15. 12. 86 Official Journal of the European Communities 1 
COURT OF AUDITORS 
In accordance with the provisions of the Treaties (Article 78f(4) ECSC; 
Article 206a(4) EEC; and Article 180a(4) EAEC) and the Financial 
Regulation of 21 December 1977 (Article 83) and the corresponding 
provisions relating to the European Development Funds, the Court of 
Auditors of the European Communities, at its meeting on 
19 November 1986, adopted its 
ANNUAL REPORT 
concerning the financial year 1985 
The report, accompanied by the replies of the institutions to the 
comments of the Court, was transmitted to the authorities responsible for 
giving discharge and to other institutions by 30 November 1986 
Marcel MART 
(President) 
Paul GAUDY 
Aldo ANGIOI 
Pierre LELONG 
Andre J. MIDDELHOEK 
Keld BRIXTOFTE 
Lothar HAASE 
Stergios VALLAS 
Charles J. CAREY 
Josep SUBIRATS 
Carlos MORENO 
Richie RYAN 
2 COfticiallournal of the European communities 15,12 DO 
1, Thefootnotesindicatedinthetextofeachchapteraregivenattheendofthechapterin 
question. 
2, The key to the abbreviations and symbols used in this report is given on page!56, 
3, Therepliesoftheinstitutionsaresetoutaftertheannexestothisreportandaremarked 
^vithagrey strip along the edge. 
ro Ll^o Gfticialiournal of the European Communities 3 
^^B^^^PCE^r^^^r^ltS 
Annn^ report of the ^enrt of Andtter^oen^erntn^ 
rage 
Introduction ^ 
P^rt^ 
Chapter 1—General matters 7 
Chapter ^ — Accounting matters ^1 
Chapter ^ — revenue ^7 
Chapter 4 — European Agricultural Guidance and Guarantee Fund, Guarantee 
Section t^EAGGFGuarantee^ ^ 
Chapter eo — EuropeanAgricultural Guidance and Guarantee Fund, Guidance Section 
r^EAGGF-Guidance^, and specitic agricultural measures ^ 
Chapter (o^^ Common fisheries policv ^7 
Chapter 7 — Expenditure in the regional development and transport sectors 74 
Chapter ^ — Social sector ^ 
Chapter ^ — research, energv, etc ^ 
ChapterlO — Cooperation with developing countries and other non-member States.. 100 
Chapterll — IVianagemenr of the Communitv institutions and the external bodies.... 11^ 
Chapter!^ — Loans, borrowings and interest^rate subsidies l^eo 
European lOevelopment Funds 1^ 
Al^E^ES 
Anne^ 1 —Allocation ofresponsibilitiesamong^viembers of theCourt of Auditorsat 
the time this report was adopted 147 
Anne^ 11 —reports and opinions adopted bv the Courr of Auditors during the last 
fivevears 14^ 
Anne^lll —Financial information relating tothegeneralbudgetoftheEuropean 
Communities and to the European lOevelopment Funds ^^ 1^ 
4 C^ftlcial journal of the European Communities l^.l^.^o 
^enrtefAndtter^oencerntn^theftn^nct^ye^r^e^ 
P^rt^ rage 
Chapter 1—General matters 1^ 
Chapter ^ — Accounting matters 1^4 
Chapter ^^^.evenue 1^ 
Chapter 4 — European Agricultural Guidance and Guarantee Fund, Gurarantee 
Section ^EAGGFGuarantee^ ^4 
Chapter eo — EuropeanAgricultural Guidance and Guarantee Fund, Guidance Section 
^EAGGFGuidance^, and specillc agricultural measures ^1^ 
Chapter t^ — Common tasheriespolicv ^17 
Chapter 7 — Expenditure in the regional development and transport sectors ^0 
Chapter ^ — social sector ^4 
Chapter ^ — research, energv, etc ^^ 
Chapters — Cooperation with developing countries and other non-member States.. ^1 
Chapterll—management of the Communitv institutions and the external bodies.... ^7 
Chapter!^ — Loans, borrowings and interest-rate subsidies ^ 
European lOevelopment Funds ^Bol 
15. 12. 86 Official Journal of the European Communities 5 
Annual report of the Court of Auditors 
concerning the financial year 1985 
INTRODUCTION 
1. This is the ninth annual report of the Court of 
Auditors of the European Communities and it concerns 
the accounts of the financial year 1985 (l). The Treaties (2) 
and the Financial Regulation (3) lay down that the 
Commission shall draw up and forward the accounts 
relating to the implementation of the budget and a 
financial statement of the assets and liabilities of the 
Community, together with a financial analysis of the 
preceding financial year, to the European Parliament, the 
Council and the Court of Auditors by 1 June at the latest. 
The Court is required to draw up its annual report after 
examining these documents and taking into consideration 
any information that it deems necessary to carry out its 
task. In accordance with the Treaties (4), Parliament, 
acting on a recommendation from the Council, gives 
discharge to the Commission in respect of the implemen­
tation of the budget. For this purpose, the Council and 
Parliament in turn examine the above-mentioned ac­
counts and financial statement and the annual report 
prepared by the Court of Auditors, together with the 
institutions' replies to the Court's observations. Communities and to the European Development Funds 
are presented in Annex III. 
6. The Court has sent separate reports to the relevant 
discharge authorities on the 1985 accounts of JET (the 
Joint European Torus), the European Centre for the 
Development of Vocational Training (Berlin), the 
European Foundation for the Improvement of Living 
and Working Conditions (Dublin) and the Euratom 
Supply Agency, and on the 1984 accounts of the 
European Schools. Comments on the Commission 
contributions to the budgets of the Schools are included 
in Chapter 11. The Court has also drawn up a separate 
annual report on the accounting for the functional 
activities of the ECSC and on the Commission's financial 
management in this area, as required by Article 78f(5) of 
the ECSC Treaty. 
2. Chapter 1 of Part I of the report contains the Court's 
general observations. Chapters 2 to 11 concern the 
general budget of the Communities. Chapter 12 deals 
with loan and borrowing operations under the EEC and 
EAEC Treaties and related interest subsidies financed 
from the budget. 
3. Part II of the report is concerned with the European 
Development Funds. These Funds, which provide aid to 
developing countries, do not constitute an integral part of 
the general budget of the Communities but are financed 
by specific contributions from the Member States. 
4. Annex I of the report gives the allocation of 
responsibilities amongst the Members of the Court at the 
time this report was adopted. Annex II gives a list of the 
reports and opinions adopted by the Court during the 
past five years. 
5. Summaries and various detailed analyses of financial 
information relating to the general budget of the 
(!) The footnotes appear together at the end of the Introduction. PRESENTATION OF COMMUNITY 
ACCOUNTS AND ANNUAL REPORT OF 
THE COURT OF AUDITORS 
7. The accounts for the financial year 1985 were 
forwarded by the Commission by 1 June 1986. On 17 
October 1986, however, the Court received from the 
Commission a corrected version of the revenue and 
expenditure account as at 31 December 1985 (see 
paragraph 7.11). All the comments contained in this 
report were sent to the Commission by 15 July 1986 and 
the relevant extracts of Chapters 1,2 and 11 were also sent 
to the Parliament, the Council, the Court of Justice and 
the Economic and Social Committee. 
8. The Financial Regulation provides for each insti­
tution to send its reply to the Court by 31 October at the 
latest. In practice, the formal replies are preceded by 
discussions between the institutions and the Court. These 
discussions cover both the Court's comments and the 
draft replies made available to the Court on an informal 
basis. This procedure has made it possible, in several 
cases, to adapt both the comments and the replies so that 
6 Official Journal of the European Communities 15. 12. 86 
the points of view expressed are presented to the reader as 
objectively as possible. MEMBERSHIP AND ORGANIZATION OF 
THE COURT 
9. After receiving the institutions' formal replies, the 
Court adopted its report and, in accordance with the 
provisions of Article 84 of the Financial Regulation, it 
then forwarded it, accompanied by these replies, to the 
institutions by 30 November 1986. The Court did not find 
it necessary this year, after the conclusion of the 
contradictory procedure, to add its own comments on the 
institutions' replies. This attitude does not imply that the 
Court necessarily agrees with the content of the replies. 
10. This year, for the first time and with the aim of 
making them readily identifiable, the institutions' replies 
have been highlighted by a grey line in the margin headed 
'Replies of the institutions'. 13. Subsequent to the entry into force of the Treaty 
relating to the accession of Spain and Portugal to the 
Communities, the Council, by Decision of 27 January 
1986, appointed Messrs Josep Subirats and Carlos 
Moreno as Members of the Court. The Court con­
sequently reorganized the allocation of responsibilities 
amongst its Members at its meeting of 6 February 1986. 
This allocation was further amended in May 1986, 
following the Council's appointment, with effect from 18 
May 1986, of Mr Richie Ryan as a Member of the Court 
in place of Mr Michael N. Murphy. The allocation of 
responsibilities amongst the Members of the Court is 
given in Annex I. 
11. The Court has not made any changes to the 
arrangements introduced in 1983 for the audit of its own 
accounts. The audit of a given topic in the other 
institutions also includes an examination of the use made 
of the corresponding appropriations in the Court's 
budget. Any observations arising from this examination 
are included in the relevant chapter of this report and the 
replies are annexed at the end of the report, in exactly the 
same way as the other institutions' replies. COURT BUDGET AND STAFF 
14. The Court's expenditure in 1984, including carry­
overs to 1985, amounted to 17,3 Mio ECU, and in 1985, 
including carry-overs to 1986, amounted to 18,1 Mio 
ECU. Salaries and allowances constitute the main 
component of these amounts. 
15. The budgets for 1984 and 1985 provided for the 
following numbers of posts: 
SPECIAL REPORTS 
12. As already mentioned under paragraph 4, Annex II 
gives a list of reports and opinions adopted by the Court 
during the past five years. A category staff 
LA category staff 
B category staff 
C category staff 
D category staff 
Total 1984 
107 
36 
63 
78 
19 
303 1985 
109 
36 
64 
77 
21 
307 (5) 
0 The annual report is produced in accordance with the: 
ECSC Treaty, Article 78f(4); 
EEC Treaty, Article 206a(4); 
EAEC Treaty, Article 180a(4); 
Article 83 of the Financial Regulation of 21 December 1977, 
OJ L 356 of 31.12.1977, and similar provisions in each of the 
Financial Regulations for the second, third, fourth and fifth 
European Development Funds, respectively: 
Council Decision 64/356/EEC, OJ 93 of 11.6.1964; 
Council Decision 71/68/EEC, OJ L 31 of 8.2.1971; 
Council Decision 76/647/EEC, OJ L 229 of 20.8.1976; 
Council Decision 81/215/EEC, OJ L 101 of 11.4.1981. (2) 
(3) 
(4) 
(5) ECSC Treaty, Article 78d; 
EEC Treaty, Article 205a; 
EAEC Treaty, Article 179a. 
Articles 73 to 77. 
ECSC Treaty, Article 78g; 
EEC Treaty, Article 206b; 
EAEC Treaty, Article 180b. 
Including 268 permanent posts and 39 temporary posts. 
15. 12. 86 Official Journal of the European Communities 7 
PARTI 
CHAPTER 1 
General matters 
1.0. TABLE OF CONTENTS 
Introduction 
The situation of Community finances 
Future expenditure 
General assessment of the presentation of the accounts 
Imbalance between revenue and expenditure 
Conclusion 
Regularity of certain financial operations 
Analysis of the implementation of the general budget 
Outline of the utilization of appropriations for commitment and for 
payment available in 1985 
Transfers from chapter to chapter 
Transfers of appropriations carried over 
Other observations 
Summary of observations concerning several areas 
Observations on the preparation of the budget 
System of provisional twelfths 
List of decisions by the institutions to overrule the Financial Controller's 
refusal to give his approval 
Special reports adopted by the Court since its previous annual report reference 
1.1 
1.2 
1.2 
1.5 
1.7 
1.10 
1.13 
1.14 
1.14 
1.18 
1.19 
1.20 
1.20 
1.26 
1.30 
1.36 
1.37 — 1.12 
— 1.4 
— 1.6 
— 1.9 
— 1.12 
— 1.19 
— 1.17 
— 1.36 
— 1.25 
— 1.29 
— 1.35 
INTRODUCTION 
1.1. In accordance with Article 77 of the Financial 
Regulation of 21 December 1977 ('), on 29 May 1986 the 
Court of Auditors received from the Commission the 
revenue and expenditure account, the financial analysis 
and the balance sheet of the European Communities for 
the financial year 1985 (2). The final situation regarding 
(•) The footnotes appear at the end of each chapter. the appropriations for commitment and for payment 
available in 1985 was as follows: the appropriations for 
commitment amounted to 32 320,4 Mio ECU and the 
appropriations for payment to 29 531,0 Mio ECU 
(28 437,1 Mio ECU of appropriations specific to the 
financial year 1985 and 1 093,9 Mio ECU of appropri­
ations carried over from the financial year 1984). Tables 
1.1 — 1.3 show how these appropriations were used, 
broken down by main areas of Community activity. Table 
3.1 in Chapter 3 summarizes, by type, the revenue 
collected during the financial year. 
8 Official Journal of the European Communities 15. 12. 86 
Table 1.1 — Utilization of appropriations for commitment in 1984 and 1985 
(Mio ECU) 
Sector 
1. Administration 
(all institutions) 
2. EAGGF-Guarantee 
3. Agricultural structures 
4. Fisheries 
5. Regional and 
transport policies 
6. Social policy 
7. Research, energy etc. 
8. Repayments to 
Member States 
9. Cooperation with developing 
countries 
10. Provisional appropriations 
Grand total Type of 
appropriations: 
CA = 
commitment 
appropriations; 
NDA = 
non-differentiated 
appropriations 
NDA 
NDA 
CA 
NDA 
CA + NDA 
CA 
NDA 
CA + NDA 
CA 
NDA 
CA + NDA 
CA 
NDA 
CA + NDA 
CA 
NDA 
CA + NDA 
NDA 
CA 
NDA 
CA + NDA 
CA 
NDA 
CA + NDA 
CA 
NDA 
CA + NDA 1984 
Final appro­
priations 
(1) Commitments 
entered into 
(2) 
1245,6 1223,1 (98,2%) 
18 358,0 18 330,8 (99,9%) 
908,0 819,3 (90,2%) 
51,8 51,2 (98,8%) 
959,8 870,5 (90,7 %) 
121,9 66,2 (54,3%) 
32,2 29,9 (92,9 %) 
154,1 96,1 (62,4%) 
2 595,7 2 444,4 (94,2 %) 
485,5 484,2 (99,7 %) 
3 081,2 2 928,6 (95,0%) 
2 039,4 1859,5 (91,2%) 
419,0 416,2 (99,3 %) 
2 458,4 2 275,7 (92,6%) 
1 034,9 762,5 (73,7 %) 
556,1 555,5 (99,9%) 
1591,0 1318,0 (82,8%) 
1 083,2 1 082,5 (99,9 %) 
625,0 477,9 (76,5 %) 
721,7 721,1 (99,9%) 
1 346,7 1 199,0 (89,0 %) 
E z z 
7 324,9 6 429,8 (87,8 %) 
22 953,1 22 894,5 (99,7%) 
30 278,0 29 324,3 (96,9 %) 1985 
Final 
appropriations 
(3) Commitments 
entered into 
(4) 
1336,0 1314,4 (98,4%) 
19 859,0 19 728,1 (99,3%) 
933,7 866,1 (92,8 %) 
45,2 44,8 (99,1 %) 
978,9 910,9 (93,1 %) 
155,5 74,9 (48,2%) 
59,9 46,8 (78,1 %) 
215,4 121,7 (56,5%) 
3 031,7 ' 2 637,7 (87,0%) 
3,8 3,0 (79,0 %) 
3 035,5 2 640,7 (87,0 %) 
2 558,0 2 202,9 (86,1 %) 
209,1 80,6 (38,5%) 
2 767,1 2 283,5 (82,5%) 
1 289,5 945,3 (73,3 %) 
38,3 31,9 (83,3%) 
1327,8 977,2 (73,6%) 
1 266,8 1 244,0 (98,2 %) 
1 283,8 936,6 (73,0 %) 
203,8 202,9 (99,6 %) 
1 487,6 1 139,5 (76,6 %) 
40,5 — — 
5,8 — — 
46,3 — — 
9 292,7 7 663,5 (82,5 %) 
23 027,7 22 696,5 (98,6 %) 
32 320,4 30 360,0 (93,9 %) 
15. 12. 86 Official Journal of the European Communities 
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£-1 
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15. 12. 86 Official Journal of the European Communities 11 
THE SITUATION OF COMMUNITY 
FINANCES 
Future expenditure Other liabilities and potential expenditure 
1.3. On 31 December 1985, the list of other liabilities 
and potential expenditure, which was not exhaustive, 
amounted to about 9 000 Mio ECU. The maturity dates 
of these liabilities are still to be clarified and the 
breakdown of the sum was as follows: 
Build-up of outstanding commitments against 
differentiated appropriations (a) liabilities amounting to 1 680,5 Mio ECU entered in 
the consolidated balance sheet of the Communities 
and resulting from the imbalance between revenue 
and expenditure (see paragraphs 1.7 — 1.8): 
1.2. Table 1.4 shows that, in the areas covered by 
differentiated appropriations, the amount of commit­
ments still outstanding has continued to rise, reaching 
11 805,1 Mio ECU by 31 December 1985. After deduct­
ing the relevant payment appropriations carried forward 
to 1986, amounting to 688,7 Mio ECU, a balance of some 
11 116,4 Mio ECU remains to be financed out of future 
Community budgets. The Commission ought to make an 
effort, especially in the case of the structural funds, to 
review the justification for a number of commitments 
which could turn out to be illusory, with no great 
likelihood of ever being realized and which could 
therefore, in the event of cancellation, serve to reduce the 
outstanding balance (see paragraph 1.25). (i) refundable advances granted by five Member 
States in 1984 and by five others in 1985 (see 
paragraph 3.7) in order to provide partial cover of 
1001,8 Mio ECU for the deficit forecast in 
amending and supplementary budget No 1 of the 
financial year 1984 (3); 
(ii) the residue, namely 654,8 Mio ECU, of the 1984 
deficit; 
(iii) the deficit of 23,9 Mio ECU shown in the 
consolidated revenue and expenditure account 
for 1985; 
Table 1.4 — Accumulated outstanding commitments (differentiated appropriations) 
(Mio ECU) 
Financial year 
1977 
1978 
1979 
1980 
1981 
1982 
1983 
1984 
1985 Net commitments 
entered 
into during 
the financial 
year (') 
(1) 
1 623,5 
2 797,6 
3 262,0 
3 700,6 
4 554,9 
5 466,1 
5 954,1 
6 698,2 Payments 
carried out 
during the 
financial 
year 
(2) 
918,8 
1 763,5 
2 338,2 
2 594,6 
3 032,5 
3 664,6 
4 503,2 
5 239,2 Increase of 
outstanding 
commitments 
during the 
financial year 
(3) = (1) - (2) 
704,7 
1 034,1 
923,8 
1 106,0 
1 522,4 
1 801,5 
1 450,9 
1 459,0 
Breakdown of the amount for the financial year 1985 by budget title: 
— Agricultural structures (Title 3) 
— Fisheries (Title 4) 
— Regional and transport policies (Title 5) 
— Social policy (Title 6) 
— Research, energy etc. (Title 7) 
— Cooperation with developing countries (Title 9) Accumulated outstanding commitments 
at the end of the financial year 
(4) 
1 802,7 
2 507,4 ( + 39,1%) (2) 
3 541,5 ( + 41,2%) 
4 465,3 ( + 26,1%) 
5 571,3 ( + 24,8%) 
7 093,7 ( + 27,3%) 
8 895,2 ( + 25,4%) 
10 346,1 (+16,3%) 
11805,1 (+14,1%) 
1 169,3 (+ 1,5%) 
125,8 ( + 40,1 %) 
5 336,2 (+14,4%) 
2 850,5 (+12,8%) 
1066,7 ( + 34,1%) 
1256,6 (+12,3%) 
(') Including cancellations of commitments and, in the case of 1978, adjustments made to the balances because of the exchange rate fluctuations of the ECU. 
(2) Percentage increase in comparison with the previous year. 
12 Official Journal of the European Communities 15. 12. 86 
(b) liabilities not entered in the consolidated balance 
sheet of the Communities and amounting to 
1 709,5 Mio ECU: 
(i) liabilities arising from the requests for reimburse­
ment by various Member States of 54,7 Mio ECU 
of European Agricultural Guidance and Guaran­
tee Fund, Guidance Section (EAGGF-Guidance) 
expenditure (see paragraph 5.7); 
(ii) other liabilities, estimated at about 850 Mio 
ECU, payable to Member States and connected 
with the EAGGF-Guidance programmes ap­
proved by the Commission (see paragraph 5.10); 
(iii) liabilities amounting to 466,8 Mio ECU towards 
Member States arising from programmes ad­
opted by the Commission in the field of the 
European Regional Development Fund (ERDF) 
(see paragraph 7.17); 
(iv) 38,0 Mio ECU of obligations entered into prior 
to 31 December 1985 in connection with food aid 
expenditure; 
(v) other food aid liabilities estimated at about 
300 Mio ECU and concerning the implemen­
tation of the 1985 programmes and previous 
programmes; 
(c) a contingent liability, estimated at 5 650 Mio ECU, 
for the future disposal of intervention stocks which is 
not shown in the Community balance sheet (see 
paragraph 4.23). 
1.4. By adding these other actual and contingent 
liabilities to the outstanding commitments against 
differentiated appropriations, the Court, after analysing 
in detail the principal titles in the budgets for previous 
financial years, estimates that the Communities' definite 
or contingent liabilities at 31 December 1985 amount to 
20 000 Mio ECU. 
General assessment of the presentation of the 
accounts 
1.5. The Court observes that the way these liabilities are 
set out at present is partial and heterogeneous. In some 
cases they are entered in the balance sheet, in others they 
are set out in the form of notes or 'attached notes' to the 
balance sheet, which makes them difficult to understand 
for uninitiated readers, and in yet other cases they have 
been completely omitted. Setting them out in this way lays 
the Commission open to the accusation of not having 
given a true and fair view of the Community's actual 
financial situation. 1.6. As the institution responsible for the management 
of the budget, the Commission ought to draw up a list of 
all the financial liabilities which the Communities have 
accumulated over the past and should also make an effort 
to compile a calendar of maturities. A similar mode of 
presentation to the one already partially established for 
commitments entered in the accounts, and concerning the 
structural funds in particular, is also required for other 
future liabilities, whether potential or definite, in a form 
that gives a multi-annual calendar of the payment 
appropriations needed. Presenting the facts in this way 
would oblige the budgetary authority to face up to its 
responsibilities and would enable it to draw the ap­
propriate conclusions, with full knowledge of the facts, 
regarding the revenue needing to be mobilized over and 
above the normal foreseeable financing needs that result 
from the medium-term programming of future Com­
munity budgets. 
Imbalance between revenue and expenditure 
1.7. In its annual report for the financial year 1984 (4), 
the Court particularly regretted that a situation had been 
allowed gradually to arise which increasingly con­
travened the requirements for a balanced budget, and that 
the institutions had not always exercised the budgetary 
powers conferred on them 'with due regard for the 
provisions of the Treaty ... relating to the Communities' 
own resources and to the balance between revenue and 
expenditure'. Revenue was in fact insufficient to meet 
expenditure in 1984 and the Communities' revenue and 
expenditure account showed a deficit of 827,3 Mio ECU, 
after taking into account 593,5 Mio ECU of reimbursable 
advances from the Member States received before 31 
December 1984. 
1.8. The consolidated revenue and expenditure account 
for 1985 shows a deficit of 23,9 Mio ECU, after taking 
into account 1 242,4 Mio ECU of non-reimbursable 
advances paid over by Member States, and 408,3 Mio 
ECU of reimbursable advances also owed by the latter in 
1984 but paid in 1985. This amount does not, however, 
take into account the residue of the 1984 deficit of 
654,8 Mio ECU, that is to say, a total deficit for 1984 of 
827,3 Mio ECU, less 172,5 Mio ECU taken up in the 1985 
budget. The question of accounting for this residue of 
654,8 Mio ECU has thus been deferred until the financial 
year 1986, which is contrary to Article 27 of the Financial 
Regulation, which stipulates that the balance of a 
financial year must be carried over in its entirety to the 
budget of the following financial year. The Court notes 
that preliminary draft amending and supplementary 
budget No 1 for the financial year 1986, submitted on 12 
May 1986 by the Commission (5), far from rectifying this 
abnormality, on the contrary ignores the question of 
accounting for this expenditure. 
1.9. Under the pressure of budgetary constraints, the 
Commission certainly gave the impression that, in 1985, it 
was abiding by the 1 % maximum limit laid down for the 
Community rate of value-added tax (VAT) own re-
leo L^6 COfticialiournal of the European Communities 1^ 
sources,Lhisformalobser^ance of the limit, however, 
^as only made possible by recourse to nonreimbursable 
advances from the Member States ^national contri 
butions,inother^ords^, on theonehand, and by carrying 
o^ertheresultingdeticitstosubsequentfinancialyears on 
theotherhand. Failing recourseto these devices, the 
contribution required ofmost Member States during the 
tinancialyear l^eo^ouldha^eresultedinaCommunity 
rate for VA^f o^n resources of at least 1,^^ ^^ 
paragraphs. 
PltP For the second year running,the Communities 
ha^e not observed one of the fundamental principles 
upon ^hich their linancial organization is based, namely 
the need to co^er fully each year^slinancing needs with 
the equivalent amount of annual re^enue.What is more, 
useofadvances from theMember^tates,farfrom helping 
to amortize the ^burden of the pasC— apart fromafe^ 
timid attempts to depreciate agricultural stocks— has, 
onthecontrary,allo^edittoincreasethroughoutthe 
tinancialyear 19^eo C^fcourse, to thee^tentthat the 
operation of the structural funds calls for nondif 
terentiated appropriations, the increaseinoutstanding 
expenditure partly reflects in concrete form the de^elop^ 
ment of the Communny^sacti^ities. All the same, it still 
remains true that, since 19^, a preponderant and 
growing share of these liabilities does not correspond to 
this natural growth of commitments entered into in 
connection ^ith future common policies, but rather 
corresponds to the systematic carryingDo^er of previous 
budget deticits and to postponing the task of accounting 
for certain costsarisingfrom agricultural stocks to future 
budgets t^see paragraphs'.^— ^6P 
LIP Phis being so, calling for advances from the 
Member States, though presented as a temporary, 
emergency measure,^!!! inevitably becomeapermanent 
tlnancingLOolifthe Community is both to remain within 
the l^^Blimit established forl^6 and 19^7 for the 
Community rate of VAL o^n resources and start 
seriously to amortize part of the accumulated past 
liabilities ^hich, alone, already represent the equivalent 
of more than one yearns VAL revenue for the Com 
munities. 
Pl^. Lhis prospect is all the more regrettable as 
recourse to advances from the Member States has already 
sho^n,in!9^andl^eo,thee^tentofthedamagedoneto 
the tinancial autonomy of the Communities ^hich^as 
the objective ofthe authors ofthe Precision of^l April 
1970^on the Communities^o^n resources.Lhe fact is 
that the use ofasystemofad^Bances is tantamount to 
renationalizing the budget of the Communities and, in so 
doing, negating the objective of the abo^ementioned 
decision. ^econdly,theneedtoobtainfromeachMember 
Stateprior appro^alof thead^ances reintroduces the 
po^er of individual ^eto into the Communities^ bud^ 
getary decisionmaking procedure, ^diich has hnherto 
been characterized by noting by qualitied majority. C^P^R^PIC^^S 
P1DP Certain operations raise problems as to their 
regularity^ 
^ noninclusion by the Commission in the budget for 
thetinancialyear l^^oftheresidueofthe 19^ 
dencit, amounting to 6^,^ Mio ECU^see paragraph 
^ spending,duringthepaymentofEAololEoluarantee 
advances to the Member States, in excess oP 
^ thelimitfora^ailableappropriationsforpayment 
^hen the provisional twelfths system is in force, 
asdefinedbyArticle^O^^rstindenpoftheEEC 
Lreaty and by Article ^, third indent, of the 
Financial regulation, to the extent of 
1^9,7Mio ECU during the period ianuary to 
May l^eo^seeparagraph^^ and, subsidiarily, 
^ihthe limit of available appropriations for commit 
ment^hen the provisional twelfths system is in 
force, asdetined by Article^O^^i^Mndenpofthe 
EECLreatyandbyArticle^, second indent, of 
the Financial regulation, to the extent of 
eo!6,9MioECU in the case of the advance for 
March 19^ ^see paragraph ^.9^ 
^ acashdeticitofO,lMioECUintheParliamenCs 
balancesheetasat^lL^ecemberl^^^seeparagraphs 
toh charging to 19^6 of e^penditurearising from the 
payment of salary arrears for the financial year 19^ 
at the Parliaments,6 Mio ECU-see paragraphs 
andattheCommission^l,9MioECU^seeparagraph 
^.l^mn addition, crediting all the revenue generated 
by the payment of these arrears tol^DEu 
^ underestimation by l,7Mio ECU of recoverable 
duties and ta^es^see paragraphs ^.^^ and ^.9^ 
t^D failuretocredittothebudget9,7MioECUof 
revenue deriving mainly from repayments of Social 
Fund aidt^see paragraph ^.1^^ 
^lackofbudgetaryauthorizationfor60,6MioECUof 
expenditure effected under the co^er of a line of 
negative expenditure t^see paragraph ^^^ 
^payment of 711^ ECUine^cessof theamount 
sho^ninthesupportingdocuments, in connection 
14 Official Journal of the European Communities 15. 12. 86 
with fishing agreements with certain developing 
countries (see paragraph 6.10); 
(i) 28,4 Mio ECU of non-priority Social Fund expendi­
ture and 1,8 Mio ECU of ineligible Social Fund 
expenditure (see paragraph 8.16(a)); 
(j) commitments entered into, amounting to 0,55 Mio 
ECU, despite the absence of a basic regulation (see 
paragraph 10.40); 
(k) spending of 0,6 Mio ECU in excess of available 
appropriations in the case of the Council Item 1110 
'Auxiliary staff and a loss of 57 400 ECU as a result 
of paying social security contributions twice over in 
the case of certain Community employees (see 
paragraph 11.15); 
(1) spending of 0,7 Mio ECU in excess of available 
appropriations in the case of Item A 1141 'Annual 
leave travel expenses' (see paragraph 11.16); 
(m) payment of 0,6 Mio ECU of salaries not due to 
officials posted outside the Communities (see para­
graph 11.20); 
(n) charging to the budget of the Ispra Joint Research 
Centre of 0,5 Mio ECU of expenditure on staff 
transport not provided for by the Staff Regulations 
(see paragraphs 11.25 — 11.26); 
(o) the questionable eligibility of investments involving 
the sum of some 61 Mio ECU financed by New 
Community Instrument loans and interest subsidies 
for areas devastated by earthquakes (see paragraphs 
12.28 — 12.30). 
ANALYSIS OF THE IMPLEMENTATION OF 
THE GENERAL BUDGET 
Outline of the utilization of appropriations for 
commitment and for payment available in 
1985 
1.14. For the Commission, overall utilization of 
appropriations amounted to 93,9 % of the appropriations 
for commitment available and 95,3 % of the appropri­
ations for payment available. This is primarily due to the 
decisive importance of the EAGGF-Guarantee appropri­
ations, virtually 100% of which were utilized, and it 
should therefore be stressed, as shown in Table 1.5, that 
the rate of utilization of appropriations was lower than 
90 % in the case of certain policies. In the fisheries sector, Table 1.5 — Areas where the rate of utilization of appropriations 
was less than 90 % in 1985 
Area 
Fisheries 
Regional and transport 
policy 
Social policy 
Research, energy etc. 
Cooperation with devel­
oping countries Rate of utilization (%) 
of available 
appropriations 
for commitment 
1984 
62,4 
95,0 
92,6 
82,8 
89,0 1985 
56,5 
87,0 
82,5 
73,6 
76,6 of available 
appropriations 
for payment (') 
1984 
57,2 
86,6 
90,3 
77,2 
77,9 1985 
56,1 
89,4 
85,1 
73,6 
79,9 
(') Including carry-overs from the previous financial year. 
in particular, the rate of utilization of appropriations for 
commitment fell from 62,4 % in 1984 to 56,5 % in 1985, 
whilst for the development cooperation sector the rate fell 
from 89,0 % in 1984 to 76,6 % in 1985. 
1.15. Out of the five areas in which the rate of 
utilization was lower than 90 %, the Court drew up a list 
(see Table 1.6) of the budget headings which, in 1985, were 
allocated more than 5 Mio ECU and for which the rate of 
utilization was below 75 %. Volume I of the revenue and 
expenditure account provides explanations for several of 
these cases of under-utilization. The Court's list shows, 
where appropriate, the extent to which the headings in 
question had been amended by the European Parliament. 
The Court notes in particular that the 120 Mio ECU of 
commitment appropriations, including 50 Mio ECU 
following a Parliament amendment, which were allocated 
to Article 551 'Integrated Mediterranean programmes — 
Community measures' remained entirely unspent (see 
paragraph 7.20). In the case of Article 581 'Financial 
support for transport infrastructure projects inside the 
Community', to which the Parliament allocated an 
additional 14 Mio ECU of payment appropriations and 
60 Mio ECU of commitment appropriations, only the 
appropriations carried over from 1984 were utilized (see 
paragraph 7.21). Finally, mention must also be made of 
the case of Article 958 'Special programme to combat 
hunger in the world', to which 29,5 Mio ECU of payment 
appropriations were allocated (29 Mio ECU of which 
were allocated by Parliament) and which remained 
practically unutilized (see paragraph 10.40). 
1.16. Tables 1.2 and 1.3 show the appropriations for 
payment of the financial year which were carried over 
(1 086,1 Mio ECU) or cancelled (214,5 Mio ECU) at 31 
December 1985, making a total of unutilized appropri­
ations of 1 300,6 Mio ECU. This sum represents a 
considerable increase on the figure recorded as at 31 
December 1984 (1 151,5 Mio ECU). 
15. 12. 86 Official Journal of the European Communities 15 
Table 1.6 — Budget headings with allocations greater than 5 Mio ECU where the rate of utilization of appropriations for 
payment (AFP) and/or appropriations for commitment (AFC) was lower than 75 %, 
specifying, where appropriate, the amendments made by the European Parliament 
Area 
Fisheries 
Regional and 
transport policies 
Social policy 
Research, 
energy, etc. 
Cooperation 
with developing 
countries Budget 
Heading 
4010 
422 
450 
460 
505 
510 
5411 
5420 
550 
551 
581 
650 
651 
7020 
704 
7302 
7306 
7320 
7326 
7328 
7335 
7390 
941 
958 
96 Heading 
Withdrawal and carry-over premiums 
Expenditure in connection with agreements on fishing 
rights 
Adjustment of capacity in the fisheries sector 
EAGGF (Guidance) — Common measures to restructure, 
modernize and develop the fishing industry and to develop 
aquaculture 
ERDF operations (1984 revision) 
ERDF — specific Community measures 
Community measures in the framework of integrated 
operations 
Construction, fitting-out and equipment of vocational 
training centres 
Mediterranean programmes — preparation of integrated 
programmes 
Integrated Mediterranean programmes — Community 
operations 
Financial support for transport infrastructure projects 
within the Community 
Contribution to the ECSC for social measures in connec­
tion with the restructuring of the steel industry 
Restruction of the local industry in the Community 
New technologies for burning solid fuels and using the 
residues thereof 
Community energy-saving programme 
Industrial technologies — basic technological research and 
application of new technologies 
Biotechnology 
Non-nuclear energy 
Health and safety — Biology and health protection 
Environment — Sectoral programme 'Environment' 
Information technologies — Esprit 
Completion of joint programmes 1980-83 
Community contribution towards schemes concerning 
developing countries carried out by NGOs 
Special programme to combat hunger in the Third World 
Cooperation with countries of the Mediterranean basin Available 
appropriations (') 
(Mio ECU) 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 22,9 
22,9 
14,2 
8,1 
41,3 
43,0 
29,4 
103,0 
411,0 
2 474,0 
33,4 
180,9 
30,6 
34,9 
11,6 
15,1 
20,0 
20,0 
p.m. 
120,0 
66,0 
170,0 
62,5 
62,5 
60,0 
60,0 
13,0 
16,4 
31,2 
29,9 
12,3 
61,5 
6,6 
34,1 
25,3 
85,3 
16,7 
22,8 
15,6 
13,9 
143,2 
295,6 
23,9 
4,1 
48,1 
42,5 
56,0 
29,5 
298,2 
241,7 of which 
added by 
Parliament 
(Mio ECU) 
— 
— 
— 
2,0 
39,9 
10,0 
— 
— 
50,0 
14,0 
60,0 
— 
— 
-1,0 
— 
— 
-0,3 
-0,3 
8,2 
28,7 
-2,9 
-2,9 
3,5 
1,6 
5,0 
— 
12,0 
5,0 
14,0 
29,0 
— Utili­
zation 
rate(') 
(%) 
70,4 
70,4 
62,0 
36,3 
14,3 
100,0 
63,9 
72,0 
99,3 
100,0 
20,9 
29,4 
97,6 
34,4 
58,5 
43,6 
33,8 
— 
41,5 
46,9 
— 
— 
46,9 
98,8 
50,0 
97,3 
8,1 
8,4 
14,5 
11,1 
39,1 
16,1 
63,5 
90,9 
71,4 
66,2 
69,6 
75,3 
49,0 
68,5 
65,0 
99,0 
41,0 
2,0 
43,0 
56,0 
(') Including carry-overs and/or existing appropriations. 
16 Official Journal of the European Communities 15. 12. 86 
Cancellations of appropriations for payment during the 
period 1980-85 
1.17. Table 1.7 shows, for the financial years 1980 to 
1985, the cases where appropriations for payment 
available were cancelled. It can be seen that the average 
rate of cancellation was 2,7 % and that, after reaching a 
maximum of 6,7% in 1982, it gradually decreased to 
1,2% (i.e. 341,8 Mio ECU) in 1985. The average 
cancellation rates observed vary considerably from one 
sector to another: from 1,0 % in the case of regional 
policy to 16,5 % in the case of the fisheries sector. 
Transfers from chapter to chapter 
1.18. Apart from the appropriations from Chapter 100 
'Provisional appropriations', transfers of appropriations 
for payment from chapter to chapter in 1985 amounted, 
in the case of the Commission, to 1 224 Mio ECU. 
Moreover, the Court notes that Article 505 'ERDF 
operations (1984 revision)', originally allocated 281 Mio 
ECU of payment appropriations of the financial year, 
was subsequently strengthened by 70 Mio ECU which in 
the end were carried over entirely to the financial year 
1986 (see paragraph 7.9). Similarly, a sum of 10 Mio 
ECU, transferred to Item 6011 'Other regions' of the 
Social Fund, was also carried over. and health protection' and 7351 'Horizontal 
projects — Stimulating scientific and technical 
potential'; 
(b) transfers within chapters: 
(i) 1,0 Mio ECU of payment appropriations and 
commitment appropriations transferred from 
Item 7503 'Community activities in the special­
ized information sector' to Item 7520 'Ex­
ploratory projects in the field of innovation'. This 
operation amounts to a transfer from the 
appropriations carried over to the appropriations 
of the financial year; 
(ii) 1,05 Mio ECU of payment appropriations trans­
ferred from Articles 931 'Promotion of trade 
relations with non-associated developing coun­
tries' and 933 'Cooperation with non-associated 
developing countries on energy' to Article 930 
'Financial and technical cooperation with non-
associated developing countries'; 
(iii) 1,0 Mio ECU of payment appropriations trans­
ferred from Item 3220 'EAGGF-Guidance — 
Agricultural advisory services in Italy' to Item 
3290 'EAGGF-Guidance — Acceleration of 
agricultural development in certain regions of 
Greece'; 
Transfers of appropriations carried over 
1.19. During the financial year 1985 the Commission 
carried out transfers of appropriations carried over from 
1984. This procedure has already been criticized by the 
Court, in its annual reports for the financial years 1979 (7) 
and 1980 (8), because it is contrary to the principle of the 
annuality of the budget and because there is no provision 
for it in the Financial Regulation. The following specific 
cases were noted: 
(a) transfers approved by the budgetary authority: (iv) 0,5 Mio ECU of commitment and payment 
appropriations transferred from Item 7771 
'Mineral raw materials' to Item 7710 'Com­
munity operations for developing microelec­
tronics technology'. 
OTHER OBSERVATIONS 
(i) 60 Mio ECU of payment appropriations transfer­
red from Article 510 'ERDF — Specific Com­
munity measures' to Article 505 'ERDF oper­
ations (1984 revision)' (see paragraph 7.10); Summary of observations concerning several 
areas 
(ii) Altogether, 17,1 Mio ECU of payment appropri­
ations withdrawn from Items 7302 'Industrial 
technologies — Basic technological research and 
applications of new technologies', 7306 'Bio­
technology' and 7320 'Non-nuclear energy sour­
ces' were transferred to Items 7315 'Nuclear 
fission — Management and storage of radioac­
tive waste', 7326 'Health and safety — Biology 1.20. In certain important areas of Community activity, 
particularly where government departments and bodies 
in Member States (or developing countries) play a vital 
part, the Commission should be more active in its 
coordinating and supervisory role, in order to guarantee 
better protection of Community interests (see paragraphs 
3.23, 4.39(d), 4.44, 5.49, 7.61, 8.34, 10.25 — 10.36). 
15. 12. 86 Official Journal of the European Communities 17 
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18 Official Journal of the European Communities 15. 12. 86 
1.21. Some Member States are not prepared to 
cooperate with the Court and the Commission as regards 
access to information, with the result that the Court has 
not so far been able to discharge fully its responsibilities 
for the audit of VAT own resources (see paragraphs 3.17 
— 3.20) and the EAGGF-Guarantee (see paragraph 
4.56). 
1.22. The management activity of the Commission 
could be strengthened by an improvement in the financial 
and management information which is already in its 
possession (see paragraphs 7.63 — 7.64, 9.9, 10.7 — 
10.10, 10.23) or which it is entitled to insist upon receiving 
in its capacity as a principal in matters where the 
European Investment Bank acts as its agent (see 
paragraph 12.41). 
1.23. Budgetary control over financial commitments is 
rendered difficult on account of the various practices 
followed by the Commission with regard to commitments 
(see paragraphs 5.8 — 5.9, 7.17, 9.13). 
1.24. Delays and slow progress were observed in the 
implementation of operations financed by the Com­
munities, even in cases of emergency (see paragraphs 5.35, 
5.39, 6.16, 12.19 12.22). 
1.25. The sometimes inefficient monitoring of outstand­
ing commitments leads to unnecessary immobilizations of 
appropriations and to very belated recoveries of amounts 
— which are at times substantial — paid unduly to third 
parties. These late recoveries do not generally yield 
interest for the Communities (see paragraphs 6.14 — 6.15, 
7.62, 8.35). 
Observations on the preparation of the budget 
1.26. Various observations set out in this report (see 
paragraphs 1.18, 5.11 — 5.14, 7.8 — 7.9, 9.2, 10.20 — 
10.22, 10.39—10.41) suggest that the preparation of the 
budget could be substantially improved. 
1.27. Since the widespread introduction of differen­
tiated appropriations in 1977, the budget documents 
include, for the majority of headings relating to the 
operational expenditure of the Communities other than 
those of the EAGGF-Guarantee, comments including a 
likely schedule of payments vis-a-vis commitments. The 
schedules given in the budget for the financial year 
1985 (9) were prepared during the financial year 1984 and 
show certain amounts taken from the annual budgetary 
accounts of the financial year 1983. These amounts 
correspond to commitments still to be paid or to 
outstanding commitment appropriations for which new 
payment appropriations are necessary. For Community activities which have been implemented for several years, 
these data relating to 1983, at least as much as the 
commitment appropriations for the financial year 1985, 
form the basis for fixing payment appropriations for the 
latter financial year. 
1.28. The Court examined the payment schedules 
concerning the differentiated appropriations for Titles 3 
to 9 shown in the budget for the financial year 1985, in 
order to determine whether the data taken from the 
accounts of the financial year 1983 were accurate and 
whether the forecasting of new appropriations required 
had been carried out correctly. This examination revealed 
a considerable number of anomalies affecting the 
calculation of requirements in terms of new payment 
appropriations, that is, for the budget year 1985, as well as 
for subsequent years. 
1.29. The most important anomalies may be broken 
down into the following three categories: 
(a) new payment appropriations had been entered 
unnecessarily, due to the failure to take account of 
payment appropriations carried over from the 
financial year 1983 (11 cases totalling 59,9 Mio ECU, 
of which, for example, 35,8 Mio ECU for Article 510 
'ERDF — Specific Community measures'); 
(b) in the schedule, the payment appropriations to cover 
commitment appropriations were inadequate and in 
some cases had even been omitted (11 cases totalling 
17,4 Mio ECU, of which, for example, 7,4 Mio ECU 
of appropriations from 1983 in Item 3242 'EAGGF-
Guidance — West of Ireland' (see paragraph 5.13) 
and 3 Mio ECU of commitment appropriations from 
1984 in Item 3222 'EAGGF-Guidance — meat 
production in Italy'); 
(c) no new payment appropriations had been entered to 
cover commitment appropriations because the Com­
mission had included in the schedule appropriations 
supposed to have been carried forward from 1983 
which in fact had not been carried forward (three 
cases, totalling 7,9 Mio ECU, of which, for example, 
6,2 Mio ECU for Item 3312 'EAGGF-Guidance — 
non-marketing of milk'). 
System of provisional twelfths 
1.30. The administration of the financial year 1985 was 
marked by the consequences of the rejection, on 13 
December 1984, of the draft budget for 1985. Thus, from 
1 January to 13 June 1985, the date of the final adoption 
of the budget for the financial year, budgetary adminis­
tration was governed by the provisions of Article 204 of 
the EEC Treaty and Article 8 of the Financial Regulation, 
which define the system of provisional twelfths. 
15. 12. 86 Official Journal of the European Communities 19 
1.31. This system, which lays down strict rules as 
regards the management of appropriations, applies to 
commitment and payment operations by chapter, within 
the lower limit for appropriations for each chapter 
derived from the budget of the preceding financial year, 
and from the draft budget in preparation. Furthermore, 
within the framework of this system, only 'expenditure of 
a kind already approved in principle in the last budget 
duly adopted' may be implemented. Finally, it should be 
pointed out that this system, though not opposed to the 
utilization of appropriations carried forward from the 
preceding financial year as a form of delayed implemen­
tation of the previous budget, does prohibit recourse to 
transfers from chapter to chapter inasmuch as such a 
practice constitutes a technique for implementing a 
rejected budget and because the budgetary authority may, 
at the request of the Commission, authorize expenditure 
representing two or more additional twelfths if the 
appropriations of particular chapters are insufficient. 
1.32. The Court took particular care to analyse the 
implementation of the provisional twelfths system during 
the financial year 1985. This analysis resulted in two types 
of observations. 
