a recurrence. The delivery of a new accounting system should provide for automatic implementation of the necessary controls.

21. The monitoring of the implementation of study contracts is effected monthly at the programme management meeting; the follow-up procedures will now be reviewed.

22. The order was placed for the services in question on 11 October 1994. The change of date on the invoice per se had no relevance to carryovers. Notwithstanding this the official concerned has been reprimanded.

Necessary corrections to manually prepared documents will in future be signed and dated. Delivery of the new accounting system should resolve problems of this nature.

23. See response under paragraph 8.

24. See response under paragraph 9.

25. See response under paragraph 10.

26. See response under paragraph 11.

27. See response under paragraphs 19 to 22.