Observations on the incompleteness of the existing 
legislation 
1.33. As the Court emphasized in its annual report for 
the financial year 1980 (10) and subsequently in its 
opinions (u) on the proposals for a Council Regulation 
amending the Financial Regulation, the provisions of the 
Financial Regulation concerning the provisional twelfths 
system are in places imprecise or incomplete: 
(a) regarding, first of all, the implementation of the 
system itself, it can be seen that the definition of the 
limits applicable to the calculation of the provisional 
twelfths is sometimes ambiguous; in addition, there is 
still no clear explanation of how the advances that the 
Commission is required to pay under the EAGGF-
Guarantee to the Member States should be treated in 
the accounts; 
(b) what is more, some of the consequences of the 
transition from management under a system of 
provisional twelfths to normal implementation of the 
budget call for legislative clarification: for example, 
the conditions for regularizing payments in excess of 
available appropriations by items (or articles) made 
under the system of provisional twelfths, that is, when 
the limit applicable to the spending of appropriations 
is applied by chapter, are not specified in the 
legislation in force at present. Observations on the management of the budget under 
the provisional twelfths system 
1.34. Though revenue was made available without any 
special difficulty during the period of application of the 
system of provisional twelfths, analysis of the manage­
ment of expenditure has revealed various irregularities. In 
particular, the Court noted the following infringements: 
(a) management of EAGGF-Guarantee advances: the 
irregularities in the management of these advances as 
regards the rules limiting the available appropriations 
when the provisional twelfths system is in force are set 
out in paragraphs 1.13(b) and 4.6 — 4.11 of this 
report; 
(b) transfers of appropriations: at the request of the 
Commission, the budgetary authority approved, 
during the period from 1 January to 13 June 1985, a 
transfer of an amount of 36 Mio ECU of commitment 
appropriations within Chapter 73. According to the 
provisions of Title VII (Article 94, indent 1) and 
Article 8 of the Financial Regulation, such an 
operation, concerning research and investment 
appropriations, should be treated as a transfer from 
chapter to chapter and is therefore irregular; 
(c) entry in the accounts: on several occasions expendi­
ture was entered in the accounts in an irregular 
manner or in excess of available appropriations (see 
paragraphs 4.8 — 4.9, 6.9). These situations were not 
regularized until after the final adoption of the budget 
on 13 June 1985. 
1.35. The Court deplores the fact that the implemen­
tation of the provisional twelfths system in 1985 was 
inconsistent in this way, thanks especially to the 
inaccuracies of the legislation and to the variety of 
practices developed by the institutions or their depart­
ments in order to remedy them. The Court must once 
again stress the need to complete the revision of the 
Financial Regulation, which was submitted to the 
Council in 1983 and on which no decision has yet been 
taken, as well as the revision of the corresponding 
implementation procedures. Only thus can the definitive 
clarification of the text be achieved which the difficulties 
experienced during the management of the financial year 
1985 have yet again shown to be urgently required. 
List of decisions by the institutions to overrule 
the Financial Controller's refusal to give his 
approval 
1.36. Pursuant to the provisions of Article 35 of the 
Financial Regulation, the Court was informed of one 
20 Official Journal of the European Communities 15. 12. 86 
decision taken by the Parliament and of five decisions 
taken by the Commission during 1985 to overrule refusals 
of approval by the respective Financial Controllers. The 
Court's observations on some of these decisions are set 
out in paragraphs 4.52 and 11.33 — 11.35. (a) special report 4/85 on the common organization of 
the market in fishery products; 
(b) special report 5/85 on the Community contribution 
towards schemes concerning developing countries 
carried out by non-governmental organizations; 
SPECIAL REPORTS ADOPTED BY THE 
COURT SINCE ITS PREVIOUS ANNUAL 
REPORT (c) special report 1/86 on the contract measures for the 
expansion of markets for milk and milk products 
financed by proceeds of the co-responsibility levy; 
(d) special report 2/86 on the ERDF's specific Com­
munity regional development measures (non-quota 
measures); 
1.37. The following special reports (12) have been 
adopted by the Court since its previous annual report: (e) special report 3/86 on the subsidy system for oilseeds. 
(i) OJ L 356 of 31.12.1977. 
(2) Doc. COM(86) 208 — 212. 
(3) OJL 329 of 17.12.1984. 
(4) OJ C 326 of 16.12.1985, paragraph 1.22. 
(5) Doc. COM(86) 225. 
(6) OJ L 94 of 28.4.1970. 
O OJ C 342 of 31.12.1980, paragraphs 1.10 (8) OJ C 344 of 31.12.1981, paragraph 1.14. 
(9) OJ L 206 of 5.8.1985. 
(i°) OJC 344 of 31.12.1981, paragraphs 1.15— 1.18. 
(") OJ C 232 of 11.9.1981 and OJ C 122 of 13.5.1982. 
02) For the precise references, see Annex II to this report. 
1.11. 
15. 12. 86 Official Journal of the European Communities 21 
CHAPTER 2 
Accounting matters 
2.0. TABLE OF CONTENTS Paragraph 
reference 
Introduction 
Observations on the general accounts and the balance sheets 
Parliament 
Cash deficit 
Imprest accounts 
Salary arrears 
Commission 
Recoverable taxes and duties 
Revenue to be recovered 
Advances to staff and staff current accounts 
Salary arrears 
Various items of revenue to be credited 
Press and information offices and external delegations 
Reimbursement of expenditure incurred on behalf of the ECSC 
Observations on the Commission's cash management 
Banking terms 
System of management based on estimates and cash distribution 2.1 
2.2 2.17 
2.2 
2.2 • 
2.4 
2.5 
2.6 
2.6 
2.11 
2.12 
2.13 
2.14 
2.15 
2.16 
2.18 
2.19 
2.23 -— 2.5 
— 2.3 
— 2.17 
— 2.10 
— 2.17 
— 2.24 
— 2.22 
— 2.24 
INTRODUCTION 
2.1. The observations set out in this chapter concern, on 
the one hand, the general accounts and the balance sheets 
of the Parliament and the Commission, and, on the other 
hand, cash management in respect of the implementation 
of the general budget. sheet at 31 December 1984 as deferred expenditure under 
the heading 'Cash deficit', is still to be seen in the balance 
sheet at 31 December 1985. In this connection, the Court 
of Auditors must refer the reader to its reports on 
previous financial years (*). 
2.3. The situation at 31 December 1985 was as follows: 
OBSERVATIONS ON THE GENERAL 
ACCOUNTS AND THE BALANCE SHEETS (a) no regular supporting documents have yet been 
produced to justify this 4,1 Mio BFR shortage, with 
the result that the Parliament has been obliged since 
1982 to enter this sum on the assets side of its balance 
sheet as 'Expenditure to be charged'; 
PARLIAMENT 
Cash deficit (b) the insurance company which, in accordance with the 
provisions of Article 70(3), indent 1, of the Financial 
Regulation of 21 December 1977 (2), covers the risks 
of loss or depreciation of the funds entrusted to the 
accounting officers and the administrators of the 
imprest accounts, refused to refund the sum in 
2.2. The amount of 4,1 Mio BFR (about 0,1 Mio 
ECU), which was included in the Parliament's balance (') The footnotes appear at the end of each chapter. 
22 Official Journal of the European Communities 15. 12. 86 
question in 1984 as it took the view that in this case 
there had been a 'serious misdemeanour and a 
deliberate infringement of the regulations'; 
(c) the disciplinary measure (downgrading) taken in 1984 
with regard to the person who held the office of 
Accountant at the time of the loss was overturned by 
the Court of Justice on 20 June 1985 on grounds of 
procedural irregularities; 
(d) at the recommendation of its Committee on Bud­
getary Control, Parliament, meeting in plenary 
session, voted to grant discharge to the Accountant 
for the financial year 1981 whilst at the same time 
reserving the right to look into the matter again when 
the time came to consider granting discharge for the 
financial year 1982; 
(e) this was the background against which Parliament 
asked the Court on 24 July 1985 for its opinion 
regarding the amount and the origin of the deficit; in 
its Opinion, which was delivered in November 
1985 (3), the Court concluded that irregularities had 
been committed from 1981 onwards and that a cash 
deficit of 4,1 Mio BFR, corresponding to two 
cheques in UKL drawn in September and November 
1981, had been incurred. 
Imprest accounts 
2.4. On several occasions (4) the Court has criticized the 
excessively high number of imprest accounts, the way 
they are operated (the time allowed for the settlement of 
expenditure effected and the book-keeping) and, in 
particular, the procedures in use at the Members' Cash 
Office. In spite of the efforts that have been made since 
1982 to improve the administrative and accounting 
organization of the imprest accounts, they are still too 
cumbersome in their mode of operation. This is especially 
true of the Members' Cash Office because of the high 
number of payments in cash or by cheque and the absence 
of individual accounts. For this reason the Court wishes 
to ask Parliament: 
(a) to look once again at the grounds for maintaining the 
imprest accounts and, in particular, to see whether the 
appropriations concerned cannot be managed in 
accordance with the normal procedures, as laid down 
in the Financial Regulation (2); 
(b) in the case of the Members' Cash Office, to look at 
ways of eliminating cash payments. 
Salary arrears 
2.5. Payment of salary arrears for the financial year 
1985 was charged, on the strength of a single author­
ization, partly to the financial year 1985 (to the extent of the remaining appropriations, namely 1 Mio ECU) and 
partly, as regards the balance, to the financial year 1986 
(1,6 Mio ECU). All the revenue resulting from the 
payment of these arrears (in the form of taxes and 
miscellaneous deductions: 0,8 Mio ECU), on the other 
hand, was credited to the financial year 1985. The Court 
must point out that: 
(a) these salary arrears, which concerned the financial 
year 1985 only, should have been entered in the 
accounts for 1985, using the appropriate procedures 
in order to obtain the required appropriations; 
(b) in addition, crediting revenue arising from the 
expenditure of a given financial year to the previous 
financial year does not seem regular; 
(c) finally, since the authorization for the expenditure is 
dated 9 January 1986, entering the corresponding 
revenue or expenditure in the accounts for the 
financial year 1985 amounts to an irregularity. 
COMMISSION 
Recoverable taxes and duties 
2.6. The Court has already had occasion to observe (5) 
that the procedure concerning recoverable duties and 
taxes ought to be improved. In particular, the Court 
noted that the system in use provided no means of 
ensuring that reimbursement had been requested for all 
the recoverable taxes and duties previously charged to the 
budget. 
2.7. In effect, this system involves entering expenditure 
in the accounts inclusive of all taxes and duties. The 
amount of recoverable duties and taxes is then de­
termined by the department concerned from evidence 
other than accounting evidence, on the basis of invoices 
forwarded by the authorizing departments. This sum is 
determined at the beginning of the following financial 
year and a request for reimbursement is then sent to the 
Member States before the sum is entered in the balance 
sheet amongst the Commission's accounts receivable. 
2.8. Bearing in mind the time-lag between the payment 
of the invoices and the request for reimbursement, the 
Court decided to test the reliability of the system by 
examining taxes paid in 1984 and the related reimburse­
ment applications drawn up in 1985. These checks, which 
covered 16 budget items, concerning all the study 
contracts commissioned by the Commission, showed 
that: 
15. 12. 86 Official Journal of the European Communities 23 
(a) the drafting of the study contracts does not provide 
any means of establishing whether the contractor, 
particularly when he or she is a natural person, is or is 
not subject to value-added tax (VAT), or whether the 
tax has been included in the invoiced amount and 
should be recovered. One general clause stipulates 
that 'if the contractor is liable to charge VAT on the 
fee paid in remuneration of the study work the 
amount of the tax shall be included in the all-in sum 
mentioned in the contract'; 
(b) in the case of studies carried out by natural persons, 
payment is made on the evidence of the contracts and 
not on submission of an invoice, which would make it 
easier to establish whether VAT was involved and to 
recover it in cases where it was involved; 
(c) out of 29 invoices including recoverable taxes, 
applications for reimbursement were made in respect 
of only 18 during 1985 or in 1986, and 11 sums 
(amounting to about 63 000 ECU) were omitted. 
2.9. In its annual reports on the financial years 1983 (6) 
and 1984 (7), the Court criticized the fact that the amount 
of recoverable taxes and duties was only entered in the 
accounts (in the balance sheet) once the request for 
reimbursement had been sent to the Member State 
concerned. At 31 December 1985, the amount of 
recoverable VAT entered in the Commission's balance 
sheet was 1,1 Mio ECU. This figure is incorrect and 
should be 2,7 Mio ECU, because: 
(a) the sum of 2,2 Mio ECU, corresponding to re­
coverable taxes for which applications for reimburse­
ment have not been sent to the Member States, is not 
included; 
(b) recoverable taxes and duties (amounting to 0,6 Mio 
ECU) on purchases by the Petten Centre have been 
entered twice. 
2.10. The Court must thus urge the Commission once 
again to do what it has already undertaken to do and 
review as soon as possible its procedures relating to 
recoverable taxes and duties. 
Revenue to be recovered 
2.11. On 31 December 1985 the item 'Revenue to be 
recovered' amounted to 780 Mio ECU, most of which 
(763 Mio ECU) was made up of miscellaneous claims that 
had fallen due. The overall situation regarding claims that 
have fallen due, in chronological order (by maturity date), 
is as follows: Maturity 
1982 and before 
1983 
1984 
1st half of 1985 
3rd quarter of 1985 
October 1985 
November 1985 
December 1985 Amount 
in Mio ECU 
1,8 
4,2 
9,5 
6,7 
1,3 
1,4 
1,6 
736,6* 
763,1 
* This sum, mainly made up of non-refundable claims 
against the Member States, was recovered at the 
beginning of 1986. 
The Court must ask the Commission to take all necessary 
measures to accelerate the compilation of computer print­
outs in order to monitor the claims and recover those 
claims which have fallen due as soon as possible. 
Advances to staff and staff current accounts 
2.12. On 31 December 1985 advances to members of 
staff amounted to 4 Mio ECU and staff current accounts 
amounted to 0,2 Mio ECU. These sums are supported by 
computer print-outs submitted to the Court on 2 June 
1986. Checks of the final print-outs showed: 
(a) that there is still a very high number of creditor 
balances (981 items) amounting in all to 1,2 Mio 
ECU; 
(b) that many balances go back to before the financial 
year 1985, which constitutes an infringement of 
Article 65 of the Financial Regulation. 
There was thus no sufficiently detailed examination of 
these computer print-outs during 1985, contrary to what 
the Commission had undertaken to do in its reply to the 
Court's report on the financial year 1984 (8). 
Salary arrears 
2.13. The payment of salary arrears for the financial 
year 1985 was charged, on the basis of two separate 
24 Official Journal of the European Communities 15. 12. 86 
authorizations, partly to the financial year 1985, as far as 
available appropriations (7,7 Mio ECU) would allow: 
the remainder was charged to the financial year 1986 
(1,9 Mio ECU). The revenue generated by the payment of 
these arrears (consisting of taxes and miscellaneous 
deductions amounting to 3,5 Mio ECU), on the other 
hand, was credited to 1985. The Court must point out 
that: 
(a) these salary arrears, which concerned the financial 
year 1985 only, should have been entered in the 
accounts for 1985, using the appropriate procedures 
in order to obtain the required appropriations; 
(b) in addition, crediting revenue arising from the 
expenditure of a given financial year to the previous 
financial year does not seem regular. 
Various items of revenue to be credited 
2.14. On 31 December 1985 the account 'Budgetary 
revenue to be credited' showed a credit balance of 
9,7 Mio ECU (compared with 0,8 Mio ECU on 31 
December 1984). This abnormal situation, resulting 
mainly from reimbursements of unused aid from the 
European Social Fund for 1985, constitutes an infringe­
ment of Article 15 of the Regulation laying down 
implementation measures for certain provisions of the 
Financial Regulation (9). If all the revenue received had 
been entered in the accounts, the deficit for the financial 
year 1985 could have been reduced. 
Press and information offices and external 
delegations 
2.15. On 31 December 1985 cash held by the press and 
information offices and external delegations amounted to 
10,8 Mio ECU. The Court examined the ceilings fixed for 
the financial year 1985 for the 'Press and information 
offices and external delegations' imprest accounts. The 
Court's investigations have revealed that the ceiling fixed 
for the imprest accounts amounts to between 2,5 and 4,7 
months' expenditure, which seems excessive; in addition, 
in the case of three imprest accounts for which the ceiling 
is equal to more than three months' average expenditure, 
no interest is earned by excess funds in the bank accounts. 
The Court calls upon the Commission to review the 
ceilings established for the press and information offices 
and external delegations and to ask the administrators of 
the imprest accounts to re-negotiate the terms governing 
the operation of their bank accounts. 
Reimbursement of expenditure incurred on 
behalf of the ECSC 
2.16. In 1971 the ECSC purchased a property in 
Washington which has since been used as the residence of the Head of the Commission's delegation to the United 
States. The ECSC receives a rent for the use of this 
building which is paid from the general budget of the 
Communities and which, since 1984, amounts to 60 000 
ECU a year. Maintenance costs are borne by the ECSC. 
2.17. During an on-the-spot audit, the Court observed 
that extensive renovation work had been carried out on 
the building in 1982 and 1983 on behalf of the ECSC. The 
total, about 399 750 USD (about 0,5 Mio ECU), was paid 
from the Commission delegation's imprest account in 
Washington. At the moment the audit took place, at the 
beginning of March 1986, settlement of this sum, between 
the European Communities and the ECSC, had not taken 
place. Although, more than two years after the com­
pletion of the works (at the end of 1983), the Commission 
had the supporting documents relating to the account 
available, the ECSC did not pay over the sum it owed the 
European Communities until 24 March 1986. 
OBSERVATIONS ON THE COMMISSION'S 
CASH MANAGEMENT 
2.18. The Court's observations on cash management in 
respect of the implementation of the general budget set 
out in its annual report on the financial year 1984 (10) 
mainly concerned the financial year 1983, for the reasons 
stated in these observations. In its replies, the Commis­
sion indicated that some procedures had since been 
improved. For this reason the Court carried out a survey 
of banking terms and the system of managing and 
distributing cash resources based on the use of estimates 
which has been in operation since October 1985. 
Banking terms 
2.19. The Commission's files on the terms applying to 
its bank accounts consist mainly of the banks' replies to a 
questionnaire obtained at the request of the Court during 
its preparatory audit work for the annual report on the 
financial year 1984. These files are still incomplete 
because certain replies and certain items of information 
are still lacking. Similarly, some items of information 
arising from the renegotiation of certain banking terms 
have not yet been placed on file. 
2.20. The renegotiations of terms with some of the 
banks, which were prompted by the Court's investi-
15. 12. 86 Official Journal of the European Communities 25 
gations, have produced some positive results. All the 
same, the Court must point out that: 
(a) no prior study was carried out to establish the 
optimum terms which a customer of the quality of the 
European Communities could reasonably expect and 
priority in approaching the banks with a view to 
renegotiating terms was not given to those that 
offered the least satisfactory terms; 
(b) the terms requested and obtained differ appreciably 
from one bank to another within the same country; 
(c) no improvement has yet been obtained from some 
banks notwithstanding that they have the benefit of a 
considerable volume of Community business; 
(d) the negotiations are not carried out in liaison with the 
other institutions. 
For this reason, the Court must stress that the Commis­
sion should make systematic use of competitive tendering, 
which is the most suitable way of obtaining the finest 
banking terms. 
2.21. At present, there is practically no form of check to 
ensure that the banking terms are being correctly 
implemented: 
(a) the interest-rate scales are not filed: there is thus no 
way of checking that all the scales have been received, 
nor of checking the amounts and the interest rates; 
(b) there is no systematic check of the charges and 
commissions received by the banks; 
(c) there is no systematic comparison of exchange rates 
with independent indicators; 
(d) there is no adequate check of value dates, in particular 
because the transfer orders do not (except in special 
cases) mention the value date. 
2.22. The Court recommends that the Commission 
should make an increased effort to: (a) renegotiate the terms applying to its bank accounts, in 
liaison with the other institutions, with a view to 
improving them; 
(b) keep the file on banking terms up to date; 
(c) check that the banks are actually applying the agreed 
terms; 
(d) generalize the practice of mentioning the value date 
on transfer orders. 
System of management based on estimates 
and cash distribution 
2.23. Article 12 of Council Regulation (EEC) No 2891/ 
77 of 19 December 1977 implementing the Decision of 21 
April 1970 on the replacement of Member State's 
financial contributions by the Community's own re­
sources (n) states that 'the difference between the overall 
assets and the cash resource requirements shall be divided 
among the Member States, as far as possible, in 
proportion to the estimated budget revenue from each of 
them'. The Court investigated the question of whether the 
distribution of funds amongst the Member States had 
been improved. In spite of the progress in the mode of 
calculation the discrepancies were greater in 1985 than in 
1983: 
(a) as a monthly average, the proportion of incorrectly 
distributed funds rose to 19 % of the total during the 
second quarter of 1985, compared with 15,5 % for the 
financial year 1983 as a whole; 
(b) the proportion of incorrectly distributed funds 
averaged 67,4 % at the end of the months of April, 
May and June, compared with an average of 23,4 % 
for the whole of 1983. 
2.24. The worsening of the results in spite of the 
improvements to the system may be largely explained by 
the unreliability of the estimates submitted by the various 
authorizing officers, something that the Court has 
already criticized (12). The Court therefore recommends 
that the Commission should concentrate its efforts on 
improving the reliability of the estimates. 
26 Official Journal of the European Communities 15. 12. 86 
(') — Special report on the Members' Cash Office of the 
European Parliament, OJ C 202 of 5.8.1982. 
— Annual report concerning the financial year 1982, OJ 
C 357 of 31.12.1983, paragraph 2.9. 
— Annual report concerning the financial year 1983, OJ 
C348 of 31.12.1984, paragraphs 2.5 — 2.7. 
— Annual report concerning the financial year 1984, OJ 
C 326 of 16.12.1985, paragraph 2.2. 
(2) Financial Regulation applicable to the general budget of the 
European Communities, OJ L 356 of 31.12.1977. 
(3) Opinion on the deficit of the Members' Cash Office, sent to 
the President of the European Parliament on 7.11.1985. 
(4) — Special report on the Members' Cash Office of the 
European Parliament, OJ C 202 of 5.8.1982. 
— Annual report concerning the financial year 1982, OJ 
C 357 of 31.12.1983. 
— Annual report concerning the financial year 1983, OJ 
C 348 of 31.12.1984. (5) — Annual report concerning the financial year 1984, OJ 
C 326 of 16.12.1985, paragraphs 2.3 — 2.4. 
— Annual report concerning the financial year 1983, OJ 
C348 of 31.12.1984, paragraphs 2.17 — 2.18. 
(6) Annual report concerning the financial year 1983, OJ C 348 
of 31.12.1984, paragraph 2.18. 
(7) Annual report concerning the financial year 1984, OJ C 326 
of 16.12.1985, paragraph 2.3. 
(8) Annual report concerning the financial year 1984, OJ C 326 
of 16.12.1985, paragraph 2.8. 
(9) Commission Regulation of 30 June 1975 on measures of 
implementation of certain provisions of the Financial 
Regulation of 25 April 1973, OJ L 170 of 1.7.1975. 
(10) Annual report concerning the financial year 1984, OJ C 326 
of 16.12.1985, paragraphs 2.18 — 2.53. 
(») OJ L 336 of 27.12.1977. 
(12) Annual report concerning the financial year 1984, OJ C 326 
of 16.12.1985, paragraphs 2.24 — 2.25. 
15. 12. 86 Official Journal of the European Communities 27 
CHAPTER 3 
Revenue 
3.0. TABLE OF CONTENTS 
Introduction 
Summary of financial information 
Exhaustion of own resources and financing of the budget 
Deficit for the financial year 
Impact of the Decision of 7 May 1985 
VAT own resources 
Amounts written off or in arrears 
Limitation on audit examination 
Customs duties 3.21 
Release of goods for free circulation under simplified declaration Paragraph 
reference 
3.1 
3.3 
3.4 
3.7 
3.10 
3.11 
3.12 
3.17 — 3.2 
— 3.10 
— 3.6 
— 3.9 
— 3.20 
— 3.16 
— 3.20 
3.27 
procedures 3.21 — 3.23 
Simplified procedures relating to the carriage of goods by rail in large 
containers under the Community transit system 3.24 
Agricultural charges 
Co-responsibility levy on milk 
Physical examination of goods 
Triangular traffic concerning rice imports 
Self-financing objectives within the sugar market 
Introduction 
The compensation system for storage costs 
The production quota/levy scheme 
Conclusions on sugar 3.28 
3.28 
3.31 
3.35 
3.40 
3.40 
3.42 
3.43 
3.45 3.27 
3.48 
3.30 
3.34 
3.39 
3.48 
3.41 
3.44 
3.48 
INTRODUCTION other deductions from staff remuneration come under 
other chapters of this report. 
3.1. This chapter relates to own resources and certain 
miscellaneous revenue of the European Communities 
included in the 'Revenue' section of the general budget. 
Revenue of the European Coal and Steel Community 
(ECSC) is dealt with in a separate report of the Court of 
Auditors, while revenue of the European Development 
Fund, contributions by certain Member States to 
Euratom research programmes and pension, tax and 3.2. The revenue under consideration consists, for the 
most part, of the own resources allocated to the 
Communities by Council Decision 70/243/ECSC, EEC, 
Euratom of 21 April 1970 ('), as since replaced by Council 
Decision 85/257/EEC, Euratom of 7 May 1985 (2). The 
revenue in question comprises Common Customs Tariff 
duties, agricultural levies, including sugar and isoglucose 
(') The footnotes appear at the end of each chapter. 
28 Official Journal of the European Communities 15. 12. 86 
production and storage levies, and value-added tax 
(VAT) not exceeding 1 % of a uniform Community-wide 
basis of assessment. By way of exception, Greece is 
continuing to pay a financial contribution in lieu of VAT, 
based on its gross national product, pending the 
introduction in that Member State of a common system 
for this tax. 
SUMMARY OF FINANCIAL 
INFORMATION 
3.3. A summary of the general budget revenue of the 
Communities for 1984 and 1985 is set out in Table 3.7. It 
shows the figures estimated in the 1985 budget (3) and the 
actual out-turn of revenue for the financial year in 
question. 
Exhaustion of own resources and financing of 
the budget 
3.4. The budget adopted for the financial year 1985 
showed that total revenue from the traditional own 
resources of customs duties, agricultural levies and sugar 
levies, plus the own resources accruing from VAT own 
resources up to the limit of 1 % allowed for under the 
Decision of 21 April 1970, would be insufficient to meet 
budgeted expenditure. As was the case for 1984, an 
intergovernmental agreement was made whereby this 
deficit would be met by advances paid by each of the 
Member States. The Court notes that, unlike those for 
1984, which were refundable, the advances for 1985 were 
non-refundable. However, the 1985 budget includes 
1 981,6 Mio ECU as revenue from advances within Title 
8, entitled 'Borrowing and lending operations', as in 1984. 
3.5. As has already been mentioned in Chapter 1, the 
deficit carried over from the financial year 1984 was 
827,3 Mio ECU, but only part of this deficit, amounting 
to 172,5 Mio ECU, was entered in the 1985 budget. This 
procedure is manifestly contrary to Article 27 of the 
Financial Regulation of 21 December 1977 (4), which 
states that the balance must be carried over in its entirety 
to the budget for the following financial year. The result 
was that the difference, namely 654,8 Mio ECU, was only 
entered in the 1985 balance sheet as the residue of the 
deficit for the financial year 1984, which was still to be 
covered, and was deferred as a charge to a subsequent 
financial year. 
3.6. The Court has compiled Table 3.2, which shows: (a) the effect on the Community rates of VAT of the 
implementation in 1985 of the Decision of 7 May 
1985, Article 3(4); 
(b) the change in these rates which would have resulted 
had the budget been fully financed from VAT own 
resources without the 1 % limit and without recourse 
to non-refundable advances from the Member States; 
and 
(c) the further change that would have had to be made to 
these same rates if the 1985 budget had had to take 
into account the final 1984 deficit after the refundable 
advances had been paid in full (827,3 — 408,3 = 
419,0 Mio ECU) instead of the figure of 172,5 Mio 
ECU actually entered in the budget (see paragraphs 
3.5 and 3.7). 
Table 3.2 does not take account of the financing of the 
refunding of 1 001,8 Mio ECU of advances granted by 
the Member States to finance supplementary and 
amending budget No 1 (5) of the financial year 1984. If the 
refunding of these advances had been charged as 1985 
expenditure, rather than charged to following financial 
years, the Community rate of VAT would have been 
0,065 % in excess of the rates shown in the last column in 
Table 3.2. In that case most of the Member States would 
have been asked to pay over the equivalent of 1,307 % of 
their base. 
Deficit for the financial year 
3.7. The final out-turn of revenue for 1985 was 
extremely close to the budgeted figure (see Table 3.1). 
Revenue from own resources was, as expected, in­
sufficient to finance expenditure for the financial year. 
The resulting deficit for the financial year 1985 between 
own resources and expenditure amounted to 1 674,6 Mio 
ECU. The non-refundable advances mentioned in 
paragraph 3.4 above were.supposed to cover this shortfall 
in revenue. By 31 December 1985, however, only 
1 242,4 Mio ECU of these advances had been paid (by 
Belgium, Denmark, the FR of Germany, Greece, Ireland, 
the Netherlands and the United Kingdom). Including the 
payment in 1985 of the balance of the 1984 advances, 
amounting to 408,3 Mio ECU (by Belgium, Denmark, 
Italy, Luxembourg and the United Kingdom), the 
revenue and expenditure account shows a final deficit of 
23,9 Mio ECU. 
3.8. These data are based on the figures in the revenue 
and expenditure account distributed by the Commission 
on 29 May 1986. However, as already indicated in 
paragraph 3.5 above, the residue of the deficit for the 
financial year 1984, amounting to 654,8 Mio ECU, was 
not charged to 1985 but deferred to a subsequent financial 
year. The Court wishes to draw the attention of the 
discharge authorities to the fact that, if the 1984 deficit 
had been fully covered in 1985, the actual deficit on the 
15. 12. 86 Official Journal of the European Communities 29 
Table 3.1 — Revenue 1984 and 1985 
(Mio ECU) 
Type of revenue 
Customs duties 
Agricultural levies 
Sugar and isoglucose levies 
VAT own resources 
Financial contributions 
Sub-total 
Adjustments to VAT own 
resources for 1984 
1983 
1982 
1981 
1980 
1979 
Miscellaneous revenue 
Surplus from previous year 
Total revenue available 
Revenue required to finance expenditure of 
year 
Insufficiency of revenue 
Advances received in year 
Balance of year 1984 
Actual 
revenue 
(1) 
7 960,8 
1 260,0 
1 176,4 
14 372,1 
222,5 
24 991,8 
— 
-198,5 
38,7 
19,4 
12,7 
15,9 
271,8 
307,1 
25 458,9 
26 879,7 
1 420,8 
593,5 
-827,3 1985 
Budget 
(2) 
8 596,1 
1 081,5 
1 025,0 
15 198,1 
263,5 
26 164,2 
p.m. 
p.m. 
p.m. 
p.m. 
p.m. 
p.m. 
287,4 
p.m. 
26 451,6 
28 433,2 (!) 
1 981,6 
1 981,6 
— Actual 
revenue 
(3) 
8 310,1 
1 121,7 
1 057,4 
15 218,9 
260,9 
25 969,0 
62,2 
-26,0 
16,5 
16,7 
12,9 
29,5 
353,6 
— 
26 434,4 
28 109,0 C1) 
1 674,6 
1 650,7 (2) 
-23,9(3) Difference 
(3)-(2) 
(4) 
-286,0 (-3,3%) 
+ 40,2 ( + 3,7%) 
+ 32,4 ( + 3,2%) 
+ 20,8 ( + 0,1%) 
- 2,6 (-1,0%) 
-195,2 (-0,7%) 
(•) Includes part of deficit 1984 (172,5 Mio ECU). 
(2) Reimbursable advances for 1984 (408,3 Mio ECU) + non-reimbursable advances for 1985 (1 242,4 Mio ECU). 
(3) See observations in paragraph 3.8 concerning the effect on this deficit of the unaccounted for portion of the 1984 deficit (654,8 Mio ECU), bringing the 
real deficit to 678,7 Mio ECU. 
revenue and expenditure account for the financial year 
1985 would have been 678,7 Mio ECU. (b) under the terms of Article 12(2), it drew from the 
Member States in excess of the total sums credited by 
them. 
3.9. As a result of the delays in the payment of the 
advances and of the continuing deficit, the Commission, 
in order to meet its cash-flow needs during 1985, made use 
of the two methods provided for in Council Regulation 
(EEC, Euratom, ECSC) No 2891/77 of 19 December 
1977 (6), namely: 
(a) under the terms of Article 10(2), it asked the Member 
States to pay over the traditional own resources one 
month in advance of the normal due dates for the 
duration of the financial year; in addition, Impact of the Decision of 7 May 1985 
3.10. On 28 December 1985 the Council received the 
last notification by Member States of the completion of 
the procedures for the adoption of the Council Decision 
of 7 May 1985. Accordingly, the lump-sum deduction of 
1 000 Mio ECU was made, under Article 3(4) of the 
Decision, from the amount of VAT own resources paid by 
the United Kingdom, and an equivalent sum was borne 
30 Official Journal of the European Communities 15. 12. 86 
Table 3.2 — Variations in Community rates of VAT 
Member State 
Belgium 
Denmark 
FR of Germany 
(Greece) (l) 
France 
Ireland 
Italy 
Luxembourg 
Netherlands 
United Kingdom 
Total Contribution 
to the 1985 
budget 
on the 
basis 
ofal% 
rate of VAT 
(ECU) 
505 000 000 
312 000 000 
4 450 000 000 
239 947 760 
3 450 000 000 
135 600 000 
2 278 500 000 
40 000 000 
750 500 000 
3 300 000 000 
15 461 547 760 Contribution 
to the 
1985 budget in 
implementation 
of the 
Decision of 
7 May 1985, 
Article 3 (4) 
(ECU) Rate by 
Member 
State 
% 
554 511616 1,098 
342 589 354 1,098 
4 693 938 249 1,055 
263 472 911 1,098 
3 788 247 667 1,098 
148 894 604 1,098 
2 501 890 525 1,098 
43 921 712 1,098 
824 081 123 1,098 
2 300 000 000 0,697 
15 461 547 760 1,0 Member 
States' 
contributions (2) 
on the 
basis of 
calculation 
according to 
paragraph 3.6 (b) 
(ECU) Rate by 
Member 
State 
°/ 
619 234 451 1,226 
382 576 532 1,226 
5 264 268 186 1,183 
294 225 583 1,226 
4 230 413 573 1,226 
166 273 647 1,226 
2 793 912 269 1,226 
49 048 273 1,226 
920 268 228 1,226 
2 722 941 302 0,825 
17 443 162 044 1,128 Member 
States' 
contributions (-,) 
on the 
basis of 
calculation 
according to 
paragraph 3.6 (c) 
(ECU) Rate by 
Member 
State 
°/ 
627 286 601 1,242 
387 551 326 1,242 
5 335 222 782 1,199 
298 051 515 1,242 
4 285 423 316 1,242 
168 435 769 1,242 
2 830 242 617 1,242 
49 686 067 1,242 
932 234 840 1,242 
2 775 559 317 0,841 
17 689 694 150 1,144 
(') In the case of Greece, the figures represent financial contributions in lieu of VAT own resources. The refund of 10 % of its financial contributions appears 
in the budget as expenditure, and has therefore not been taken into account in this table. 
(2) The total of non-refundable advances entered in the 1985 budget (1 981,6 Mio ECU) differs from the amount provided for by the intergovernmental 
agreement of 1985 (1 982,4 Mio ECU). The distribution of these advances amongst the Member States takes account of the sum entered in the budget and 
has been calculated in accordance with the VAT own resources scale of allocation. 
(3) The table is based on data which are available at the time of presentation of the budget. Matters arising after adoption of the budget are not reflected; 
principally these are the balance of VAT own resources from 1984 and the corrections to VAT own resources for preceding years, amounting to 111,8 
Mio ECU. 
by the other Member States. Some of these operations 
were carried out in December 1985. The sum of 
712,0 Mio ECU, however, by way of a refund to the 
United Kingdom, and 577,2 Mio ECU of sums recovered 
from the other Member States were not actually paid over 
or received until 2 January 1986, even though the entire 
sum was entered in the 1985 revenue and expenditure 
account. The Court observes that this latter procedure is 
contrary to the provisions of Article 5 of the Financial 
Regulation, according to which the revenue of a given 
financial year must be entered in the accounts on the basis 
of the amounts actually collected during that financial 
year. It must also point out, however, that the second 
indent of Article 3(4) of the Decision of 7 May 1985 did 
authorize the Commission, in respect of operations 
concerning VAT adjustments in favour of the United 
Kingdom during 1985, to enter the corresponding 
amounts in the accounts for the financial year 1985. from Member States, which allow them the alternative of 
paying on the basis of either Method A (returns) or 
Method B (revenue), were extended to 31 December 1988 
by Council Regulation (ECSC, EEC, Euratom) No 3735/ 
85 of 20 December 1985 (7). The Court has continued its 
enquiries mentioned in previous annual reports concern­
ing the functioning of these transitional arrangements. It 
notes that only two Member States (Denmark and 
Ireland) opted initially for Method A, but that they 
subsequently amended their option to Method B (with 
effect from 1 January 1983 and 1986 respectively). The 
Council has asked the Commission to present proposals 
in respect of a uniform method for determining the 
assessment basis before 31 December 1987. 
Amounts written off or in arrears 
VAT OWN RESOURCES 
3.11. The transitional arrangements for determining 
the amounts of value-added tax (VAT) own resources due 3.12. In paragraph 3.13 of its annual report on the 
financial year 1984 (8), the Court observed that the choice 
between Method A and Method B was not neutral. VAT 
own resources determined under Method B depend 
principally upon the total net amount of national VAT 
15. 12. 86 Official Journal of the European Communities 31 
collected by the Member States, whereas under Method A 
they are determined from the amounts established as due. 
The Court referred in the above-mentioned paragraph to 
the differences between these Methods caused by 
amounts due but written off and in arrears. It estimates 
these amounts, using the data available, at 0,9 % and 
5,3 % respectively of VAT collected during the year 1984 
and calculates that the potential negative effect of these 
differences on own resources amounts to 154,6 Mio ECU 
and 752,6 Mio ECU respectively. and the United Kingdom) indicates a wide variation in 
practices. While death or formal bankruptcy is accepted 
by all six Member States as justification for writing off the 
amount due, this is not always so in cases of hardship 
(accepted by three), inequity (two), where it is considered 
uneconomic to institute legal proceedings (two), or where 
enforcement action has been unsuccessful (two). One 
Member State, in contrast, has no procedure for writing 
off a tax debt, even where the amount is insignificant. 
3.13. Amounts of VAT assessed as being due from a 
taxable person are required to be paid by that taxable 
person in accordance with arrangements authorized by 
the Council's Sixth VAT Directive of 17 May 1977(9). 
This Directive, the primary objective of which is to ensure 
that VAT is collected in a uniform manner in all the 
Member States, authorizes Member States to 'release 
taxable persons from certain obligations and from the 
payment of the tax due where the amount is insignificant' 
(Article 22(9)). No further Community legislation or 
guidelines have been issued concerning conditions under 
which VAT assessed as due may be written off or 
otherwise waived and no attempt has been made to define 
'insignificant'. 3.15. Procedures for enforcement also vary. While all 
six of the Member States were found to have the power to 
fine and/or impose interest on late payments, only one 
had authority to demand a financial guarantee before the 
due date in case of risk. VAT debts have preference over 
commercial debts in four Member States, but only in one 
Member State was it the practice to revoke registration as 
a means of enforcement. 
3.14. The Court asked each of the Member States to 
state the circumstances in which it would write off or 
waive amounts of VAT properly established as due. The 
information obtained from the six Member States which 
replied to the Court's questionnaire (namely, Belgium, 
Denmark, the FR of Germany, France, the Netherlands 3.16. Table 3.3 illustrates the trends over the years of 
the amounts of VAT written off by Member States and in 
arrears (expressed as percentages of the VAT own 
resources base). It is clear that these procedural variations 
affect the total net VAT collected, and thus the amount 
paid over to the Community by Member States which 
apply Method B. It is also clear that they affect the 
equality of treatment among the Member States. 
Table 3.3 — Variation between Member States within method B for VAT own resources 
Year 
1979 
1980 
1981 
1982 
1983 
1984 (a) Amounts written off 
Belgium 
— 
_ 
0,14% 
0,17 % 
0,22% 
0,31 % Den­
mark FRof 
Germany 
— — 
- 0,97% 
- 1,27% 
- 1,48% 
0,27% 1,46% 
0,32% 1,54% France 
— 
0,15% 
0,19% 
0,14% 
o,n% 
0,16% Nether­
lands 
1,05% 
1,18% 
1,88% 
2,77% 
5,31 % 
2,77% United 
Kingdom 
0,26% 
0,38 % 
0,50% 
0,88% 
1,23% 
1,26% (b) Amounts in arrears 
Belgium 
— 
— 
5,41 % 
6,45% 
6,70% 
7,02 % Den­
mark 
— 
— 
— 
— 
6,44% 
5,71 % FRof 
Germany 
— 
4,59% 
4,93 % 
5,10% 
4,90% 
4,60% France 
— 
4,92% 
5,43 % 
5,09% 
5,46% 
5,97 % Nether­
lands 
— 
— 
9,15% 
14,35% 
12,81 % 
11,06% United 
Kingdom 
— 
— 
— 
4,74 %(>) 
4,14% 
3,31 % 
(') Exceptionally high because of national staff industrial action. 
32 Official Journal of the European Communities 15. 12. 86 
Limitation on audit examination 
3.17. The observations made in paragraphs 3.12 — 3.16 
above arise from the obligation placed on the Court by 
Article 206a(2) of the EEC Treaty, to 'examine whether 
all revenue has been received'. Since the amount of VAT 
own resources to be made available to the Communities is 
determined, in compliance with Method B, using a base 
derived principally from the amount of national VAT 
collected by each of the Member States, the Court takes 
the view that, in order to fulfil its responsibilities under 
the Treaty, it must examine: 
(a) the degree to which national VAT due is actually 
collected; 
(b) the reliability of the registration, assessment and 
enforcement procedures used by the Member States; 
and 
(c) the effectiveness of the national control systems. 
3.18. In order to implement this audit strategy, the 
Court is obliged to verify national VAT revenue at three 
different levels: 
(a) by referring to the relevant global data or statistics; 
(b) by examining and obtaining documentation on the 
relevant national control systems relating to the 
completeness of the revenue; 
(c) by verifying this information in accordance with 
normal auditing practice, that is, by compliance tests 
based on local records, registers or individual case 
files. The purpose of such compliance tests is to 
determine whether there are any weaknesses in the 
systems or controls operated by the national author­
ities which might have an effect on Community own 
resources. 
3.19. The Court was able to carry out and complete 
these enquiries in the following Member States: Belgium, 
Denmark, Ireland, the Netherlands and the United 
Kingdom. Other Member States, however, refused to 
accept that such enquiries were within the Court's sphere 
of authority. Specifically, Italy and Luxembourg refused 
to provide the Court with tax statistics, France would not 
agree to supply all the information needed for a 
description of the systems and the FR of Germany, 
France, Italy and Luxembourg refused the Court leave to 
carry out compliance tests. 3.20. The Court wishes to draw the attention of the 
discharge authorities to the fact that it has not so far been 
able to fulfil its responsibilities (as required by Article 
206(a) of the Treaty) as regards the audit of VAT own 
resources paid over by these Member States. 
CUSTOMS DUTIES 
Release of goods for free circulation under 
simplified declaration procedures 
3.21. The Court has examined the operation of the 
special procedures provided for in Articles 16 — 21 of 
Council Directive 79/695/EEC of 24 July 1979 (l0). One of 
the principal aims of the Directive was to introduce 
common rules to ensure the correct and uniform 
application not only of import duties but also of any other 
Community provisions governing the release of goods for 
free circulation. These rules were designed to dispense 
with unnecessary customs formalities and to introduce 
harmonized yet flexible practices while maintaining a 
customs capability to intervene by physical and a 
posteriori controls. The Directive provides, in particular, 
that as from 1 January 1984 (at the latest) only those 
special procedures set out therein shall be applied and 
that Member States shall apply all such procedures 'in so 
far as their administrative organization allows it'. 
3.22. In respect of the examination of the operation of 
these special procedures in some Member States, the 
Court notes that: 
(a) Article 16(2) of the Directive states that the con­
ditions to be fulfilled by a person in order to obtain an 
authorization to use the procedures shall be de­
termined by the competent authorities in the Member 
States. The Court found considerable disparities in 
the criteria adopted for treating applications for such 
authorization; for example in the FR of Germany the 
conditions to be fulfilled are such that an estimated 
80 % of all importations are authorized under these 
procedures while in Denmark the facility is restricted 
to goods not liable to import duties (less than 10 %); 
(b) Article 20 of the Directive allows authorized persons 
to receive the goods directly into their own premises, 
15. 12. 86 Official Journal of the European Communities 33 
on condition that, inter alia, the customs authorities 
are notified of the arrival of goods in sufficient time to 
enable them to exercise their right to examine the 
goods before release. It further requires that im­
porters maintain full records of importations which 
will be available for examination by customs author­
ities. It was found that the arrangements being 
operated in two of the Member States visited did not 
give customs a realistic option to examine the goods 
prior to their release. In France, the time available to 
customs to exercise this option was only 30 minutes 
from notification of arrival of the goods; in the FR of 
Germany, for the majority of importers, release of 
goods was authorized concurrently with the time of 
entry into the records precluding any possibility of 
intervention by customs before release of the goods. 
The Court also observed that in the FR of Germany, 
inspections of accounting records for major im­
porters had not taken place in respect of these special 
procedures for more than 6 years. 
3.23. The Court draws the attention of the Commission 
to its responsibility for supervising the operation of the 
system in the Member States, and for ensuring that the 
stated objectives of harmonized treatment of importers 
and goods and of correct establishment of import duties 
are attained. 
Simplified procedures relating to the carriage 
of goods by rail in large containers under the 
Community transit system 
3.24. The purpose of the Community transit system is to 
permit the movement of goods across internal frontiers 
within the territory of the Community with the minimum 
of formalities and without payment of customs or other 
charges until they reach their destination. Legally, the 
system is based on Council Regulation (EEC) No 222/77 
of 13 December 1976 (") and Commission Regulation 
(EEC) No 223/77 of 22 December 1976 (»2). Control to 
ensure that duties are properly paid is carried out by the 
customs authorities of the Member State where the goods 
initially enter the Communities, to whom the customs 
authorities of the Member State of final destination 
return the completed Community transit document. 3.25. A further simplified transit procedure, specifically 
designed for the carriage of goods in large containers by 
railway authorities, was introduced by Commission 
Regulation (EEC) No 902/80 of 14 April 1980 (13), which 
amended Regulation (EEC) No 223/77 (Article 50(a) and 
50(b)). This simplified procedure for large containers 
differs from the normal transit system in that an 
intermediary exists in the form of a transport undertaking 
with administrative headquarters in a third country, that 
this undertaking's transfer note is treated as equivalent to 
the Community transit document and that the railway 
authorities guarantee the payment of duties. This 
undertaking is a holding company whose shareholders 
are various European railway companies. 
3.26. The Court found that inspections had never been 
carried out at the headquarters of the transport undertak­
ing in the third country where key documentation on the 
operation of the system is held. The Court also found 
that, in the Member States visited (Belgium, Italy and the 
Netherlands), inspection by customs of the records of the 
undertaking's agent and of the national railway adminis­
tration, as provided for in the legislation, were minimal or 
non-existent. 
3.27. The Court takes the view that the extent of 
supervisory inspections by customs authorities, as 
described above, does not fulfil the role required to be 
played by the customs authorities in reasonably safe­
guarding Community own resources. It considers that 
inspection of the relevant records of the third country 
undertaking should have been arranged, within the 
general framework of the Community transit system. 
AGRICULTURAL CHARGES 
Co-responsibility levy on milk 
3.28. Income of 632 Mio ECU from the co-responsi­
bility levy on milk, as introduced by Council Regulation 
(EEC) No 1079/77 of 17 May 1977 (14), is included in Item 
2070 of the budget as negative expenditure — that is to 
say, any amounts collected as levies by or in a Member 
State are held by that Member State on account of sums 
due to it by the Communities, which in turn reduces 
advances to that Member State by the amounts so 
withheld (see paragraph 4.4(d)). Unlike agricultural levies 
collected as own resources, which are made available to 
34 Official Journal of the European Communities 15. 12. 86 
the Community on the basis of amounts established as 
due, the milk co-responsibility levy is accounted for in the 
Community accounts on the basis of amounts actually 
collected. In the Court's view, income accruing from this 
levy should be accounted for on the same basis as the own 
resources accruing from agricultural levies and customs 
duties, i.e. on the basis of amounts established as due. 
3.29. In several Member States payments of levies by 
the dairies were considerably in arrears of the 45-day limit 
allowed. Both the Commission in the context of the 
clearance of the EAGGF-Guarantee accounts relating to 
1978-81 and the Financial Controller of the Commission 
in 1980, had already observed the existence of such 
arrears. 
3.30. Article 9 of Commission Regulation (EEC) No 
1822/77 of 5 August 1977 (,5) requires Member States to 
adopt measures necessary to ensure the proper collection 
of the levy. The Court asked the Commission: 
(a) if it had evaluated the adequacy of these measures; 
and 
(b) the steps taken to ensure the prompt payment of the 
levy in the light of the arrears situation. 
The Court notes that there is no provision in Community 
legislation for any sanction to be applied in case of late 
payment. 
Physical examination of goods 
3.31. Initially in its annual report on the financial year 
1978 (16), and again in its special report on the system for 
the payment of refunds on agricultural exports (17), the 
Court criticized the lack of harmonization between 
Member States with regard to practices concerning the 
physical examination by customs of goods. It considered 
it necessary for the Commission to set up arrangements to 
determine the level of examination which is regarded as 
the minimum to assure efficient control by customs 
authorities. 
3.32. In its reply to the annual report referred to above, 
the Commission stated that it proposed to carry out 
detailed studies, in conjunction with the representatives of 
the Member States, of the conditions in which the 
examinations were conducted. Subsequently, in 1985, in 
its reply to the special report, the Commission agreed to explore the possibility of adopting Community provi­
sions in this field. 
3.33. The Court has carried out during the financial 
years 1984 and 1985 further enquiries in respect of this 
control aspect. It found in two of the Member States 
visited (FR of Germany and the United Kingdom) that 
the scope and quality of physical inspections were in its 
opinion insufficient to give a reasonable assurance that 
imported goods actually conform to the descriptions and 
specifications necessary for applying the appropriate levy 
rate. In particular, sample-taking with a view to analysis 
of the goods imported, for tariff classification purposes, 
took place only at a minimal level. 
3.34. The Court considers that physical inspections 
carried out when goods are presented for customs 
clearance are essential in so far as these cannot be, or are 
not, replaced by adequate controls at a later stage. It also 
considers that the Commission should urgently formulate 
guidelines on the carrying out of physical examination, or 
any other examination which can adequately replace it. 
The guidelines should set minimum standards for 
frequency, scope and quality of such examinations to 
safeguard the proper collection of levies and contribute to 
the correct application of the common agricultural policy. 
Triangular traffic concerning rice imports 
3.35. In its annual reports on the financial years 1978 
and 1980 (18) (respectively paragraphs 2.36 and 3.18 — 
3.22), the Court drew attention to the speculative 
character of trade movements of rice between Member 
States and their negative impact on the financial resources 
of the Community. The Commission stated in its reply 
that it did not consider it advisable to introduce monetary 
compensatory amounts (MCAs) in the rice market 
because currency disparities were tending to diminish, 
and in any event it was the Commission's desire that 
MCAs should disappear altogether. It did, however, state 
that it was examining whether this particular situation 
could be remedied by requiring that the product be 
unloaded for customs clearance in the first Member State 
of import. 
3.36. During an audit mission in 1985 in Belgium to 
examine the application of levies on imports of rice, the 
following trade flows were observed: 
(a) rice entering the Communities in the Netherlands was 
onward shipped to Belgium where levies were paid. 
The rice was then transported back to the Nether­
lands for use thereby saving the importer ap-
15. 12. 86 Official Journal of the European Communities 35 
proximately 17 ECU per tonne at the expense of own 
resources; and 
(b) rice designated for the FR of Germany was imported 
in Belgium with payment of levies and immediately 
transported to the FR of Germany. This reduced own 
resources by about 25 ECU per tonne. 
3.37. These trade flows are apparently inspired by the 
fact that the agricultural conversion rates (green rates) are 
used to express the levy in national currency. Thus, in 
Belgium, the ECU value of the levy converts to a lower 
sum in Belgian francs than if the market exchange rate 
was used, while in the FR of Germany and the 
Netherlands the opposite is the case. A German or Dutch 
importer can take advantage of this situation by paying 
the levy in Belgium with Belgian francs purchased on the 
more favourable open market. The Commission has 
consistently resisted the introduction of MCAs in the rice 
sector although they were developed specifically to 
counteract such unwarranted advantages in other 
markets. 
3.38. The volume of these trade flows through Belgium 
has been determined as 67 200 tonnes for 1984 and 91 200 
tonnes for 1985. The effect of these on the Community 
financial resources can be estimated to be about 1,5 Mio 
ECU for 1984 and 2,0 Mio ECU for 1985. 
3.39. The Court notes that this market continues to be 
characterized by trade distortion at the expense of the 
Communities' resources more than 5 years after the Court 
originally drew attention to the triangular traffic in rice. 
The Court again requests that the Commission should 
take appropriate measures to remedy this situation in the 
rice sector in order to protect Community financial 
resources. 
Self-financing objectives within the sugar 
market 
Introduction 
3.40. Unlike other markets, the common organization 
of the market in sugar has always been characterized by: 
(a) a system of production quotas; (b) the principle of full financial co-responsibility; and 
(c) the revenue from levies being accounted for as own 
resources. 
These features were confirmed and strengthened by 
Council Regulation (EEC) No 1785/81 of 30 June 
1981 (19), which applied for the 5 years beginning 1 July 
1981. To this end, budgetary expenditure on the storage 
and export of Community sugar must, in principle, be met 
from levies at the marketing and production stages 
respectively. 
3.41. Sugar produced in the Community is subject to 
production quota arrangements as provided for in 
Council Regulation (EEC) No 1785/81. Under these 
provisions, producers receive a price guarantee up to a 
maximum quantity of 11.8 Mio tonnes per annum, i.e. the 
quantity representing the total of the 'A' and 'B' quotas 
under the scheme. Sugar consumption in the Community 
has stabilized at 9,5 Mio tonnes per annum. The 
operation of the scheme has resulted in the production 
covered by the price guarantee exceeding consumption by 
an average annual quantity of 1,6 Mio tonnes. 
The compensation system for storage costs 
3.42. The compensation system for storage costs was set 
up to ensure regular marketing of Community sugar 
throughout the year by reimbursement of storage costs to 
the manufacturers of the sugar. These storage costs for 
sugar are reimbursed at a flat rate fixed by the Council. 
When the sugar is marketed, it is subject to a levy payable 
by the manufacturer. Under Article 6 of Council 
Regulation (EEC) No 1358/77 of 20 June 1977 (20), this 
levy is designed to ensure that for any marketing year the 
estimated total of levies is equal to the estimated total of 
the reimbursement of storage costs. The financial out­
turn of the marketing years, is presented in Table 3.4. As 
can be seen from the table, the Commission now estimates 
the scheme to be in overall balance at the end of 1985/86. 
The Court observes, however, that the use of the available 
management tools should have enabled the Commission 
to achieve sooner a higher degree of annual equilibrium. 
The production quota/levy scheme 
3.43. The production quota scheme provides that the 
producing undertakings themselves meet in full the cost 
of disposing of the Community production in excess of 
36 Official Journal of the European Communities 15. 12. 86 
Table 3.4 — Financial outcome of the sugar storage costs compensation system 
Marketing year 
1981/82 
1982/83 
1983/84 
1984/85 
1985/86 (2) Reimbursement 
Rate per 
month 
of storage 
(ECU/tonne) 
(1) Total 
payments 
(Mio ECU) 
(2) 
5,80 433,0 
6,30 540,8 
5,70 465,6 
5,30 408,1 
5,30 430,5 Levies 
Rate per tonne 
marketed 
(ECU/tonne) 
(3) Total 
revenue 
(Mio ECU) 
(4) 
35,50 407,4 
42,50 478,7 
42,50 448,9 
42,50 481,0 
42,50 484,5 Balance 
Balance of the 
marketing 
year 
(Mio ECU) 
(5) = (4) - (2) Cumulative 
balance 
(Mio ECU) 
(6) 
-25,6 - 30,1(0 
-62,1 - 92,2 
-16,7 -108,9 
72,9 - 36,0 
54,0 18,0 
(') Including a deficit of 4,5 Mio ECU carried forward. 
(2) Based on estimates. 
consumption by paying a production levy. Detailed rules 
for the calculation of the levy rates in force during the 
marketing year are contained in Regulation (EEC) No 
1785/81. This regulation also sets a ceiling on the levy that 
may be charged and provides for any uncovered loss 
arising from the operation of the scheme in a given 
marketing year to be carried forward to the following 
marketing year. 
3.44. The overall deficit so calculated and its break­
down for the marketing years in question are given in 
Table 3.5. This table shows that the production quota/ 
levy scheme has been in continuous deficit since its 
inception and that the cumulative deficit reached 
609,2 Mio ECU at the end of the 1984/85 marketing year. 
Table 3.5 — Financial outcome of the sugar production quota/levy 
scheme 
(Mio ECU) 
Marketing 
year 
1981/82 
1982/83 
1983/84 
1984/85 
Total Calculated 
revenue 
from levies 
410,1' 
516,8 
453,4. 
507,5 
1 887,8 Calculated 
expenditure 
on sugar 
exports 
• 1 380,3 • 1 832,2 
664,8 
2 497,0 Difference 
• -451,9 
-157,3 
-609,2 Conclusions on sugar 
3.45. In the Court's opinion the considerable surplus of 
production over consumption, coupled with the statutory 
limitation on production levies, indicated at an early stage 
that the self-financing objective could not be achieved in 
the operation of the sugar-production quota scheme. The 
size of the actual deficits resulting from the operation of 
the scheme has increased steadily over the marketing 
years concerned. At the same time, the Court notes the 
recent initiatives taken by the Commission in attempting 
to strengthen the auto-financing mechanism within the 
scheme. 
3.46. Irrespective of the self-financing objective, the 
Court is of the opinion that the Commission should have 
quantified the potential liability in respect of sugar stocks, 
whether private or public, which will almost certainly 
have to be exported with the benefit of refunds. 
3.47. While the annual financial report on the EAGGF 
contains some information on the deficit, the Court notes 
that neither the general budget nor the accounts contain 
adequate information on this matter. Having regard to 
the basic character of the financing principles involved, a 
comprehensive presentation in the general budget and the 
annual accounts is strongly recommended. 
3.48. The Court recommends that future measures 
towards the common organization of the sugar markets 
provide for the full deficit to be recovered, and that levies 
and refunds be set at levels which will allow for the self-
financing objective. 
15. 12. 86 Official Journal of the European Communities 37 
(1) OJL 94 of 28.4.1970, p. 19. 
(2) OJL 128 of 14.5.1985, p. 15. 
(3) OJL 206 of 5.8.1985. 
(4) OJL 356 of 31.12.1977. 
(5) OJL 329 of 17.12.1984. 
(6) OJL 336 of 27.12.1977, p. 1. 
(7) OJL 356 of 31.12.1985, p. 1. 
(8) OJC 326 of 16.12.1985. 
(9) OJ L 145 of 13.6.1977, p. 1. 
(10) OJL 205 of 13.8.1979, p. 19. 
(U) OJL 38 of 9.2.1977, p. 1. (12) OJL 38 of 9.2.1977, p. 20. 
(13) OJ L 97 of 15.4.1980, p. 20. 
(14) OJL 131 of 26.5.1977, p. 6. 
(15) OJL 203 of 9.8.1977, p. 1. 
(16) OJC 326 of 31.12.1979. 
(17) OJC 215 of 26.8.1985. 
(18) OJC 344 of 31.12.1981. 
(19) OJL 177 of 1.7.1981, p. 4. 
(20) OJL 156 of 25.6.1977, p. 4. 
38 Official Journal of the European Communities 15. 12. 86 
CHAPTER 4 
European Agricultural Guidance and Guarantee Fund, 
Guarantee Section (EAGGF-Guarantee) 
Paragraph 
4.0. TABLE OF CONTENTS reference 
Introduction 4.1 —4.2 
Summary of financial information 4.3 
Observations on the implementation of the budget 4.4 — 4.13 
Presentation of the accounts and balance sheet 4.4 — 4.5 
The provisional twelfths system 4.6 — 4.11 
Cash management in the Member States 4.12 
Conclusions with regard to the implementation of the budget 4.13 
Observations on the financial management 4.14 — 4.39 
Public storage: general aspects 4.14 — 4.26 
Changes in stocks 4.14 — 4.16 
Changes in expenditure 4.17 — 4.20 
Technical costs 4.18 
Financial costs 4.19 
Expenditure charged back to the national budgets 4.20 
Potential losses and depreciation 4.21 — 4.22 
The potential costs 4.23 
Conclusions with regard to public storage: general aspects 4.24 — 4.26 
Public storage: cereals 4.27 — 4.39 
Introduction 4.27 — 4.28 
Quality 4.29 — 4.37 
Commercial and Community criteria 4.29 — 4.30 
Quality control 4.31 —4.37 
Other aspects of national management 4.38 
Conclusions on the public storage of cereals 4.39 
Observations on the internal controls 4.40 — 4.56 
Frauds and irregularities 4.40 — 4.44 
The reliability and comprehensiveness of information 4.40 — 4.41 
Recovery of claims 4.42 — 4.43 
Mutual assistance in the campaign against fraud 4.44 
Clearance of the accounts 4.45 — 4.55 
Financial effect of the clearance decisions 4.45 
Checks by the Commission 4.46 — 4.48 
The problem of reserves 4.49 — 4.55 
Cooperation of Member States 4.56 
15. 12. 86 Official Journal of the European Communities 39 
Follow-up to the special report on aid for 
Production aid 
Introduction 
Olive oil control agencies 
Normal checks 
Administrative sanctions 
Olive Cultivation Register 
Clearance of accounts 
Stocks of olive oil 
Conclusion on olive oil 
INTRODUCTION 
4.1. In 1985, the management of the European 
Agricultural Guidance and Guarantee Fund, Guarantee 
Section (EAGGF-Guarantee) continued to be governed 
by Council Regulation (EEC) No 729/70 of 21 April 
1970 (•) which, together with the provisions of the 
Financial Regulation, in particular Title VIII, forms a 
legislative framework distinct from the rules of the 
general budget. 
4.2. The main feature of the system of financing 
introduced by Regulation (EEC) No 729/70 is that the 
management is partly decentralized; a more detailed 
description is given in the report of the Court of Auditors 
for the financial year 1984 (2). 
SUMMARY OF FINANCIAL 
INFORMATION 
4.3. The principal financial data on the management of 
the EAGGF-Guarantee appropriations are given in 
Table 4.1. Total appropriations available for the finan­
cing of EAGGF-Guarantee expenditure in 1985 were 
19 883,1 Mio ECU. The Commission made available to 
the Member States appropriations amounting to 
19 787,0 Mio ECU. The Member States declared 
19 737,8 Mio ECU in expenditure, which the Commis­
sion charged to the accounts of the financial year, 
together with 2,0 Mio ECU for payments made directly, 
i.e. total expenditure entered in the revenue and 
expenditure account amounted to 19 739,8 Mio ECU, 
representing a 7,6 % increase over 1984. 
(*) The footnotes appear at the end of each chapter. oil 4.57 — 4.65 
4.57 — 4.62 
4.57 
4.58 — 4.59 
4.60 
4.61 
4.62 
4.63 
4.64 
4.65 
OBSERVATIONS ON THE 
IMPLEMENTATION OF THE BUDGET 
Presentation of the accounts and balance 
sheet 
4.4. When analysing the figures relating to the 
EAGGF-Guarantee, as they appear in the financial 
statements of the Communities, account should be taken 
of the following points which affect either the complete­
ness or the annuality of the financial statements, or the 
clarity of the accounts: 
(a) the Commission's reservations in the context of 
clearance (see paragraphs 4.49 — 4.52), with regard 
to the acceptance of expenditure declared by the 
Member States, are holding up the final settlement of 
expenditure. These reservations, which are in the 
nature of potential claims upon or obligations 
towards the Member States, should be entered in an 
annex to the balance sheet; 
(b) for the same reason of completeness, the balance 
sheet should take account, in one way or another, of 
the amount recoverable in respect of certain irregula­
rities, which may have involved as much as 106 Mio 
ECU at the end of 1985 (see paragraph 4.42); 
(c) as in previous years, the Commission recorded certain 
revenue as negative expenditure; this practice is 
tantamount to concealing the true situation of the 
budget. Gross expenditure in 1985 was 20 823,1 Mio 
ECU; if this sum is compared with the 19 739,8 Mio 
ECU entered in the revenue and expenditure account, 
there is a difference of 1 083,3 Mio ECU. The Court 
considers that the figure for gross expenditure should 
be given in an explanatory note annexed to that 
account; 
40 Official Journal of the European Communities 15. 12. 86 
Table 4.1 — Summary of accounts 1985 
(Mio ECU) 
Appropriations 
Automatic carry-overs from 1984: 2,6 
Cancellations of appropriations: 0,4 
Appropriations used: 2,2 
Appropriations from initial budget 
(Titles 1 and 2, Chapter 40): 19 979,1 
Transfers to: 
— Chapter 92: 
— Chapter 32: 
Total available: 
Cancellations of 
appropriations (3): 
Total appropriations used: -36,0 
-60,0 
-96,0 
19 883,1 
138,9 
19 744,2 Commitments 
— 
Balance of appropriations available 
in the Member States at 
1.1. 1985(0: 29,4 
Advances to Member States: 
— normal advances: 13 579,2 
— advances paid in instalments: 5 910,6 
— special advances: 311,6 
Total advances: 
Exchange difference: 
Total amount of provisional 
total commitments: 
Expenditure committed 
directly by the Commission: 
Total: 
Decommitment of balance 
available in the Member 
States at 31. 12. 1984: 
Total commitments: 19 801,4 
-14,4 
19 787,0 
6,4 
19 793,4 
49,2 
19 744,2 Sums charged to revenue 
and expenditure account 
Payments against automatic 
carry-overs from 1984: 
Sums charged as payments (2): 
— normal payments: 
— in instalments and/or 
late payments: 
Total: 
Sums paid directly 
by the Commission: 
Total payments: 
Automatic carry-overs 
to 1986: 
Total: 2,2 
2 111,9 
17 625,9 
19 737,8 
2,0 
19 739,8 
4,4 
19 744,2 
(•) This balance was included in the commitment of the advance for April. 
(2) The sum charged for November takes into account the consequences of the clearance of the accounts for 1980-81 (-99,2 Mio ECU). 
(3) Of which 8 Mio ECU for Chapter 40, Fisheries. 
(d) it should also be noted that the practice of negative 
expenditure underwent further modification during 
the year with regard to the 'super-levy' connected 
with the implementation of the system of milk 
production quotas, for which 148 Mio ECU had been 
entered in the budget as negative expenditure. The 
administration of this revenue heading calls for the 
following comments: 
(i) following a positive transfer of 160 Mio ECU 
between articles, Item 2071 was converted into an 
expenditure heading for which the final appropri­
ations for the financial year amounted to 12 Mio 
ECU; (ii) expenditure amounting to 2,1 Mio ECU was 
entered under this heading in the revenue and 
expenditure account; however, this entry is only 
the net result of a series of operations involving 
the collection of sums amounting to 58,5 Mio 
ECU, following the refunds of the over-payment 
made in 1984, and involving expenditure totalling 
60,6 Mio ECU effected and declared by the FR of 
Germany and the Netherlands and subsequently 
recorded by the Commission under sub-items of 
Item 2071; 
(iii) these operations were made possible by two 
Council Regulations authorizing the Member 
States either not to collect the levy if production 
15. 12. 86 Official Journal of the European Communities 41 
in excess of the quota was offset elsewhere, at 
regional or even national level (Article 4a of 
Council Regulation No 857/84 (3)), or to use this 
levy directly in order to pay compensation to 
farmers who withdraw from milk production 
(Article 9(4) of Council Regulation No 857/ 
84(4)); 
(iv) the budgetary treatment of these provisions 
authorizing the Member States to allocate sums 
collected under the levy to the financing of 
compensation payments to farmers who 
withdraw from milk production gave rise to 
expenditure under headings not provided for in 
the budget, although the Regulation concerned 
was introduced prior to the adoption of the 
budget. As a result, this expenditure is not shown 
in the revenue and expenditure account, thus 
preventing the budgetary and discharge author­
ities from fulfilling their responsibilities in this 
matter. 
4.5. In comparing the 1985 expenditure with that of 
1984, the Court must draw the reader's attention to the 
fact that, unlike the 1984 expenditure, the second-
category expenditure for 1985 for cereals, butter and 
beefmeat includes the sum of 439 Mio ECU for the 
depreciation of the stock in question (see paragraphs 4.17 
and 4.21). 
The provisional twelfths system 
4.6. The following comments, which relate to the 
Commission's application of the provisional twelfths 
system to EAGGF expenditure in the early months of 
1985, should be read in conjunction with the more general 
comments about the provisional twelfths system in 
Chapter 1 (paragraphs 1.30—1.35). 
4.7. The clear intention of the Treaty (Article 204) and 
the Financial Regulation (Articles 8 and 92) is to require 
the Commission, in the absence of a budget, to exercise 
the utmost self-restraint in the management of expendi­
ture. The way in which the Commission applied the 
provisional twelfths system to EAGGF expenditure in the 
early months of 1985 had in fact the opposite effect. 
4.8. EAGGF-Guarantee expenditure takes place in the 
Member States, and is financed by monthly advances 
from the Commission. In 1985, the Commission equated 
these advances with commitments pursuant to Article 8, 
second indent, of the Financial Regulation. Thus, instead 
of a ceiling of one twelfth per month the Commission 
awarded itself three twelfths for January, with an 
additional twelfth for each succeeding month. This 
practice has already been criticized by the Court, in its 
annual report concerning the financial year 1980 (5). In 
the Court's opinion, such advances, which give rise to payments to beneficiaries in Member States, should be 
subject to the provisions of the Financial Regulation 
(Article 8, third indent) concerning appropriations for 
payment under the provisional twelfths system. The 
Court calculates the excess of actual expenditure by 
Member States during the period January-May 1985, by 
comparison with the permissible total under Article 204 
of the Treaty and under Article 8, third indent, of the 
Financial Regulation, to be a minimum of 1 329,7 Mio 
ECU. 
4.9. Despite the greater latitude that this treatment of 
commitments afforded it, the Commission found that the 
advances which it wished to make in March 1985 would 
exceed the lower of the two limits for that month. As the 
budget authorities would not agree to grant an additional 
twelfth (under the fourth indent of Article 8 of the 
Financial Regulation), the Commission applied the 
higher limit instead. As a result, advances to Member 
States in March 1985 exceeded the legal ceiling by an 
amount of 516,9 Mio ECU. 
4.10. Whatever legal interpretation is given to the 
system of advances, the Commission is not released from 
its important obligation to ensure that expenditure by 
Member States stays within the Treaty limits, i.e. to apply 
to the Member States' expenditure the stricter system for 
payments laid down in the third indent of Article 8 of the 
Financial Regulation. In the event, no attempt was made 
by the Commission to ensure that the Member States 
stayed within the monthly ceilings on expenditure laid 
down by the Treaty, i.e. one twelfth of actual 1984 
expenditure or proposed 1985 expenditure, whichever is 
the lower. 
4.11. In the Court's view, by not observing the double 
limit, by its treatment of advances as commitments and by 
funding advances above the permitted level, the Com­
mission's implementation of the 1985 budget 
amounted to an evasion of the constraints imposed by the 
provisional twelfths system. 
Cash management in the Member States 
4.12. Table 4.2, which shows the credit balances at the 
end of each month in the Member States, demonstrates 
that: 
(a) the level of unexpended amounts in the Member 
States was particularly high during the first four 
months of the year, which again reflects the excessive 
amount of advances made at a time when the 
provisional twelfths system should, on the contrary, 
42 Official Journal of the European Communities 15. 12. 86 
Table 4.2 — Appropriations still available at the end of the month in the Member States 
(Mio ECU) 
Recipient 
Member State 
Belgium 
Denmark 
FR of Germany 
Greece 
France 
Ireland 
Italy 
Luxembourg 
Netherlands 
United Kingdom 
Total Balances during the financial year 1985 
31.1.85 28. 2. 85 31.3.85 30. 4. 85 31.5.85 30. 6. 85 31.7.85 31.8.85 30. 9. 85 31. 10.85 30. 11.85 31. 12.85 
- 8,5 - 9,5 + 8,6 - 26,7 +4,1 + 3,9 +27,3 - 1,9 + 6,9 - 9,7 -24,7 + 0,9 
- 0,9 - 1,1 +22,6 + 32,5 + 35,7 +34,6 +26,7 - 8,9 +16,3 + 36,5 +10,7 - 0,05 
- 4,1 + 18,1 +85,3 + 63,2 + 80,9 +37,4 - 9,6 + 8,7 +99,6 + 97,9 +87,4 +13,1 
+ 20,3 + 51,4 +50,2 + 16,5 - 23,0 - 7,2 -27,9 - 7,3 + 6,8 + 37,9 +20,7 - 0,1 
- 0,1 - 42,2 -23,7 + 19,7 + 7,3 - 6,6 -35,0 - 18,3 + 0,3 + 11,7 -36,7 + 0,3 
+ 24,1 + 48,2 +14,7 + 10,4 + 1,7 + 8,6 +19,3 - 6,5 +19,9 + 0,2 + 8,0 + 0,1 
+ 320,0 +209,2 +70,0 +194,3 +133,8 +79,5 +94,4 +124,6 +46,8 +140,9 -17,3 + 6,2 
- 0,1 + 0,3 + 0,0 + 0,5 - 0,1 - 0,0 + 0,3 + 0,1 - 0,1 + 0,0 + 0,0 + 0,1 
- 22,1 + 4,4 +74,3 + 94,3 - 4,0 -27,1 -63,5 - 30,2 -17,3 - 5,8 -20,0 +28,0 
+ 80,1 + 86,9 +55,8 + 2,0 + 6,8 +57,3 +50,5 + 7,5 +13,3 + 13,1 - 4,9 + 0,6 
408,7 365,7 357,8 406,7 243,2 180,4 82,5 67,8 192,5 322,7 23,2 49,2 
modest objective. This would involve relying on the 
computerized system for processing expenditure used in 
Denmark and putting it into general use in all the Member 
States; this in itself would be a minimum improvement as 
regards the type and timing of information available at 
Community level. Whilst being sorry to see the prospect 
of a more fundamental reform of the existing system 
recede, the Court can only encourage any progress 
towards a more correct and more rapid execution of the 
central responsibilities with regard to the financing of the 
EAGGF-Guarantee incumbent on the Commission. 
OBSERVATIONS ON THE FINANCIAL 
MANAGEMENT 
Public storage: general aspects 
Changes in stocks 
4.14. The book value (based primarily on the purchase 
price) of products in intervention at the end of the 
financial year 1985 was 11019 Mio ECU; this represents 
a 26% increase over 1984, which is a growth rate 
comparable to that of the previous year. Following 
depreciation (see paragraph 4.22), the amount was 
reduced to 10 580 Mio ECU (see Table 4.3). have imposed special constraints (cf. paragraphs 4.6 
— 4.11 above); 
(b) the monthly average of these credit balances was 
225 Mio ECU, compared with - 35,8 Mio ECU in 
1984. In relative terms, this means that the Commis­
sion granted Member States advances which were, on 
average, 14 % higher than actual requirements. In the 
case of two countries whose end-of-month cash 
position was strongly positive virtually throughout 
the year, this percentage was 19,4 % (United King­
dom) and 40,9 % (Italy); 
(c) furthermore, the Commission was unable to avoid the 
fact that, at the end of certain months — even in 
December — the agricultural expenditure of some 
Member States exceeded the Commission's advances. 
Conclusions with regard to the implementation 
of the budget 
4.13. Such situations once again highlight the need to 
review the system of advances based on estimates by the 
Member States. In this context, the Court has followed 
with interest the efforts made to introduce a system of 
direct payments, which, according to the Commission 
itself, could remedy most of the existing problems. 
However, the reservations of the Member States with 
regard to what they consider to be a forced relinquish­
ment of their responsibility for financial implementation 
provided for in Regulation (EEC) No 729/70 has led the 
Commission to fall back for the time being on a more 
15. 12. 86 Official Journal of the European Communities 43 
Table 4.3 — Quantity and value of products in public storage 
Product 
Common wheat 
Barley 
Rye 
Durum wheat 
Total cereals 
Sugar 
Olive oil 
Colza 
Tobacco 
Alcohol from the compulsory distillation 
of wine (3) 
Skimmed-milk powder 
Butter 
Beef carcasses 
Boneless beef 
Pork 
Grand total Position at 30. 11. 840 
Quantity 
(1 000 tonnes) 
6 463 
1 636 
441 
853 
9 393 
43 
167 
58 
14 
773 
973 
468 
127 
— 
— Value (2) 
(Mio ECU) 
1 263 
320 
92 
227 
1 902 
26 
272 
26 
14 
1 242 
3 537 
1 297 
435 
— 
8 751 Position at 30. 11.85(') 
Quantity 
(1 000 tonnes) 
11 903 
4 651 
1 108 
986 
18 648 
— 
75 
0 
15 
501 
514 
1 018 
589 
214 
26 
— Value (2) 
(Mio ECU) 
2 390 
940 
226 
264 
3 820 
— 
116 
— 
15 
47 
867 
3 416 
1 509 
761 
29 
10 580 
(') According to the provisions of Commission Regulation (EEC) No 3184/83, second-category expenditure effected and chargeable to a financial year is 
that arising from intervention operations carried out during the period from December to November. 
(2) The value in ECU was obtained by applying to the carry-overs value in national currencies the budgetary rates valid for the conversion of the November 
expenditure. The amounts appearing in the table represent the book values after depreciation. 
(3) The quantities of alcohol are expressed in hectolitres of pure alcohol. 
Source: 15th EAGGF Financial Report, 1985. 
Table 4.4 — Analytical table of the movements of public stocks 1983-85 (l) 
(IQOOt) 
Product 
Common wheat suitable for bread-
making 
Common wheat unsuitable for bread-
making 
Sub-total common wheat 
Barley 
Rye 
Durum wheat 
Total cereals 
Olive oil 
Tobacco 
Skimmed-milk powder 
Butter 
Beef carcasses 
Boneless beef 
Total beef 1982 
Stocks 
31.12.1982 
6 504 
22 
6 526 
1 679 
298 
801 
9 304 
181 
37 
607 
138 
155 
61 
216 1983 
Purch­
ases Sales Stocks 
30.11.1983 
2 520 2 462 6 562 
7 15 14 
2 527 2 477 6 576 
1 251 1 568 1 362 
37 24 311 
329 396 734 
4 144 4 465 8 983 
30 93 118 
16 22 31 
869 448 1 028 
590 43 685 
323 177 301 
69 44 86 
392 221 387 1984 
Purch­
ases Sales Stocks 
30.11.1984 
2 898 5 012 4 448 
2 015 14 2 015 
4 913 5 026 6 463 
1 544 1 270 1 636 
249 119 441 
309 204 853 
7 015 6 619 9 383 
131 87 162 
12 28 15 
454 695 787 
509 222 972 
370 190 481 
89 42 133 
459 232 614 1985 
Purch­
ases Sales Stocks 
30.11.1985 
1 671 2 228 3 891 
6 248 251 8 012 
7 919 2 479 11903 
4 418 1 404 4 651 
686 19 1 108 
695 561 986 
13 718 4 463 18 648 
12 98 76 
13 13 15 
223 496 514 
494 447 1 018 
253 145 588 
129 48 214 
382 193 802 
(') A comparison of the figures for the financial years included in this table is complicated by the fact that the financial year 1983 was reduced to 11 months, 
following the introduction of Commission Regulation (EEC) No 3184/83. 
44 Official Journal of the European Communities 15. 12. 86 
4.15. Changes in stock movements by quantity are 
shown in Table 4.4, thus enabling the relationship 
between purchases and sales of the principal products to 
be assessed. The following observations may be made: the 
imbalance in butter dates from 1983 and persisted in 
1984; in the case of beefmeat, the imbalance has been 
constant for several years; movements in cereals stocks 
really became unbalanced for the first time in 1985, on 
account of the virtual doubling of purchases and an 
inadequate disposal level, which was even lower than that 
of 1984. recognizes, however, that the Commission's agricultural 
export promotion policy has to take account of important 
non-financial considerations (such as the Community's 
international obligations and its commercial relations 
with the USA). 
Changes in expenditure 
4.16. The increase in purchases into intervention was 
particularly marked for certain cereals, and followed 
automatically from the exceptional size of the 1985 
harvest and the decisions by the Council and the 
Commission with regard to prices and other aspects of 
market organization. Total cereal exports (from the open 
market and from stocks) exceeded the 1984 levels, but 
only by a small amount and were not sufficient to prevent 
a substantial increase in end-1985 stock levels. The Court 
is aware of two factors which, with hindsight, might have 
enabled the Commission to achieve a higher level of 
cereals exports in 1985. One was the dollar exchange rate, 
which led to world prices for cereals equalling, if not 
exceeding, Community prices on some occasions during 
the year. The other was the availability of 665,9 Mio ECU 
of budgetary appropriations (of which in the event 
439 Mio ECU were used for depreciation, 130,9 Mio 
ECU were cancelled and 96 Mio ECU were transferred 
out of the EAGGF, Guarantee Section). The Court 4.17. Expenditure relating to public storage entered in 
the accounts for the financial year 1985 amounted to 
3 542,4 Mio ECU. It should be noted that a comparison 
of expenditure relating to the various financial years is 
complicated by the policy followed by the Commission 
with regard to depreciation (see paragraphs 4.5 and 4.21). 
Milk products still account for more than half the 
expenditure (51 %). The distribution of this expenditure 
by category and product is shown in Table 4.5, which also 
refers to aid for private storage. The largest category of 
this expenditure is that of losses on sales, which represent 
the reimbursement, by the EAGGF to the Member 
States, of the difference between the purchase price as 
stated in the accounts and the selling price obtained. For 
1985, these losses, amounting to 2 193,8 Mio ECU as 
shown in Table 4.5, include both the amount of the losses 
made (1 754,8 Mio ECU) and that of anticipated losses 
(439 Mio ECU) resulting from the depreciation effected 
by the Commission (see paragraph 4.21). The following 
analysis refers to the two categories of technical costs and 
financial costs. 
Table 4.5 — Distribution of storage costs in 1984 and 1985 
Product 
Cereals 
Sugar 
Olive oil 
Oil seeds 
Wine and alcohol 
Tobacco 
Skimmed-milk powder 
Butter 
Cheese 
Beef 
Pork 
Total Private 
1984 
— 
429,5 
— 
— 
135,6 
— 
— 
152,4 
60,0 
14,1 
38,9 
830,5 storage 
1985 
— 
438,9 
— 
— 
88,1 
— 
— 
98,8 
67,0 
159,6 
32,5 
884,9 Tntal 
1984 
314,8 
0,4 
66,6 
2,1 
— 
28,2 
819,4 
678,6 
— 
800,4 
— 
2 710,5 1985 
751,8 
1,2 
5,2 
-0,5 
1,5 
11,8 
580,0 
1 226,9 
— 
934,5 
30,0 
3 542,4 Public 
Technical 
costs 
1984 
199,2 
0,3 
31,5 
0,3 
— 
6,2 
33,7 
134,5 
— 
135,9 
— 
541,6 1985 
353,5 
1,7 
20,0 
0,7 
0,5 
6,9 
16,9 
134,3 
— 
198,1 
0,7 
733,3 storage 
Financial 
costs 
1984 
92,7 
0,1 
21,3 
0,1 
— 
1,5 
107,1 
233,1 
— 
58,8 
— 
514,7 1985 
174,8 
2,0 
14,1 
1,1 
1,0 
1,5 
57,8 
234,5 
— 
128,2 
0,3 
615,3 (Mio ECU) 
Losses on 
sales 
1984 1985 
22,4 223,5 
— - 2,5 
13,8 -28,9 
1,7 - 2,3 
— — 
20,5 3,4 
678,6 505,3 
311,0 858,1 
605,7 608,2 
— 29,0 
1 653,7 2 193,8 
15. 12. 86 Official Journal of the European Communities 45 
Technical costs 
4.18. The expenditure headed 'technical costs' rep­
resents the amounts of the standard-rate reimbursements 
paid by the EAGGF to the Member States to cover the 
cost of the physical operations involved in storage. It is 
therefore directly related to the quantities in stock and to 
their movements. The technical costs (733,4 Mio ECU) 
increased by 35 % over the previous year. The major part 
of this increase is accounted for by the growth of cereals 
stocks which, alone, now account for almost half the 
technical costs. 
Financial costs 
4.19. The expenditure shown under 'financial costs' 
corresponds to reimbursements to the Member States, 
likewise at a standard rate, of compensation for interest 
on their capital tied up by intervention purchases. 
Variations in this expenditure are therefore directly 
related to changes in the book value of the stocks. The 
financial costs (615,2 Mio ECU) increased by 20% in 
1985, as compared with 1984. 
Expenditure charged back to the national budgets 
4.20. In 1985 the standard level of reimbursements for 
the financing of stocks and for the technical operations 
which they involve were both below the level of the actual 
costs incurred by the Member States. On the basis of the 
declarations of actual costs for 1985 submitted by the 
Member States for the purpose of a review of the standard 
amounts, the overall amount remaining as a final charge 
to the national budgets in 1985 may be estimated at 
160,2 Mio ECU, consisting of 117,1 Mio ECU for the 
financing charges and 43,1 Mio ECU for the technical 
costs. Table 4.6 shows in detail the differences between 
declared costs and standard reimbursements for all the 
Member States. The new Council Regulation (EEC) No 
1334/86 (6) of 6 May 1986 and Commission Regulation 
(EEC) No 1730/86 (7) of 3 June 1986 will have the effect of 
increasing the renationalization of this expenditure, in so 
far as they explicitly provide for the fixing of the uniform 
interest rate for financing costs at a level below its 
representative level and for the fixing of the uniform 
standard amounts for technical costs at 75 % of their 
normal level. 
Potential losses and depreciation 
4.21. During the period in which the book value of 
stocks more than quadrupled (i.e. 1982-84), no use was 
made of the possibility provided for in the second Table 4.6 — Transfer of public storage expenditure in 1985 to 
national budgets (') 
(Mio ECU) 
Member State 
Belgium 
Denmark 
FR of Germany 
Greece 
France 
Ireland 
Italy 
Luxembourg 
Netherlands 
United Kingdom 
Total Financial 
costs Technical 
costs Total 
+ 1,0 - 1,0 + 0,0 
+ 1,8 + 0,2 + 2,0 
- 39,7 +26,8 - 12,9 
+ 3,2 + 0,1 + 3,3 
+ 40,2 - 2,0 + 38,2 
+ 13,1 + 9,5 + 22,6 
+ 51,7 + 3,4 + 55,1 
+ 0,0 - 0,0 - 0,0 
- 4,1 - 9,9 - 14,0 
+ 49,9 +16,0 + 65,9 
+ 117,1 +43,1 +160,2 
(') Differences between national expenditure and Community fixed-rate 
reimbursements. 
paragraph of Article 8 of Council Regulation (EEC) No 
1883/78 (8) of 2 August 1978 which allows part of the 
potential losses to be charged to the financial year by way 
of depreciation. The Court has on many occasions 
expressed its opposition to the procedures for implement­
ing this rule; these objections related in particular to the 
fact that depreciation was not applied in terms of the 
extent of potential losses, but with reference to the 
availability of appropriations at the end of the financial 
year, resulting in an arbitrary allocation of expenditure 
with regard to its annuality. In the Court's opinion (9), 
optional depreciation should be replaced by a fixed rule, 
namely by the rule of valuation of stocks at either 
purchase price or realizable value, whichever is the lower. 
4.22. Regulation (EEC) No 1883/78 as amended in 
March 1986 (l0) now in fact makes it possible to apply the 
method advocated by the Court, just as the entering of 
specific budget headings in the 1986 budget should in 
future enable the financial impact of the depreciation of 
stocks to be identified from a budgetary and accounting 
point of view. It should be noted, however, in connection 
with the depreciation operation effected at the end of 
1985, that: 
(a) the financial impact of anticipated losses continues to 
be confused in the revenue and expenditure account 
with that of actually realized losses on sales (see 
paragraph 4.17); 
46 Official Journal of the European Communities 15. 12. 86 
(b) the Commission only used part of the appropriations 
available under the EAGGF-Guarantee (since it 
cancelled 130,9 Mio ECU and transferred 96 Mio 
ECU to other chapters) to carry out a depreciation 
limited to 439 Mio ECU, i.e. less than a third of the 
maximum possible depreciation (1 428 Mio ECU); 
(c) this maximum possible depreciation was determined, 
according to the regulations in force, as being equal to 
half the potential loss; however, the potential loss was 
calculated, taking into account current procedural 
constraints, on the basis of the accounting data 
reflecting the situation as at 30 August (2 856 Mio 
ECU), whereas if this method had been applied on the 
basis of the accounting data for the end of the 
financial year, thus reflecting the situation as at that 
date, the potential loss would have been 3 010 Mio 
ECU (see Table 4.7); 
(d) finally, with regard to the distribution of the impact of 
the depreciation across the range of products, the 
Court can only stress the lack of precise rules: in 1985 
this distribution applied to cereals (98,0 Mio ECU), 
butter (268,6 Mio ECU) and beefmeat (72,3 Mio 
ECU), although it is not possible to link these 
amounts objectively to the maximum possible 
depreciation calculated for each of these products. The potential costs 
4.23. The unsatisfactory situation of the past few years, 
with regard to depreciation in general, was somewhat 
tempered by the publication in 1984, as an annex to the 
financial statement, of an assessment of the potential 
costs relating to public stocks at the end of the year. 
However, contrary to the practice followed in 1984, the 
annex to the 1985 financial statement no longer mentions 
the potential costs directly — the reader being required to 
calculate them as the difference between book values and 
foreseeable revenue from disposal — and no longer refers 
explicitly to quantities of 'normal stock' (see paragraph 
(a) (hi)). 
(a) For 1985, the potential costs (after depreciation) were 
4 459 Mio ECU (»). This amount differs from that 
given for potential losses (3 010 Mio ECU) for three 
main reasons: 
(i) the figure taken into account is not the difference 
between the purchase price entered in the 
accounts and the actual sales price during the past 
year, but the difference between the purchase 
price used in the accounts and the foreseeable 
sales price over the coming period; 
Table 4.7 — Changes in losses on public stocks 
Product 
Common wheat for fodder 
Barley 
Rye 
Durum wheat 
Olive oil 
Tobacco 
Skimmed-milk powder 
Butter 
Beef carcasses 
Boneless beef 
Total 1983 
Loss made (') 
on sales 
(%) 
— 
— 
— 
— 
87 
83 
64 
18 
6 
— Potential 
loSS (2) 
on stock 
(Mio ECU) 
— 
— 
— 
— 
16,8 
1 154,2 
1 493,3 
134,9 
16,1 
2 815,3 1984 
Loss made (') 
on sales 
(°/o) 
4 
7 
— 
8 
87 
66 
40 
30 
15 
— Potential 
loss (2) 
on stock 
(Mio ECU) 
12,9 
5,8 
— 
21,9 
11,8 
739,0 
1 310,5 
356,5 
61,0 
2 519,4 1985 
Loss made (') 
on sales 
(%) 
0,4 
24 
7 
6 
— 
85 
62 
46 
34 
13 
— Potential 
loss (2) 
on stock 
(Mio ECU) 
7,2 
207,3 
14,6 
16,9 
— 
13,9 
501,2 
1 566,5 
583,1 
99,7 
3 010,4 
(') Difference between the average selling prices and the average purchase price as used in the accounts, expressed as a % of the average purchase price. For 
beef, the percentage loss refers to the price as used in the accounts, i.e. purchase price less 20 %, to take into account initially the loss in value due to 
freezing. 
(2) Values in green ECU, subject to the effect of the dual rate. 
15. 12. 86 Official Journal of the European Communities 47 
(ii) the potential costs include the amounts of refunds 
for stocks intended for export; 
(iii)the calculation excludes the part of the stock 
regarded as 'normal'. The concept used here is 
that of 'strategic stock', i.e. a reserve stock 
intended to provide the population with supplies 
in exceptional circumstances; 
(b) the first two points do not require any particular 
comment. On the third point, the Court considers 
that the exclusion of'normal stock' might be justified 
if a decision were made at an appropriate level to 
leave aside certain quantities of stock permanently as 
a strategic reserve; it is not aware of any such 
decision, which would also have to refer to the 
quantities constituting such a reserve. This being so, it 
seems unrealistic to think at present that part of the 
stocks, consisting of products resulting from substan­
tial surplus production, is secure from any loss in 
value — particularly if this part amounts to 5 Mio 
tonnes in the case of cereals, 400 000 tonnes for milk 
products and 100 000 tonnes for beefmeat. On the 
contrary, it is the total overhang of these stocks that is 
pushing prices down on the markets in question. The 
fact that, in another document submitted by the 
Commission (12), the potential costs were valued at a 
far higher level (i.e. 5 650 Mio ECU), may indicate 
that the Commission itself is not confident of being 
able to dispose of this part of the stocks without 
making considerable losses. 
Conclusions with regard to public storage: general 
aspects 
4.24. The Court considers that the practices set out 
above, i.e. the charging of expenditure incurred in the 
implementation of the common intervention policy either 
to the Community budget for future financial years or to 
national budgets, lead to a situation in which it is no 
longer possible to obtain full or accurate information on 
the actual expenditure for a particular financial year. In 
fact, the revenue and expenditure account: 
(a) provides for only a small part of the known loss of 
value of intervention stocks, thereby postponing the 
greater part of the loss to the budgets of later years; 
(b) cannot provide full disclosure of the costs of storing 
and financing intervention stocks, in so far as an 
increasing share of these costs is borne directly by 
Member States. 4.25. In general, the Community's adoption of 
inadequate accounting principles has contributed, in the 
Court's view, to the worsening of the present problem of 
surplus stocks, by making it easier for the institutions to 
avoid or defer difficult decisions regarding the storage of 
intervention stocks. 
4.26. The present level of stocks (11 019 Mio ECU) 
reflects intervention payments for the benefit of Com­
munity agricultural producers. However, the cost-
effectiveness of this level of support seems difficult to 
justify in view of the fact that the stocks entail annual 
storage and financing costs amounting to 1 350 Mio ECU 
a year and carry with them potential disposal costs of 
some 5 650 Mio ECU. 
Public storage: cereals 
Introduction 
4.27. The market which underwent the most noticeable 
changes in 1985, as far as storage is concerned, is 
undoubtedly the cereals market, as shown in Table 4.4. 
After a three-year period of relative stability, (with 
approximately 9,5 Mio tonnes in storage and expenditure 
amounting to 375 Mio ECU), these figures suddenly 
doubled. The doubling of these figures reflects the current 
difficulties faced by the market which, in a very short 
time, has moved from a shortage to a surplus, especially 
after the record harvests of the last two years (15 to 20 % 
above the average of previous years). In future, the 
disposal of current stocks, mostly onto the export market, 
will involve potential costs estimated by the Commission 
at more than 800 Mio ECU. The real costs will be even 
greater if, as has already been stated, the Commission's 
failure to provide for losses against the disposal of 5 Mio 
tonnes, considered as 'normal stocks', is taken into 
consideration. 
4.28. The Court has, therefore, paid special attention to 
storage of cereals, by including in its audit the manage­
ment of intervention in the main Member States 
concerned. The following observations take account of 
findings made during on-the-spot visits from November 
1985 to February 1986, to the FR of Germany, France 
and the United Kingdom, countries which, in 1985, were 
concerned with more than 80 % of expenditure for the 
public storage of cereals. The geographical and technical 
details on which these observations are based were made 
available to the Commission. 
48 Official Journal of the European Communities 15. 12. 86 
Quality 
Commercial and Community criteria 
4.29. Since the main outlet for the disposal of stocks is 
the world market, it should be noted, on the basis of the 
current Regulations, that the minimum quality ac­
ceptable for intervention in 1985 did not correspond to 
international trade requirements. For example: 
(a) on the world market, the standard of 14 % is applied 
for humidity, whereas for intervention up to 16% 
humidity is acceptable; a specific weight of 76 kg/hi 
for wheat is usually required, whereas for interven­
tion purposes the Community accepts 68 kg/hi; 
(b) numerous experts consulted by the Court are all of the 
opinion that the quality of wheat accepted for 
intervention as suitable for bread-making is so poor 
that it does not exhibit the technical characteristics 
actually required to make bread. The Regulation in 
force until the 1985/86 marketing year did not 
therefore exclude wheat which was supposedly 'of 
bread-making quality' from being taken into inter­
vention when, in fact, it was possibly unsuitable for 
making bread; 
(c) during the last two years, stocks of common wheat 
unsuitable for bread-making have increased con­
siderably, from several thousand tonnes to 2 Mio 
tonnes at the end of 1984 and to 8 Mio tonnes at the 
end of 1985; in other words, two thirds of the total 
stock of common wheat. This development is more 
apparent than real, reflecting the introduction of a 
guarantee limit of 3 Mio tonnes of common wheat 
suitable for bread-making, paid at a higher price, as 
from the 1983/84 marketing year. In this way, the 
Commission brought about a relative fall in the 
average purchase price for intervention wheat. From 
the point of view of quality, the Regulation's two 
definitions are almost completely confused, and, 
contrary to the observation under (b) above, part of 
the stock said to be unsuitable for bread-making is in 
fact of bread-making quality. This inconsistency does 
not make for disposal in the best possible conditions. 
4.30. With regard to humidity, it should be noted that 
the difference between a level of 14 % and a level of 16 % 
amounts to the difference between a cereal which is 
suitable for long-term storage and one which is difficult to 
keep for longer than a year; and a situation characterized 
by surplus production and by difficulties in finding 
outlets inevitably results in extended storage. The fact 
that cereals with a high humidity level are accepted into 
intervention presents problems of quality control and involves considerable additional costs for special treat­
ments, such as drying, cooling and homogenization. The 
cost of these treatments is reimbursed by the EAGGF by 
means of special flat-rate sums. 
Quality control 
4.31. The Court undertook a preliminary enquiry into 
the quality control arrangements for cereal intervention 
stocks. Court staff visited 12 stores and had 16 samples of 
grain taken for technical analysis in three Member States 
(the FR of Germany, France and the United Kingdom) 
during the investigation. Whilst it would be unwise to 
draw general conclusions from the results of this 
preliminary enquiry, the Court is of the opinion that the 
results obtained do raise some doubts about the 
soundness of the arrangements for quality control. 
4.32. There are considerable variations between the 
provisions made by the different Member States for 
technical monitoring of the quality of products purchased 
and stored for intervention. For example: 
(a) in some cases, very precise regulations exist prescrib­
ing in detail the procedures the stockists should 
follow, the standards they should observe and the 
information they should supply, in conjunction with 
strict monitoring on the part of the intervention 
agency by means of very frequent inspection visits; 
(b) in other cases, there is a general system of monitoring, 
the inspection operations being carried out on a 
relatively small scale. 
4.33. In any case, a great deal of trust is put, in general, 
in the stockists, to a point where it is essentially they who 
take and analyse the samples when the stock arrives and 
decide the price increases and reductions to which the 
suppliers are entitled in view of the quality of the 
merchandise. This trust is based on the fact that the 
stockists are contractually responsible both for the 
quantity and quality of the intervention cereals in their 
charge. However, it is more difficult to question this 
responsibility as far as the quality is concerned than the 
quantity, because of the practice of mixing several 
purchases of different qualities together in large consign­
ments (combined storage) which results in a hetero­
geneous mass, and because of the unreliability of the 
quality control system both when the stock enters and 
leaves. Reliability can only be ensured if the sampling and 
the analysis are carried out by cross-checks between two 
parties of opposing interests or by the intervention agency 
directly. 
15. 12. 86 Official Journal of the European Communities 49 
4.34. The Court's enquiry revealed that: 
(a) cereals are often stored in very large consignments, 
sometimes in excess of 20 000 tonnes, quantities 
which obviously cannot be homogeneous, and this 
leads to the following results: 
(i) a greater risk that consignments of a quality 
below intervention standards might be intro­
duced and absorbed into the average for the 
overall mass; 
(ii) intermediate controls, by means of representative 
sampling are made extremely difficult; 
(iii) it is disadvantageous when parts of the overall 
consignment are offered for sale since the actual 
quality of one part may differ considerably from 
the average theoretical quality; 
(b) certain intervention agencies impose an average 
quality on entering and leaving, for a given product 
and year, according to the warehouse as a whole and 
not according to the consignment stored (as is the case 
with another agency); 
(c) in most cases cross-checking during quality control 
analysis as the product enters and/or leaves cannot be 
vouched for: for example when the vendor and the 
stockist are the same company or person, or when the 
product is offered for sale according to its theoretical 
quality; 
(d) the financial responsibility of the stockists is very 
rarely involved; in fact, only in one Member State 
were examples found of stockists being charged for 
the financial consequences (price reductions) of a 
deterioration in quality during storage. 
4.35. Under the responsibility of the Court, moreover, 
samples were taken by independent experts and analysed 
by an independent laboratory. The results of the analyses 
of the 16 samples show: 
(a) two cases of quality unacceptable for intervention, 
one of which was due to exceeding the maximum 
percentage of broken grains and the other due to 
exceeding the maximum percentage of humidity; 
(b) seven cases of discrepancies between the value 
established at the time of the investigation and the value recorded on arrival, involving financial con­
sequences in relation to price increases/price reduc­
tions. Five of these cases occurred in a Member State 
where analysis of the product on arrival was the entire 
responsibility of the stockists; 
(c) several cases, particularly concerning consignments 
of rye which had received the premium for rye of 
bakery quality and which exhibited certain technical 
and chemical characteristics that seemed impossible 
to determine objectively. The Court found that some 
of these characteristics were given very different 
values, depending on the expert analysing them, to 
the extent that in some cases they were said to comply 
with the prescribed criteria and in other cases not. 
4.36. With regard to these findings, it would be 
advisable to tighten up the quality control system and to 
adopt Regulations for this purpose, notably: 
(a) to require the intervention agencies to register the 
average quality recorded on entering and on leaving 
intervention for each consignment stored (which may 
be a combination of several consignments pur­
chased) ; 
(b) to limit the volume of a consignment stored to the 
content of a chamber or a small group of chambers in 
the case of silo storage and to a certain maximum 
quantity, for example 4 or 5 000 tonnes, in the case of 
flat storage; 
(c) to allow the combined storage of products of similar 
qualities in such consignments, as far as is practi­
cable ; 
(d) to require the intervention agencies to carry out close 
inspections of the quality control records, both on 
entering and leaving, and, in cases where there is no 
guaranteed cross-checking, to require them to 
intervene using their own resources or to bring in 
independent firms of experts; 
(e) to enforce the financial responsibility of stockists, by 
systematically charging them for any financial 
consequences arising from a deterioration in quality 
for which they are responsible, on the basis of price 
reductions applicable to the product for the charac­
teristics in question. These penalties are to be declared 
in the accounts for surrender to the EAGGF, which 
did not occur in the case mentioned above (see 
paragraph 4.34(d)). 
4.37. The Court realizes that the Commission is 
currently aware of this problem and has begun to 
50 Official Journal of the European Communities 15. 12. 86 
introduce quality controls on samples taken when leaving 
the intervention store. However, it has some doubts 
regarding the method chosen, in so far as: 
(a) at the present time, it is only possible to check that the 
criteria for minimum quality are being respected, and 
it is not possible to monitor the purchase price paid or 
the extent to which the stocks have been preserved 
(which would require a comparison between the 
quality on entering and on leaving); 
(b) it is based on the hypothesis of a cross-check sampling 
carried out between two parties of opposing interests, 
which, according to the findings of the Court's staff, is 
not the case in most disposals in the three Member 
States examined. 
Other aspects of national management 
4.38. The on-the-spot enquiry into the agencies 
responsible for intervention in the Member States 
mentioned above noted appreciable differences in 
administrative, accounting and inspection procedures 
between one Member State and another. The main 
differences are as follows: 
(a) payment conditions: the suppliers of cereals for 
intervention in the different Member States are 
presented with different payment periods. In current 
practice, accepted by the Regulation (I3), these 
periods vary from 60 days (FR of Germany) to 120 
days (France). If the difference in interest rates is also 
taken into account, it may be emphasized that the 
most favoured vendors, the Germans, have a 
financial advantage of 3,3 % over their French 
colleagues. Such a difference is also found in the free-
market prices and could well cause a movement of 
merchandise from one Member State to another; 
(b) monthly increases in intervention prices: Commis­
sion Regulation (EEC) No 1569/77 (14) of 11 July 
1977, lays down, in Article 3(3), that 'the price to be 
paid to the seller shall be the price valid for the month 
specified as the month of delivery at the time of 
acceptance of the offer'. In practice, this provision is 
not implemented by the intervention agencies, who 
feel free to apply the price for the month of actual 
delivery if the consignment in question (or a part of it) 
is delivered after the month provided for in the 
contract; 
(c) difficulties in reconciling the accounting data: 
declarations of reimbursable expenditure submitted to the Commission for operations carried out are 
drawn up on the basis of data other than accounting 
data. Reconciling these declarations with data 
appearing in the accounts held by the intervention 
agencies occasionally proved to be extremely com­
plicated ; 
(d) the frequency and exhaustivity of external control at 
national level: the enquiry carried out in the Member 
States showed that the monitoring of intervention 
agencies by independent inspection bodies differs 
considerably, not just in methods but also in 
frequency and exhaustivity. 
Conclusions on the public storage of cereals 
4.39. The Court considers that: 
(a) the intervention procedures, characterized by un-
selective quality criteria and a price differentiation 
scheme which is not an adequate deterrent against 
poor quality, have encouraged the production of 
large quantities of cereals, including cereals of 
qualities which would have represented too great a 
risk for the farmers concerned without the security of 
intervention. In this respect, these procedures have 
helped to create the current situation of over­
production ; 
(b) it is therefore necessary to tighten up the criteria on 
quality and price conditions. The Council's adoption 
of measures connected with the price package for the 
1986/87 cereal marketing year, in April 1986, is 
undoubtedly a step in the right direction, but it does 
not completely bridge the gap between the criteria for 
Community intervention and commercial criteria; 
(c) the unsatisfactory situation regarding quality control 
requires statutory action by the Commission, so that 
the present quality, which is already poor, does not 
deteriorate further and result in increased losses (or 
potential costs) to the Community; 
(d) in relation to national administrative, accounting and 
inspection procedures, it would be advisable for the 
Commission to work towards a minimum level of 
harmonization by attempts at coordination, either 
through its own checks or through the introduction of 
more detailed Regulations. In this context, the Court 
emphasizes the important role which national Courts 
of Auditors could play in checking that the inspection 
system operates properly. 
15. 12. 86 Official Journal of the European Communities 51 
OBSERVATIONS ON THE INTERNAL 
CONTROLS 
Frauds and irregularities 
The reliability and comprehensiveness of information 
4.40. In 1985, Member States reported 219 cases of 
irregularities concerning a total of almost 12 Mio ECU. 
In relation to 1984, this is a 70% increase in terms of 
numbers, and a 100% increase in terms of value. The 
breakdown of these figures (by type of measure, market, 
Member State) is given by the Commission in its 15th 
Financial Report on the EAGGF (15). The high concen­
tration of irregularities in certain countries can only 
confirm the doubts expressed by the Court in previous 
annual reports about the value of such statistics. Faced 
with the same observation for the financial year 1984, the 
Commission agreed to give the reasons for this imbal­
ance ; at the present time, the Court has still not received 
the answers promised by the Commission, which are even 
more necessary considering the considerable increase in 
1985. 
4.41. Furthermore, the Court regrets that, due to a 
shortage of resources, the introduction of 'Irene', the 
computerized system for recording and analysing frauds 
and irregularities reported by Member States, has been 
postponed; this system will only be operational as from 
the end of 1986, nearly two years later than the date 
initially forecast. 
Recovery of claims 
4.42. The recoveries made in 1985 as a result of 
overpayments, relate to 70 cases for an amount of only 
1,3 Mio ECU. The Court notes that: 
(a) as a consequence, the amount to be recovered 
continues to increase, reaching 106 Mio ECU at the 
end of 1985; 
(b) the Commission has agreed to study the question of 
entering the amount of the claim in the accounts, a 
matter which had already been raised in 1984 (16). 
4.43. The Court draws attention to the Commission's 
current study of the national requirements in force in each 
Member State for the recovery of overpayments. From this study it should be possible to make a better 
assessment of the practices of Member States when the 
recovery of Community payments is in question, and to 
make negligent Member States bear the cost of Com­
munity claims considered to be irrecoverable, as provided 
for by the Regulation (17). The Court expects the 
Commission to be in a position to implement the results of 
this study from next year. 
Mutual assistance in the campaign against fraud 
4.44. Council Regulation (EEC) No 1468/81 (i8) of 19 
May 1981 provides for mutual assistance between the 
administrative authorities of the Member States and for 
cooperation between them and the Commission in the 
campaign against customs and agricultural frauds: 
(a) however, in Article 2 of this Regulation the role of 
'applicant authority' for the purpose of making a 
request for assistance is only granted to Member 
States, so that the Commission is limited to a role of 
passive observer; 
(b) in the opinion of the Court, extension of the role of 
applicant authority to the Commission would 
considerably improve the Commission's position as 
regards the monitoring of frauds and irregularities. 
Clearance of the accounts 
Financial effect of the clearance decisions 
4.45. The decisions taken on the clearance of the 
accounts during the financial year 1985 (19) related to the 
expenditure of the Member States for 1980 and 1981. 
These decisions gave rise to a net recovery of 99,2 Mio 
ECU, bringing to 458,4 Mio ECU the amounts recovered 
since 1971, the year in which the financing system of the 
EAGGF-Guarantee was introduced. This amount in­
cludes, in addition to various accounting adjustments, 
refusal of gross expenditure totalling 145,2 Mio ECU for 
the financial years 1980 and 1981, and acceptance of 
expenditure totalling 24,4 Mio ECU which had pre­
viously been refused pending submission by the Member 
States of the necessary supporting documents. 
52 Official Journal of the European Communities 15. 12. 86 
Checks by the Commission 
4.46. As a result of the continual and substantial 
increases in the volume of expenditure to be checked, the 
increasing complexity of the Regulation and the relative 
stability of numbers of control staff, the Commission 
Decision (20), aiming to absorb the clearance delay by 30 
June 1987, inevitably involves a reduction in the number 
of on-the-spot checks, both in absolute and in relative 
terms. 
4.47. Furthermore, the Commission has not achieved 
the progress expected in the general application of audit 
procedures based on the analysis and evaluation of 
national systems of control. In fact, after examining the 
mission reports drawn up by the different teams, it is clear 
to the Court that these procedures have still not been 
introduced and that the old inspection methods have been 
maintained with all their previously recorded weaknesses 
and shortcomings. 
4.48. The Court notes that the partial correction of the 
clearance delay has only been made possible by a 
reduction in the number of checks, and to the detriment of 
their quality. 
The problem of reserves 
4.49. Following the clearance decisions of 1980 and 
1981, the reserves at the end of 1985 can be broken down 
into: 
(a) provisional acceptances (positive reserves) for which 
no figures are available; 
(b) provisional refusals of expenditure (negative reserves) 
totalling 51,4 Mio ECU, including 29,8 Mio ECU 
under the 1980 and 1981 clearances alone. 
4.50. The Court has, on many occasions, both in its 
special report concerning clearance of the accounts of the 
EAGGF, Guarantee Section (2I) and in its annual 
reports, criticized the introduction of reserves into the 
clearance decisions, mainly on the grounds that such 
reserves have no legal basis and that the resultant 
clearance decisions are no longer definitive. 
4.51. These cases of reserves are not accounted for as 
financial information in any form whatsoever in the 
balance sheet, even though, in its replies to the previous 
annual report, the Commission stated that it would 
consider how it could satisfy the Court's wishes (22). 4.52. In 1985 the Financial Controller refused to 
approve the clearance decisions in relation to the 
EAGGF-Guarantee Section accounts for France, Italy, 
and the United Kingdom. He did this because he objected 
to the positive reserves (paragraph 4.49(a) above) which 
the Commission had introduced on the basis of enquiries 
under way at that time. In the case of Italy, the reserve 
related to expenditure on production aid for olive oil (cf. 
paragraph 4.63 below) while those concerning France and 
the United Kingdom related to sums paid as financial 
compensation to groups of fruit and vegetables producers 
for the withdrawal of these products from the market. 
These refusals were all overruled by the Commission (the 
only overrulings affecting EAGGF-Guarantee Section in 
1985). The Court regrets these decisions of the Commis­
sion and supports the Financial Controller in his 
opposition to reserves of this nature. 
4.53. The Court is concerned at the length of time 
needed to complete the supplementary enquiries con­
nected with the introduction of reserves. In the cases 
under review, that concerning fruit and vegetables in 
France is the final phase of an enquiry which began in 
1978; the olive oil enquiry began in the 1979/80 marketing 
year; that concerning the fruit and vegetables sector in the 
United Kingdom was undertaken during 1985, although 
a potential problem was first highlighted during a control 
visit in 1981. 
4.54. These long delays emphasize two important 
weaknesses within the Commission: 
(a) a lack of detailed knowledge of the systems installed 
by the Member States to disburse and control 
Community expenditure, due to inadequate monitor­
ing and follow-up arrangements; 
(b) insufficient determination to devote to an enquiry the 
resources needed to complete it quickly. 
4.55. Both weaknesses result in delays: the first in 
discovering breakdowns in the control system, the second 
in determining the full extent of a breakdown. In the cases 
under review, the lapses of eight years or more in 
determining the extent of serious control weaknesses, 
even after their discovery, are totally unacceptable. The 
information available indicates that, for the olive oil 
enquiry at least, the delay will extend for some time into 
the future. In the meantime, the accumulation of reserves 
increases as funds continue to be disbursed in conditions 
of doubtful legality. 
15. 12. 86 Official Journal of the European Communities 53 
Cooperation of Member States Olive oil control agencies 
4.56. In its Annual Report for the financial year 1984, 
in relation to specific cases, the Court criticized the 
general lack of cooperation of Member States, both 
regarding the checks for which they are primarily 
responsible, such as day-to-day management and the 
prevention and suppression of fraud, and also regarding 
the checks by Community departments which involve the 
Member States, especially in relation to the clearance of 
the accounts. In the light of the replies and the subsequent 
information obtained from the Commission, the Court 
sees no reason to alter its view. It can only deplore, once 
again, that the information collected on the monitoring 
operations of Member States is inadequate, especially 
since Community legislation expressly provides for the 
notification of the results of these operations, and 
notification is the only tangible proof that the Regulation 
is being implemented correctly. 4.58. The agencies referred to in paragraph 4.57 were 
provided for by Article 1 of Regulation (EEC) No 2262/ 
84. They were to be autonomous agencies set up by the 
olive oil producing Member States (except France). They 
were to be equipped with the necessary powers and 
resources to carry out a wide range of checks designed 'to 
ensure that the production-aid arrangements are cor­
rectly applied'. The Regulation, which came into force on 
1 November 1984, also provided for the expenditure of 
the agencies to be charged to the Community budget for 
the first three years as follows: 
(a) 100 % for the first two years, up to a maximum of 
14 Mio ECU for Italy and 7 Mio ECU for Greece; 
FOLLOW-UP TO THE SPECIAL REPORT 
ON AID FOR OLIVE OIL (b) 50 % for the third year. 
Production aid 
Introduction 4.59. The Court has ascertained that, in both of the 
Member States concerned, the agencies were set up during 
1985. Since then, they have been occupied mainly with 
completion of preliminary formalities, acquisition of the 
necessary offices and organizational planning. At the end 
of March 1986, they were on the point of advertising for 
the recruitment of staff. While a great deal of preparatory 
work has been done, therefore, the verification operations 
for which the agencies are responsible have not yet 
commenced. 
4.57. In its reply to the special report of the Court on the 
common organization of the market in olive oil (23), the 
Commission took the view that most of the weaknesses in 
the system of administering the production aid had been 
eliminated following the adoption of Council Regu­
lations (EEC) Nos 2261/84 of 17 July 1984 and 2262/ 
84(24) 0f 17 juiy 19847 effective from the 1984/85 
marketing year. The reply goes on to say 'In particular, 
the role which the (new olive oil control) agencies may 
have in the management of the production and consump­
tion aid require a better assessment....' (25). Since the 
Court's enquiry, which was carried out during 1983, 
expenditure on production and consumption aid rose 
from 615,5 Mio ECU in that year to 977,0 Mio ECU in 
1984. This reflects the record harvest in Italy in 1983/84, 
when the total amount of oil included in production aid 
applications rose to 888 000 tonnes (as compared with the 
previous record tonnage of 751 000 in 1977/78). In 1985, 
expenditure fell to 624,2 Mio ECU. It is opportune, 
therefore, to review briefly the progress made in the 
principal areas concerned. Normal checks 
4.60. Article 8 of Commission Regulation (EEC) No 
27/85 (26) of 4 January 1985 provides that, until the 
agencies are in a position to perform all the other 
verifications assigned to them, the Member States should 
at least carry out the normal checks foreseen in the 
Regulations. In the context of the present review it was 
not possible to assess the effectiveness of these arrange­
ments. However, it was noted that, in Greece, the 
computerized files provided for in Article 11 of Commis­
sion Regulation (EEC) No 3061/84(27) of 31 October 
1984 had not yet been completed, although the deadline 
set was 31 October 1985. 
54 Official Journal of the European Communities 15. 12. 86 
Administrative sanctions Clearance of accounts 
4.61. Articles 2 and 3 of Council Regulation (EEC) No 
2262/84, effective from 1 November 1984, obliged 
Member States to 'take specific and appropriate measures 
in order to penalize any breaches of the production aid 
arrangements...'. In Greece, the relevant provisions were 
incorporated in the Presidential Decree which created the 
olive oil agency and came into effect on 9 May 1985. In 
Italy, powers exist to impose administrative sanctions on 
firms, but individual olive producers are not at present 
liable to such penalties. A draft general law governing 
sanctions in the EAGGF sector is before the Italian 
legislature, but has not yet been adopted. 
Olive Cultivation Register 4.63. As regards previous years, it should be recalled 
that a substantial backlog had developed in the final 
clearance of the accounts relating to olive oil production 
aid in Italy. For 1979,1980 and 1981 the Commission had 
placed a reserve on its acceptance of the relevant 
expenditure, pending the outcome of a major re­
examination of claims for aid relating to the marketing 
years from 1979/80 onwards. Progress in the Member 
State concerned on the final checking of these aid 
applications has been so slow that, at the end of 1985, 
188 000 cases from 1981/82 and 680 000 cases from 1982/ 
83 had still to be checked. The situation is in danger of 
getting out of hand, especially since, as mentioned in the 
foregoing paragraphs, the unsatisfactory features of 
previous years continue to occur, even following the 
adoption of the 1984 regulations. 
4.62. No progress has been made on the planning of the 
register in Greece. A Commission decision is awaited on 
the scope of the register and the methods to be used. As 
regards the Italian register, all the technical work has been 
carried out in nine provinces, which together account for 
45 % of national production. It is planned to extend this 
to an area accounting for 80 % of production by end-
1987. The total cost, now estimated at 99 500 Mio LIT 
(about 65 Mio ECU) at (mainly) 1981 prices, is being met 
from sums retained from the production aid. The Italian 
authorities claim that the register is already having a 
beneficial psychological effect in discouraging fraud and 
irregularity. In addition, they hope to be able to use the 
register to recheck aid applications for years prior to its 
completion. In the meantime, however, it has not been 
possible, even for the provinces where the technical work 
has been completed, to exploit the register for the 
purposes foreseen in Council Regulation (EEC) No 154/ 
75 (28) of 21 January 1975, i.e. to determine the potential 
production of olives and of oil and to improve the 
operation of the aid system. Stocks of olive oil 
4.64. The Court was concerned to note that the olive oil 
accounts submitted by the Italian authorities to the 
Commission revealed an unexplained reduction of 5 600 
tonnes (about 8,6 Mio ECU) in the opening stock of 1985 
by comparison with the closing stock of 1984. 
Conclusion on olive oil 
4.65. In short, the Court's 1985 audit suggests that the 
control procedures in the olive oil sector are still far from 
satisfactory despite the confident predictions of the 
Commission in its reply to the Court's special report. 
15. 12. 86 Official Journal of the European Communities 55 
(') OJL 94 of 28.4.1970, p. 13. 
(2) Annual Report for the financial year 1984, OJ C 326 of 
16.12.1985, paragraph 4.2. 
(3) Introduced by Council Regulation (EEC) No 590/85 of 
26.2.1985, OJ L68 of 8.3.1985. 
(4) Introduced by Council Regulation (EEC) No 1305/85 of 
23.5.1985, OJ L 137 of 27.5.1985. 
(5) OJ C 344 of 31.12.1981, paragraphs 4.14 — 4.19. 
(6) Council Regulation (EEC) No 1334/86, OJ L 119 of 
8.5.1986. 
(7) Commission Regulation (EEC) No 1730/86, OJ L 150 of 
4.6.1986. 
(8) Council Regulation (EEC) No 1883/78 of 2.8.1978, laying 
down general rules for the financing of interventions by the 
European Agricultural Guidance and Guarantee Fund, 
Guarantee Section (OJ L 216 of 5.8.1978, p. 1). 
(9) Opinion No 1/86 of the Court of 6.3.1986, OJ C 80 of 
9.4.1986, p. 9. 
('0) Council Regulation (EEC) No 964/86 of 25.3.1986, 
amending Regulation (EEC) No 1883/78 laying down 
general rules for the financing of interventions by the 
European Agricultural Guidance and Guarantee Fund, 
Guarantee Section (OJ L 89 of 4.4.1986, p. 1). 
(n) Note attached to the revenue and expenditure account for 
the financial year 1985, Doc. COM(86) 212. 
(12) Financial perspectives 1987-90, communication from the 
Commission to the Council and the European Parliament, 
Doc. COM(86) 201 final, p. 8 of the English version of 
2.4.1986. (13) Commission Regulation (EEC) No 2180/85 of 30.7.1985, 
amending Regulation (EEC) No 1569/77 in respect of the 
time of payment for cereals bought in by intervention 
agencies (OJ L 203 of 1.8.1985, p. 62). 
Commission Regulation (EEC) No 2262/85 of 2.8.1985, 
amending Regulation (EEC) No 1569/77 in respect of the 
time of payment for cereals bought in by intervention 
agencies (OJ L 211 of 8.8.1985, p. 23). 
(14) Commission Regulation (EEC) No 1569/77 of 11.7.1977, 
fixing the procedure and conditions for the taking over of 
cereals by intervention agencies (OJ L 174 of 14.7.1977, 
p. 15). 
(15) Doc. COM(86) 631 final. 
(16) Annual Report for the financial year 1984, OJ C 326 of 
16.12.1985, paragraph 4.25. 
(17) Article 8 of Council Regulation (EEC) No 729/70 of 
21.4.1970 concerning the financing of the common agricul­
tural policy, OJ L 94 of 28.4.1970. 
(18) OJ L 144 of 2.6.1981, p. 1. 
(19) OJ L 267 of 9.10.1985. 
(20) Commission Decision of 30.7.1985. 
(21) OJC313 of 29.11.1982. 
(22) See Annual Report for the financial year 1984, OJ C 326 of 
16.12.85, paragraph 4.30. 
(23) OJC 134 of 3.6.1985. 
(24) OJ L208 of 3.8.1984. 
(25) OJC 134 of 3.6.1985. 
(26) OJL 4 of 5.1.1985, p. 5. 
(27) OJ L288 of 1.11.1984, p. 52. 
(28) OJ L 19 of 24.1.1975, p. 1. 
56 Official Journal of the European Communities 15. 12. 86 
CHAPTER 5 
European Agricultural Guidance and Guarantee Fund, 
Guidance Section (EAGGF-Guidance), and 
specific agricultural measures 
5.0. TABLE OF CONTENTS 
Introduction 
Summary of financial information 
Observations on budgetary management 
Recovery of sums paid in excess 
Expenditure still to be disbursed 
Management of the appropriations of Article 320 
Drawing up the likely schedules of payments 
Supplementary expenditure under Item 3841 'Research programme' 
Appropriations entered under Item 3892 'Slaughter of pigs and processing 
of pigmeat in the United Kingdom' 
Application of the measures to improve the conditions under which agricultural 
products are processed and marketed (Regulation (EEC) No 355/77), to assist 
fruit and vegetable undertakings 
General principles 
The Court's observations 
Basis of the observations 
Problems connected with the guarantees of the projects' profitability 
Problems connected with processing capacities for tomatoes 
Problems connected with compliance with the financing arrangements 
for projects 
Problems connected with the alteration of projects after the granting of 
aid 
Problems connected with repeated grants of aid 
Common measures to assist stock farming in Italy 
Regulation (EEC) No 1944/81 
Regulation (EEC) No 2969/83 
Demarcation of mountain areas and other less-favoured areas 
Development in the demarcation of areas 
Justification of the extension of areas Paragraph 
reference 
5.1 
5.2 
5.6 
5.6 
5.7 
5.11 
5.13 
5.15 — 5.5 
— 5.16 
— 5.10 
— 5.12 
— 5.14 
5.16 
5.17 
5.17 
5.18 
5.18 
5.19 
5.21 5.31 
5.31 
5.20 
5.22 
5.23 — 5.27 
5.28 
5.29 
5.32 
5.32 
5.36 
5.40 
5.40 
5.44 5.31 
5.39 
5.35 
5.39 
5.46 
5.43 
5.46 
General observations on regional aid measures 5.47 — 5.49 
15. 12. 86 Official Journal of the European Communities 57 
INTRODUCTION 
5.1. By means of the EAGGF, Guidance section, which 
was created by Council Regulations No 25/62 of 4 April 
1962 (') and No 17/64 of 5 February 1964(2), the 
Community finances common measures adopted in order 
to attain the objectives set out in Article 39(1 )(a) of the 
EEC Treaty. It also finances 'project' measures — aid to 
individual beneficiaries for specific investments — and 
'reimbursement' measures, whereby Member States can 
be reimbursed part of their expenditure for certain 
operations complying with the conditions laid down in 
the Community legislation. These operations are en­
visaged under Title 3 of the Community budget, Chapter 
38 of which, concerning expenditure in the agricultural 
sector, is not, however, financed under the EAGGF-
Guidance. 
SUMMARY OF FINANCIAL 
INFORMATION 
5.2. The commitments and payments for the financial 
year are summarized in Table 5.1, which also shows the 
amount of appropriations available. The appropriations 
are differentiated, except for those of Chapter 38 
concerning specific agricultural measures, the majority of 
which are non-differentiated. 
5.3. Council Regulation (EEC) No 870/85 of 26 March 
1985 (3) earmarked a sum of 5 250 Mio ECU for the 
period 1985-89. This amount was raised to 6 350 Mio 
ECU by Council Regulation (EEC) No 3769/85 of 20 
December 1985 (4) because of the accession of Spain and 
Portugal. 
5.4. In 1985, the commitments entered into for Title 3 as 
a whole amounted to 910,9 Mio ECU (in 1984: 870,5 Mio 
ECU), i.e. 93,1 % of the appropriations available (in 
1984: 90,7 %). Total payments made in 1985 amounted to 
738,6 Mio ECU (in 1984: 702,8 Mio ECU), i.e. 92 % of 
the appropriations available (in 1984: 88,1 %). 
5.5. Total commitments outstanding at the close of the 
financial year 1985 amounted to 1 180,9 Mio ECU, of 
which 686,4 Mio ECU were allocated to individual 
projects (Chapter 30), 380,3 Mio ECU to measures to 
assist less-favoured areas (Chapter 32), 75,7 Mio ECU to 
structural measures (Chapter 33) and 38,5 Mio ECU to 
expenditure in the agricultural sector (Chapter 38). The 
total of 1 180,9 Mio ECU includes 11,6 Mio ECU of non-
(') The footnotes appear at the end of each chapter. differentiated appropriations carried over to the financial 
year 1986. 
OBSERVATIONS ON BUDGETARY 
MANAGEMENT 
Recovery of sums paid in excess 
5.6. In 1985, the Commission issued 26 recovery orders 
for a total of 1 529 042 ECU in order to recover 
overpayments to recipients within the framework of 
expenditure financed by Chapters 30 and 32 of the 
budget, 982 483,45 ECU of which still had to be recovered 
at the end of the financial year 1985. Allowing for 
amounts from previous financial years, the total amount 
still to be recovered at the close of the financial year 1985 
was about 1 080 000 ECU. The Court of Auditors' audit 
revealed that the recovery of debts has not been 
systematically followed up, hence the long delays (the 
Court found a debt from 1981 and other debts from dates 
in between still outstanding). 
Expenditure still to be disbursed 
5.7. At 31 December 1985, a sum of about 54,7 Mio 
ECU, corresponding to requests for reimbursement 
submitted by France, Italy and Luxembourg in respect of 
the 1984 expenditure for Article 320 'Mountain and hill 
farming and farming in certain less-favoured areas', still 
had to be committed and paid. Since by that date there 
were no longer any appropriations available under this 
Article, the expenditure will be charged against the 
appropriations for the financial year 1986. Furthermore, 
the financial documents drawn up as at the end of 1985 
make no mention of these sums, even as estimates. In 
respect of the same Article, the Court had already 
observed, in paragraph 5.23 of its report on the financial 
year 1984 (5), that sums still to be paid at the end of that 
financial year were not mentioned in the balance sheet. 
5.8. It is also worth recalling the Court's more general 
observations expressed in paragraphs 5.11 — 5.12 of its 
annual report on the financial year 1979 (6), concerning 
the entry in the accounts of commitments relating to 
'indirect' measures, i.e. those giving rise to global 
reimbursements to the Member States. These commit­
ments are entered in the accounts at the time of payment, 
i.e. when an advance payment or a reimbursement is paid 
to the Member State. The financial documents thus do 
not give a full picture of the costs which the Commission 
58 Official Journal of the European Communities 15. 12. 86 
Table 5.1 — Expenditure in the agricultural structures sector (Title 3): 
appropriations available in 1985 and their utilization 
(Mio ECU) 
Budget heading 
Chapter 30: 
Projects for the improvement of agricultural structures 
— 300 Individual projects 
— 301 Marketing 
Chapter 31: 
General socio-structural measures 
— 310 Modernization 
— 311 Cessation 
— 312 Training 
Chapter 32: 
Measures to assist less-favoured areas 
— 320 Mountain and hill farming 
— 321 Specific regions — Mediterranean 
— 322 Specific regions — Italy 
— 323 Specific regions — France 
— 324 Specific regions — Ireland 
— 325 Specific regions — Greenland 
— 326 Specific regions — United Kingdom 
— 327 Specific regions — Belgium 
— 328 Specific regions — Germany 
— 329 Specific regions — Greece 
Chapter 33: 
Structural measures connected with the common organization 
of markets 
— 330 Producer organizations 
— 331 Milk and meat 
— 332 Wine 
— 333 Fruit 
EAGGF-Guidance total (3) 
Chapter 38: 
Expenditure in the agricultural sector 
— 380 Campaigns against livestock epidemics 
— 381 Veterinary measures 
— 382 Seeds and propagating material 
— 383 Farm accountancy data network 
— 384 Agricultural research 
— 386 Vocational training of farmers 
— 387 Supervision of agricultural rules 
— 388 Forestry measures 
— 389 Specific measures - regions 
Grand total of Title 3 
Rate of utilization of appropriations (%) Commitments 
Appropriations 
for commitment 
available in 
1985 (•) Commitments 
entered 
into in 
1985 
334,5 313,9 
6,5 6,4 
328.0 307,5 
109.1 102,3 
98,8 95,1 
1,2 0,9 
9,1 6,3 
386,8 356,5 
118.1 118,1 
108,4 106,7 
18,8 9,1 
35,8 35,3 
30,1 29,5 
0,4 0,4 
16,1 10,8 
1,0 0,1 
5,4 4,9 
52.7 41,6 
87.8 80,1 
7.0 5,5 
30,0 27,4 
42,7 40,6 
8.1 6,6 
918.2 852,8 
60,7 58,1 
4,9 4,9 
29,1 28,7 
0,2 0,2 
4.4 4,0 
10,1 8,7 
0,3 0,3 
5.5 5,5 
6,2 5,8 
978,9 910,9 
(93,1 %) Payments 
Appropriations 
for payment 
available 
in 1985(2) Payments 
made 
in 1985 
175.0 175,0 
15.4 15,4 
159.6 159,6 
108.7 102,3 
98,8 95,1 
1,2 0,9 
8,7 6,3 
377.8 352,2 
118.1 118,1 
51,1 42,4 
67,1 65,1 
35,6 35,3 
29,8 29,5 
0,4 0,4 
17.5 12,1 
0,1 0,0 
7.6 7,1 
50,5 42,2 
66,5 60,6 
6.7 5,5 
30,0 27,4 
23,0 21,1 
6.8 6,6 
728,0 690,1 
74,9 48,5 
8,8 5,6 
29.3 28,7 
0,2 0,2 
3,7 3,3 
12.4 4,3 
0,3 0,2 
5,6 2,1 
4,6 1,8 
10,0 2,3 
802,9 738,6 
(92,0%) 
(') Taking into account transfers, decommitments, adjustments and appropriations remaining from 1984. 
(2) Taking into account transfers and carry-overs from 1984. 
(3) Except for Chapter 46 which is included in Chapter 6 of this report (Fisheries). 
15. 12. 86 Official Journal of the European Communities 59 
is likely to have to bear. The budgetary management 
procedures should be improved in order better to 
determine these costs and, in cases where it is not possible 
to calculate an exact amount, at the very least an 
estimated sum should be entered in the financial 
documents. 
5.9. It is surprising, to say the least, that in the case of 
payment of a partial advance only the amount of the 
advance paid is entered in the accounts as a commitment 
and not the total amount of the expected expenditure on 
the basis of which the advance payment is calculated. The 
latter method would also make it possible, by the presence 
of a balance in the accounting entries, to keep a closer 
watch over the adjustment operations. 
5.10. It can be estimated that, at 31 December 1985, the 
total expenditure to be effected for Chapter 32 of the 
budget, arising from the programmes approved and 
which are not mentioned in the financial documentation 
drawn up at the end of the financial year, amounted to 
approximately 900 Mio ECU. 
Management of the appropriations of 
Article 320 
5.11. For Article 320 'Mountain and hill farming and 
farming in certain less-favoured areas', the management 
of the appropriations has been the subject of con­
tradictory decisions. A sum of 16,5 Mio ECU of these 
appropriations was provisionally charged in an irregular 
manner (see paragraph 6.9 of this report). 
5.12. The 148,3 Mio ECU of payment appropriations 
granted to Article 320 of the budget were first of all 
reduced, by means of various transfers between articles, 
by a total of 90,2 Mio ECU intended to finance, inter alia, 
the continuation of collective irrigation works in the 
south of Italy for which the payment appropriations 
allocated in the 1985 budget were quite inadequate. 
Subsequently, the payment appropriations of Article 320 
were increased by 60 Mio ECU by a transfer from Title 2 
of the budget, which, as already mentioned in paragraph 
5.7, was, moreover, insufficient to cover all the requests 
for reimbursement submitted by the Member States in 
1985. Contradictory transfer operations such as these in 
fact mean that the appropriations of Article 320 are being 
used for purposes other than those for which they are 
needed and for which they have been allocated. This 
constitutes an abuse of the transfer procedure. Drawing up the likely schedules of payments 
5.13. The likely schedules of payments, set out under 
various articles or items of Chapter 32 'Measures to assist 
less-favoured areas', contain a number of anomalies 
which reveal that they were not drawn up with sufficient 
accuracy. For the 1985 budget (7), whose schedules cover 
the financial years from 1984 onwards, the total payments 
provided for by these schedules differ in 12 cases from the 
total corresponding commitments, whereas they should 
be exactly the same. For example, for Item 3242 'Specific 
programme to develop farming in the west of Ireland', the 
total staggered payments amount to 8,8 Mio ECU 
whereas the related commitment appropriations were 
estimated at 16,2 Mio ECU. In other cases (Article 327 
'Integrated development programme for south-eastern 
Belgium', Item 3290 'Acceleration of agricultural de­
velopment in certain regions of Greece'), the schedule 
does not mention appropriations remaining or carried 
over from 1983 to be used in 1984. 
5.14. It may also be noted that the schedule of payments 
for Item 3292 of the 1986 budget (8) 'Launching of an 
irrigation programme in Greece', concerns a total sum of 
22 Mio ECU, whereas the overall estimated amount for 
the operation is only 17 Mio ECU. For all the schedules 
of Chapter 32 of the 1986 budget, the payment 
requirements are, moreover, overestimated by 90,5 Mio 
ECU, some amounts having been allowed for twice over. 
Supplementary expenditure under Item 3841 
'Research programme' 
5.15. Within the framework of Item 3841, the 
Commission issued payment orders in ECU to settle 
amounts invoiced in national currencies. As a result, the 
amounts in national currency received by the beneficiaries 
do not correspond to the amounts invoiced, because of 
variations in the ECU exchange rate between the time of 
authorization and that of payment. The Court considers 
that, in order to prevent such disparities, the Commission 
ought to make its payments in the same currency as that in 
which the corresponding invoices are made out. 
Appropriations entered under Item 3892 
'Slaughter of pigs and processing ofpigmeat 
in the United Kingdom' 
5.16. Despite the Court's observations in its annual 
report for the financial year 1984 (9) and although it 
acknowledged in its reply that they were in principle valid, 
60 Official Journal of the European Communities 15. 12. 86 
the Commission nevertheless continued in 1985, under 
Council Regulation (EEC) No 355/77 of 15 February 
1977 (10), to use the Item 3892 appropriations for 
additional financing for an EAGGF-Guidance common 
measure for which a specific heading (Article 301 of the 
budget) is provided. The amounts used in this way 
totalled 931905,73 ECU in commitments and 
1 178 393,90 ECU in payments. This manner of using 
appropriations entered under Item 3892 is an infringe­
ment of the principle, defined by the Financial Regulation 
(Article 15, second indent, and Article 21), that appropri­
ations must be classified and used for the purpose to 
which they have been assigned. Moreover, financing an 
EAGGF-Guidance common measure by using appropri­
ations which are not part of the EAGGF-Guidance 
budget allocation runs contrary to the special provisions 
governing the Fund, which provide, inter alia, for a five-
yearly financial framework, decided on by the Council, 
for the total amount of assistance for financing all the 
common measures (n). 
APPLICATION OF THE MEASURES TO 
IMPROVE THE CONDITIONS UNDER 
WHICH AGRICULTURAL PRODUCTS ARE 
PROCESSED AND MARKETED (Regulation 
(EEC) No 355/77), TO ASSIST FRUIT AND 
VEGETABLE UNDERTAKINGS 
General principles 
5.17. Regulation (EEC) No 355/77, as amended on 
several occasions and adapted because of the accession of 
Spain and Portugal (10), introduced common measures to 
improve the conditions under which agricultural pro­
ducts are processed and marketed. The EAGGF, 
Guidance section, assists these measures by making 
financial contributions to investment projects, which 
must form part of specific programmes. 
The Court's observations 
Basis of the observations 
5.18. The observations which follow are based, on the 
one hand, on an examination of the files closed in 1985 
relating to fruit and vegetables (160 files in all) and, on the 
other, on the findings made, on the basis of 42 projects audited, during independent audit visits performed in 
1985 in the Member States concerned (all except 
Denmark, Greece, Ireland and Luxembourg). 
Problems connected with the guarantees of the projects' 
profitability 
5.19. According to Article 10(b) of Regulation (EEC) 
No 355/77, projects must offer adequate guarantees that 
they will be profitable. 
5.20. Structural improvement projects, such as those 
which the EAGGF finances, are difficult to isolate from 
the whole productive structure of the undertaking and 
their profitability therefore has a direct influence on that 
of the beneficiary undertaking. The Court has doubts, 
however, as regards this effect in the case of the following 
undertakings: 
(a) in France, an agricultural cooperative whose main 
activity is tomato processing (about 85 % of its 
turnover), was granted 2 Mio FF (± 0,3 Mio ECU) 
in Fund aid to purchase capital goods for the 
processing and tinning of tomatoes. Over the last five 
years, the cooperative's financial results show, 
however, that it has been trading at only a slight profit 
or a slight loss, despite the Community production 
aid, supplied by the EAGGF, Guarantee section, and 
grants from the Member State and from national 
bodies. In total, these amounts of aid are equivalent 
to very high percentages (between 40 % and 78 %) of 
the turnover figures. Similarly, for two undertakings 
in Italy, the processing of agricultural products, 
which is the subject of the projects, would not be 
economically possible without the EAGGF-Guaran-
tee production aid; 
(b) in the United Kingdom, the same is true for an 
undertaking whose 1984-85 profit and loss account 
showed a deficit of 2 000 UKL (i.e. ± 3 400 ECU), 
instead of a positive balance of 101 000 UKL 
(±170 000 ECU), as indicated in the aid application 
file; 
(c) in Italy, a fruit-and-vegetable-processing undertak­
ing has been in the hands of the receiver ('amminis-
trazione controllata') since January 1985 and the 
likelihood of its recovery still hangs very much in the 
balance. Even though, according to the examining 
magistrate's findings, the undertaking had been in 
severe difficulties since 1980, the EAGGF aid was 
granted by the Commission on 22 December 1981; 
(d) in France, a private agricultural company producing 
and packing fruit received a second amount of aid 
from the Fund (12) in 1980-81, totalling 6 719 405 FF 
(± 1,1 Mio ECU). Nevertheless, it was found that, 
15. 12. 86 Official Journal of the European Communities 61 
according to the general operating accounts, the 
company was operating at a loss in 1979 and during 
the period 1982-84. This deficit had to be covered by 
subsidies and by sales of equipment; 
(e) moreover, it was found that the profitability of some 
subsidized businesses is heavily dependent on the 
Community market-management policy. For ex­
ample, in the FR of Germany, problems have been 
noted in the case of two beneficiaries, one of which is a 
processing undertaking producing, inter alia, large 
quantities of Morello cherries in syrup, and the other 
a cooperative whose chief product is Morello cherries. 
These two beneficiaries say they encountered serious 
difficulties in marketing their Morello cherries 
because of the market policy followed by the 
Community during the marketing years 1983-84 and 
1984-85. Community production of Morello cherries, 
which was stimulated by the introduction of the 
processing premium for Morello cherries in syrup, did 
indeed have to face competition, as of 1983, from 
enormous imports of processed Yugoslav Morello 
cherries at very low prices, whilst in March 1984 the 
Council decided to reduce the amount of the 
processing premium. This situation did not improve 
until June 1985 when the Commission took measures 
to protect the Community market (13), which were 
provided for under the regulations on the common 
organization of the market in processed fruit and 
vegetables. 
Problems connected with processing capacities for 
tomatoes 
5.21. The criteria for the choice of projects lay down 
that, as of 1981, investments involving an increase in 
processing capacity for tomatoes are to be considered 
ineligible for assistance from the Fund, the aim being to 
curb surplus production and the resultant increasing 
expenditure that has to be borne by the EAGGF-
Guarantee. 
5.22. In Italy, the beneficiary of a project not directly 
concerned with any increase in tomato processing 
capacity made other investments, outside the framework 
of the EAGGF project, concerning the production of 
tomato juice. This led to an increase in the quantity of 
fresh tomatoes processed, which more than doubled 
between 1981 (16 600 tonnes) and 1985 (34 973 tonnes 
during the first 10 months). In the same country, tomato 
processing is the main activity of the beneficiary of a 
project not relating to tomatoes. Between 1982 and 1984, 
his business' operating results showed an increase of 
about 40 % in the quantities of fresh tomatoes processed: 
12 811 tonnes in 1984 as against 9 114 tonnes in 1982. As 
these findings show, EAGGF-Guidance aid ought to be 
the subject of an analysis that takes into account the whole business and not just the subsidized part. When 
deciding to grant aid, the Commission should ensure that 
the funds granted affect solely the one field assisted and 
that they do not free any financial or technical resources 
which might allow an increase in processing capacities. 
Problems connected with compliance with the financing 
arrangements for projects 
5.23. Article 17 of Regulation (EEC) No 355/77 lays 
down the rates of contribution applying to each of the 
three sources of finance for each project, namely the 
beneficiary, the Member State concerned and the Fund. 
The beneficiary's rate of contribution must be not less 
than 50 % of the investment. This rate may however be 
reduced to 25 % for beneficiaries located in some regions 
of Greece, France, Ireland and Italy. The Member State's 
contribution must be equivalent to at least 5 % of the 
project's eligible cost. Lastly, the Commission's 
maximum rate of contribution, depending on the region 
where the investment is made, varies between 25 % and 
50 % of the amount eligible. 
5.24. Aid is limited to 2,5 times national aid where this 
is less than 8 % (14). In cases of this kind, it should be 
noted that the Commission, when calculating the 
EAGGF aid, applies the 'proportional share' rule, 
whereby, if the eligible costs are lower than the total costs 
of the project, the Fund aid may not exceed 2,5 times the 
rate of national aid multiplied by the amount of eligible 
costs. 
5.25. The financing arrangements for each project 
approved by the Commission constitute an essential part 
of the latter's decision. 
5.26. The Court's audit, performed on records and on 
the spot, revealed several anomalies concerning, in 
particular, on the one hand the documents proving the 
actual amount paid by the Member State and, on the 
other, the rules for calculating the maximum possible aid 
granted by the EAGGF: 
(a) for example, for eight projects in the United Kingdom 
and for three projects in France, the amounts shown 
on the supporting documents sent to the Commission 
at the time of payment of the last tranche of aid, in 
accordance with the Community regulations (l5), do 
not tally at all with those on the certificates supplied 
on the spot by the local authorities or the bene­
ficiaries ; 
(b) for four projects in the United Kingdom, the 
Commission, when paying the balance, adopted a 
62 Official Journal of the European Communities 15. 12. 86 
method for determining the aid which was different 
from that used at the time the decision was taken, 
meaning that the Commission has abandoned the rule 
whereby the national aid together with the EAGGF 
aid may not exceed 50 % of the eligible cost incurred; 
(c) for a French project, the maximum possible aid was 
calculated incorrectly, with the result that too high an 
amount of aid was granted (386 054 FF paid in excess, 
i.e. ± 57 400 ECU); 
(d) in the case of a Dutch project, even though the real 
amount of the investment was lower than the amount 
stated when the application was lodged, the Fund aid 
was paid in full (185 629 HFL paid in excess, i.e. 
± 74 800 ECU); 
(e) for a project in the United Kingdom, at the time of the 
audit it was found from examining the beneficiary's 
accounts that aid worth 14 749,44 UKL had been 
paid by the Member State instead of the 16 493 UKL 
laid down in the decision. The sum actually paid 
represents a rate of contribution which is lower than 
8 % of the cost of the investment, a fact which should 
have led to the EAGGF aid being reduced by 13 738 
UKL, i.e. ± 8 100 ECU; 
(f) when submitting its application for aid, a French 
company, contrary to Community regulations, failed 
to notify the Commission that it had received a form 
of State aid called a 'regional development grant' 
('prime d'amenagement du territoire'). Taking ac­
count of this grant must entail a review of the aid paid 
and the Commission should determine the amount to 
be paid back; 
(g) for a German project, the beneficiary himself carried 
out a large proportion of the work relating to the 
project. The expenditure relating to this work 
included a sum of 546 043 DM (± 247 500 ECU) for 
expenses for various materials. The Commission paid 
the Fund aid for these materials even though the 
beneficiary did not submit any documents providing 
unquestionable proof of the materials' value, date of 
purchase and nature. If no supplementary proof is 
provided, the Commission should consider recover­
ing any sum paid in excess. 
5.27. The Court considers that the various cases 
mentioned above point to a situation which could call 
into question the reliability of the management systems 
set up in this connection several years ago, both at the 
Commission and in the Member States. Problems connected with the alteration of projects after 
the granting of aid 
5.28. In the case of a limited-liability agricultural 
company ('landwirtschaftliche Aktiengesellschaft') in the 
FR of Germany, of which two factories specialized in the 
production of fruit juices, the Commission granted aid in 
1982 for the construction of a warehouse and tanks to 
store fruit juices, with a capacity of 5 Mio litres. At the 
time the project should have been completed (July 1983), 
the beneficiary submitted, by way of an alteration to the 
original project, a completely new project providing for 
the construction of silos for storing fresh fruit and the 
development of some technical installations. At the same 
time, the Commission was informed that one of the 
beneficiary's factories and the company's registered 
trademark had been sold. The company's identity and 
business had thus changed: instead of producing fruit 
juices marketed under its own trademark, the factory was 
specializing in the production of concentrates. Further­
more, whereas the undertaking had previously been a 
limited-liability agricultural company in which the 
producers had a direct share, it had become a limited-
liability company ('Gesellschaft mit beschrankter Haf-
tung') and the producers were no longer directly the 
owners of the company. In the Court's view, these 
changes should have prompted the Commission to 
require that the beneficiary submit a new project and 
should not have been considered as modifications of an 
existing project. 
Problems connected with repeated grants of aid 
5.29. Article 18 of Regulation (EEC) No 355/77 lays 
down that 'the granting of aid from the Fund must not 
affect the conditions of competition in such a way as to be 
incompatible with the principles contained in the Treaty'. 
5.30. During its audit visits in various Member States, 
the Court found that the Commission does not always 
pay sufficient attention to these provisions. 
5.31. For example, some industrial concerns have 
received various EAGGF grants for different projects, 
without adequate explanation being given of the reasons 
for granting successive subsidies. This applies in the case 
of a jam factory in France which received Fund aid three 
times. Similarly, in Belgium, a large canning plant and 
frozen-food undertaking, a family-run limited company, 
was subsidized four times. When appraising files such as 
these, efforts should be made to analyse all the factors, 
especially sectoral and regional ones, which ensure that 
grants of aid of this size — in order to be justified in terms 
of the objectives of the common agricultural policy — 
remain sufficiently neutral from the point of view of 
equality of conditions of competition in the sector to 
which the undertaking belongs. 
15. 12. 86 Official Journal of the European Communities 63 
COMMON MEASURES TO ASSIST STOCK 
FARMING IN ITALY 
Regulation (EEC) No 1944/81 
5.32. Council Regulation (EEC) No 1944/81 of 30 June 
1981 (16) established a common measure for the adap­
tation and modernization of the structure of production 
of beef and veal, sheepmeat and goatmeat in Italy. Its aim 
(see fourth recital of the Regulation) is to improve the 
economic situation of agricultural holdings and to curb 
the decline in the production of meat in that country. To 
this end, the Fund has allocated an estimated amount of 
291 Mio ECU for five years to finance 40 % of the eligible 
public expenditure, to be planned in special programmes 
which are drawn up at regional level and which form part 
of a national framework programme. These programmes 
are examined and approved by the Commission. 
5.33. The framework programme (17), approved in 
1982, points out that the maximum eligible amounts are 
too low to offer any real incentive. Consequently, it was 
very difficult to achieve those of the Regulation's 
objectives which are of an economic nature, and the 
measure was not able to bring about any major, dynamic 
effect on the development of stock farming. Moreover, 
the economic effects appear to be slight: according to the 
forecasts of the framework programme, applying the 
measure will permit an annual increase in beef and veal 
production of almost 250 000 quintals, i.e. 4,3 % of 
Italian imports of beef and veal in 1980. 
5.34. In reality, the general economic situation of the 
meat market, characterized by substantial Community 
surpluses, was hardly likely to ensure success for the 
measure, which has for the most part not been applied. 
Moreover, whilst about 40 % of national needs in beef 
and veal are covered by imports from within or from 
outside the Community, a large proportion of Italian 
production, evaluated at about 10%, is delivered into 
intervention. The framework programme does not tackle 
this problem and does not contain any provision aimed at 
adapting production and consumption; this is despite the 
substantial increase in Community intervention decided 
by Council Regulation (EEC) No 797/85 of 12 March 
1985 (18), an increase which did not, however, result in the 
framework programme's objectives being revised. 
5.35. Four years after its adoption, Regulation (EEC) 
No 1944/81 is still applied to only a limited extent. By the 
end of 1985, three regions had still not submitted a special 
programme to the Commission, and for four others the 
programme submitted was awaiting approval. Of all the 14 other regions whose special programme had been 
approved, only four had submitted payment requests, 
mainly for advances, to the Commission. The total paid 
out by the EAGGF by the end of 1985 amounted to 
11,9 Mio ECU, i.e. 4,1 % of the planned contribution up 
until the expiry of the measure in October 1987. Although 
the amounts transferred to the regions by the Member 
State were much higher (over 50 Mio ECU by the end of 
1983 and about 30 Mio ECU by February 1985), they 
came too late to ensure an efficient start-up of the 
common measure and, in some cases, the regions gave 
financial cover out of their own funds so that the measure 
could start to be implemented. 
Regulation (EEC) No 2969/83 
5.36. Another measure to assist stock farming in Italy 
was established by Council Regulation (EEC) No 2969/ 
83 of 19 October 1983 (19). According to Article 1(1) of the 
Regulation, this was an emergency measure aimed at 
facilitating the implementation of the measures provided 
for in Regulation (EEC) No 1944/81 by granting farmers 
aid enabling them to convert their short-term loans into 
medium-term loans. 
5.37. In fact, the relation between these two measures is 
more indirect. For one thing, the 1983 Regulation applies 
to a larger number of regions and, for another, it is aimed 
at all livestock holdings, whether or not they are involved 
in achieving the objectives of Regulation (EEC) No 1944/ 
81. 
5.38. The forecasts set out in the programme (20), which 
was drawn up in accordance with Regulation (EEC) No 
2969/83, have proved to be completely unjustified, since it 
was considered that all the outstanding loans ought to be 
extended, without any reduction for extensions not 
requested by those concerned or not granted by the 
financial bodies. Such a high forecast was all the more 
unjustified in that there was no effective information 
campaign at local level. The Court's on-the-spot audit 
visits in fact revealed that, in general, the local offices of 
the regional administrations which were involved in 
applying the measure were unaware of its existence. 
5.39. This situation resulted in a low rate of implemen­
tation for this Regulation, which nevertheless constituted 
an emergency measure due to expire on 30 November 
1983 and for which Community financing covered all the 
national aid. Out of the estimated cost of the measure of 
60 Mio ECU, an advance of about 21,8 Mio ECU was 
paid to Italy in August 1984, two thirds of which — i.e. 
about 25 % of the Community financing — had been used 
by October 1985. In the meantime, the duration of the 
64 Official Journal of the European Communities 15. 12. 86 
measure was extended until 1 April 1985 by Council 
Regulation (EEC) No 1713/85 of 20 June 1985 (21). 
DEMARCATION OF MOUNTAIN AREAS 
AND OTHER LESS-FAVOURED AREAS 
Development in the demarcation of areas 
5.40. Council Directive 75/268/EEC of 28 April 
1975 (22), whose provisions have largely been replaced by 
those of Regulation (EEC) No 797/85, seeks to assist 
farms situated in mountain areas or other less-favoured 
areas by laying down various measures intended to 
compensate for the handicaps suffered by farming in 
these regions. Given that, in 1985, payments made in 
accordance with this Directive accounted for 17 % of the 
EAGGF-Guidance payments and that, furthermore, 
other regulations have introduced specific provisions to 
assist these same areas, it is plain that the demarcation of 
these areas has a direct influence on the financial 
management of the Communities. This influence is all the 
greater in that at present the Directive is applicable to 
over 50 % of the effective agricultural area of the 
Community. 
5.41. The areas are divided into three categories: 
mountain areas, less-favoured areas and areas with 
specific handicaps. The areas in the first category are 
defined according to physical criteria such as the altitude 
and/or the steepness of the slopes. The less-favoured areas 
are those which are in danger of depopulation and which 
simultaneously satisfy three types of criteria: low 
productivity of the environment, low profitability of 
farming and a low or dwindling population predomin­
antly dependent on agriculture. Lastly, there are areas 
with specific handicaps where farming must be continued. 
5.42. Under Article 2 of Directive 75/268/EEC, it is the 
Council, acting on a proposal from the Commission, that 
adopts the Community list of the areas concerned and 
which therefore decides on any amendments to this list. 
There is a simplified procedure, not involving the 
Council, for minor amendments which do not increase the 
effective amount of agricultural land of the eligible areas 
in the Member State concerned by more than 0,5 % of the 
total effective agricultural area; with effect from 1980, 
this percentage has been raised to 1,5 %. 5.43. On the basis of the information available in the 
Commission's files, the extension from 1975 to 1985 of the 
effective agricultural area of the eligible areas within the 
meaning of Directive 75/268/EEC is shown in Table 5.2. 
During this period, only a few small areas in the 
Netherlands were removed from the list of those eligible. 
Justification of the extension of areas 
5.44. The data supplied by Table 5.2, although 
approximate, show that by 31 December 1985 the original 
areas, taken as a whole, had been extended by some 11 %. 
5.45. An examination of the supporting documents 
submitted by the Commission has nevertheless led to 
disappointing findings. Files relating to the original areas 
in Italy and to the extensions in France were no longer 
available at the time of the audits. Furthermore, the 
justifications submitted by the Member States in support 
of their requests for an increase are very brief and the files 
gave no indication that the Commission had made any 
checks in this field. In the case of the United Kingdom, the 
area originally declared of 7 654 000 ha was corrected to 
8 636 000 ha in 1982, but the file submitted to the Court 
did not contain any evidence to show that the Commis­
sion had carried out any checks in this respect. The same is 
true of an extension relating to France which, in 1984 and 
1985, increased the mountain areas by 109 900 ha (of 
which 101 600 ha were transferred from other less-
favoured areas or from areas with specific handicaps and 
8 300 ha added as a new eligible area), despite the fact that 
these are areas defined by normally stable physical 
criteria (altitude, slope). 
5.46. In the case of the United Kingdom, again, in 
connection with an extension requested in 1982, the 
criteria of the productivity of the land and the population 
density were not applied for the new areas which were put 
forward as eligible but for a block composed of old and 
new areas. It is not evident, from an examination of the 
file, that the Commission has endeavoured to ascertain 
whether or not the criteria were being met for each of the 
new areas taken separately. In other cases, a comparable 
income was accepted which was equivalent to 82 % and 
83 % of the national average, whereas the maximum rate 
permitted is usually 80 %. For the extension decisions for 
Ireland in 1985, the criteria of 'percentage of rough 
grazing more than 38 %' was replaced by that of 
'percentage of ploughed area less than 7,8 %'. The file 
shows no sign of any investigation into this change, even 
though an alteration of this kind is not without effect in 
terms of milk production, given that the producers in the 
assisted areas benefit from special arrangements for 
applying the co-responsibility levy system. 
15. 12. 86 Official Journal of the European Communities 65 
Table 5.2 — Directive 75/268/EEC: development of the effective agricultural area of eligible areas from 1975 to 1985 
(in I 000 ha) 
Member State 
Belgium 
FR of Germany 
France 
Ireland 
Italy 
Luxembourg 
Netherlands 
United Kingdom 
Total (6) 
Greece Article 3 (3) (') 
Original 
area 
349,0 
3 620,0 
— 
4 895,8 
— 
— 
— 
8 864,8 
4 805,0 Extension 
2,5(2) 
721,9(3) 
— 
268,4(5) 
— 
— . 
— 
992,8 
173,8 Article 3 (4) (') 
Original 
area 
302,5 
3 398,6 
7 025,0 
3 500,0 
2 034,0 
129,9 
— 
8 636,0 
25 026,0 
1 084,1 Extension 
11,9 
11,3 
148,2 
378,7(4) 
1 057,9 
— 
— 
1 222,3 
2 830,3 
916,5 Article 3 (5) (•) 
Original 
area 
— 
262,8 
327,2 
— 
196,6 
3,2 
13,6 
— 
803,4 
233,2 Extension 
6,6 
116,6 
— 
1,3 
— 
5,3 
0,7 
130,5 
26,3 Total 
314,4 
4 030,8 
11 958,9 
3 878,7 
8 454,0 
133,1 
18,9 
9 859,0 
38 647,8 
7 238,9 increase 
3,9 
0,5 
9,0 
10,8 
18,6 
— 
39,0 
14,2 
11,4 
18,2 
(') Article 3 (3): mountain areas. 
Article 3 (4): less-favoured areas in danger of depopulation. 
Article 3 (5): areas affected by specific handicaps. 
(2) Of which 2 105 ha from a transfer from areas in danger of depopulation (Art. 3 (4)). 
(3) Of which 133 400 ha from a transfer of 121 200 ha from areas in danger of depopulation (Art. 3 (4)) and of 12 200 ha from areas with specific handicaps 
(Art. 3 (5)). 
(4) Of which 31 600 ha for the extension of areas with specific handicaps (Art. 3 (5)), subsequently transferred to less-favoured areas (Art. 3 (4)). 
(5) Including a transfer from other areas of an unspecified size. 
(6) Denmark does not apply Directive 75/268/EEC. The data relating to Greece, which has been part of the Community only since 1981, have not been 
included in the total and are presented separately. 
problems of administrative reorganization imposed by 
regionalization, budgetary restrictions, and technical or 
political reasons. Nevertheless, better use should be made 
of the lessons learnt in connection with previous measures 
in order to prevent similar situations recurring, to 
produce more and more realistic forecasts and to follow 
up the completed measures more effectively. 
5.49. It is regrettable that the Commission does not give 
greater priority to assessing the economic impact of the 
measures. In the Commission's view, the difficulties 
regarding the availability of staff oblige it to concentrate 
on checks on the regularity of expenditure and on 
measures to make the administrations more aware. As a 
result, the system has a major defect to which the Court 
considers it must draw particular attention. GENERAL OBSERVATIONS ON REGIONAL 
AID MEASURES 
5.47. The problem of selecting objectives and determin­
ing priorities arises just as much in relation to the 
structures policy as a whole as to each common measure. 
The objectives are often defined in terms of achieving a 
balance between a number of different and sometimes 
even contradictory factors. This being so, there is, 
however, a danger that the goals aimed at when carrying 
out the measures may be diverse and lacking in unity, thus 
lessening the measures' effectiveness and leading to 
indifferent results. 
5.48. The causes of the delays in implementing the 
measures are multiple and include the introduction of 
schemes offering little incentive to the beneficiaries, 
66 Official Journal of the European Communities 15. 12. 86 
(!) OJ30of 20.4.1962, p. 991. 
(2) OJ 34 of 27.2.1964, p. 586. 
(3) OJ L 95 of 2.4.1985, p. 1. 
(4) OJL 362 of 31.12.1985, p. 17. 
(5) OJ C 326 of 16.12.1985. 
(6) OJ C 342 of 31.12.1980. 
(7) OJ L 206 of 5.8.1985, p. 486. 
(8) OJ L 358 of 31.12.1985, p. 535. 
(9) OJC 326 of 16.12.1985, p. 52. 
(10) Council Regulation (EEC) No 355/77 of 15.2.1977 on 
common measures to improve the conditions under which 
agricultural and fishery products are processed and 
marketed (OJ L 51 of 23.2.1977, p. 1), as last amended by 
Council Regulation (EEC) No 2224/86 of 14.7.1986 (OJ L 
194 of 17.7.1986, p. 4). 
(u) Council Regulation (EEC) No 729/70 of 21.4.1970 on the 
financing of the common agricultural policy (OJ L 94 of 
28.4.1970, p. 13), as last amended by Council Regulation 
(EEC) No 3769/85 of 20.12.1985 (OJL 362 of 31.12.1985, p. 
17). 
(12) An initial sum of aid amounting to 1 035 500FF(± 0,2 Mio 
ECU) was granted in 1972. (13) Regulation (EEC) No 1626/85 of 14.6.1985, OJ L 156 of 
15.6.1985, p. 13. 
(14) This percentage must be replaced by: 
— 16% for the Mezzogiorno, the west of Ireland and 
Greece with the exception of Greater Athens, 
— 11 % for Languedoc-Roussillon and projects relating to 
wine in the departments of Var, Vaucluse, Bouches-du-
Rhone, Ardeche and Drome (OJ C 152/83 of 10.6.1983, 
p. 6). 
(!5) Commission Regulation (EEC) No 1685/78 of 11.7.1978, OJ 
L 197 of 22.7.1978, p. 1. 
(16) OJ L 197 of 20.7.1981, p. 27. 
(17) OJ L 322 of 18.11.1982, p. 36. 
(18) OJL 93 of 30.3.1985, p. 1. 
(19) OJ L 293 of 25.10.1983, p. 7. 
(20) Commission Decision 84/95/EEC of 8.2.1984, OJ L 51 of 
22.2.1984, p. 20. 
(21) OJL 165 of 25.6.1985, p. 1. 
(22) OJL 128 of 19.5.1975, p. 1. 
15. 12. 86 Official Journal of the European Communities 67 
CHAPTER 6 
Common fisheries policy 
6.0. TABLE OF CONTENTS Paragraph 
reference 
Introduction 6.1 —6.3 
Observations on budgetary management 6.4 — 6.11 
Utilization of available appropriations 6.4 — 6.8 
Expenditure arising from the fisheries agreement concerning Greenland 6.9 
Payments under the fishing agreements with certain developing countries 6.10 — 6.11 
Observations on the common measures for developing the fishing industry and 
aquaculture (Article 460 of the budget) 6.12 — 6.32 
Main features of the common measures 6.12 — 6.16 
Special observations 6.17 — 6.31 
Italian projects 6.17 — 6.21 
Irish projects 6.22 — 6.25 
Greek projects 6.26 — 6.31 
General observations 6.32 
INTRODUCTION fishing rights for Community vessels in their waters 
(Chapter 42); 
6.1. The Community draws upon the appropriations 
relating to the common fisheries policy, which are entered 
under Title 4 of the budget (in 1985, 215,4 Mio ECU were 
available as appropriations for commitment and 
145,9 Mio ECU as appropriations for payment), to 
finance the following measures: 
(a) the common organization of the market in fishery 
products, financed by the EAGGF-Guarantee 
(Chapter 40); 
(b) specific measures relating to research programmes, 
biological studies and the reinforcement of super­
visory measures to ensure observance of Community 
legislation governing fishing activities (Chapter 41); 
(c) agreements with non-Member States, mainly de­
veloping countries, to obtain, for a consideration, (d) social measures concerning vocational training and 
medical assistance at sea (Chapter 43); 
(e) structural measures concerning the adjustment and 
redeployment of capacity in the fisheries sector 
(Chapter 45); 
(f) a common EAGGF-Guidance measure relating to 
the construction or modernization of fishing vessels 
and to the development of aquaculture, as well as 
start-up aid to producer groups, also financed by the 
EAGGF-Guidance (Chapter 46). 
6.2. The position regarding commitments and pay­
ments for the financial year is summarized in Table 6.1 
and the evolution of appropriations available in 1985 is 
shown in Table 6.2. 
68 Official Journal of the European Communities 15. 12. 86 
Table 6.1 — Fisheries (Title 4): appropriations available in 1985 and their utilization 
(Mio ECU) 
Budget heading 
Chapter 40: 
Common organization of the market in fishery products 
— 400 Refunds 
— 401 Intervention 
Chapter 41: 
Specific measures 
— 410 Surveillance in maritime waters 
— 411 Research 
— 412 Biological studies 
— 413 Coordination of surveillance operations 
— 416 Mediterranean programme 
Chapter 42: 
Agreements on fishing rights in non-Community waters 
— 420 Mediterranean 
— 421 Baltic 
— 422 Developing countries 
— 423 Canada 
— 424 Greenland 
Chapter 43: 
Social measures 
— 430 Education and training 
— 431 Medical assistance 
Chapter 45: 
Adjustment and redeployment of capacity 
— 450 Adjustment of capacity 
— 451 Redeployment of capacity 
Chapter 46: 
Improvement of structures — Common measures 
— 460 Common measures, projects 
— 461 Producer groups 
Title 4 — Grand total (4) 
Rate of utilization of appropriations (%) Commitments 
Appropriations 
for 
commitment 
available 
for 1985 (') 
24,1 
0,5 
23,6 
M 0,0 
0,7 
0,8 
0,3 
1,0 
34,6 
p.m. 
0,1 
8,0 
0,0 
26,5 
0,1 
0,1 
0,0 
50,2 
43,0 
7,2 
103,6 
103,1 
0,5 
215,4 Commitments 
entered 
1985 
16,0 
-0,1(3) 
16,1 
1A — 
— 
0,8 
0,3 
0,5 
29,5 
— 
0,1 
2,9 
0,0 
26,5 
0,1 
0,1 
0,0 
8J> 
6,1 
2,5 
65,9 
65,8 
0,1 
121,7 
(56,5 %) Payments 
Appropriations 
for 
payment in 
1985(2) 
24,1 
0,5 
23,6 
IA — 
0,2 
1,4 
0,3 
0,5 
40,8 
p.m. 
0,1 
14,2 
0,0 
26,5 
0,2 
0,2 
0,0 
48,5 
41,3 
7,2 
29,9 
29,4 
0,5 
145,9 Payments 
made in 
1985 
16,0 
-0,1(3) 
16,1 
0,8 
— 
— 
0,6 
0,2 
— 
35,4 
— 
0,1 
8,8 
0,0 
26,5 
0,1 
0,1 
0,0 
— 
— 
— 
29,5 
29,4 
0,1 
81,8 
(56,1 %) 
(') Taking into account transfers, decommitments, adjustments and appropriations remaining from 1984. 
(2) Taking into account transfers and carry-overs from 1984. 
(3) Recovery in 1985 of expenditure paid in error in 1984. 
(4) The appropriations entered under Chapter 40 are non-differentiated appropriations from the EAGGF-Guarantee; Chapter 41 consists of differentiated 
and non-differentiated appropriations, Chapter 42 and 43 of non-differentiated appropriations and Chapters 45 and 46 of differentiated appropriations. 
15. 12. 86 Official Journal of the European Communities 69 
Table 6.2 — Fisheries (Title 4): evolution of 
appropriations available in 1985 
(Mio ECU) 
Type of appropriations 
Initial budget 
Appropriations remaining {x) 
Appropriations carried over 
1984 
Transfers (2) 
Total from Appro­
priations 
for commit­
ment 
150,2 
65,2 
— 
215,4 Appro­
priations 
for 
payment 
105,4 
— 
38,5 
+ 2,0 
145,9 
(') Including appropriations made available on account of the variation 
in the exchange rate of the ECU and re-used appropriations. 
(2) Transfer from Chapter B 100 (provisional appropriations) to 
Chapter 46. 
6.3. The Court has recently published a special report 
on the common organization of the market in fishery 
products ('). 
OBSERVATIONS ON BUDGETARY 
MANAGEMENT 
Utilization of available appropriations 
6.4. Appropriations for commitment increased by 40 % 
compared with those for the financial year 1984, and 
appropriations for payment increased by 46 %, mainly 
owing to the existence of appropriations remaining from 
1984 and appropriations carried over from that year. 
6.5. Commitments for the whole of Title 4 amounted to 
121,7 Mio ECU in 1985 (96,1 Mio ECU in 1984), i.e. 
56,5 % of the appropriations available (62 % in 1984). 
6.6. Payments made in 1985 amounted to 81,8 Mio 
ECU (57,1 Mio ECU in 1984), i.e. 56,1 % of the 
appropriations available (57 % in 1984). 
0) The footnotes appear at the end of each chapter. 6.7. The rate of utilization of the appropriations 
remained low in 1985, mainly because of the delay in 
implementing the two structural measures decided on by 
the Council in October 1983 and financed with appropri­
ations entered under Chapter 45. In the case of one of 
these measures, concerning capacity adjustment in the 
fisheries sector, the payments could have been made in 
1985 if the Commission had adopted in good time 
provisions laying down the form and content of the 
applications for reimbursement to be submitted by the 
Member States. 
6.8. The appropriations available under Article 411 
(0,7 Mio ECU of appropriations for commitment and 
0,2 Mio ECU of appropriations for payment), which were 
intended to promote the implementation of joint research 
programmes, were not utilized. A proposal for a 
Regulation on this question submitted by the Commis­
sion to the Council on 18 July 1980 had still not been 
adopted at the end of 1985. 
Expenditure arising from the fisheries 
agreement concerning Greenland 
6.9. Article 424, which was entered in the budget for the 
first time for the financial year 1985, provided the sum of 
26,5 Mio ECU for expenditure arising from the agree­
ment on fishing rights concerning Greenland. The 
rejection of the 1985 budget meant that the provisional 
twelfths system had to be implemented and it was 
therefore impossible to effect the above-mentioned 
expenditure. In February 1985, however, a payment of 
26,5 Mio ECU was made. Of this sum, 10 Mio ECU were 
entered 'provisionally' under Article 422 (fishing agree­
ments with developing countries) and 16,5 Mio ECU 
were entered under Article 320 (mountain and hill-
farming and farming in certain less-favoured areas). 
There is no doubt that this operation was irregular and 
the Financial Controller should have withheld his 
approval. Furthermore, there is nothing in the existing 
regulations which authorizes 'provisional entries' to be 
made. As regards the accounts, the entries were amended 
after the budget had been adopted; the payment was 
charged to Article 424 and the appropriations from 
Articles 320 and 422 were replenished by a sum equal to 
the amounts used for Greenland. 
Payments under the fishing agreements with 
certain developing countries 
6.10. In December 1985 the Commission made a series 
of payments to a French body which is responsible for 
certain nationals of Guinea, Guinea Bissau and Senegal 
who receive training grants made available by the 
Community under fishing agreements. The total amount 
paid was 329 470 ECU, equivalent to 2 217 106 FF, 
70 Official Journal of the European Communities 15. 12. 86 
although the only document testifying to these payments 
was a detailed account by the body in question, which 
referred to funds from the Community totalling only 
1 738 366,24 FF (258 328 ECU). This administrative 
error is attributable to the authorizing officer and to the 
Financial Controller, who approved, without raising any 
objection, payment orders far exceeding the amount 
indicated by the supporting documents submitted. 
6.11. In 1985, an agreement was negotiated with 
Madagascar (2) with a view to obtaining fishing rights for 
the Community in this country's waters in return for 
financial compensation. Despite the fact that, in its reply 
to the observations set out in the Court's annual report 
for the financial year 1984 (3), the Commission had stated 
that it had no right to inspect the use to which the funds 
paid were put, it accepted that the new agreement should 
include a clause stating the use to which the funds were to 
be put. This being so, the Court trusts that the 
Commission will make full use of the opportunity for 
carrying out inspections which is thus offered to it. 
OBSERVATIONS ON THE COMMON 
MEASURES FOR DEVELOPING THE 
FISHING INDUSTRY AND 
AQUACULTURE (ARTICLE 460 OF 
THE BUDGET) 
Main features of the common measures 
6.12. Between 1979 and 1983, the EAGGF-Guidance 
financed, on the basis of Council Regulations (EEC) No 
1852/78 of 25 July 1978 (4) and No 31/83 of 21 December 
1982 (5), an 'interim' common measure (extended from 
year to year) for restructuring the inshore fishing industry 
and aquaculture. Within the context of this measure, aid 
was granted for investment projects involving the 
purchase, construction or modernization of fishing 
vessels and the development of aquaculture establish­
ments. In the course of this operation, 1 153 projects were 
covered by EAGGF aid commitments totalling 
103,6 Mio ECU. 
6.13. As from the financial year 1984, the EAGGF-
Guidance common measure was pursued on the basis of 
Council Regulation (EEC) No 2908/83 of 4 October 
1983 (6), which was adopted as part of a 'package' of 
structural measures decided upon in conjunction with the 
introduction of a policy on the management of fish 
stocks. On the basis of Regulation (EEC) No 2908/83, 
1 653 projects had been financed by the end of 1985, with 
EAGGF aid totalling 132,6 Mio ECU. 
6.14. Although the regulations governing the common 
measure in question do not specify any deadline for implementing the projects financed, the Commission is 
entitled to cancel the aid if the beneficiary does not begin 
the work within two years of the date of notification of aid 
from the Fund and if he does not, within the same period, 
supply adequate assurances that the project will be 
carried out. The Commission may also reduce or 
withdraw the aid if the project is not carried out as 
specified (7). The amounts recovered in this way may be 
used to finance new projects. 
6.15. In 1985, commitments relating to a number of 
projects financed over more than two years were still 
included in the Commission's accounts. The situation 
with regard to each Member State is shown in Table 6.3. 
6.16. On the basis of the files in the Commission's 
possession, it was observed that there were abnormal 
delays in carrying out certain projects in Italy, Greece and 
Ireland, whereas delays in the other Member States could, 
in the Commission's opinion, be accounted for by the 
beneficiaries and by the authorities concerned. Con­
sequently, the Court initially limited itself to carrying out 
an on-the-spot audit at the Commission and on the 
premises of the Italian, Greek and Irish authorities in 
order to investigate the projects which had been delayed 
and discover the reasons for this situation. 
Special observations 
Italian projects 
6.17. During its on-the-spot audit at the Commission, 
the Court examined the 115 files relating to the Italian 
projects financed during 1979,1981, 1982 and 1983 which 
were still open as at 31 December 1985. This investigation 
revealed that, in the case of 85 projects, the documents on 
file did not provide sufficiently accurate information 
about the actual stage that had been reached in the 
execution of the project or about the reasons for the delay 
in submitting the application for final payment of 
Community aid. The Commission depends upon the 
national administrations for such information. The Court 
therefore turned, for additional information, to the 
Italian Ministry for the Merchant Navy, which central­
izes the administration of the common measure at its 
headquarters. 
6.18. This centralization consists in particular in 
organizing and performing all such on-the-spot audits as 
may ensure that the work is being carried out in 
accordance with the project specifications, or, if neces­
sary, to check the reasons for delays in implementing the 
project. Within such a context, it proves difficult to 
monitor projects closely and to carry out the necessary 
audits rapidly. Thus, nine projects which, according to 
15. 12. 86 Official Journal of the European Communities 71 
Table 6.3 — 
Member State 
Belgium 
Denmark 
FR of Germany 
Greece 
France 
Ireland 
Italy 
Netherlands 
United Kingdom 
Total Situation as regards uncompleted projects as at 31.12.1985, by Member State 
and by financial year in which appropriations were committed 
1979 
A B 
(Mio 
ECU) C 
_ 
1 0,3 — 
— 
— 
_ 
36 2,4 — 
4 2,0 2 
— 
2 0,3 — 
43 5,0 2 D 
(Mio 
ECU) 
— 
— 
— 
— 
— 
0,3 
— 
— 
0,3 1980 
A B 
(Mio 
ECU) C D 
(Mio 
ECU) 
1 0,2 — — 
3 0,3 — — 
9 0,5 — — 
4 1,3 — — 
11 4,0 2 0,1 
35 4,5 — — 
_ _ 
34 4,3 1 0,0 
97 15,1 3 0,1 1981 
A B 
(Mio 
ECU) C 
3 0,4 — 
20 0,7 1 
10 0,6 — 
13 3,4 3 
18 3,8 4 
46 5,9 7 
9 0,6 2 
53 4,5 4 
172 19,9 21 D 
(Mio 
ECU) 
— 
0,0 
— 
— 
0,2 
0,4 
0,7 
0,1 
0,1 
1,5 1982 
A B 
(Mio 
ECU) C 
1 0,1 — 
35 1,4 1 
12 1,4 1 
10 1,8 7 
26 3,3 3 
38 4,4 4 
97 7,2 30 
16 1,0 2 
60 4,5 11 
295 25,1 59 D 
(Mio 
ECU) 
— 
0,0 
0,1 
0,4 
0,1 
0,6 
1,8 
0,0 
0,6 
3,6 1983 
A B 
(Mio 
ECU) 
1 0,1 
58 2,2 
27 2,4 
100 6,2 
57 5,5 
78 5,6 
115 8,5 
10 1,9 
100 6,2 
546 38,6 C D 
(Mio 
ECU) 
— — 
10 0,3 
3 0,2 
62 2,3 
15 0,8 
12 0,9 
76 5,0 
5 0,9 
19 0,7 
202 11,1 
Key: A: Total number of projects financed. 
B: Total aid granted (Mio ECU). 
C: Total number of uncompleted projects at end of 1985. 
D: Total commitments still available at end of 1985 (Mio ECU). 
Sources: — Financial reports concerning the EAGGF-Guidance. 
— Periodic account issued by the Single Accounting Centre. 
the information sent to the Commission, should have 
been subject to an on-the-spot audit some time ago, had 
not yet been inspected when the Court's visit took place. 
Furthermore, accurate information on the progress of 25 
other projects was lacking, in the absence of any response 
from the beneficiaries, who had been approached by post 
only. The monitoring of projects, in its present form, does 
not offer sufficient guarantees of efficiency and speed. 
The Commission and the national authorities should 
consider introducing a system involving closer contact 
with the fishermen and aquaculturists. 
6.19. The national aid which has to accompany the 
Community aid is paid by the Merchant Navy Ministry in 
the form of a percentage of the costs which the 
Commission, at the time of submission of the supporting 
documents for the payment in full of EAGGF aid, 
considers to be eligible. The financial contribution of the 
Member State is a precondition for the payment of the full 
amount of Community aid, and if the national aid is not 
paid, the Commission grants only 80 % of the aid from the 
Fund and makes the payment of the remaining 20 % 
conditional on the submission of evidence to show that 
national aid has been granted. The period between these 
two payments runs to several months and constitutes a 
particular reason for delay. 
6.20. The normal execution of the projects is hampered 
by the inability of a number of fishermen to make the 
contributions, using their own funds, indicated in the 
preliminary financial plans. This problem points up the need for a more thorough examination of the financing 
plans submitted by the beneficiaries. In particular, the 
possibilities of self-financing must be examined carefully, 
especially since the system of making available to 
fishermen official loans at a subsidized interest rate, as 
provided for in a law of 1982, is not yet in operation. 
6.21. This same survey also revealed that a number of 
projects had in the meantime been the subject of an 
application for final payment (25 projects), had been 
abandoned (6 projects), had been the subject of a request 
for inspection of the work carried out (5 projects) or 
raised particular problems which had not yet been 
resolved (15 projects). 
Irish projects 
6.22. The Court recorded 20 files on projects financed 
under Regulations (EEC) No 1852/78 and No 31/83, 
which had not been closed as at 31 December 1985. In the 
case of eight of them, the information obtained at the 
Commission showed that they were either about to be 
closed, were awaiting final settlement or were being 
cancelled, or that they concerned legal entities in 
liquidation. On the other hand, 12 projects were subjected 
to a thorough examination with the Irish authorities, 
particularly with the BIM (Irish Sea Fisheries Board) and 
the 'Udaras na Gaeltachta' (responsible for Gaelic-
speaking areas). 
72 Official Journal of the European Communities 15. 12. 86 
6.23. According to the information obtained by the 
Court, concern as to whether the interim measures would 
be continued prompted the Irish authorities to submit 
large projects for Community financing which sub­
sequently were only partly completed. In most of these 
cases, the initial phase was completed and was oper­
ational. In the Court's opinion, this initial phase could 
and should have constituted the project, which could thus 
have been closed within a normal period of time. The long 
period of inactivity — linked specifically to supply 
problems — between this initial phase and any sub­
sequent development of the project results in an 
unnecessary immobilization of large quantities of ap­
propriations. 
6.24. It is regrettable that the Commission, at the time 
of examining the application, does not check that the 
conditions governing the execution of the proposed work 
have been met and does not make the granting of aid 
subject to adequate guarantees of success, particularly in 
the case of consecutive projects — at least where it is able 
to do so — in order not to tie up large commitments over 
long periods. Thus, when the Commission examined 
project IRL/109/82, although the application mentioned 
its connection with the initial project (IRL/61/80), it did 
not check either the state of progress of the initial project 
or its prospects for success. 
6.25. Appropriations also remain immobilized because 
of delays in the procedure for cancelling aid. These delays 
are due to the vague and incomplete nature of the dilatory 
replies received from the national administrations, which 
the Commission is content to accept without asking them 
to be more specific. These replies in fact contain only 
incomplete information alluding to prospects which are 
generally most uncertain. 
Greek projects 
6.26. The number of Greek projects approved by the 
Commission in 1982 and 1983, relating to the construc­
tion and modernization of vessels and to the introduction 
of aquaculture, is as follows: 
1982 
1983 
Total Number of projects 
approved 
10 
100 
110 Number of respective 
beneficiaries 
64 
211 
275 
This shows that several of the approved projects 
comprised a large number of sub-projects. 
6.27. Out of these 110 projects, 45 had not yet been 
terminated in March 1986. Forty out of the 45 projects 
concerned fishing vessels and five concerned aquaculture. 6.28. In the case of some files which were still open, no 
reminder had been given for six months to one year. 
Likewise, at the time of the inspection, the Commission 
had not arranged for any on-the-spot contact, either with 
the competent national authorities or with the bene­
ficiaries. This would have been particularly desirable, in 
view of the fact that Greece has only been a member of the 
Community since 1 January 1981. The large number of 
cases whereby aid was voluntarily foregone or cancelled 
or where the beneficiaries lost interest (around 23 % of the 
total number of beneficiaries) is undoubtedly due to lack 
of information. 
6.29. In this connection, the Commission should 
initiate, immediately and in cooperation with the relevant 
national authorities, the procedure for cancelling aid 
which has lapsed or which infringes Community regu­
lations. 
6.30. The inspection visit also revealed that the system 
observed by the central administration for monitoring 
projects is generally organized in such a way as to meet 
Community requirements. Nevertheless, without an up-
to-date management chart, the central information 
department is not in a position to monitor systematically, 
for each beneficiary, how work is progressing. Likewise, 
the connection established between central departments 
on the one hand and local departments and port 
authorities on the other does not always operate in a 
regular and efficient manner, mainly due to the lack of 
response from local departments. This is the reason why 
the central administration was unaware, at the time of the 
audit, of the exact situation in the case of 16 beneficiaries 
(11 projects), and requests for information from local 
authorities had remained unanswered. 
6.31. The mere fact that 41 %of the 'collective' projects 
submitted in 1981 and 1982 and approved by the 
Commission, corresponding to approximately 50 % of 
the total number of beneficiaries, had not yet been 
terminated at the time of the investigation, constitutes 
proof of excessive procrastination, due mainly to the long 
delay prior to commencement of the work. This is even 
more significant in view of the fact that only five of the 
uncompleted projects relate to aquaculture, while the 40 
projects still to be concluded, involving 131 beneficiaries, 
relate to the construction or modernization of medium-
sized fishing vessels, which does not normally take more 
than six to seven months. 
General observations 
6.32. After the statutory two-year period, the Commis­
sion is required to set in motion the investigation 
procedure which determines whether it will take a 
decision to cancel the aid or wait for the beneficiaries to 
complete the project. Under the terms of this procedure, 
however, it makes do with various replies which do not 
15. 12. 86 Official Journal of the European Communities 73 
adequately reflect the progress of the projects. Further- to defining clearly, standardizing and accelerating the 
more, the regulations make no provision as regards procedure for discontinuing Community aid. Provision 
contacts to be followed up between the Commission, the should be made for strict deadlines for both the 
Member State and the beneficiaries, after the work forwarding of information and the various stages of the 
specified in the project has commenced. This loophole procedure for cancelling aid, in order to avoid leaving too 
should be filled by a measure prescribed by the great a volume of outstanding commitments. 
Commission within the legislative framework, with a view 
0 OJC 339 of 31.12.1985. (5) OJ L 5 of 7.1.1983, p. 1. 
(2) OJ L 73 of 18.3.1986, p. 25. (6) OJ L 290 of 22.10.1983, p. 1. Regulation (EEC) No 2908/83 
(3) OJ C 326 of 16.12.1985, paragraphs 6.10 — 6.12. was amended by Council Regulation (EEC) No 3733/85 of 
(4) OJL211 of 1.8.1978, p. 30. Regulation (EEC) No 1852/78 20.12.1985 (OJ L 361 of 31.12.1985, p. 78). 
was amended by Regulations (EEC) No 592/79 of 26.3.1979 (?) Regulation (EEC) No 1852/78, Article 10(2); 
(OJL 78 of 30.3.1979, p. 5), No 1713/80 of 27.6.1980 (OJ L Regulation (EEC) No 31/83, Article 10(2); 
167 of 1.7.1980, p. 50) and No 2992/81 of 19.10.1981 (OJ L Regulation (EEC) No 2908/83, Article 18(2). 
299 of 20.10.1981, p. 24). 
74 Official Journal of the European Communities 15. 12. 86 
CHAPTER 7 
Expenditure in the regional development and transport sectors 
7.0. TABLE OF CONTENTS 
Introduction 
Summary of financial information 
Analysis of budgetary implementation 
Unexpended ERDF appropriations 
Transfers of ERDF appropriations 
The progress of ERDF payments, by Member State 
The situation of commitments outstanding 
Other operations provided for in relation to Title 5 
Observations on the management of the ERDF 
Change-over from the old Regulation to the new Regulation 
Programme financing 
The proportion of aid allocated to industrial investment 
Observations relating to the system of management and control of ERDF aid 
Regional development programmes 
Choice of projects 
Global decisions 
Execution of the projects 
Monitoring of the execution of projects and evaluation of results 
General observation Paragraph 
reference 
7.1 
7.3 
7.8 
7.8 
7.10 
7.12 
7.15 
7.19 
7.22 
7.22 
7.26 
7.29 
7.32 
7.34 
7.42 
7.50 
7.54 
7.65 7.2 
7.7 
7.21 
7.9 
7.11 
7.14 
7.18 
7.21 
7.31 
7.25 
7.28 
7.31 
7.74 
7.41 
7.49 
7.53 
7.64 
7.74 
7.75 — 7.77 
INTRODUCTION Council Regulation (EEC) No 1787/84 of 19 June 
1984 (2), which came into force on 1 January 1985. 
7.1. The expenditure included under this heading 
mainly concerns the European Regional Development 
Fund (ERDF), which was created by Council Regulation 
(EEC) No 724/75 of 18 March 1975 (») with the aim of 
helping to correct the principal regional imbalances 
within the Community through financial participation in 
the development and structural adjustment of less 
developed regions and in the conversion of industrial 
regions in decline. The main feature of the management of 
the Fund during 1985 was the implementation of the new 
(•) The footnotes appear at the end of each chapter. 7.2. Funding for the ERDF is decided on each year and 
the relevant commitment and payment appropriations 
are allocated to it in the general budget of the Com­
munities. The Fund reimburses a proportion of the 
expenditure incurred by the Member States in the 
execution of Community programmes, national pro­
grammes of Community interest, projects and studies. 
Guidelines are established for the utilization by the 
Member States of these resources, and the lower and 
upper limits laid down in the guidelines apply over a 
three-year period. 
15. 12. 86 Official Journal of the European Communities 75 
SUMMARY OF FINANCIAL 
INFORMATION 
7.3. Table 7.1 traces the utilization of appropriations in 
Title 5 of the budget, 'Appropriations for operations in 
the regional development and transport sectors'. 
7.4. For the ERDF (Chapters 50 and 51), the 
appropriations available for commitments totalled 
2 654,8 Mio ECU in 1985, of which 2 495,2 Mio ECU 
(94,7 %) were used. The commitments covered invest­
ment projects (2 321,3 Mio ECU), national programmes 
of Community interest (134 Mio ECU), 37 studies 
(2,1 Mio ECU) and the continuation of non-quota 
measures provided for by the old Regulation (37,8 Mio 
ECU). A commitment appropriation of 28 Mio ECU for 
non-quota measures dating back to 1984 was cancelled at 
the end of 1985, as was a commitment appropriation of 
9,6 Mio ECU relating to the old Regulation. 7.5. The aid allocated to projects was divided between 
industry (18%) and infrastructure (82%) and was 
granted under 743 decisions covering 3 265 investments. 
The average amount of aid granted per project was 
711 000 ECU in 1985, as against 529 000 ECU during the 
previous financial year. This difference is due to an 
increase in the average amount of the investments, and, in 
more than half of the cases, to the application of the 
higher rates of aid fixed by the new Regulation. 
7.6. The total payment appropriations available for the 
two Chapters of the ERDF amounted to 1 739,2 Mio 
ECU, of which 1 624,2 Mio ECU (93,4 %) were utilized 
(see Table 7.1). Annex III of this report gives a 
breakdown of commitments and payments by Member 
State. 
7.7. Three Articles in the 1985 budget concern ERDF 
operations. They are numbered 500, 505 and 510, and 
deal with the application of the old Regulation (the quota 
section), the application of the new Regulation and the 
non-quota measures of the old Regulation, respectively. 
A summary of the situation of the appropriations for 
these three Articles in 1985 is shown in Table 7.2. 
Table 7.1 — Aid for regional development and transport: appropriations 
available in 1985 and their utilization 
(Mio ECU) 
Budget Chapter 
Article 500: old Regulation (quota) 
Article 505: new Regulation 
Article 510: old Regulation (non-quota) 
Total Chapters 50 and 51 (ERDF) 
Chapter 54: 
Other regional aid 
Chapter 55: 
Mediterranean programmes 
Chapter 58: 
Transport policies (*) 
General total Commitments 
Appro­
priations 
for commit­
ment 
available 
in 1985 Commit­
ments 
entered 
into 
in 1985 
9,9 0,3 
2 464,1 2 457,1 
180,8 37,8 
2 654,8 2 495,2 
69,1 57,5 
140,0 6,8 
171,6 81,2 
3 035,5 2 640,7 Payments 
Appro­
priations 
for payment 
available 
in 1985 Payments 
made in 
1985 
1 294,9 1 294,8 
411,0 296,1 
33,3 33,3 
1 739,2 1 624,2 
55,2 17,4 
20,0 7,8 
116,0 76,1 
1 930,4 1 725,5 
(') Including carry-overs relating to non-differentiated appropriations from Chapter 78. 
76 Official Journal of the European Communities 15. 12. 86 
Table 7.2 — Utilization of appropriations of the ERDF in 1985 
(Mio ECU) 
Type of appropriations 
Appropriations opened for the 1985 budget 
Appropriations made available by the cancel­
lation of aid granted previously 
Appropriations made available due to fluctu­
ations in the exchange rate 
Appropriations existing or carried forward from 
1984 
Sub-total 
Transfer from Article 500 to Article 505 
Transfer from Article 510 to Article 505 
Total appropriations available 
Appropriations utilized Article 500 
(old Regulation — 
quota) 
Commit­
ment 
appro­
priations Payment 
appro­
priations 
— 1 259,0 
95,4 — 
198,8 — 
4,9 35,9 
299,1 1 294,9 
- 289,2 — 
9,9 1 294,9 
0,3 1 294,8 Article 505 
(new Regulation) 
Commit­
ment 
appro­
priations Payment 
appro­
priations 
2 174,9 281,0 
2 174,9 281,0 
+ 289,2 — 
— +130,0 
2 464,1 411,0 
2 457,1 296,1 Article 510 
(old Regulation — 
non-quota) 
Commit­
ment 
appro­
priations Payment 
appro­
priations 
115,0 70,0 
65,8 93,3 
180,8 163,3 
— -130,0 
180,8 33,3 
37,8 33,3 Total 
Commit­
ment 
appro­
priations Payment 
appro­
priations 
2 289,9 1 610,0 
95,4 — 
198,8 — 
70,7 129,2 
2 654,8 1 739,2 
2 654,8 1 739,2 
2 495,2 1 624,2 
ANALYSIS OF BUDGETARY 
IMPLEMENTATION executed. These payments, which will have to be made at 
the beginning of 1986, will use up almost one third of the 
appropriations set aside under Article 500 of the 1986 
budget for the further application of the old Regulation. 
This situation raises the question of whether the transfers 
of appropriations to Article 505 were justified. 
Unexpended ERDF appropriations 
7.8. In the context of the budgetary management of the 
ERDF, the appropriations available for non-quota 
measures (Article 510) were mostly still unexpended in 
1985, since the commitments and payments only cor­
responded to a part of the existing appropriations or 
appropriations carried forward from 1984. This subject 
has been analysed in more detail in a special report of the 
Court of Auditors (3). 
7.9. Furthermore, it was noted that 130 Mio ECU of 
the appropriations available for non-quota measures 
undertaken within the framework of the old Regulation 
had been transferred to Article 505, the purpose of which 
is to cover the operations of the new Regulation. Payment 
appropriations for this Article totalling 114,9 Mio ECU 
were still to be utilized at the end of the financial year. 
Most of the decisions taken under the new Regulation 
were adopted in December 1985, so that very few requests 
for payment applied to them. Furthermore, numerous 
requests for payment relating to the application of the old 
Regulation and totalling 220 Mio ECU, could not be Transfers of ERDF appropriations 
7.10. As far as transfers are concerned, the Court noted 
that: 
(a) The transfer of 130 Mio ECU of payment appropri­
ations from Article 510 to Article 505, which was 
mentioned previously, includes 60 Mio ECU of 
appropriations carried forward from 1984. This latter 
amount therefore constitutes a transfer from the 1984 
budget to the 1985 budget, a procedure which the 
Court has often criticized as being contrary to the 
provisions of Article 21 of the Financial Regulation, 
since transfers of appropriations must take place 
before the end of the financial year (4). 
(b) Furthermore, in this particular case, the 1984 
payment appropriations will eventually be used for 
paying for commitments entered into in 1985. This 
does not comply with the definition of differentiated 
appropriations given in Article 1 of the Financial 
15. 12. 86 Official Journal of the European Communities 77 
Regulation, under which differentiated payment 
appropriations are intended to cover expenditure 
arising from the execution of commitments entered 
into during the financial year and/or preceding 
financial years (5). 
(c) Moreover, of the commitment appropriations for 
Article 500 dating back to 1984, which amounted to 
4,9 Mio ECU, 2,2 Mio ECU were transferred to 
Article 505, which also constitutes a transfer from the 
1984 budget to the 1985 budget. A total of 0,3 Mio 
ECU of the 2,7 Mio ECU still available were utilized 
and 2,4 Mio ECU were cancelled at the end of the 
financial year 1985. 
7.11. The total commitment appropriations cancelled 
at the end of the financial year 1985 actually amount to 
9,6 Mio ECU, since a further 7,2 Mio ECU must be 
added to the amount of 2,4 Mio ECU mentioned 
previously, corresponding to Article 500 appropriations 
made available by the withdrawal of aid already granted. 
As this situation did not comply with the provisions of 
Article 9(6) of the old Regulation, which provided that 
funds decommitted in this way could be reallocated to 
new projects, the Commission made an accounting 
adjustment in respect of these appropriations at the 
beginning of 1986. At the same time, however, it ought to 
have made a corresponding entry in the revenue and 
expenditure account for 1985. Subsequently, the Com­
mission submitted a corrected version of the revenue and 
expenditure account on 17 October 1986 showing that the 
sum of 9,6 Mio ECU had been entered as commitment 
appropriations still available at 31 December 1985 and 
was no longer included in the appropriations cancelled. 
The progress of ERDF payments, by Member 
State 
7.12. Of all the aid decisions taken by the Commission 
in mid-December, only a few reached the payment stage 
in 1985, thanks to the rather short lapse of time between 
the aid decision and the close of the financial year. This 
was true of: 
(a) two decisions relating to France, for aid totalling 
25,2 Mio ECU, of which 15 Mio ECU were paid; 
(b) 15 decisions relating to Ireland, for aid totalling 
85,6 Mio ECU, of which 34,1 Mio ECU were paid; 
(c) eight decisions relating to Greece, for aid totalling 
174,6 ECU, of which 128,9 Mio ECU were paid. 
7.13. An analysis of payments relating to aid granted in 
1984 shows that the percentage of aid paid over was 
clearly higher for Ireland and Greece. In fact, at 31 
December 1985, the percentage of aid paid to each Member State for the year 1984 was as follows: 
Belgium 
Denmark 
FR of Germany 
Greece 
France 23,6% 
54,6% 
56,6% 
71,1 % 
28,9% Ireland 74,5 % 
Italy 17,5% 
Luxembourg 12,9% 
Netherlands 1,6% 
United Kingdom 52,0 % 
7.14. Differences of the kind shown in the preceding 
paragraphs can be explained by several factors, mainly 
related to the Member States' information procedures 
and administrative practices. Speed of payment must not 
however be taken as proof of the efficiency with which the 
ERDF is managed. In reality, it is often due to aid being 
granted to projects which are at an advanced stage of 
execution; this reduces the Fund's impact on the decision 
to invest and limits the additionality of the aid (see the 
Court's Annual Report for the financial year 1984 (6)). 
The Commission should take note of the differences in the 
rate of payments from the Fund observed between 
Member States and should tighten the definition of the 
criteria applied in relation to accelerated payments, in 
view of their implications for the impact of the aid and the 
evolution of outstanding payments. 
The situation of commitments outstanding 
7.15. For Title 5 as a whole, the cumulative total of 
commitments from previous financial years still to be 
settled was 5 336,2 Mio ECU at the end of 1985. Unused 
commitment appropriations at the close of the financial 
year amounted to 356,2 Mio ECU. If the payment 
appropriations carried forward from 1985 to 1986, 
amounting to 195,1 Mio ECU, are deducted, the 
Community will therefore need to call upon an amount of 
5 497,3 Mio ECU from 1986 onwards in order to cope 
with the burden of expenditure arising from the past 
management of Title 5. This amount, which represents 
almost 50 % of the total commitments still to be settled by 
the Commission, is mostly accounted for by ERDF 
measures. 
7.16. ERDF commitments outstanding at the end of 
the financial year amounted to 5 115 Mio ECU at 31 
December 1985, as opposed to 4 543 Mio ECU at 31 
December 1984. Since the commitment appropriations 
entered in the budget have exceeded payment appropri­
ations every year, the implementation of the budget leads 
to an automatic increase in commitments outstanding. 
7.17. As far as the former non-quota measures are 
concerned, it should moreover be noted, as the Court 
observed in its special report, that 312 Mio ECU of the 
78 Official Journal of the European Communities 15. 12. 86 
total of 490 Mio ECU of aid granted to the approved 
programmes was still to be committed at 31 December 
1985. The same applies to the 154,8 Mio ECU for 
national programmes of Community interest referred to 
in paragraph 7.27. 
7.18. Table 7.3. which gives a breakdown by Member 
State of outstanding commitments to be settled by the 
ERDF, shows that 47,6 % of the total relates to Italy and 
that, furthermore, commitments still exist for decisions 
taken during the financial years 1975-77, (10 Mio ECU, 
as against 14,5 Mio ECU at 31 December 1984) and for 
decisions taken during the financial years 1978-80 
(222,9 Mio ECU as against 314,1 Mio ECU at 31 
December 1984). The situation is barely improving from 
year to year and the Court has already had occasion to 
comment on the matter, in its Annual Report concerning 
the financial year 1983 (7). It should also be remembered 
that the proportion of aid paid does not always 
correspond to the stage reached in the execution of the 
projects, since some applications for reimbursement are 
submitted late by Member States and, conversely, 
payments are accelerated for some aid decisions. 
Other operations provided for in relation to 
Title 5 
7.19. With regard to the 'other regional policy 
operations' (Chapter 54), of the appropriations available 
for commitments, which amounted to 69,1 Mio ECU, 
57,5 Mio ECU had been expended (83,2 %). The same is 
not true of appropriations available for payment, where 
31,5% had been expended (17,4 Mio ECU out of 
55,2 Mio ECU). This situation has arisen because the 
preparatory studies for the integrated measures are taking 
longer to complete and social projects in Greece are 
taking longer to implement. 
7.20. Appropriations for 'Mediterranean programmes' 
(Chapter 55) were also under-utilized: the commitments 
entered into in 1985, totalling 6,8 Mio ECU, represent 
less than 4,9 % of the appropriations available for 
commitments (140 Mio ECU). Of the appropriations for 
payment, 7,8 Mio ECU were utilized, in other words, 
39 % of the total appropriations available, which 
amounted to 20 Mio ECU. The commitment appropri­
ations remained almost completely unused, mainly 
because no integrated Mediterranean programme was 
approved by the Commission during the financial year, as 
only one programme was submitted, by Greece, at the end 
of the year. The low rate of utilization of payment 
appropriations is due to delays in carrying out the 
preparatory measures. 
7.21. The appropriations available for commitments 
and payments for 'transport policies' (Chapter 58) 
amounted to 171,6 Mio ECU and 116,0 Mio ECU 
respectively. Their respective rates of expenditure were 
47,3% (81,2 Mio ECU) and 65,6% (76,1 Mio ECU). Table 7.3 — ERDF: Commitments outstanding according to 
Member State at 31 December 1985 
(Mio ECU) 
Member State 
Belgium 
Denmark 
FR of Germany 
France 
Greece 
Ireland 
Italy 
Luxembourg 
Netherlands 
United Kingdom 
Total 
Commitments 
outstanding 
at 31. 12. 1984 1975-77 
1,1 
0,7 
1,1 
0,2 
4,9 
1,3 
0,7 
10,0 
14,5 1978-80 
1,8 
9,8 
28,4 
4,8 
124,6 
7,8 
45,7 
222,9 
314,1 1981-84 
32,9 
17,2 
84,2 
366,7 
128,7 
66,5 
1 433,7 
4,1 
54,1 
533,4 
2 721,5 
4 214,6 1985 
24,4 
13,3 
73,6 
294,3 
215,6 
90,7 
871,0 
17,1 
561,2 
2 161,2 Total 
60,2 
30,5 
168,3 
690,5 
344,3 
162,2 
2 434,2 
4,1 
80,3 
1 141,0 
5 115,6 
4 543,2 
Even though these utilization rates are the highest for the 
last three years, they are still low. In particular, none of 
the appropriations entered under Article 581 of the 1985 
budget were utilized (90 Mio ECU of appropriations for 
commitment and 34 Mio ECU of appropriations for 
payment). In its preliminary draft budget, the Commis­
sion requested 110 Mio ECU of appropriations for 
commitment and 34 Mio ECU of appropriations for 
payment (these figures were subsequently reduced to 
30 Mio ECU and 20 Mio ECU respectively by the 
Council, and then increased to 90 Mio ECU and 34 Mio 
ECU by the Parliament). To allow these appropriations 
to be committed, on 6 September 1984 the Commission 
submitted an amendment to its proposal of 9 August 
1983, but this amendment has not been examined by the 
Council. 
OBSERVATIONS ON THE MANAGEMENT 
OF THE ERDF 
Change-over from the old Regulation to the 
new Regulation 
7.22. The legal provisions in force at present offer no 
guidance concerning the change-over from the old 
Regulation to the new Regulation. In particular, they say 
nothing about what should be done with appropriations 
that become available as a result of the effect of 
fluctuations in the rate of the ECU on aid decisions 
expressed in national currency. The amount of 198,8 Mio 
ECU decommitted in 1985 is obviously the final balance 
of various positive or negative movements within each 
Member State. Where a currency is depreciating, the 
appropriations decommitted must be re-used, so as to 
maintain the quotas of the countries concerned, and in the 
15. 12. 86 Official Journal of the European Communities 79 
case of an appreciating currency the difference is to be 
charged to the new appropriations allocated to the 
financial year, so as to maintain the aid at the agreed 
levels. This results in change-overs from the old to the new 
Regulation which are not covered by any legislation in 
force at present. 
7.23. It is all the more necessary to formalize practices 
in this area as for some Member States the amounts 
involved can be high. In the case of Italy, the appropri­
ations decommitted as a result of fluctuations in the rate 
of the ECU equalled 7,2 % of the budget allocation of the 
ERDF for 1985 and were utilized for new aid decisions. 
7.24. There is also a need to define the procedures for 
the change-over from the old Regulation to the new 
Regulation in relation to aid decisions. A survey by the 
Court of more than 40 % of the 1985 decisions showed 
that in 13 % of the cases aid was granted at the rates laid 
down by the old Regulation, which were between 20 % 
and 40 % less favourable than the rates in the new 
Regulation. Since the new Regulation came into force on 
1 January 1985, applying the old rates is questionable, 
even in cases concerning aid applications which were 
submitted before that date. 
7.25. As far as the budgetary nomenclature is 
concerned, all ERDF aid granted under the new 
Regulation has been concentrated under just one budget 
heading. The Fund's operations are more diversified than 
before, due to the creation of Community programmes, 
national programmes of Community interest, internally 
generated development measures and integrated develop­
ment measures. Appropriations which were previously 
divided between two budget headings have been grouped 
together under only one heading. This type of concen­
tration does not make for budgetary transparency,nor 
does it make the planning and analysis of operations any 
easier. 
Programme financing 
7.26. The new Fund Regulation provides for ERDF 
participation in the financing of Community programmes 
and national programmes of Community interest. Article 
6 states in this respect that 'on a trial basis, each Member 
State whose upper range limit is higher than 1,5 % shall 
ensure that an appropriate number of applications for aid 
are submitted in the form of a programme or program­
mes, so that the Commission may as far as possible 
guarantee that the share of ERDF aid allocated to 
programme financing, including Community program­
mes, is gradually increased to reach at least 20 % of the 
appropriations allocated by the ERDF at the end of the 
third year.' 7.27. The United Kingdom submitted 10 proposals for 
national programmes of Community interest, of which 
three were approved by the Commission, one was rejected 
and six were being examined at the end of the financial 
year. The three approved programmes consisted of 
Community aid of 260 Mio ECU for a period of four 
years, of which a tranche of 105,2 Mio ECU was entered 
in the accounts with the commitments for 1985. In a 
special report on non-quota measures, the Court has 
criticized the procedure by which commitments are 
entered in the accounts by annual tranches, since it is not 
possible to establish exactly how much aid has been 
decided on or how much is still to be paid. Thus, aid 
amounting to 154,8 Mio ECU, which had been granted to 
the three programmes previously referred to, was not 
mentioned in the accounting documents for the financial 
year. 
7.28. France submitted six proposals which, due to 
their form and content, were not considered by the 
Commission to be immediately eligible for a programme 
agreement. A total of 28,8 Mio ECU of aid from the Fund 
was granted to certain operations included in the 
application which were clearly priority projects. It was 
granted in the form of project financing, and was not 
conditional on a favourable decision being taken as 
regards the application as a whole, or as regards the other 
parts of the application. If such procedures became 
widespread, they might well reduce the expected efficacy 
of programme financing, which constitutes one of the 
important innovations of the new Regulation. 
The proportion of aid allocated to industrial 
investment 
7.29. A similar observation can be made with regard to 
the application of Article 35 of the new Regulation, which 
lays down that 'the Member States, in submitting their 
applications, and the Commission, in administering the 
ERDF, shall endeavour to ensure that an appropriate 
proportion (if possible, 30 %) of the Fund's resources is 
allocated to investments in industry, crafts and the service 
sector'. 
7.30. The 30 % level has only rarely been reached in the 
past, as is shown by the figures for 1979-84:28 % in 1979, 
26% in 1980, 12% in 1981, 13 % in 1982, 11% in 1983, 
and 14 % in 1984. Of the total aid granted in 1985, the 
proportion allocated to investments in industry, crafts 
and the service sector was 18 %, which is higher than the 
preceding financial year, but still clearly lower than the 
level recommended in the Regulation. As for the.aid 
granted to individual Member States, the proportion 
allocated to these sectors is as low as 15 % in the case of 
the United Kingdom, 9 % in the case of France and 0 % in 
the case of Greece. 
80 Official Journal of the European Communities 15. 12. 86 
7.31. Infrastructure investments are an important 
condition for regional economic development, but their 
ultimate usefulness depends on how much they are used, 
which, in turn, requires an adequate level of activity in the 
industry, crafts and services sector and consequently also 
an adequate volume of investments in this sector. It is 
therefore important to improve the distribution of the 
two types of investments in order to ensure an optimum 
return from ERDF aid. Furthermore, in the light of the 
results obtained from industrial investment over the last 
few years, it is clear that greater efforts need to be made to 
achieve the objective of allocating a 30 % share of aid to 
projects in the industrial sector. 
OBSERVATIONS RELATING TO THE 
SYSTEM OF MANAGEMENT AND 
CONTROL OF ERDF AID 
7.32. When the new Regulation of the Fund came into 
force, the Court carried out a comprehensive examination 
of the system of management and control of the ERDF, 
both at Community and national level, since almost all 
Community aid is allocated to support initiatives adopted 
at national level. 
7.33. Checks within Member States were carried out 
principally in Denmark, the FR of Germany, Greece, 
France, Ireland and the United Kingdom. They were 
particularly concerned with aspects of national pro­
cedures likely to have the greatest effect on the 
implementation of the ERDF and especially deserving of 
the Commission's attention. The following observations 
arise from the examination in question, and concern 
regional development programmes, the choice of pro­
jects, the execution and control of the projects and the 
evaluation of the results. 
Regional development programmes 
The Member States' regional development programmes 
7.34. The procedure whereby Member States inform 
the Commission of their regional development program­
mes is not intended just to enable the Commission to 
establish priority areas for aid from the Fund, but is also 
meant to help it to examine whether national programmes 
are consistent with Community programmes and object­
ives. 7.35. The programmes, which are indicative in 
character, are meant to specify the objectives and the 
operational means for developing the region in question. 
Article 2(3) of the new Regulation lays down that the 
regional authorities concerned shall be involved as far as 
possible in the preparation of the programmes, and 
Member States shall as far as possible send the 
Commission, along with the programmes, information 
covering the whole of their territory and concerning the 
essential public measures that are likely to influence the 
regional balance, including expenditure on each region in 
their infrastructure budgets. 
7.36. An examination of these programmes, known as 
'third generation' programmes, is planned to take place in 
1986. At the end of the financial year 1985, only Greece 
had sent a new programme, which was in the process of 
being examined. Belgium, France, Luxembourg and the 
Netherlands had still not submitted their new document, 
whereas Denmark, the FR of Germany, Ireland, Italy and 
the United Kingdom had sent modifications of their 
current programmes, which are obviously no substitute 
for the new programmes required in the legislation. For 
1985, the old programmes, duly amended where neces­
sary, remained in operation and served as a basis for the 
granting of aid. The following observations also refer to 
these old programmes. 
7.37. Despite the existence of a standard plan for the 
preparation of programmes (8), formulated by the 
Regional Policy Committee in 1976, and despite the 
recommendations laid down by the Commission in 
1979 (9), there are still important differences in the 
planning and role of the programmes, and they are also 
scarcely comparable from one country to another. Even 
from the point of view of form, the documents vary 
considerably, and, merely as regards the stages for the 
execution of the works, they include a breakdown of the 
financing but no timetable for completion of the various 
stages. 
7.38. The types of infrastructure or industrial sectors to 
receive development priority are not specified, and the 
benefit to be expected, in terms of regional development, 
from the completion of the projects is not stated. In their 
present form, the programmes tend to be lists of the 
various possible types of investment, rather than 
instruments for selecting projects according to their 
contribution to regional development. 
7.39. The question of coordinating Community, 
national and regional measures is not really addressed. In 
certain cases, such as Denmark, it is not even mentioned. 
The German programme refers to the problem of the 
coordination of Community instruments, but does not 
supply any figures. The Greek programme states the aid 
expected from the different Funds, but does not consider 
how to coordinate them, whereas the diversity of 
Community instruments (ERDF, Social Fund, EAGGF-
Guidance, New Community Instrument, ECSC, trans­
port policies, energy policies, European Investment 
Bank, etc.) calls for such coordination. Furthermore, 
15. 12. 86 Official Journal of the European Communities 81 
inquiries by the Court in Schleswig-Holstein revealed that 
the regional development programme there did not take 
into account an industrial aid scheme set up by the Land, 
the specific aim of which was to influence regional 
development. If this scheme had been taken into account, 
however, it would have provided a useful criterion for 
assessment. In addition, the lack of information regard­
ing the additionality of aid from the Community and the 
extra development effort which such aid will make 
possible makes it difficult to assess the effect anticipated 
from Community aid. 
7.40. It would therefore be a good idea if the standard 
plan for the preparation of programmes was updated, so 
as to take more account, in particular, of the requirements 
of the new Regulation. It should be possible, by bringing 
it up to date, to take advantage of the experience 
acquired, with a view to perfecting the reference 
framework for aid from the Fund and supplying adequate 
information regarding the additional nature of the aid 
and the results expected from it. 
The Commission's priorities for action 
7.41. At Commission level, examination of the 
programmes should lead to the adoption of definite 
conclusions, both regarding the choices and operational 
factors which will direct the aid and also regarding 
coordination with Community policies or with other 
Community financial instruments. As far as the oper­
ational choices are concerned, the programmes should 
allow the Commission to give greater priority to the 
regions and zones which are most in need of aid, in order 
to achieve the Fund's objective of correcting economic 
imbalances between regions of the Community. The 
programmes should also allow the Commission to 
establish priorities for certain categories of investment, in 
order to obtain the best possible return in terms of per 
capita employment and income for the development of 
the region concerned. The objective of the examination of 
the programmes, as described above, is not being 
adequately achieved, notably due to deficiencies in the 
programmes as instruments for selecting projects (see 
paragraph 7.38 above). 
Choice of projects 
7.42. Usually, a central administrative unit in the 
Member States is responsible for submitting requests for 
aid from the Fund. It is also responsible for monitoring 
projects which have been accepted and, generally, for 
organizing coordination between the departments re­
sponsible for managing the projects and the Fund. 
Checks carried out by the Court relating to the activity 
and role of these administrative units showed that they were often not fully informed on the measures im­
plemented by the Member State and by the various 
Community instruments which were likely to have an 
impact on regional development. This being so, the 
central unit's effectiveness in the coordination of 
Community instruments and in establishing guidelines 
and priorities for regional policies at Community and 
national levels is limited. 
7.43. Such limitations, combined with the fact that the 
programmes are not yet fully operational, tend to reduce 
the selection procedure by the central unit to a simple 
check on whether the formal criteria of the Regulation 
and other very general priorities have been respected. In 
France and the United Kingdom, little time is spent on 
analysing whether the industrial projects are consistent 
with the prospects for the sector of activity to which they 
are related, and similarly little thought is given to the 
economic effect of the aid. These are not isolated cases: 
similar observations could also be made in other Member 
States. Furthermore, at local level, the departments which 
manage the projects are often insufficiently or incorrectly 
informed with regard to the objectives of the Fund and 
the projects they propose do not necessarily comply with 
Community objectives. Thus, in Ireland and the United 
Kingdom, instructions issued to decentralized depart­
ments do not mention the impact that investments 
financed by the Fund will have on regional development. 
7.44. The projects submitted to the Commission for aid 
from the Fund reflect the diversity of the Member States' 
regional development aims; they do not provide much 
evidence to show that serious consideration has been 
given to the Community dimension of regional develop­
ment. It is therefore essential that the Commission should 
continue to try to improve the definition and application 
of its selection criteria. Once the Member States get to 
know about these criteria, moreover, they should 
eventually have some influence on the choices made at 
national level. 
7.45. The basic information available to the central 
administrative units regarding 'ex-ante' evaluation and 
the results expected from the investments is also too 
fragmentary and is unsatisfactory. This is due to 
inadequate coordination and inadequate transfers of 
information, both between the central unit and the 
regional authorities and between the various national 
departments concerned. 
7.46. With regard to job creation, where forecasts exist, 
they only relate to the direct effect of the project on 
employment and not to the indirect effect. Furthermore, 
inquiries by the Court have shown that, in the case of road 
projects in France, assessment of the expected return 
often consists of quoting average data taken from studies 
carried out at national level. Such a method provides no 
means of assessing the expected return from a specific 
investment. 
^ COfticial journal of the Enropean Communities Peo 12 ^o 
7^7 Lhe Fund has also financed a number of 
investments for the production of hvdrolectncpowerm 
FranceLhesearevervcapitaPmtensive operations which 
onlvcreateasmall number of long-term jobs and their 
contribution toregionaldevelopmentislimited I^hese 
investments are used essentially to supplv the countrv in 
general with power andthe importance of their contn 
bution to regional development is not clearlv indicated 
Forthese projects, asforthe road projects, reassessment 
methods used to select the investments to be financed are 
based mainlv on criteria relating t^othe activities of the 
administrative bodiesandthesecntena take little account 
of the possible impact of the project on regional 
development 
7^ Furthermore, more attention should be given LO 
cases where aid is granted successively to the same 
recipient laae Court has again noted the case of two 
recipients in Schleswigddolstem who received successive 
grantsofaidfor the execution of industrial projects, even 
though theemplovmentobjectivesestablishedforthetirst 
projects had notbeenfultilled in the allotted time and no 
proper examination had been made of the reasons 
7^ Lakmg into account all these circumstances, the 
Commissionmevitablvreceivesapplicationswhichare 
not adequately prepared and often confines itself to 
adopting almost automaticallv the choices made bv the 
MemberStatesltisthereforeimportantthatthemethods 
anddata used for assessmghow thee^ecutionof the 
projects will conrnbute towards the development of the 
regions concerned should be improved at national level 
In order to implement the new Regulation, the Commis 
sion,for the purpose of selecting the projects, has drawn 
up formal criteria for e^anteevaluationof the results 
Lhesecntenawere introduced in l^^onasomewhat 
e^penmenLal basis, varving from one countrv to another, 
and steps have ver robe taken toensure that thev are used 
C^Aa^^^^^ 
7^ Fundaidformdustnalandinfrastructureprojects 
which are situated in the same region and which involve 
investments costs ofless than lOMioLCL^ under the old 
Regulation and leoMioFCL^underrhe new Regulatioms 
grantedm theformof global decisions Lheseglobal 
decisions aresupposed to makefor greater administrative 
conveniencem themanagementof the Fund, because 
minimal information on rhe different individual projects 
is required for such decisions to be adopted 7eol Consequentlv, if projectsmcludedmaglobal 
decision are to be appraised in accordance with the 
provisions ofArticle21oftheFRL0F Regulation, inmost 
cases the Commission will have to ask the Member States 
to supplve^tramformationLheconsiderable proportion 
ofglobal decisions receiving aid fromtheFund makes 
suchasvstem impracticable C^fthe2^o0 infrastructure 
projects financed in 1^^,2^02 were included in global 
decisions, as against^in individual decisions, the total 
amount of aid being comparable in both cases 
7eo2 Lhe administrative convenience of the global 
decisions is thus often illusorv Lhe fact is that inform 
ation on the different individual projects which has not 
alreadvbeen supplied will, in most cases, have to be 
supplied when the tiles are being closed, and this leads to 
delavs in closing them 
7^ AdministrationoftheFRPOF would therefore 
certamlv be improved if the proportion of global 
applications were reduced, and it would be bettenf small 
scale projects were financed under Commumtv program 
mes or national programmes of Commumtv interest, as 
detined in the current legislation 
^^^^^^c^^^^^^ 
^ollo^^to^e^u^on^v^l^^^r^t^t^ 
7^ Lhecentraladmmistrativeunit which,meach 
Member State, is responsiblefor submitting applications 
for assistance is also responsible for monitoring the 
execution of assisted projects It is also required to check 
the validitvofthe applications for pavment submitted bv 
the departments that manage the projects or collect the 
information necessarv for the preparation of the appli 
cations 
7eo^ Lhe information which the central unit receives 
from the managing departments is often verv incomplete 
and does not complvfullv with the requirements of the 
FundRegulation lnmostcases,theinformationonlv 
permits an assessment of the linancial execution of the 
projects and it is not possible to check whether the 
investments carried out agree with the forecasts In 
general, no svstematicprocedurese^istformonitonngthe 
execution ofassistedprojects or for establishing which 
projects are experiencing implementation delavs l^his 
applies especially in France, where the summaries 
receivedpenodicallvbv the central administrative unit 
from Lhe departments concerned bvFRPOF aid onlv give 
information enabling thee^penditure which wascon 
sidered eligible for reimbursement from rhe Fund to be 
identified 
15. 12. 86 Official Journal of the European Communities 83 
7.56. Execution of the projects is often delayed by the 
lack of adequate financial cover at Member State level. 
To avoid such difficulties, the aid application forms 
currently include sections which must be filled in with 
information on the financing scheme for the project. 
However, these sections are not always filled in. 
Furthermore, information about the financing scheme 
alone may not be sufficient to guarantee good financial 
cover, especially when the project is not sufficiently 
complete to be usable, or when its cost has been under­
estimated. It is therefore important that the data supplied 
should be carefully analysed by the central administrative 
unit in the Member State and by the Commission. 
7.57. Checks by the Court established that in Denmark 
a system of advances is applied to industrial projects, 
which aims to speed up the investment by making aid 
available to investors quickly. This procedure should be 
carefully examined, because it could help to speed up the 
execution of the projects. As soon as a decision is taken to 
grant national aid, it is paid in full to the recipient, in the 
form of an advance, subject to a bank guarantee from 
which all or a part of the funds advanced can be recovered 
if the grant conditions, including the time limits, are not 
met. 
7.58. Other differences concern eligible expenditure 
and in its Annual Report concerning the financial year 
1983 (10) the Court emphasized that the United Kingdom 
was submitting, as projects, operations which were in fact 
annual tranches of expenditure relating to investments to 
be carried out over several years. In the cases in question, 
the exact division of work corresponding to these annual 
tranches has not been fixed, so that it is not possible to 
distinguish, when examining these projects, between the 
investment provided for initially, subsequent adjustments 
and the application of price-revision clauses. In such cases 
the closing procedure for the project is also rendered 
largely meaningless. 
7.59. During an inspection in Greece (Epirus), the 
Court noted the case of two industrial projects which had 
been abandoned by the recipients two years previously 
without either the national authorities or the Commission 
being informed. It transpired that, in the absence of a 
request for payment from the recipients of the aid, the 
national authorities had not carried out any inspections 
to ascertain the progress achieved on the project, with the 
consequence that a quantity of appropriations remained 
pointlessly committed. As a question of general practice, 
improvements should be made to the procedures for 
monitoring the progress of projects at Member State 
level, especially since certain projects benefit from 
accelerated payments, the recovery of which may be 
considerably delayed if such a form of monitoring does 
not take place. 
7.60. In some cases, investments are undertaken even 
though, after the initial assessment period, it looks much less likely that they will be put to practical use. In 
Thessaly, large-scale projects were carried out to develop 
the port of Volos, with a view to a 'train-ferry' link with 
Syria, which had been the subject of an intergovernmental 
agreement. Execution of one of the projects examined by 
the Court began at the end of 1983, at a time when the 
legal conditions for the implementation of the inter­
governmental agreement had not been settled. In spite of 
this, the project was not amended in any way. 
Monitoring of execution by the Commission 
7.61. It is also of great importance that the execution of 
the projects should be monitored by the Commission and 
progress still has to be made in this area. The Commission 
should aim for greater uniformity and eliminate the 
considerable differences which exist between Member 
States with regard to the conditions governing the 
execution of the projects. The differences regarding 
accelerated payments have already been stressed in 
paragraphs 7.12 to 7.14. 
7.62. The Commission should improve its system of 
project monitoring, so that, in cases where delays 
recorded in the financial execution of the projects are 
unjustified, for example, when implementation periods 
are extended unduly, or when important changes are 
made to the assisted projects, it is in a position to 
reallocate funds to new projects which would allow the 
resources of the Fund to be managed more effectively. 
7.63. For several years, studies and other works have 
been undertaken with a view to computerizing the 
management of ERDF aid, but the system is still not 
properly operational. Computerization appears to be 
practically the only way to guarantee rapid and up-to-
date processing of data relating to a growing range of 
projects, particularly as regards the state of the financing 
and execution of such projects. The need for com­
puterized processing has further increased following the 
entry into force of the new Fund Regulation, which 
diversifies the types of aid, increases the Commission's 
responsibilities for the coordination of the aid and 
specifies the provisions to be applied if the projects are not 
carried out. 
7.64. For lack of suitable computerized facilities for the 
rapid processing of the available information, there is a 
danger that the managing departments' time will be 
occupied solely by recording data and drawing up 
statements, rather than carrying out qualitative analyses. 
84 Official Journal of the European Communities 15. 12. 86 
Monitoring of the execution of projects and 
evaluation of results 
Monitoring of the execution of projects 
7.65. All the Member States use traditional systems for 
monitoring the execution of investments, for both 
industrial and infrastructure projects. However, these 
systems are not designed to fulfil the particular require­
ments of the ERDF: auditing by the Community bodies 
on the basis of records and on-the-spot visits is essential in 
order to ensure that projects have been carried out 
correctly. 
7.66. Changes may be made to the investment during 
the execution of a project, because of technological 
innovations or in order to respond to new trends in the 
market. In most Member States, however, the depart­
ments responsible for managing the aid do not carry out a 
detailed examination to see whether such changes are 
valid. They are often accepted a posteriori, or even 
without question, and no real check is made as to their 
justification. 
7.67. The data submitted by Member States are often 
particularly unsatisfactory in relation to jobs created or 
maintained by the execution of industrial projects. 
National measures do not always provide for checks on 
the fulfilment of job forecasts, in which case such checks 
are only carried out for the purposes of the Community. 
This was the situation in Ireland and the United 
Kingdom, but, in the case of the latter, new provisions 
providing for a national check on the number of jobs 
created or maintained came into force in 1985. 
7.68. Furthermore, the Court noted that in Denmark 
and the FR of Germany the information on employment 
at the disposal of the managing departments is essentially 
made up of declarations submitted by the recipients of the 
aid and accepted as such. In Denmark, it even transpired 
that the documents which were intended to be submitted 
to the national aid management departments were only 
financial certificates, and no information was requested 
on the jobs created or even on the location of the plant 
and machinery belonging to the assisted project. 
7.69. A specific aspect of checks on job creation 
concerns the permanence of the jobs created. In several 
countries the degree of permanence was assessed over a 
period of five years following the final execution of the 
project. In the United Kingdom, the new provisions 
brought into force in 1985 only provide for a period of 18 
months; such differences in the implementation of the 
Fund must be avoided. 7.70. At Member State, and therefore at Commission, 
level, hardly any general data exist (relating to sectors, 
regions and duration) on the jobs actually created by 
industrial projects. Even when incomplete data are 
available, they are not analysed with a view to an overall 
assessment of the results. This omission deprives the 
managing bodies of useful items of information regarding 
the efficiency of their activities which would also allow 
improvements to be made in the choice of new projects. 
Evaluation of the results achieved in terms of regional 
development 
7.71. Attempts to assess the impact of operations from 
the standpoint of whether the regional development 
programme's objectives have actually been fulfilled are 
made in only a few countries. In the FR of Germany, the 
problem is looked at and commented upon, particularly 
in connection with the preparation of subsequent 
programmes. In many other Member States attempts 
along these lines are still at a less advanced and less formal 
stage. 
7.72. At Community level, the old Fund Regulation 
provided for a statistical summary to be submitted by 
Member States before 1 October each year, outlining the 
funds invested and the results obtained from ERDF aid 
during the previous financial year. This requirement has 
only been partially satisfied. In March 1986, the 
Commission had received statistical summaries for the 
year 1984 from five Member States only (Denmark, FR of 
Germany, Italy, Luxembourg and the Netherlands). 
Ireland had supplied provisional information and France 
had not submitted statistical summaries for the years after 
1981. Belgium and the United Kingdom had submitted 
partial data for 1983 and Greece had not yet sent the 
summary for 1984. With regard to the content of the 
summaries, the Court emphasized in its previous 
reports (n) that, due to their inconsistencies and omis­
sions, they were not suitable for making comparisons 
between Member States, or even for evaluating the results 
in a specific country or region. 
7.73. With regard to the new Fund Regulation, Article 
2(3)b, provides for a report on the implementation of the 
regional development programmes to be sent to the 
Commission, the first to be sent out at the end of 1985.The 
FR of Germany and Denmark submitted their annual 
report in January and March 1986 respectively and the 
United Kingdom submitted a provisional document, also 
in March 1986. Reports for the other countries were 
expected to arrive later. 
7.74. In its periodic report on the situation in the 
regions, the Commission examined the situation and 
development of the regions in the Member States. 
However, its approach was too general and it was not 
15. 12. 86 Official Journal of the European Communities 85 
possible to establish what link there might be between the 
developments recorded and the aid from the Fund. Such a 
link is in any case difficult to assess, due to the lack of 
information available in the Member States. 7.76. In order to avoid a dilution of the impact of the 
aid, there is a vital need for a better definition of methods 
of appraisal and selection of projects and of monitoring 
project execution, such as would make it possible to 
ensure that the conditions and objectives of ERDF 
measures were respected. 
GENERAL OBSERVATION 
7.75. All the observations made on the management of 
the Fund, both at national and Community levels, show 
that the essential features which should distinguish 
Community aid need to be more precisely defined. 7.77. Furthermore, in the absence of adequate methods 
and reliable statistics for an ex-post evaluation of the 
social and economic effects of the policies implemented, 
or for an analysis of their regional impact, the situation 
ten years after the creation of the Fund is that it is still 
difficult to make any assessment of the proper utilization 
of Community resources. 
C1) 
(2) 
(3) 
(4) OJ L 73 of 21.3.1975, p. 1. Amendments were made by 
Council Regulations (EEC) No 214/79 of 6.2.1979 (OJ L 35 
of 9.2.1979, p. 1) and No 3325/80 of 16.12.1980 (OJ L 349 of 
23.12.1980, p. 10). 
OJ L 169 of 28.6.1984, p. 1. Amendments were made by 
Council Regulations (EEC) No 3634/85 of 17.12.1985 and 
No 3641/85 of 20.12.1985 (OJ L 350 of 27.12.1985, p. 6 and 
40). 
OJC 262 of 20.10.1986. 
Paragraph 1.10 of the Annual Report concerning the 
financial year 1979 (OJ C 342 of 31.12.1980) and paragraph 
1.14 of the Annual Report concerning the financial year 
1980 (OJC 344 of 31.12.1981). (5) Paragraph 7.8 of the Annual Report concerning the 
financial year 1979 (OJ C 342 of 31.12.1980). 
OJ C 326 of 16.12.1985, paragraphs 7.10 — 7.15. 
OJ C 348 of 31.12.1984, paragraphs 7.11 —7.16. 
OJ C69of 24.3.1976, p. 2. 
OJ L 143 of 12.6.1979, p. 9. 
(10) OJ C 348 of 31.12.1984, paragraphs 7.31 to 7.33. 
(") Paragraph 7.23 of the Annual Report concerning the 
financial year 1983 (OJ C 348 of 31.12.1984) and paragraph 
7.27 of the Annual Report concerning the financial year 
1980 (OJ C 344 of 31.12.1981). (6) 
(7) 
(8) 
(9) 
86 Official Journal of the European Communities 15. 12. 86 
CHAPTER 8 
Social sector 
Paragraph 
8.0. TABLE OF CONTENTS reference 
Introduction 8.1 
Summary of general financial information 8.2 — 8.8 
Title 6 8.2 
European Social Fund 8.3 — 8.8 
Observations on the management of the European Social Fund which entered 
into force on 23 October 1983 8.9 — 8.17 
A brief introduction to the new Fund 8.9 —8.11 
The second approval decision of 23 December 1985 8.12 — 8.14 
Individual approval decisions 8.15 — 8.16 
Initial conclusions 8.17 
Observations on the winding-up of the old European Social Fund 8.18 — 8.36 
Files which were still to be closed 8.19 — 8.26 
Files previous to 1980 which had not been closed by 1 January 1985 8.20 — 8.24 
Applications for final payment outstanding at 1 January 1985 and 
relating to commitments subsequent to 1 January 1980 8.25 — 8.26 
Projects audited on the spot by the Court 8.27 — 8.36 
Improvements in the management 8.37 — 8.41 
INTRODUCTION European Social Fund 
8.1. In the general budget, Title 6 of Part B of Section 
III, 'Commission' includes appropriations for measures 
in the social sector. Chapters 60 and 61 include the 
appropriations allocated to the European Social Fund 
(ESF), which constitute the bulk of the finance for social 
activities in the Community. 8.3. Table 8.2 gives an analytical presentation of the 
appropriations available with regard to the operations of 
the ESF. 
SUMMARY OF GENERAL FINANCIAL 
INFORMATION 8.4. The amount of commitment appropriations 
available totalled 2 536,3 Mio ECU; as the total commit­
ments entered into amounted to 2 188,5 Mio ECU, the 
rate of utilization was 86 % (92 % in 1984) (i). 
Title 6 8.5. Commitments outstanding at the beginning of 
1985 totalled 2 519,5 Mio ECU; of this amount, 
380,3 Mio ECU (15%) were paid (29% in 1984), 
358,6 Mio ECU of which against the old Fund (}), and 
8.2. Table 8.1 shows the appropriations available in 
1985 for Title 6 as a whole and the use made of them. (') The footnotes appear at the end of each chapter. 
15. 12. 86 Official Journal of the European Communities 87 
Table 8.1 — Social sector: appropriations available in 1985 and their utilization 
(Mio ECU) 
Budget heading 
Chapter 60: 
General measures including: 
— Young people under 25, 
less favoured regions 
— Young people under 25, 
other regions 
— Persons aged 25 and over, 
less favoured regions 
— Persons aged 25 and over, 
other regions 
Measures proposed before 1984 
— Former Chapter 60 
— Former Chapter 61 
— Former Chapter 62 
Chapter 61: 
Specific measures 
Total Chapters 60 and 61 
(Social Fund) 
Chapter 63: 
Education and vocational training 
Chapter 64: (6000) 
(6001) 
(6010) 
(6011) 
(607) 
(608) 
(609) 
(610) 
Employment, social protection and health 
Chapter 65: 
Contribution to the ECSC for socia 
connection with the restructuring 
industry 
Chapter 66: measures in 
of the steel 
Environmental and consumer protection 
Chapter 67: 
Cultural action and the European 
Chapter 69: Foundation 
Aid to disaster victims in the Community 
Total Chapters 63 to 69 
Total Title 6 
(Social sector) Commitments 
Appropriations 
for commit­
ments 
available 
in 1985 
2 459,9 
753,9 
1 089,2 
247,6 
309,5 
14,7 
44,8 
0,2 
76,4 
2 536,3 
17,7 
24,6 
122,5 
26,6 
2,6 
36,8 
230,8 
2 767,1 Commit­
ments 
entered 
into 
in 1985 
2 115,7 
646,5 
996,9 
184,4 
287,8 
0,1 
0,0 
— 
72,8 
2 188,5 
17,7 
23,3 
— 
19,7 
2,6 
31,7 
95,0 
2 283,5 Payments 
Appropriations 
for payments 
available 
in 1985 
1477,0 
326,7 
508,3 
83,3 
142,3 
204,1 
210,3 
2,0 
28,5 
1 505,5 
23,8 
30,9 
122,5 
26,8 
3,3 
39,3 
246,6 
1 752,1 Payments 
made 
in 1985 
1 388,0 
325,4 
502,6 
81,5 
119,9 
154,6 
203,0 
1,0 
25,0 
1 413,0 
16,5 
18,1 
— 
11,0 
2,1 
30,0 
77,7 
1 490,7 
105 Mio ECU were cancelled. At 31 December 1985, 
these commitments amounted to 2 832,2 Mio ECU. Of 
this amount, 30 % concerned Italy, 26 % the United 
Kingdom and 15 % France. The proportion of the old 
Fund amounted to 1 022,9 Mio ECU (>). 8.6. The commitments from the financial year 1976 
which were still to be settled at the beginning of the 
financial year 1985 were subsequently either paid or 
cancelled, and those of subsequent financial years have 
still not been settled. 
88 Official Journal of the European Communities 15. 12. 86 
Table 8.2 — Social Fund: breakdown of commitment and payment 
appropriations 
(Mio ECU) 
Type of appropriations 
Initial budget 1985 
Appropriations remaining from 
1984 
old Fund 
Carry-overs from 1984 
Appropriations arising from de-
commitments of 1984 commit­
ments: 
before December 
in December 
Appropriations arising from the 
revaluation of outstanding com­
mitments 
Transfer of appropriations 
Total of final appropriations Commit­
ment 
appro­
priations 
2 010 
168,4 
59,7 
— 
35,1 
239,7 
23,4 
— 
2 536,3 Payment 
appro­
priations 
1 410 
_ 
— 
95,5 
— 
— 
-----
— 
1 505,5 
8.7. In 1985, recoveries of advances which were in 
excess of the aid actually due amounted to 48 Mio ECU, 
of which 9 Mio ECU was for the FR of Germany, 26 Mio 
ECU for France, 8 Mio ECU for Italy and 2 Mio ECU 
for the United Kingdom. 
8.8. The 48 Mio ECU of recoveries originated in excess 
payments of advances and the amount of such overpay­
ment is calculated when the applications for final 
payment are examined. In cases where the same promoter 
is receiving successive grants of aid the Commission 
usually offsets the new aid against sums due to be 
recovered. This practice, however, should be strictly 
confined to the area of cash management and the sums in 
question should be broken down in the accounts into 
budgetary revenue and expenditure. 
OBSERVATIONS ON THE MANAGEMENT 
OF THE EUROPEAN SOCIAL FUND 
WHICH ENTERED INTO FORCE ON 
23 OCTOBER 1983 
A brief introduction to the new Fund 
8.9. Council Decision 83/516/EEC of 17 October 
1983 (2) redefined the tasks of the ESF and was 
implemented by Council Regulation (EEC) No 2950/83 
of 17 October 1983 (3). These texts form the basis of 
Community policy in this field. In its Decision 83/673/ 
EEC of 22 December 1983 (4), the Commission defined 
the management procedures of the Fund. These provi­
sions laid down: (a) the conditions for admissibility, relating to the 
procedure to be followed by Member States when 
submitting applications for assistance and payment; 
(b) the conditions for eligibility, relating to the categories 
of recipients, types of measures and nature of 
expenditure. 
8.10. The annual policy is the subject of guidelines laid 
down at the beginning of the financial year by the 
Commission (5), in consultation with the Member States. 
For 1985, the Commission also drew up criteria for 
weighted reductions according to different national social 
conditions. This is the background against which the 
Commission draws up its own rules of priority, which 
should also enable Member States to select projects for 
submission. 
8.11. Article 4(2) of Regulation (EEC) No 2950/83 
requires the Commission to take its approval decision or 
decisions before 31 March of the financial year con­
cerned. As soon as an approval decision has been taken, 
the recipients are entitled to an automatic advance of 
50 % of the aid agreed. The balance is only paid on 
submission of an application within 10 months of the 
operation being completed and, at the latest, before 31 
October of the following financial year. This application 
must be accompanied by a certificate from the Member 
State (the certifier) certifying that the operation has 
indeed been completed and that the accounts submitted 
are accurate (6). If the advance agreed proves to be too 
high, the Commission recovers the amount paid in excess. 
The second approval decision of 
23 December 1985 
8.12. During the financial year 1985, the Commission 
took two decisions on ESF aid for financing projects 
submitted by Member States. The approval decision of 19 
June 1985 related to 4 785 applications for assistance, 
3 600 of which were agreed against an overall commit­
ment of 2 091 Mio ECU (7). The decision of 23 December 
consisted of increasing some 530 approved applications, 
which were decided on 19 June, by an amount of 118 Mio 
ECU (8) after a new calculation of the total commitment 
appropriations available on 30 November 1985. 
8.13. The Court of Auditors questions the efficacy of 
such a measure. In fact: 
(a) since this second decision was taken very late, it had 
no incentive effect, especially since the payments of 
automatic advances entailed by the approval deci­
sion, pursuant to Article 5(1), of Regulation (EEC) 
No 2950/83, could only be made at the beginning of 
1986 (9); 
15. 12. 86 Official Journal of the European Communities 89 
(b) this decision, concerning a relatively small amount, 
involved, even though it did not concern new 
applications, considerable administrative work in 
choosing which approved applications to increase, 
consulting Member States, applying the new reduc­
tion, computerization and making the necessary 
entries in the accounts; furthermore, this adminis­
trative work interfered with the examination of 
applications for assistance for the financial year 
1986 (10) and applications for final payment for 
operations approved in 1984 ("), which deserve 
priority treatment. 
8.14. These various considerations once again raise the 
problem of the date of the approval decision. Under the 
present system, the Commission is likely to have regularly 
to take a second decision if it wants to utilize virtually all 
the commitment appropriations which have become 
available during the financial year. It would be better if 
there were just one approval decison, which should be 
taken nearer the date on which the recipient bodies draw 
up their final plans for the operations for which 
applications for assistance are made from the Fund, or as 
soon as the amount of appropriations available is known. 
The positive effects of this measure would be as follows: 
(a) the bodies concerned would find out which aid 
applications had been approved by the Commission 
at a more convenient time — often before the date on 
which the related operation was due to start. In this 
way they would be encouraged to present more 
worthwhile projects and the financial effect of the 
advance payment system would be reinforced; 
(b) it would guarantee a reduction in the number of 
decommitments of commitments of appropriations; 
(c) the Commission would be in a position to organize 
the appraisal of applications for assistance and 
payment more efficiently and avoid the overlapping 
of the appraisal periods for the different types of 
applications. 
Individual approval decisions 
8.15. Out of a total of 3 600 approved applications, 420 
were examined by the Court, on the basis of the 
information contained in the files, some of which was in 
figures, both with regard to the admissibility, eligibility 
and priority of the corresponding applications for aid and 
also with regard to whether the competent departments 
took these factors into consideration during appraisal of 
the applications. 
8.16. This examination led to the following observ­
ations : (a) in the case of eight approved applications, the 
estimated expenditure which was either totally or 
partially ineligible corresponded to an approved sum 
of 1,8 Mio ECU. In the case of eight others, 
representing an approved amount of 28,4 Mio ECU, 
the Court found that there was insufficient proof that 
the applications had the requisite priority; 
(b) as was the case for the financial year 1984, numerous 
individual approval decisions (50 % of the cases 
examined) were based on information contained in 
the ad hoc aid application forms which proved to be 
inadequate, especially with regard to the length of 
training, compliance with the respective guidelines, 
job prospects and methods of calculating expendi­
ture. This resulted in problems, which varied from 
case to case, regarding the admissibility, eligibility or 
priority of the aid applications approved. Further­
more applications which gave accurate indications of 
the calculation methods were treated differently; in 
cases where such information was provided it was 
easy to eliminate ineligible sums, whereas appli­
cations which did not include accurate details were to 
some extent spared such scrutiny; 
(c) the lack of precision in some of the rules raised doubts 
about the eligibility or priority of certain measures for 
which an application for aid had been made to the 
Fund. For example, the exact priority of certain 
measures for vocational training, whose aim is to 
facilitate the introduction of new technology, is 
questionable, since in the guidelines concerned the 
Commission has not clearly defined the role of new 
technology in these measures; 
(d) the Commission was not consistent in taking into 
account the additional information submitted by 
Member States. In several cases it accepted the 
additional information, sometimes approving appli­
cations or parts of applications which it had initially 
rejected (16 cases). In other cases, it did not take it 
into account and, for no apparent reason, either 
upheld its initial decision to reject the application or 
applied, without explaining its decision, participation 
rates which, in some cases, were different from those 
proposed by the Member State (nine cases). 
Initial conclusions 
8.17. With regard to the implementation of the new 
Fund, the lack of precision of certain rules determining 
the eligibility and the priority of the projects submitted to 
the Commission and the laxity of the procedures for 
examining the applications for aid reflect the lack of a 
clear definition of Community objectives and of the 
measures necessary to achieve them. The initial findings 
mentioned above, concerning applications by Member 
States and examination by the Commission, do not point 
90 Official Journal of the European Communities 15. 12. 86 
towards a genuine simplification of procedures, which 
was one of the major objectives of the new Fund. The new 
Fund is consequently tending to perpetuate the same 
fundamental weaknesses inherent in the previous one, 
which were listed in the Court's report on the Fund, 
drawn up pursuant to the conclusions of the European 
Council of 18 June 1983 (12). 
OBSERVATIONS ON THE WINDING-UP OF 
THE OLD EUROPEAN SOCIAL FUND 
8.18. The Court paid particular attention to those files 
of the old Fund which were still outstanding at the 
beginning of the financial year 1985. 
Files which were still to be closed 
8.19. At 1 January 1985, 76 commitments previous to 1 
January 1980 and equivalent to approximately 30 Mio 
ECU, were still open, of which 16 related to pilot studies 
or experiments. These 76 commitments concerned 57 files 
which had been approved by the ESF prior to 1 January 
1980. With regard to commitments subsequent to 1 
January 1980, approximately 300 applications for final 
payment for an amount of about 90 Mio ECU were still 
waiting to be settled at the beginning of the financial year 
1985, even though they had been received by the 
Commission before 30 June 1984. 
Files previous to 1980 which had not been closed by 
1 January 1985 
8.20. It was noted that, for 40 % of the files which had 
still not been closed at 1 January 1985, no application for 
final payment had been made during the appropriate 
period, and no justification had been given for the 
advances received. These files concerned operations 
which were believed to have been concluded during 1979, 
1980 and 1981 and, in each case, the Commission waited 
more than two years before requesting the supporting 
documents for the advances paid, if indeed it requested 
them at all. 
8.21. During the financial year 1985, 26 commitments 
from before 1 January 1980, equivalent to 10,75 Mio 
ECU, were closed, only one of which was closed by a final 
payment (18 100 ECU). The remainder were cancelled or, 
if necessary, a recovery was made of the payments 
effected. 
8.22. With regard to seven files which were closed in 
1985 and for which advances paid in error had been 
recovered, the time lag between the payment of the advances and the subsequent recovery of them averaged 
five years and three months. In one case, the recipient 
body, having asked the Commission on several occasions 
how it wished a sum which had been paid in error to be 
refunded, finally chose, after waiting more than one year, 
to send the funds by bank transfer (and the Commission 
did not succeed in establishing the provenance of these 
funds until three years later). 
8.23. Six files which had been subjected to an on-the-
spot inspection by the Commission were closed in 1985, 
on average three years and nine months after the 
inspection. In one case, where the outstanding sum was 
settled at the end of 1985, the project had been the subject 
of an on-the-spot inspection in June 1978. 
8.24. The commitments relating to some of these files 
which were cancelled in 1985 were cancelled on average 
within a period of five years and nine months after the 
initial commitment. Moreover, examination showed that 
one tenth of the commitments still open at 31 December 
1985 could have been settled in 1985, and some even in 
1984 or 1983. Three cancellations of commitments carried 
out in 1985 were due to operations which had never been 
started and the promoter's failure to start the projects had 
been brought to the Commission's attention in 1980 or 
1981. 
Applications for final payment outstanding at 1 January 
1985 and relating to commitments subsequent to 
1 January 1980 
8.25. With regard to commitments subsequent to 1 
January 1980, an examination of 300 applications for 
final payment submitted before 30 June 1984 showed that 
periods greater than six months between the receipt of the 
application for final payment and the execution of the 
payment were not always justified by the need to obtain 
additional documents or information or carry out on-the-
spot visits. 
8.26. It was noted that: 
(a) in 43 cases, the final payment was effected more than 
six months after receipt of the application, with no 
apparent explanation for such a delay. For 22 of these 
files, the period was greater than 12 months, and for 
three others it even reached 20 months; 
(b) in 18 cases, even though the Commission had 
obtained the necessary additional information or had 
carried out an on-the-spot check, it took more than 
six months to effect the payment; 
(c) with regard to the files which had not been settled at 
the time of the Court's audit, the Commission had 
received the application for final payment or obtained 
15. 12. 86 Official Journal of the European Communities 91 
additional information for 59 files more than six 
months beforehand, and no action had been taken to 
settle them; in 42 of these cases, the period was greater 
than twelve months. 
Projects audited on the spot by the Court 
8.27. During an on-the-spot audit visit in France, it was 
discovered that a promoter had not mentioned regis­
tration fees paid by apprentices in his report. Taking this 
revenue into account would normally have resulted in a 
two-thirds reduction in the amount of aid from the ESF. 
8.28. Moreover, during the same inspection it turned 
out that the criteria whereby vocational training for 
women was eligible for assistance in the case of skills 
where they were under-represented, or for new occup­
ations, were not based on any precise definition and this 
led to aid being granted which was not expressly covered 
by the text of the guideline. 
8.29. In three important files from the same country, 
which were representative of the methods used in relation 
to the Fund, it was observed that: 
(a) the training activities subsidized by the ESF only 
corresponded to unidentifiable parts of the national 
training programme; 
(b) the application for final payment was not based on 
actual data but on estimates; 
(c) the implementation of the training contracts did not 
correspond to the periods covered by the approval 
decision. 
8.30. In two cases, in France and Italy, it was noted that 
the recipient's final account had not been inspected by the 
certifier before being forwarded to the Commission. In 
one of these cases, on-the-spot examination of the file 
revealed various ineligible items of expenditure; further­
more, the execution of the project showed substantial 
differences in relation to what had been approved or 
stated in the performance report. 
8.31. In another case, in Italy, it was discovered that the 
certifier's inspection had not been completed when the 
application for final payment was sent to the Commis­
sion. The amount of aid which was determined as a result 
of checks carried out by the certifier, after the application for final payment, and even after the final payment had 
been made, turned out to be 113 110,81 ECU (13) less than 
what had been paid by the Commission. 
8.32. In two Italian files relating to aid measures for 
youth employment, provided for by Council Regulation 
(EEC) No 3039/78 of 18 December 1978 (14), it was noted 
that some of the recipients were not 'unemployed or 
seeking employment' before being recruited, as stipulated 
by the Regulation, but were already employed in another 
undertaking at the time of recruitment. Furthermore, 
from the documents available it was not possible to check 
the employment situation of other recipients before 
recruitment. 
8.33. During an audit in a textile firm in Italy which had 
just been taken over by a bigger company, it was noted 
that the hourly cost of training given by the parent 
company had been charged at four times the rate 
observed in the case of other undertakings in the same 
sector, where training had been given by the under­
taking's own staff. 
8.34. Taken as a whole, the on-the-spot audits of the 
projects showed that the certification of applications for 
final payment was not always reliable. This unreliability 
of the certification was attributable to the lack of checks 
by the certifier or to incomplete checks, and to the failure 
of the certifier to take into account the eligibility criteria 
laid down by the ESF regulations. The Commission 
ought to carry out a detailed examination of the question 
of certification and the application forms for final 
payment ought to specify the nature of the checks carried 
out before certification, their content, the persons 
responsible and their conclusions. 
8.35. The existence of files previous to 1980 which had 
not been closed at 1 January 1985, and the excessively 
long periods required for the appraisal of certain 
applications for final payment were due essentially to the 
Commission's failure to monitor the files. This was not 
only due to frequent changes of administrator, but also to 
a lack of planning and the absence of any kind of system 
to organize the monitoring of the files at each stage in 
their life, both as regards management proper and 
financial management in particular. 
8.36. The Court noted that when it asked to consult 
some ten files previous to 1980 and not closed at 1 January 
1985, they had already been placed in the archives, which 
are only supposed to contain files which have been finally 
closed. 
92 Official Journal of the European Communities 15. 12. 86 
IMPROVEMENTS IN THE MANAGEMENT 
8.37. The expiry of the time limit for applications for 
final payment should give rise to a systematic request for 
justification of all advances paid. 
8.38. All requests made by the Commission, especially 
in relation to the furnishing of supporting documents or 
additional information, either during an audit or during 
the appraisal of a file, should be given a clearly defined 
reply period and the procedures to be applied if the time 
limit is not observed should be specified. 
8.39. Internal rules on time limits should be fixed for the 
appraisal and monitoring of applications for final 
payment. 8.40. Appraisal of the file should include an overall 
examination during which it would be possible at the 
same time to ask the promoter all the questions necessary 
for closing the file. 
8.41. At the time of the on-the-spot checks following 
the execution of operations chargeable to the ESF, the 
Commission should establish with the bodies concerned 
the procedures to be implemented in order to complete 
the appraisal of the applications for final payment, 
notably in relation to the reply periods. Similarly, precise 
conclusions should be drawn from these checks, espe­
cially at a financial level. Finally, the inspectors should be 
made responsible for following up and implementing 
these conclusions. 
(') 
(2) 
(3) 
(4) 
(5) 
(6) 
o See Annex III of this report. 
OJ L 289 of 22.10.1983, p. 38. 
OJ L 289 of 22.10.1983, p. 1. 
OJ L 377 of 31.12.1983. 
OJ C 5 of 10.1.1984, p. 2. 
For the new Fund, certification is defined by Article 5(4) of 
Council Regulation (EEC) No 2950/83 of 17.10.1983, OJ L 
289 of 22.10.1983, which stipulates: 'The Member State 
shall certify the accuracy of the facts and accounts in 
payment claims'. For the old Fund, it is defined in the same 
terms by Article 4(1)5 of Council Regulation (EEC) No 
858/72 of 24 April 1972, OJ L 101 of 28.4.1972, p. 3, as 
amended by Council Regulation (EEC) No 2894/77 of 
20.12.1977, OJ L 337 of 27.12.1977, p. 5. 
An amending decision was taken on 31.7.1985, correcting 
certain individual approval decisions to assist the FR of 
Germany and Luxembourg, without changing the overall 
amounts granted to these Member States in the decision of 
19.6.1985. (8) After re-evaluation at the rate of 31.12.1985, the overall 
amount of commitments entered into in 1985 comes to 
2 188,5Mio ECU. 
(9) The payments of automatic advances resulting from the 
approval decision of 23.12.1985 were entered in the accounts 
on 19 and 20.2.1986. 
(,0) The applications for assistance must be made before 
21 October each year. 
(n) The applications for final payment must be made during a 
period of 10 months following the close of operations. 
(12) OJC 287 of 24.10.1983. 
(°) At the exchange rate in force in June 1985. 
(14) OJ L 361 of 31.12.1978, p. 3. 
15. 12. 86 Official Journal of the European Communities 93 
CHAPTER 9 
Research, energy, etc. 
9.0. TABLE OF CONTENTS 
Introduction 
Budgetary execution 
Coordination of the management of cost-sharing contracts 
Commission initiatives 
Harmonization working group 
Central information index 
Other initiatives 
Financial consequences 
Conclusions on cost-sharing contracts 
Management of study contracts Paragraph 
reference 
9.1 
9.2 
9.3 
9.7 
9.7 
9.9 
9.10 
9.11 
9.16 
9.19 — 9.18 
— 9.10 
— 9.8 
— 9.15 
— 9.18 
— 9.21 
INTRODUCTION 
9.1. This chapter is concerned with expenditure on 
energy, research and various allied activities for which 
appropriations are contained in Chapters 70 — 77 of part 
B of the Commission section of the budget. The 
appropriations available amount to 1 327,8 Mio ECU for 
commitment and 961,6 Mio ECU for payment (see Table 
9.1). For the financial year 1985 the observations of the 
Court of Auditors deal with the management of two of the 
principal forms of expenditure employed by the Commis­
sion in this area: 
(a) cost-sharing contracts, which account for 70 % 
(929,4 Mio ECU) of appropriations available for 
commitment; 
(b) study-contracts, which account for 5 % (70,5 Mio 
ECU) of appropriations. commitment (26 %) and 254,1 Mio ECU of appropri­
ations for payment (26 %) were not used. Table 9.2, which 
presents the trends in utilization rates between 1982 and 
1985, shows that the rates in 1985 are substantially lower 
than those in the two preceding years. One result is an 
increase of 34 % in outstanding commitments, from 
795,5 Mio ECU at 31 December 1984 to 1 066,7 Mio 
ECU at 31 December 1985. The Court has the following 
comments on the utilization rates for appropriations for 
payment and commitment: 
(a) indirect action research (Chapter 73). In 1985 
appropriations for commitment of 213,9 Mio ECU 
and for payment of 91,1 Mio ECU were not used. 
This represents a significant fall in the rates of 
utilization as compared with previous years. The low 
rates of utilization were due principally to delays in 
the approval by Council (in March 1985) of seven new 
research programmes, and to the Community pro­
cedures for the evaluation and negotiation of research 
proposals, which meant that contracts could not be 
established before the end of the financial year; 
BUDGETARY EXECUTION 
9.2. Table 9.1 summarizes the use of appropriations in 
1985. It shows that 350,6 Mio ECU of appropriations for (b) information technologies research — Esprit pro­
gramme (Item 7335). The rates show an improve­
ment; but this was due to the utilization in 1985 of the 
substantial appropriations carried over from 1984 
94 Official Journal of the European Communities 15. 12. 86 
Table 9.1 — Research, energy, etc.: appropriations available in 1985 and their utilization 
(Mio ECU) 
Expenditure area 
(chapter of budget) 
Energy: 
Energy policy (70 excluding 707) 
— Specific Community measures 
Research and investment 
— Direct action research 
— Indirect action research (3) 
— Information and telecommunication 
nologies 
Industry: 
Industrial policy 
— Information and telecommunication 
nologies 
Other activities: 
-— Nuclear safeguards 
— Information market and innovation 
— Miscellaneous 
Total (707) 
(73) 
tech-
(77) 
tech-
(71) 
(75) 
(72) Commitments 
Appro­
priations 
for 
commit­
ment 
available 
in 1985 
(') 
169,5 
— 
232,0 
511,8 
305,6 
29,3 
41,2 
3,5 
31,9 
3,0 
1 327,8 Commit­
ments 
entered 
into 
in 1985 
155,6 
— 
212,4 
297,9 
224,6 
21,6 
37,2 
2,9 
22,1 
2,9 
977,2 Appro­
priations 
not used 
13,9 
— 
19,6 
213,9 
81,0 
7,7 
4,0 
0,6 
9,8 
0,1 
350,6 Utili­
zation 
rate (%) 
92 
— 
92 
58 
74 
74 
90 
83 
69 
97 
74 Payments 
Appro­
priations 
for 
payment 
available 
in 1985 
(2) 
125,8 
45,8 
224,6 
298,9 
146,2 
41,6 
44,4 
5,0 
23,6 
5,7 
961,6 Payments 
made in 
1985 
80,5 
45,8 
203,1(4) 
207,8(5) 
99,7(6) 
18,9 
30,9 
2,7 
15,1 
3,0 
707,5 Appro­
priations 
not used 
45,3 
— 
21,5 
91,1 
46,5 
22,7 
13,5 
2,3 
8,5 
2,7 
254,1 Utili­
zation 
rate (%) 
64 
100 
90 
70 
68 
45 
70 
54 
64 
53 
74 
(') Appropriations in the 1985 budget, plus appropriations remaining at the end of 1984, after transfers. 
(2) Appropriations in the 1985 budget, plus carry-overs from 1984, after transfers. 
(3) Including contribution to JET (57,5 Mio ECU) 
(4) Of which 115,0 Mio ECU are shown as research personnel expenditure. 
(5) Of which 19,6 Mio ECU are shown as research personnel expenditure. 
(6) Of which 4,3 Mio ECU are shown as research personnel expenditure. 
Table 9.2 — Research, energy, etc.: the development of the utilization rates of appropriations 
available for the period 1982 to 1985 
(%) 
Expenditure area 
(chapter of budget) 
Energy: 
— Energy policy (70 excluding 707) 
— Specific Community measures 
Research and investment: 
— Direct action research 
— Indirect action research 
— Information and telecommunication technologies 
Industry: 
— Industrial policy 
— Information and telecommunication technologies 
Other activities: 
— Nuclear safeguards 
— Information market and innovation 
— Miscellaneous 
Total (707) 
(73) 
(77) 
(71) 
(75) 
(72) Commitments 
1982 
61 
89 
86 
29 
100 
48 
95 
76 1983 
89 
100 
94 
90 
92 
100 
66 
91 
95 1984 
94 
100 
86 
70 
65 
92 
39 
100 
57 
97 
83 1985 
92 
92 
58 
74 
74 
90 
83 
69 
97 
74 Payments 
1982 
56 
78 
92 
37 
58 
53 
55 
77 1983 
35 
99 
83 
90 
53 
64 
47 
43 
87 1984 
65 
90 
86 
80 
4 
49 
52 
59 
44 
48 
77 1985 
64 
100 
90 
70 
68 
45 
70 
54 
64 
53 
74 
15. 12. 86 Official Journal of the European Communities 95 
and, in absolute terms, the appropriations remaining 
unused at the end of 1985 for commitments (72,9 Mio 
ECU) and for payments (43,5 Mio ECU) were similar 
in size to those at the end of 1984. This indicates that 
the problem of delays in the commencement of the 
Esprit annual work programmes, which was raised in 
paragraph 9.2(c) of the Court's annual report for 
1984 ('), has not yet been resolved by the Commis­
sion; 
(c) energy (Chapter 70). Chapter 70 has, due to the 
factors described in paragraph 9.13, a high rate for 
appropriations for commitment (92 %) but, on the 
other hand, a low utilization rate for appropriations 
for payment (64 %). The low rate for payments 
(resulting in 45,3 Mio ECU of appropriations for 
payment not being used) was due, as in previous 
years, to factors not adequately taken into account 
during budget preparation i.e. the heaviness of 
Community procedures and a slow rate of contract 
progress. In its reply to paragraph 9.2(a) of the 
Court's Annual Report for 1984 (') the Commission 
pointed out that, in order to take account of these 
factors, strict limits had been imposed on appropri­
ations for payment in the 1986 preliminary draft 
budget; 
(d) industrial policy (Chapter 77). The rates of utilization 
of appropriations have fallen and appropriations for 
commitment of 7,7 Mio ECU and for payment of 
22,7 Mio ECU were not used. This was partly due to 
delays in procedures for the approval of service and 
study contracts which, in some cases, have lead to the 
cancellation of non-differentiated appropriations (see 
paragraph 9.20(a)). 
COORDINATION OF THE MANAGEMENT 
OF COST-SHARING CONTRACTS 
9.3. The most important provisions governing Com­
munity contractual expenditure are to be found in 
Articles 50 — 58 of the Financial Regulation. These 
provisions are primarily concerned with the award of 
contracts. They offer little guidance on other aspects of 
contract management (e.g. the assessment of contractors' 
financial and technical strength,project appraisal, verifi­
cation of costs, monitoring of contract progress, evalu­
ation of results, follow-up, etc.). Although supplementary 
Commission directives exist for study contracts (see 
paragraph 9.19), no Commission-wide instructions or 
guidelines exist which cover the specific field of cost-
sharing contracts. 
(') The footnotes appear at the end of each chapter. 9.4. The Commission first began to make use of cost-
sharing contracts in 1960. Since then different procedures 
for managing these contracts have been developed 
separately by several different Commission services, in 
particular those responsible for: 
(a) science, research and development (DG XII); 
(b) energy (DG XVII); 
(c) information and telecommunications technologies 
(Task Force) (2); 
(d) information market and innovation (DG XIII). 
9.5. The Court, in paragraph 9.6 of its annual report 
concerning the financial year 1983 (3), placed emphasis on 
the need for improved coordination of these procedures 
by the above services and for an exchange of information 
on contractors. The Commission in its reply stated that 'a 
considerable effort always has been and will be made to 
ensure internal coordination along the lines recom­
mended by the Court'. A Commission working group (see 
paragraphs 9.7 — 9.8 below) was instructed to examine 
contract procedures with a view to improvement (includ­
ing the creation of a central information index) and to 
report to the Commission. In May 1986 the Economic 
and Social Committee adopted an opinion (4) on the 
European Community's shared-cost research, develop­
ment and demonstration programmes. This opinion is 
based on discussions with both contractors and Commis­
sion services, and its findings on the coordination of the 
management of cost-sharing contracts support the 
Court's comments for 1983. 
9.6. In the light of the above, the Court has examined 
the success of the Commission's efforts to improve 
financial management through better coordination of the 
procedures for cost-sharing contracts. These represent 
only one among many different types of contracts, but in 
such cases the Commission payments are based on 
contractors' statements of costs incurred and effective 
management and control procedures are therefore 
essential. Furthermore cost-sharing contracts are of 
particular importance because they are the most numer­
ous and of the highest value; in the areas of research and 
energy, at 31 December 1985, there were 4 500 live 
contracts while outstanding commitments totalled 
918,3 Mio ECU. 
96 Official Journal of the European Communities 15. 12. 86 
Commission initiatives 
Harmonization working group 
9.7. The terms of reference of the harmonization group 
set up by the Commission under the responsability of the 
legal service only required it to examine contractual 
provisions. A report issued in May 1985 on the work of 
the group describes and attempts to justify the differences 
between the legal bases and standard contracts of the 
participating services. Although certain pre-contractual 
procedures are touched on, key questions such as the 
approach to the verification of expenditure, the require­
ments for the submission of documents, the development 
of computer systems or the creation of a central index of 
information on contractors are not referred to. Further­
more, the report does not contain practical conclusions 
and recommendations to improve coordination which the 
Commission could consider. 
9.8. This lack of a concrete outcome reinforces the 
recommendation of the Court in its annual report for 
1984 ('), paragraph 9.15, for a clearer statement by the 
Commission of the advisory and monitoring responsibi­
lities of its central financial services. Tn the case of cost-
sharing contracts these services did not provide leader­
ship on this issue although they have done so in the past 
for other similar areas (e.g. study contracts, see paragraph 
9.19). 
Central information index 
9.9. Although a register of all study contractors used by 
the Commission has been established (Ceres system) 
nothing comparable exists for cost-sharing contracts 
other than the recently developed Sesame system. 
However this system is designed primarily to provide a 
tool for the evaluation of projects and for the dissemi­
nation and exploitation of the information resulting from 
them, mainly for users external to the Commission. It has 
not been designed to facilitate internal Commission 
control over contracts or the exchange of essential 
administrative and contractual information between 
services (e.g. the results of appraisal of contractors' 
financial and technical strength). 
Other initiatives improving control over the growing volume of outstand­
ing commitments and which are of special relevance to the 
improved management of cost-sharing contracts by all 
services. In addition, occasional contacts have taken place 
between individual services on specific issues such as: 
(a) the selection of external audit firms to carry out on-
the-spot financial verification of contractors; 
(b) ways of reducing delays in contractual payments. 
Financial consequences 
9.11. There is no merit in seeking coordination or 
consistency for its own sake. Differences in the legal bases 
of contracts and programme objectives are inevitably 
reflected in differences in some of their key parameters 
(e.g. rates of Community participation in costs, duration 
of contract, repayment conditions, etc.). There are also 
some less significant differences in contractual provisions 
or procedures where harmonization would not yield 
important financial benefits. On the other hand there are 
several areas where the inadequate coordination meas­
ures described above have led to differing practices which 
have important financial consequences. Examples are 
given at paragraphs 9.12 — 9.15. 
9.12. Manpower and resources would be more ef­
ficiently used if there were better dissemination and 
exploitation of information and experience already 
available, for example: 
(a) as explained in paragraph 9.9 above, there is at 
present no system for identifying those contractors 
common to more than one Directorate-General 
which could compensate for the lack of an adequate 
central information index. In order to establish the 
number and names of such contractors the Court 
found it necessary to compare the separate contract 
records of several services. This comparison showed 
that there are over 100 contractors common to two or 
more services. Each Directorate-General maintains 
its own separate contracts service which, for common 
contractors, partially duplicates the procedures 
followed by other services in areas such as: 
9.10. The Court notes the Commission decisions of 17 
October 1984 (5) and 18 November 1985 (6), aimed at (i) the evaluation of financial and technical strength 
prior to contract signature; 
15. 12. 86 Official Journal of the European Communities 97 
(ii) the verification of costs declared by contractors 
and of their supporting accounting records; 
(iii)the monitoring and evaluation of contract 
performance; 
(b) there has been inadequate coordination of the 
development of computerized contract management 
systems. Each service has developed its own system 
without clearly demonstrating that those being 
developed or already used by other services were 
unsuitable. Both DG's XII and XVII introduced 
separate systems in the second half of 1984 and the 
Task Force, at the end of 1985, was in the process of 
developing two further main systems of its own. 
Despite differences in organization and means of 
programme execution, (e.g. decentralized contract 
management in the Task Force, the absence of 
multipartner contracts in DG XVII), the information 
needs for cost-sharing contracts are broadly similar. 
The development cost to 31 December 1985 of the 
four systems mentioned above is estimated at 900 000 
ECU. 
9.13. There is inconsistent treatment of contractual 
expenditure in the budget and accounts. In paragraphs 
9.4 — 9.5 of its annual report for 1983 (3) the Court 
recommended greater consistency in the treatment of 
commitments. In September 1985 the Commission sent to 
the Court a document analysing the main differences in 
current practice. The inconsistencies confirmed by this 
document are the result of differing interpretations of 
Article 32 of the Financial Regulation by the various 
Commission services. In the area of cost-sharing con­
tracts, DG XVII records commitments once there is a 
Council or Commission decision on projects, usually 
several months before contract signature, whereas the 
other DGs, which take similar decisions at their own level, 
do not record commitments until the contracts are ready 
for signature. In consequence DG XVII recorded 
commitments of 127 Mio ECU in 1985 which, under the 
systems employed in other services, would not have been 
recorded until 1986 or later. Such inconsistencies 
seriously reduce the utility of the Commission's budget­
ary estimates and also of the figures in the accounts 
submitted to the discharge authority (see paragraph 
9.2 (c)). 
9.14. The Commission's treatment of contractors 
engaged on cost-sharing projects is also inconsistent in 
several respects and may result in some receiving more 
favourable treatment at the Communities' expense. For 
example: 
(a) the services concerned have different rules regarding 
the establishment of the earliest date on which 
allowable costs can be incurred by contractors. These vary from six months prior to contract signature in 
one case to the date of notification of commencement 
of work (after contract signature) in another. The 
practice of accepting costs incurred prior to contract 
signature increases the risk that the Community is 
financing projects which would have occurred in any 
case (a point commented upon by the Court in its 
annual reports for 1981 (7) and 1982 (8)); 
(b) the general practice for initial advances to contractors 
is that payment is made automatically at the time of 
contract signature. However, DG XVII pays these 
advances into bank deposit accounts earning interest 
for the Community, (139 000 ECU on 36 contracts 
completed between June 1984 and April 1986), while 
the Task Force makes their payment dependent on 
notification of commencement of work by the 
contractor; 
(c) the extent to which allowable costs are defined in 
standard contracts or annexes thereto differs con­
siderably between services. Some services specify in 
detail which costs can or cannot be submitted by the 
contractor whereas others only indicate broad 
categories, thus facilitating the inclusion of unjusti­
fied costs; 
(d) the varying treatment of VAT deserves special 
mention. DG XVII takes the simplest approach by 
excluding all VAT incurred by contractors from 
allowable costs. The other Directorates-General will 
accept VAT as an allowable cost if the contractor has 
not been able to recover it and provides the 
supporting documentation to permit the Commission 
to effect its recovery instead from the Member State 
concerned. Given the time-consuming procedures for 
obtaining VAT reimbursements this practice clearly 
has negative cash flow consequences for the Commis­
sion, as is illustrated by the fact that, at 31 December 
1985, 493 000 ECU paid to contractors by DG XII 
had not yet been recovered from the Member States. 
9.15. It does not at present appear to be the 
responsibility of any particular Commission service to 
determine best practice for the sound management of 
cost-sharing contracts and to standardize internal control 
procedures at that level. Although the methods used to 
validate cost claims submitted by contractors have been 
the subject of numerous observations in the Court's 
annual reports (') (3), the internal control exercised varies 
widely from one service to another. Whereas the Task 
Force intends to place substantial reliance on the use of 
external audit firms to carry out on-the-spot verification 
of all or most contracts, other services, with similar 
amounts of annual expenditure on cost-sharing contracts, 
rely to a much greater extent on reasonableness checks 
carried out by their own officials and use on-the-spot 
verification only for contracts which are large or have 
given rise to problems. The Court concludes that the type 
98 Official Journal of the European Communities 15. 12. 86 
and extent of verification carried out is determined largely 
by the availability of internal staff resources or, in the case 
of the Task Force's Esprit programme, of appropriations 
for the use of external firms rather than by a coordinated 
effort to define the most efficient and effective means of 
controlling expenditure of this kind. 
Conclusions on cost-sharing contracts 
9.16. The Court's audit has confirmed its observations 
in previous annual reports (') (3) and in particular has 
established the following conclusions: 
(a) despite some useful ad hoc initiatives (see paragraph 
9.10), the action so far taken by the Commission in 
response to the Court's previous observations, 
principally the creation of a temporary harmoniz­
ation working group, has been inadequate (see 
paragraphs 9.7 — 9.9); 
(b) there are differences between the procedures and 
contractual provisions employed by the various 
Commission services managing cost-sharing con­
tracts which are not always justified by the varying 
character of the projects. Some of these differences 
have financial consequences for the Community (see 
paragraphs 9.11 — 9.15); 
(c) inconsistencies remain in the interpretation of Article 
32 of the Financial Regulation and affect the 
treatment of commitments during the preparation of 
budgetary estimates and of the accounts submitted to 
the discharge authorities (see paragraph 9.13); 
(d) there is a need for improved coordination and 
exchange of information between the services man­
aging cost-sharing contracts. 
9.17. In order to ensure better coordination, the 
Commission should initiate studies, involving represen­
tation from all appropriate Commission services, with the 
objective of identifying all possible opportunities for 
beneficial harmonization of the management of cost-
sharing contracts. Consideration should be given to how 
far mandatory principles for the management of cost-
sharing contracts based on best practice could usefully be 
introduced either as an expansion of the provisions of the 
Financial Regulation (see paragraph 9.3) or by way of 
internal directives. 9.18 A central index of information on contractors 
should be created to facilitate the identification of 
contractors common to more than one service and the 
exchange of administrative and technical information 
about them (see paragraph 9.12). 
MANAGEMENT OF STUDY CONTRACTS 
9.19. Since 1978 the management of study contracts has 
been governed by internal Commission instructions 
entitled 'directives coordonnees pour la gestion des 
credits d'etudes'. These provide that all proposed studies 
shall be subject to the following procedures: 
(a) consultation of the 'groupes interservices de coordi­
nation' ; 
(b) consultation of the 'comite consultatif d'etudes'; 
(c) authorization by the Commission. 
For the majority of study contracts (i.e. those with a 
duration of less than two years) the appropriations 
available are non-differentiated i.e. provided that a 
commitment has been established in the budget year, the 
appropriations may be carried over automatically to the 
following year, at the end of which they lapse. 
9.20. The Court has examined the application of these 
procedures in the area of industry (Chapter 77), and has 
the following observations: 
(a) although the directives foresee the authorization of 
proposed studies in three groups, in the months of 
February, April and October of each year, in 1985, 
due to delays in completing the procedures, author­
ization took place on only two occasions, the second 
of which was not until 13 December. This left 
insufficient time for the negotiation and commitment 
before the end of the year of all the studies authorized 
and resulted in the cancellation of appropriations. 
For example, on items 7780 and 7790 the majority of 
the cancelled appropriations of 395 762 ECU (17 % 
of the available appropriations) were lost as a result of 
difficulties with study contracts. Similar difficulties 
arose in 1984; 
(b) the present consultation and authorization procedure 
is used primarily as a means of eliminating possible 
15. 12. 86 Official Journal of the European Communities 99 
duplication of studies and of allocating appropri­
ations; except for studies over 100 000 ECU, 
however, it does not cover the assessment of the 
choice of contractor. In fact the standard 'fiche 
financiere' submitted for each proposed study does 
not require the responsible service to provide any 
justification for its choice and none of the 18 contract 
files examined by the Court (contract proposals 
totalling 780 000 ECU) contained any appraisals of 
contractors or their study proposals. 
9.21. The Court recommends that the Commission 
should consider: (a) how delays in the consultation and authorization 
procedures may be avoided; 
(b) whether forecasts of budgetary expenditure on 
studies adequately reflect the probable timing of 
Commission authorizations; 
(c) how the procedures can provide for an appraisal of 
the choice of all contractors based on justification 
submitted by the responsible services. 
C1) OJC 326 of 16.12.1985. 
(2) The task force was merged with DG XIII in 1986. 
(3) OJC 348 of 31.12.1984. 
(«) OJC 207 of 18.8.1986. (5) Doc. COM(84), PV 754. 
(6) Doc. SEC(85), 1650. 
(7) OJ C 344 of 31.12.1982, paragraph 8.18. 
(8) OJ C 357 of 31.12.1983, paragraphs 8.50 — 8.52. 
100 Official Journal of the European Communities 15. 12. 86 
CHAPTER 10 
Cooperation with developing countries and 
other non-member States 
10.0. TABLE OF CONTENTS 
Introduction 
Summary of financial information 
Implementation of the Dublin Plan 
Observations on food aid (Chapter 92) 
Quantities mobilized and delivery times 
Statistics on the implementation of food aid 
Observations on cooperation with non-associated developing countries 
(Chapter 93) — administration of appropriations under Article 930 
Volume of commitments and payments 
Comparison between the accounting commitments and the guidelines 
laid down by the Council 
Budgetary nomenclature 
Monitoring of the administration of Article 930 
Observations on the specific measures for cooperation with developing 
countries (Chapter 94) — administration of Article 941 
Observations on the exceptional measures to assist developing and other 
non-member countries (Chapter 95) 
Special programme to combat hunger in the world 
Observations on the operation of Commission delegations in developing 
countries (Chapter 98) 
Supervision of the delegations by the EAC 
Central administration of the EAC Paragraph 
reference 
10.1 
10.2 
10.3 — 
10.6 — 
10.6 
10.7 — 
10.11 — 
10.11 — 
10.16 — 
10.20 — 
10.23 — 10.5 
10.10 
10.10 
10.24 
10.15 
10.19 
10.22 
10.24 
10.25 — 10.36 
10.37 
10.37 
10.42 
10.44 
10.46 — 10.41 
— 10.41 
— 10.51 
— 10.45 
— 10.51 
INTRODUCTION SUMMARY OF FINANCIAL 
INFORMATION 
10.1. The bulk of Title 9 of the general budget consists 
of appropriations for food aid, cooperation with non-
associated developing countries and with certain Mediter­
ranean countries, co-fmancing actions by non-govern­
mental organizations (NGOs) and some emergency aid. 
The subsidy for the European Association for Cooper­
ation (EAC) and appropriations for the running of the 
Commission delegations in the southern Mediterranean 
and the ACP countries are also included. 10.2. Table 10.1 shows how appropriations available 
from the 1985 budget and from previous years were used 
for commitments and payments in 1985. The appropri­
ations available for commitment were 10 % higher than in 
1984, whilst the appropriations available for payment 
were 8 % lower than in 1984. The total value of 
commitments was 5 % lower than in 1984 and total 
payments were 6 % lower. The rate of utilization of 
appropriations for commitment fell from 89 % in 1984 to 
77 % in 1985 and the rate for appropriations for payment 
15. 12. 86 Official Journal of the European Communities 101 
Table 10.1 — Title 9: appropriations available in 1985 and their utilization 
(Mio ECU) 
Chapter of the budget 
(1) 
Chapter 92: 
Food aid 
Chapter 93: 
Cooperation with non-associated de­
veloping countries 
Chapter 94: 
Specific measures for cooperation 
with developing countries 
Chapter 95: 
Exceptional measures to assist de­
veloping and other non-member 
countries 
Chapter 96: 
Cooperation with Mediterranean 
countries 
Chapter 98: 
Operation of Commission dele­
gations in developing countries 
Chapter 99: 
Cooperation with non-member coun­
tries 
Total Commitments 
Appropriations 
for 
commitment 
available in 
1985 
(2) Commitments 
entered into 
in 1985 
(3) Utilization 
rate 
(4) = %(3)/(2) 
689,1 689,1 100% 
384,4 173,2 45% 
44,2 44,1 100% 
65,0 35,4 54 % 
241,7 134,6 56% 
58,2 58,1 100% 
5,0 5,0 100% 
1 487,6 1 139,5 77 % Payments 
Appropriations 
for 
payment 
available 
in 1985 
(5) Payments 
made in 
1985 
(6) Utilization 
rate 
(7) = %(6)/(5) 
568.8 543,8 96 % 
164.9 159,6 97% 
53,2 34,6 65 % 
207,7 159,3 77% 
298,2 127,7 43% 
58,2 58,1 100% 
6,3 1,6 25% 
1 357,3 1 084,7 80 % 
increased from 78 % to 80 %. The rates of utilization of 
appropriations for commitment decreased in the case of 
Chapters 93, 95 and 96. The rates of utilization of 
appropriations for payment increased for Chapters 93, 94 
and 95. Volume V of the revenue and expenditure account 
also shows that the cumulative total of commitments 
from earlier financial years still to be settled was 
1256,6 Mio ECU at the end of 1985. The unused 
commitment appropriations still remaining at the end of 
the financial year amounted to 343,8 Mio ECU. The 
payment appropriations carried over from 1985 to 1986 
totalled 236,6 Mio ECU. It is therefore very probable that 
the Community will have to make available 1 363,8 Mio 
ECU from its resources as from 1986, in order to meet the 
obligations resulting from the past administration of Title 
9. This expense results primarily from measures under­
taken within the context of financial and technical 
cooperation with non-associated developing countries 
(see paragraphs 10.14 — 10.15). IMPLEMENTATION OF THE DUBLIN 
PLAN 
10.3. The objective of the Dublin Plan, which was 
initiated by the European Council at the end of 1984, was 
to deliver 1,2 Mio tonnes of cereals or cereal equivalent to 
the African countries most affected by the drought. It was 
composed of three parts: 400 000 tonnes to be delivered 
by the Member States, 300 000 tonnes from the regular 
1985 Community food aid programme and 500 000 
tonnes to the value of 175 Mio ECU as emergency aid. 
This sum of 175 Mio ECU included 80 Mio ECU 
provided under Article 137 of the Lome II Convention 
referring to emergency aid and the remainder was covered 
by Article 950 of the budget, supplemented for this 
purpose by 90 Mio ECU by means of several transfers. 
These funds represent the major part of the contribution 
which was actually made in addition to the aid usually 
granted to assist these countries. 
102 Official Journal of the European Communities 15. 12. 86 
10.4. The implementation of the Dublin Plan was 
entirely satisfactory (see Table 10.2). However, when it 
started out at the beginning of 1985, the beneficiaries 
experienced difficulties in having the quantities involved 
unloaded, stored, transported and distributed. This led 
the Community to use special means of transport, 
particularly airlifts. Coordination with the other donors 
was difficult. The political situation and armed conflicts 
in Ethiopia, the Sudan and in Angola complicated the 
distribution process. Although the Plan was initially 
centred exclusively on food aid, it was in fact implemented 
with a view also to basic needs as regards health, child 
nutrition, shelter for displaced populations and agricul­
ture (seeds and tools). These measures were entrusted to 
international or non-governmental organizations. tonnes mentioned above, which made up for the 
reduction in 'emergency aid'. The Member States also 
contributed towards air and surface transportation of aid. 
OBSERVATIONS ON FOOD AID 
(CHAPTER 92) 
Quantities mobilized and delivery times 
10.5. Altogether, 107 Mio ECU out of the 175 Mio 
ECU provided as additional Community aid was used for 
food aid, which enabled the equivalent of 312 000 tonnes 
of cereals to be delivered, and 68 Mio ECU was used for 
other forms of aid. The quantity of foodstuffs delivered 
under the Plan (1 265 715 tonnes) exceeded the 1,2 Mio 
tonnes initially envisaged. The Member States in fact 
delivered 632 000 tonnes, and the regular Community aid 
amounted to 321 000 tonnes in addition to the 312 000 10.6. Table 10.3 shows that the quantities mobilized in 
1985 were lower than in 1984. They represented only 88 % 
of the annual programme for 1985. It is worth noting the 
growing importance of new products (sugar, vegetable 
oil, beans, dried fish). Having examined a sample of 
consignments shipped as regular food aid in 1985, the 
Court found that delivery times for cereals had stabilized 
and that there had been a substantial improvement in the 
case of milk products compared with 1984. From the time 
Country 
Ethiopia 
Sudan 
Niger 
Mozambique 
Mali 
Chad 
Mauritania 
Angola 
Cameroon 
Region (incl. Burkina 
Faso) 
Total Table 10.2 — Implementation of the Dublin Plan 
EEC 
Emergency aid 
Cereals or 
equivalent 
(tonnes) 
(1) (Mio 
ECU) 
(2) Other 
(Mio 
ECU) 
(3) Total 
(Mio 
ECU) 
(4) = 
(2)+ (3) 
98 050 34,8 20,5 55,3 
118 870 37,0 30,6 67,6 
20 290 7,9 3,9 11,8 
12 040 4,0 0,5 4,5 
22 340 9,3 2,5 11,8 
20 790 8,7 3,8 12,5 
2 200 0,5 2,5 3,0 
5 580 2,5 3,2 5,7 
10 150 1,6 — 1,6 
2 000 1,0 0,2 1,2 
312 310 107,3 67,7 175,0 1985 
food aid 
programme 
Cereals or 
equivalent 
(tonnes) 
(5) (Mio 
ECU) 
(') 
(6) 
116 200 29,0 
53 620 13,4 
26 100 6,5 
52 200 13,1 
14 400 3,6 
16 000 4,0 
17 080 4,3 
25 785 6,5 
321 385 80,4 Total 
Cereals 
equivalent 
(tonnes) 
(7) = 
(D + (5) Other 
(Mio 
ECU) 
(8) = (3) Total/ 
(Mio 
ECU) 
(9) = 
(4)+ (6) 
214 250 20,5 84,3 
172 490 30,6 81,0 
46 390 3,9 18,3 
64 240 0,5 17,6 
36 740 2,5 15,4 
36 790 3,8 16,5 
19 280 2,5 7,3 
31 365 3,2 12,2 
10 150 — 1,6 
2 000 0,2 1,2 
633 695 67,7 255,4 Member States 
Cereals 
equivalent 
(tonnes) 
(10) (Mio 
ECU) 
(') 
(11) 
143 680 35,9 
153 100 38,3 
77 020 19,2 
71 450 17,9 
59 180 14,8 
45 720 11,4 
59 860 15,0 
22 010 5,5 
632 020 158,0 Dublin Plan: total 
Cereals 
equivalent 
(tonnes) 
(12) = 
(7) + (10) Other 
EEC 
(Mio 
ECU) 
(13) = (8) (Mio 
ECU) 
(14) = 
(9) + (ll) 
357 930 20,5 120,2 
325 590 30,6 119,3 
123 410 3,9 37,5 
135 690 0,5 35,5 
95 920 2,5 30,2 
82 510 3,8 27,9 
79 140 2,5 22,3 
53 375 3,2 17,7 
10 150 — 1,6 
2 000 0,2 1,2 
1 265 715 67,7 413,4 
(') Estimated at 250 ECU/t. 
(2) The other aid from the Member States cannot be quantified. 
15. 12. 86 Official Journal of the European Communities 103 
Table 10.3 — State of implementation of food aid programmes in cereals, skimmed-milk powder, butteroil and other products 
(in tonnes) 
State of implementation by year 
1984 
1985 
1986 Balance 1983 
Adjustments in 1984 to the 1983 programme 
1984 programme 
Mobilized in 1984 
Balance 1984 
Adjustments in 1985 to the 1984 programme 
1985 programme 
Mobilized in 1985 
Balance 1985 Cereals 
(equivalent) 
622 921 
-42 000 
1 127 663 
1 384 199 
324 385 
1 160 000 
1 016 199 
468 186 Skimmed-
milk 
powder 
104 463 
-5 147 
122 500 
165 218 
56 598 
108 600 
109 997 
55 201 Butteroil 
35 718 
-626 
32 760 
49 442 
18 410 
28 700 
25 407 
21 703 Other 
products 
31 570 
+ 3 311 
34 556 
49 198 
20 239 
+ 12 053 
54 377 
65 518 
21 151 
of initiating mobilization until the arrival of the ships in 
the port of unloading, allowance had to be made for a 
total of 15 weeks for cereals (as in 1984), 16 weeks for 
skimmed-milk powder and butteroil (i.e. a reduction of 
seven and three weeks respectively) and 15 weeks for 
vegetable oil. shipment stage also differs. For DG VI, aid for which the 
shipment period laid down in the mobilization regulation 
has already ended has been 'implemented'. On the other 
hand, DG VIII endeavours to draw up statistics on aid 
actually shipped during a specified period and regards aid 
which has been shipped as having been 'delivered'. 
Statistics on the implementation of food aid 
10.7. As indicated in Table 10.4, the Commission 
supplied several sets of conflicting figures concerning 
tonnages of food aid 'delivered' or 'implemented' in 1984. 
The discrepancies were due to the existence of two systems 
of statistical recording — one kept by the Directorate-
General for Agriculture (DG VI) and the other by the 
Directorate-General for Development (DG VIII). They 
can also be accounted for by the unsatisfactory use of 
these sets of figures in published documents. 
10.8. The Directorates-General devised these two 
systems, which are administered independently, in the 
light of their own needs. They use different definitions for 
the various stages in the operations. For DG VI, aid 'in 
the process of being implemented' is aid which has not yet 
been shipped, but which has already been approved by the 
Management Committee responsible for the product to 
be delivered. For DG VIII, aid 'in the process of being 
mobilized' is aid which has not yet been shipped, but 
which has already been the subject of a mobilization 
request to DG VI from DG VIII. The notion used at the 10.9. Nevertheless, the system used by DG VIII is still 
based partly on an estimate of the shipment dates. At the 
close of the financial year, it did not in fact have all the 
necessary information relating to the aid shipped most 
recently. In order to overcome this difficulty, DG VIII 
could draw up statistics on the implementation of food 
aid in two stages. By taking the anticipated dates of 
shipment as a basis, it could make an estimate almost 
immediately after the end of the financial year. After 
having brought together all the necessary data, it would 
draw up a definitive list, based on the actual dates of 
shipment. 
10.10. In any case, it is essential that the systems used by 
DG VIII and DG VI should be harmonized, and the 
harmonization should be completed rapidly since the 
system used by DG VIII was only recently introduced and 
has not been definitively computerized. The two Direc­
torates-General should cooperate closely to draw up 
genuine 'stock accounts' of food aid, with multi-stage 
accounts marking the successive steps in the implemen­
tation of the programmes, from their adoption to the 
arrival of the aid at its destination; these steps should 
include, in particular, the decision to grant aid, the 
mobilization request, the Management Committee's 
approval, the shipping of the goods and the unloading. 
Only an integrated system of this kind would meet the 
needs of all administrators and audit authorities, as well 
as the public's desire for information, and would ensure 
that all published figures were entirely consistent. 
104 Official Journal of the European Communities 15. 12. 86 
Table 10.4 — Figures supplied by the Commission concerning the tonnages of food aid 'delivered' or 'implemented' in 1984 
(in tonnes) 
Source of data 
Report on the implementation of the budget as at 31 
December 1984 
and 
Revenue and expenditure account for the financial year 
1984 
14th Financial Report on the EAGGF-Guarantee and 
food aid financing for 1984 
Replies of the Commission to paragraph 10.3 of the 
annual report of the Court concerning the financial year 
1984 
Commission — Directorate-General for Agriculture 
Reply from a Member of the Commission to written 
Parliamentary Question No 2281/84 (') Terms used to 
describe the 
state of 
implementation 
'implemented or 
in the process 
of being 
implemented' 
'delivered' 
(excluding mobi­
lizations not yet 
delivered) 
'mobilizations' 
(incl. those in 
progress) 
'implemented or 
in the process 
of being 
implemented' 
'delivered or 
mobilized' Cereals Skimmed-milk 
powder Butteroil 
1 476 778 209 614 59 746 
1 505 167 173 094 49 854 
1 505 167 173 094 49 854 
1 3S4 199 165 218 49 442 
1 340 000 165 000 49 000 
(') OJC233of 12. 9. 1985, p. 10. 
OBSERVATIONS ON COOPERATION 
WITH NON-ASSOCIATED 
DEVELOPING COUNTRIES (CHAPTER 93) 
— ADMINISTRATION OF 
APPROPRIATIONS 
UNDER ARTICLE 930 
Volume of commitments and payments 
10.11. Out of the 355,8 Mio ECU available in 1985 in 
the form of appropriations for commitment, only 
149,7 Mio ECU, or 42 % (see Table 10.5) were committed 
during the financial year 1985, and 206,1 Mio ECU 
remained available in 1986. Out of the 149,2 Mio ECU 
available in 1985 in the form of appropriations for 
payment, 148,3 Mio ECU (i.e. 99 %) were used. 
10.12. The low rate of commitment is not only due to 
the belated Council guidelines (see paragraph 10.17) 
concerning the way in which the appropriations should be 
distributed; it is also caused by the unduly slow process 
for selecting and initiating the measures to be financed, 
because they are administered jointly with the Member 
States (and thus require prior consultation of a committee 
on non-associated developing countries). However, over 
a two-year period, the appropriations available for 
commitment are normally almost entirely utilized. 10.13. The fact that 99 % of payment appropriations 
were utilized during the financial year 1985 does not, 
paradoxically, imply that the situation regarding pay­
ments is satisfactory. Some payments do not in fact 
correspond, at the time when they take place, to 
operations already effected. This was the case with 
payments to a development bank which acted as an agent 
and did not effect the payments itself until several years 
later, at the time of completion of the work (see paragraph 
10.29 of the annual report for the financial year 1984) (•). 
Furthermore, when the payments in question do cor­
respond to services rendered, the financing may be 
intended to cover the delivery of raw materials, such as 
fertilizers. The particular feature of these deliveries is that 
they enable payment to be effected promptly after the 
commitment of the corresponding appropriations. Be­
cause of these practices, the actual volume of payments in 
favour of development projects administered by the 
Commission and corresponding to completed work is far 
lower than the total amount of the payments shown in the 
accounts (651,4 Mio ECU since 1976). It is probably the 
inadequacy of administrative resources in the depart­
ments concerned which acts as a brake upon the direct 
administration of a larger number of projects in the non-
associated developing countries. 
10.14. In any case, at the end of 1985, 611,5 Mio ECU 
of commitments entered into since 1976 still remained to 
be settled. About 500 Mio ECU of this sum can be 
(!) The footnotes appear at the end of each chapter. 
15. 12. 86 Official Journal of the European Communities 105 
Table 10.5 — Article 930: commitments in 1985 
Beneficiary or 
destination 
Asia: 
— Bangladesh 
— Bhutan 
— India 
— Thailand 
— Yemen 
— Occupied Arab 
territories 
Asia sub-total 
America: 
— Costa Rica 
— Nicaragua 
— Regional projects 
America sub-total 
Africa 
— Angola 
— Mozambique 
Africa sub-total 
Supplementary commitments for 
programmes prior to 1984 
(Programmes sub-total) 
Agricultural research 
Studies and technical 
assistance 
Administrative costs 
Total committed in 1985 Reference 
1984 and 
previous years 
Number 
(1) 
1 
6 
— 
— 
— 
— 
1 
— 
1 
5 
(12) 
1 
13 
11 
37 Amount 
(Mio ECU) 
(2) 
25,5 
4,5 
15,0 
2,0 
5,8 
2,0 
54,8 
— 
— 
— 
— 
2,3 
— 
2,3 
3,0 
(60,1) 
6,3 
1,9 
2,0 
70,3 srogramme 
1985 
Number 
(3) 
1 
— 
— 
1 
— 
— 
2 
2 
1 
2 
5 
1 
1 
2 
— 
(9) 
— 
— 
— 
9 Amount 
(Mio ECU) 
(4) 
4,9 
— 
— 
35,0 
— 
— 
39,9 
13,6 
2,5 
11,8 
27,9 
4,2 
7,4 
11,6 
— 
(79,4) 
— 
— 
— 
79,4 Sums charged to 
appropri­
ations 
remaining 
from 
1984 
(Mio ECU) 
(5) 
25,5 
4,5 
15,0 
2,0 
5,8 
2,0 
54,8 
7,2 
2,5 
11,8 
21,5 
2,3 
— 
2,3 
3,0 
(81,6) 
6,3 
1,9 
2,0 
91,8 appropri­
ations 
from the 
financial 
year 1985 
(Mio ECU) 
(6) 
4,9 
— 
— 
35,0 
— 
— 
39,9 
6,4 
— 
— 
6,4 
4,2 
7,4 
11,6 
— 
(57,9) 
— 
0,0 
— 
57,9 Total 
Number 
(7) = 
(D + (3) 
2 
1 
1 
2 
1 
1 
8 
2 
1 
2 
5 
2 
1 
3 
5 
(21) 
1 
13 
11 
46 Amount 
(Mio ECU) 
(8) = 
(2) +(4) = 
(5)+ (6) 
30,4 
4,5 
15,0 
37,0 
5,8 
2,0 
94,7 
13,6 
2,5 
11,8 
27,9 
6,5 
7,4 
13,9 
3,0 
(139,5) 
6,3 
1,9 
2,0 
149,7 Alloca­
tion 
of 
amounts 
<%) 
(9) 
63,2 
18,6 
9,3 
2,0 
(93,1) 
4,2 
1,3 
1,4 
100 
Overall analysis of the utilization of appropriations in 1985: 
Appropriations 
available 
in 1985 
(Mio ECU) 
— Appropriations remaining from 
1984: 
— Appropriations made available 
under the financial year 1985: 
Total 91,8(») 
264,0 
355,8 Commitments 
entered into 
in 1985 
(Mio ECU) 
91,8 
57,9 
149,7 Rate of 
utilization 
100,0 % 
21,9% 
42,1 % Appropriations 
remaining 
for 1986 
(Mio ECU) 
206,1 
206,1 
(') Including 1,7 Mio ECU decommitments from financial years prior to 1985. 
106 Official Journal of the European Communities 15. 12. 86 
accounted for by the inevitable time taken to implement 
measures involving infrastructure work planned over 
several years. This state of affairs is quite normal. 
However, it should be noted that, in the case of ten 
measures accounting for 62,9 Mio ECU, which were 
started in 1983 and 1984, no payment had been effected, 
or was expected, at the beginning of the financial year 
1986. Lack of administrative resources is probably partly 
responsible for these delays. 
10.15. On the other hand, it was not possible to effect 
payments totalling about 50 Mio ECU which fell due in 
1985, quite simply because there were not sufficient 
payment appropriations available. If both the commit­
ments still to be paid and the commitment appropriations 
still available are taken into consideration, the Com­
munity will have to make available 817,6 Mio ECU from 
its resources as from 1986 in order to meet all its 
obligations with regard to financial and technical 
cooperation with non-associated developing countries. 
The utilization in 1985 of 99 % of the payment appropri­
ations is not, under these circumstances, a sign of sound 
management. As the Commission had not obtained the 
appropriations initially applied for or those requested by 
transfer, it had to carry forward to 1986 expenditure 
resulting from administration in 1985, and was therefore 
unable to meet the Community's obligations to third 
countries. 
Comparison between the accounting 
commitments and the guidelines laid down by 
the Council 
10.16. Financial and technical aid to non-associated 
developing countries, which is financed by the appropri­
ations from Article 930, is classified as non-compulsory 
expenditure in respect of which the Parliament has the last 
word concerning budgetary authorization. Furthermore, 
Article 9 of Council Regulation (EEC) No 442/81 of 17 
February 1981 (2) stipulates that, on a proposal from the 
Commission and after consulting the European Parlia­
ment, the Council 'shall determine, in good time before 
the end of the year, the general guidelines to be applied to 
aid for the following year'. 
10.17. In reality, the guidelines are decided upon during 
the financial year (in July 1985 for the year 1985) and, 
therefore, well after the adoption of the budget. As they 
relate to the way in which the volume of appropriations 
made available by the budgetary authority is to be 
allocated among the non-associated developing coun­
tries, the Commission cannot commit the appropriations 
in question before these guidelines are adopted. It is 
compelled to use these appropriations in the following 
year, which is quite in order since they are differentiated 
appropriations. It thus becomes impossible to make any 
comparison between the initial wish of the budgetary 
authority, the Council's guidelines and the year's results 
recorded in the revenue and expenditure account (see 
Table 10.5). 10.18. Even if the Council's guidelines really were set 'in 
good time', checks on the way in which they are 
implemented would come up against another difficulty. 
The scales of allocation fixed in the guidelines are not 
sufficiently clear or consistent to enable them to be 
monitored by means of an analysis of the accounting 
commitments. For 1985, for example, aid was divided up 
on a geographical basis and was fixed at 75 % for Asia, 
20 % for Latin America and 5 % for Africa, totalling 
100%. Provision was also made for distribution on a 
functional basis: 5-6 % for measures in response to 
catastrophes, 'the same level as in 1984' (i.e. ap­
proximately 1,5 %) to support international agricultural 
research, and a maximum of 3 % for management 
expenses. These two scales of allocation cannot entirely 
be combined with each other, using a double entry table, 
since aid for international agricultural research cannot be 
distributed on a geographical basis and it is very difficult 
to allocate management expenses. 
10.19. The Commission was therefore forced to 
distribute aid by these two methods consecutively, instead 
of combining them with each other. It first put aside 10 % 
of the appropriations which it distributed on a functional 
basis, then allocated the remaining 90 % on a geo­
graphical basis (75 %, 20 % and 5 %). If this is what the 
Council intended when setting its guidelines, it should 
have made this clear. As things stand at present, it is 
impossible for the audit body to say whether the 
guidelines have been observed or not. 
Budgetary nomenclature 
10.20. With regard to the appropriations for cooper­
ation with non-associated developing countries, the 
Court notes that: 
(a) Article 930 relates to a large volume of appropriations 
— 45 % of the appropriations for commitment and 
19% of the appropriations for payment made 
available under Title 9 (apart from food aid); 
(b) Article 930 is very heterogeneous. In 1985 it covered 
21 commitments relating to projects distributed over 
three continents and falling under different annual 
programmes (1985 and 1984 programmes and 
adjustments to previous programmes), one commit­
ment relating to a number of subsidies to inter­
national agricultural research institutes, and 24 
commitments relating to miscellaneous measures 
(participation in the operation of certain Community 
delegations, feasibility studies, missions by experts 
offering technical assistance for the implementation 
of projects or supervising them, etc.); 
15. 12. 86 Official Journal of the European Communities 107 
(c) in addition to Article 930, there are several other 
articles with a smaller volume of appropriations 
(totalling approximately 1 % of the appropriations in 
Title 9), intended to cover the financing of measures 
to assist non-associated developing countries in the 
fields of energy, trade and training. These measures 
are covered by Articles 931,932,933,934 and 935. All 
this financing is in fact intended to promote industrial 
and technical cooperation with non-associated de­
veloping countries. 
10.21. The Court therefore considers that two amend­
ments should be made within the nomenclature of 
Chapter 93: 
(a) Article 930 should be broken down within the budget 
by item, or even by sub-item, to allow rapid 
identification, merely by reading the Commission's 
accounts, of which commitments fall under which 
annual programmes, and which ones are intended for 
the various geographical areas according to their type 
(project, research, technical assistance, management 
expenses, etc.); 
(b) in addition to Article 930, the appropriations 
intended for industrial, commercial and technical 
cooperation should be consolidated into a single 
article, broken down into as many items as necessary, 
in order to show the specific types of expenditure in 
question. 
10.22. It would thus be possible to make a clearer 
distinction between, on the one hand, the financing of 
investment projects to assist the rural development of 
non-associated developing countries (Article 930) and, on 
the other hand, the financing of measures to assist the 
industrial, commercial and technical development of 
these countries (new article consolidating former Articles 
931, 932, 933, etc.), whilst giving real significance to the 
principle of budgetary classification formalized in Article 
15, indent 2, of the Financial Regulation:'... the items of 
... expenditure shall be classified according to their type or 
the use to which they are assigned under titles, chapters, 
articles and items'. 
Monitoring of the administration of 
Article 930 
10.23. The Commission has a data bank for Title 9, but 
it is only operational as regards financing chargeable to 
Articles 965 and 966 (Mediterranean protocols). The data 
for the rest of Title 9, particularly Article 930 under which 
the 1976 and 1977 commitments still to be settled are not 
recorded, still have to be finalized and corrected before 
they can be used. At present, the desk officers responsible 
for administration draw up by hand the statistics on 
implementation. No comparison is made between these 
statistics, which take a long time to draw up, and those 
contained in the data bank. The risk of inaccuracies is 
therefore substantial. 10.24. Furthermore, the files are kept by the adminis­
trative departments in such a way that it is not easy to find 
out or to assess how the financial and technical 
cooperation measures are progressing. Prompt and 
reliable information is provided only through the files 
kept by the financial departments. Because of the 
different types of files in the other departments, it is not 
generally possible to provide information so rapidly. 
OBSERVATIONS ON THE SPECIFIC 
MEASURES FOR COOPERATION WITH 
DEVELOPING COUNTRIES (CHAPTER 
94) — ADMINISTRATION OF ARTICLE 941 
10.25. The function of the appropriations under Article 
941 is to provide a 'Community contribution to schemes 
concerning developing countries carried out by non­
governmental organizations (NGOs)'. The subsidies are 
not paid directly by the Commission to NGOs located in 
developing countries, but only to NGOs which have their 
registered office within the Community, provided that 
they negotiate with a local partner, if necessary; this is 
very often the case. 
10.26. The recent on-the-spot audit visits by the Court 
in 1985 (Burkina Faso, Cape Verde, Ghana, Guinea, 
India, Kenya, Madagascar, Mauritius, Niger, Somalia) 
showed that, on the whole, the NGOs are an irreplaceable 
tool for carrying out many different operations, par­
ticularly in the fields of food aid and rural development. 
In many cases, these operations were carried out at a 
lower cost than would have been the case if more 
conventional administrative and technical measures had 
been used. 
10.27. Nevertheless, on the evidence of the findings of 
the Commission's Financial Control department and its 
own observations, the Court has good reason to state 
that, although the legislation applicable to NGOs was 
improved in 1982, it still has loopholes and imprecisions. 
This makes it difficult to monitor files in a satisfactory 
manner and, at the same time, there are too few 
Commission employees engaged in the administration 
and checking of the subsidies granted to the NGOs to 
carry out the task. The three cases described below 
illustrate this situation. 
10.28. One NGO submitted applications for co-
financing under irregular circumstances. Out of the ten 
projects inspected, two were not eligible because they had 
virtually been completed. The same project was proposed 
to a number of financial backers in such a way that the 
combined funds exceeded the cost of the project. The 
Commission maintained its subsidy after the NGO had 
reimbursed another financial backer's contribution. 
108 Official Journal of the European Communities ro 1^ ^ 
10^ P^ive of the ten projects exammed^which were 
administered by the l^GC^ in questiom also suffered from 
initial technical design and financial planning errors^ 
givmgnsetocostover^runsThemostflagranreaseisthat 
ofaroad project whicb had to be abandoned because the 
technical details of the mam component — the construe 
nonofaoOmbndge — had to becompletely reexamined 
and the cement cost twice the sum estimated 
10^0 The monitoring ofpro^ects was poon due to the 
lacl^ofan appropriate exchange of information between 
tbe registered oftlce and the local branches of the l^CiCO 
The ^iGG did not have^ at its bead oftice^ substantiating 
documenrs relating to the expenditure effected The 
implementation reports normally required were only sent 
to tbeC^ommissionafterit had made repeated approaches 
tothe^GC^ 
10^1 The competenr administrative officer of the 
l^GC^ at the time of these events wasprosecutedand 
sentencedm]ulyl^^toimpnsonmentfortheembe^le 
ment of substantial funds Todatemt has still not been 
possible to establish that the amounts paid by the 
community actuallywere transferred to rhepro^ectsThe 
only inspection which could be carried out related to the 
acknowledgement of receipt of the subsidies by the 
^G^shead office and to the exchanges ofcorrespon 
dence with its local branches In realitymne community 
functs were swallowed up by the operating budget of the 
^GCO^which used them as it pleased 
10^ A second l^GCO in the same member ^Mte 
functions exclusively through local l^GC^ and is 
thereforenotdirectly operational Itmadeuse of the 
possibdity^providedformthedeneralGonditions^of 
includmgmthe total cost of the pro^ect^^to cover its 
own administrative costs and 7Bo^B for educational 
development measures relatedtothe project Ahhough 
these percentages are maximum amounts^ the C^ommis 
sion did not reduce them This is particularly regrettable 
mthecaseoftbe^^foradmmistrativecosts^astbis 
^GCOisnot directly operational Theexammation of 
applications for finance was therefore inadequate 
furthermore^ amendments should be made to the text of 
the General conditions applicable to^G^which — 
particularly with regard specifically to the calculation of 
the community's participation in these costs— is very 
obscure In additions although the ^CrG and the 
community are required to bearthesecosts in proportion 
to their respective participationmthepro^ecp the ^GC^ 
succeeded in having them financed m full by the 
community subsidy 
10^ In the case of four of the twelve projects 
examined^ the ^CrC^was unable to proved when the audit 
was carried oup that it had in fact transferred the funds 
receivedfromrbeC^ommissiontothe projects Ithad^ 
howevenpreviously forwarded implementation reports 
to tbe commission mentioning these transfers 
10^ inspiteof thelargepaymentitreceived^ the 
^GCO did not monitor the operations properly COnlytwo of the 12 projects examined did not involve any 
substantial discrepancy between the application for a 
subsidy and its subsequent use, incorrect calculations, 
incomplete reports, or a combination of these shortcom­
ings 
10 35 In the case of the third NGO, the Court's 
findings on an inspection visit in a developing country, 
and then at the European head office of the NGO 
concerned, confirmed the scope of the observations made 
above It was in fact evident that a subsidy of 0,28 Mio 
ECU had been paid to a project, but that the NGO had 
made no real contribution itself, although the General 
Conditions stipulate that co-financing should be limited 
to 50 % of the total cost By resorting to a particular way 
of presenting the accounts (enhancing the value of 
existing premises and including future revenue), the NGO 
was able to dispense with making any financial contri­
bution 
10 36 This operation was initiated in 1978, at a time 
when the General Conditions were rather vague In 1982, 
a provision was introduced to allow contributions in 
kind It makes it possible to engage in practices which are, 
to say the least, dubious whilst preserving the outward 
appearance of regularity This is, moreover, not the only 
shortcoming in the General Conditions applicable to 
NGOs The monitoring of operations carried out by the 
NGOs will remain inadequate as long as they are not 
obliged to check the operations carried out by their local 
partners on the spot and make available the relevant 
financial documents to the Commission It is therefore 
regrettable that the financial penalty provided for in the 
General Conditions when an NGO does not meet its 
obligations (1 e repayment of the subsidy received) is not 
imposed more often The truth is that it is difficult to 
apply this penalty to infringements such as inadequate 
on-the-spot audits or failure to forward reports withm the 
prescribed period It would therefore be desirable to 
consider a flexible system, leading, for example, to the 
partial reimbursement of sums already paid The 
conditions governing the granting of a contribution 
towards administrative costs should be reviewed in order 
to take account of expenditure actually incurred 
OBSERVATIONS ON THE EXCEPTIONAL 
MEASURES TO ASSIST DEVELOPING AND 
OTHER NON-MEMBER COUNTRIES 
(CHAPTER 95) 
Special programme to combat hunger in the 
world 
10 37 The appropriations required for the implemen­
tation of the special programme to combat hunger in the 
15. 12. 86 Official Journal of the European Communities 109 
world were provided, as from 1982, by the introduction 
into the 1983 budget of Article 958, which has been 
incorporated into subsequent budgets. Council Regu­
lation (EEC) No 1993/83 (3) of 11 July 1983, setting up 
this programme, expired on 31 December 1984. On 6 
August 1985, and subsequently on 26 December 1985, the 
Commission recommended to the Council that the 
programme should be pursued until the end of 1986, and 
then until the end of 1987. 
10.38. The objective of the special programme is to use 
structural measures in order to increase the developing 
countries' self-sufficiency in food and contribute towards 
the conservation of natural resources. On this basis, the 
Court examined the situation of two recipient countries 
which had arranged with the Community, in the context 
of the special programme, to purchase with the Com­
munity subsidy cereals produced locally and to resell 
them on their own market. The two countries undertook 
to transfer the proceeds of this resale to a special account, 
with a view to funding similar operations in the future. 
However, in one of the countries, only a third of the 
anticipated quantity of cereals was purchased and, 
moreover, they were purchased outside the country in 
question and were distributed within the country free of 
charge. As a result, no counterpart funds were credited to 
the special account. In the other country, the proceeds of 
the resale were not returned to the special account as 
planned. It is to be feared that, in both cases, the 
Community aid ultimately served to fund semi-govern­
mental bodies, the administration and financial situation 
of which give cause for great concern. responding services had not been rendered. This is an 
infringement of Article 37 of the Financial Regulation. 
10.40. In 1985, the amount authorized for new 
commitments was reduced by half. However, most of the 
appropriations were not utilized, due to the lack of any 
regulation authorizing the use of the appropriations 
entered in the budget. This situation is due to the fact that 
the Commission submitted, in August 1985 (and there­
fore too late), an initial proposal to extend the term of 
validity of the Regulation that had expired, and the 
Council did not wish to adopt this proposal. A second — 
and more comprehensive — proposal from the Commis­
sion, submitted on 26 December 1985, had still not been 
adopted by the Council at the end of April 1986. Under 
these circumstances, it is not normal that the Commission 
should nevertheless have been able to commit 0,55 Mio 
ECU. The greater part of this sum (0,46 Mio ECU) 
represented amounts due under contracts signed in 1984, 
for which the implementation period had exceeded the 
period of validity of the corresponding appropriations. 
This excuse, which is moreover questionable, does not in 
any case apply to the remaining 0,093 Mio ECU. This 
amount, 0,045 Mio ECU of which were charged to 
appropriations available for the financial year 1984 whilst 
the remaining 0,048 Mio ECU were charged to appropri­
ations belonging to the financial year 1985, was 
committed at the end of 1985, although there was no 
legislative justification for committing it. The irregularity 
in this case must therefore be stressed. 
10.39. The appropriations committed in 1983 (see 
Table 10.6), which were non-differentiated at the time, 
could not be spent and were therefore carried forward to 
1984. In 1984, under the system of differentiated 
appropriations, commitments continued at a high rate, 
but no payments from the appropriations for the financial 
year were effected. On the other hand, the Commission 
utilized all the appropriations carried over from 1983, and 
went as far as to make payments although the cor-10.41. Once again in 1985, it was not possible to effect 
any payments from appropriations for the financial year, 
although the authorization covered only a third of the 
payments allowed in the previous financial year. Only 
55 % of the payment appropriations carried over from 
1984 were utilized; this shows that it is impossible to 
convert commitments entered into into expenditure with 
adequate rapidity and still abide by the rules. 
Table 10.6 — Implementation of the special programme to combat hunger in the world 
(Mio ECU) 
Appropriations for commitment 
— appropriations for the financial year 
— appropriations remaining 
Appropriations for payment 
— appropriations for the financial year 
— appropriations carried forward 1983 
Appropria­
tions 
available 
50,0 
50,0 Appropria­
tions 
utilized 
49,6 
0,1 1984 
Appropria­
tions 
available 
58,0 
42,0 
49,5 Appropria­
tions 
utilized 
57,8 
48,1 1985 
Appropria-
available 
29,0 
0,5 
14,0 
42,0 Appropria­
tions 
utilized 
0,0 
0,5 
23,1(0 1986 
Appropria-
available 
16,0 
29,0 
16,0 
14,0 
(') 18,9 Mio ECU therefore lapsed at the end of 1985. 
110 Official Journal of the European Communities 15. 12. 86 
OBSERVATIONS ON THE OPERATION OF Central administration of the EAC 
COMMISSION DELEGATIONS IN 
DEVELOPING COUNTRIES (CHAPTER 98) 
10.42. In 1985, a subsidy of 58,14 Mio ECU was paid to 
the European Association for Cooperation (EAC) in 
order to administer 77 Commission delegations located in 
non-member States. A total of 1 414 members of staff, 
including 276 expatriates, are employed in these deleg­
ations. 
10.43. Whilst examining, at the EAC's head office in 
Brussels, a number of imprest accounts administered by 
Commission delegations in developing countries, the 
Court found shortcomings in the central administration 
of the EAC and, more specifically, in the way in which it 
supervises the financial operations of the delegations. 
Supervision of the delegations by the EAC 
10.44. The delegations keep a monthly journal for the 
imprest accounts, covering their operating expenses and, 
if appropriate, technical assistance operations. This 
journal is subsequently sent to the EAC, together with the 
supporting documents. The EAC's control procedure 
consists of an examination of each item and document in 
respect of expenditure declared and is carried out by 
members of staff in category C. The check is carried out 
thoroughly, particularly when the account books are 
received late by the EAC. 
10.45. Such an audit of the delegations' accounts is 
unsatisfactory. In fact, although the EAC auditors 
perform their work conscientiously, their level of training 
is such that their tasks should be defined in detail. 
However, they do not even have a manual setting out the 
checks to be carried out and they perform their audits 
simply on the basis of guidelines, which are most often 
given orally. It is therefore not possible to ensure that all 
the necessary audits have been carried out, and this 
inevitably leads to a far too routine approach. A more 
structured method of control, by selecting samples and 
items to be checked, should be introduced. Control 
strategies should be defined and the expenditure of the 
various delegations should be compared with each other 
and analysed with reference to standards. The measures 
taken by the EAC in the case of fuel expenditure show the 
advantage of adopting such an approach. 10.46. Optimum use is not made of the procedure 
introduced since 1984, which consists of granting each 
delegation an internal budget. The delegations generally 
make their proposals on the basis of past expenditure. 
The EAC analyses the variations recorded from one year 
to the next and attempts to compare the various budgets 
with each other. However, it has not managed to 
establish, for all the budgetary items, objective criteria on 
which the proposals should be based, and the concept of a 
standard delegation budget is still to be determined. 
10.47. When a specific item of expenditure, such as the 
purchase of furniture locally, has been provided for in the 
budgetary estimate which is formally approved by the 
EAC, the rule stipulating that the agreement of head 
office is required when expenditure exceeds 500 ECU is 
supererogatory. This rule is in any case not observed very 
strictly by the delegations, partly because the EAC is 
sometimes slow to react to their demands and does not 
always take their needs into consideration. For example, 
it may take several months to give its opinion on requests 
to purchase vehicles or furniture. The EAC does not 
advise delegations from a technical point of view, in order 
to seek the most economical solutions. It does not follow 
up the annual plant maintenance contracts, which often 
exceed 500 ECU and are therefore subject to the prior 
authorization rule. 
10.48. The amounts provided for the running of the 
delegations are generally transferred from Brussels in the 
currency of the country in which the delegation is located. 
It sometimes happens that the EAC effects the transfers in 
hard currency, which is then changed into local currency 
on the spot. The exchange rate used is an official rate 
which, in certain cases, does not correspond to the actual 
value of the local currency. This practice results in 
considerable costs for the Community budget. 
10.49. The EAC is not always equipped with satisfac­
tory administrative tools, such as may be used by the 
actual authority supervising the delegations, i.e. DG VIII 
at the Commission. For example, the accounts for 
expenses incurred in connection with official travel are 
recorded in such a way that it is not possible to identify 
directly all the expenditure declared during such trips or 
to establish their total cost. Furthermore, on-the-spot 
visits do not always give rise to reimbursements. It is 
difficult to trace the movements of members of staff 
during these visits, nor is it easy to monitor their 
inspections of the implementation of projects. The rate of 
utilization of appropriations, which is often lower than 
the estimates, could provide the Commission with 
valuable information. 
10.50. As the EAC had not had up-to-date records for a 
number of years, in July 1985 it started to make an 
inventory of the property held by the delegations, both for 
their own operations and for the accommodation of 
15. 12. 86 Official Journal of the European Communities 111 
expatriate staff. Inadequacies had led the EAC to bear 
extra costs and, when a new member of staff took up his 
duties, to incur substantial expenditure. It was therefore 
essential to have inventories of fixtures and equipment 
when expatriate staff took up their appointments, so as to 
allow checks to be made on their departure and to allow 
them to take responsibility for the expenditure for which 
they could be considered accountable. The Court notes 
that, in many delegations, these inventories are carried 
out extremely slowly. 
10.51. The accounting methods should be improved 
and harmonized. The delegations are not always able to 
charge the expenditure they have incurred against an item in their own budget (expenditure refused by the EAC's 
head office and to be settled, expenditure not connected 
with the running of the delegation, 'private' expenditure 
by members of staff to be recovered). The delegations 
charge them to a suspense account, but do not produce a 
monthly summary of the amounts outstanding, indicat­
ing only the additions and withdrawals made during the 
month and the balance. This method does not show the 
extent of the suspense items, how long they have existed 
or how rapidly they are cleared. The lack of uniformity of 
supporting documents, particularly with regard to the 
salaries of local staff, is also worth noting. 
(•) OJC 326 of 16.12.1985. 
(2) OJ L48 of 21.2.1981, p. 8. (3) OJ L 196 of 20.7.1983. 
112 Official iournal of the European Communities 15. 12. 86 
CHAPTER 11 
Management of the Community institutions and the external bodies 
Paragraph 
110 lABLPOFCO^TP^PS reference 
Introduction 11.1 —11.^ 
Staff expenditure 
Summary of financial information and list of posts at the institutions 
Observations on the computerized systems for calculating salaries and 
for managing staff numbers 
Observations on the institutions' management of the education 
allowances system 
Observations onthebudgetary management of the Councilandthe 
Commission 
Observations specific to the Commission's management of staff 
appropriations 
remuneration of statf posted outside the Communities 
^taff appropriations of the ^oint research Centre ^^.C^ 
Operational expenditure 
Summary of financial information 
Observations on the transmission of supporting documents 
Observations on expenditure on the fittingout of premises occupied by 
the Council and the Commission 11.30 —11.32 
Observations specific to the Commission'smanagement of operational 
appropriations 
Overruling ofarefusal of approval by the Financial Controller 
Implementation ofaPuropean television pilotpro^ect 
Observations on the payment of invoices by the Court of Auditors 
Fmternal bodies 
Creneral matters 
Observations on the legal structure of the recipient bodies 11.5 
11.5 
11.7 
11.9 
11.14 
11.17 
11.18 
11.22 
11.28 
11.28 
11.29 — 11.27 
— 11.6 
— 11.8 
— 11.13 
— 11.16 
— 11.27 
— 11.21 
— 11.27 
— 11.39 
11.33 
11.33 
11.36 
11.39 
11.40 
11.40 
11.42 — 11.38 
— 11.35 
— 11.38 
— 11.52 
— 11.41 
— 11.45 
15. 12. 86 Official Journal of the European Communities 113 
European Schools 
Euratom Supply Agency 
JET Joint Undertaking 
Observations on the use made by some external bodies of the 
Communities' subsidies 
European Schools 
JET Joint Undertaking 11.42 
11.43 
11.45 
11.46 
11.46 
11.51 — 11.44 
— 11.52 
— 11.50 
— 11.52 
INTRODUCTION (d) the European Centre for the Development of 
Vocational Training (Berlin Centre — Cedefop); 
11.1. This Chapter deals with the Court of Auditors' 
examination of the management of the Community 
institutions (staff and operational expenditure) and of the 
subsidies to bodies external to the Communities. The 
management of the institutions gives rise to observations 
which relate, as the case may be, either to general subjects 
concerning all or some of the institutions or to matters 
peculiar to the Commission. 
11.2. The appropriations intended to cover the staff 
expenditure of the institutions appear under Title 1 of 
each section of the general budget (*) and, for Section III: 
Commission, under Title 1 of Part A and Title 7 of Part B 
(research and investment) (2). This expenditure, which in 
1985 amounted to 1 043,1 Mio ECU, is effected under the 
provisions of the Staff Regulations of Officials of the 
European Communities, including annexes and the 
Conditions of Employment of Other Servants (CEOS). (e) the European Foundation for the Improvement of 
Living and Working Conditions (Dublin Found­
ation) ; 
(f) the European Foundation, Paris (not operating in 
1985). 
In accordance with the rules laid down in the above-
mentioned documents, the Court reports to the discharge 
authorities of these bodies. These reports, which are 
separate from the annual report on the implementation of 
the general Community budget, are listed in Annex II to 
this report. 
STAFF EXPENDITURE 
11.3. The appropriations intended to cover the 
operational expenditure of the Community institutions 
appear under Titles 2 and 3 of each section of the general 
budget and, in the case of the Commission, under Title 2, 
Part A of Section III of this budget. The corresponding 
expenditure totalled 391,6 Mio ECU. Summary of financial information and list of 
posts at the institutions 
11.4. The Court carries out annual audits of the 
accounts of the following recipient bodies by virtue of 
specific powers conferred on it by the Treaties or by the 
constituent instruments or internal rules of these bodies: 11.5. The volume and utilization of the appropriations 
relating to Titles 1 of the budget are set out by budget 
chapter and by institution in Table 11.1. Taken as a 
whole, the rate of utilization of appropriations was 
97,5 %, the rate of carry-overs of appropriations 1,3 % 
and the rate of cancellations 1,2 %. 
(a) the European Schools and the Board of Governors of 
the European Schools; 
(b) the JET Joint Undertaking; 
(c) the Euratom Supply Agency; 
(!) The footnotes appear at the end of each chapter. 11.6. The theoretical staff complement (the posts 
authorized in the budget) and the numbers actually 
employed, including other categories of staff not 
provided for in the list of posts, are set out in Tables 11.2 
— 11.3. These data show a reduction in the disparity 
between posts actually filled by the end of the financial 
year and posts authorized by the budget, thus confirming 
a trend already noted in 1984, except at the Office for 
Official Publications and in respect of the Commission's 
'research and investment' staff complement. 
114 Official Journal of the European Communities 15. 12. 86 
Table 11.1 — Utilization of staff appropriations — by budget chapter and institution 
(Mio ECU) 
Budget chapter and institution 
(1) 
A. By budget chapter 
10 Members of the institutions (!) 
11 Staff 
12 Allowances and expenses on entering 
leaving the service and on transfer 
13 Expenditure relating to missions and 
travel 
14 Socio-medical infrastructure and 
duty 
15 Graduate traineeships and further training 
of staff 
16 Expenditure on social welfare 
17 Commission — Entertainment and represen­
tation expenses 
37 Expenditure relating to certain institutions 
and bodies (2) 
Total 
B. By institution 
Parliament 
Council 
Commission (3) 
Court of Justice 
Court of Auditors 
Economic and Social Committee 
Total 1985 budget 
Final 
appropria­
tions 
(2) 
55,8 
735,9 
93,1 
22,6 
2,5 
3,0 
2,2 
0,7 
1,6 
917,4 
174,3 
77,2 
606,3 
25,7 
16,6 
17,3 
917,4 Commit­
ments 
(3) 
54,2 
730,5 
90,8 
22,5 
2,5 
3,0 
2,0 
0,7 
1,6 
907,8 
172,1 
75,8 
602,5 
24,4 
15,9 
17,1 
907,8 Payments 
(4) 
52,5 
726,9 
90,1 
17,7 
2,1 
2,8 
1,6 
0,4 
1,6 
895,7 
166,6 
75,4 
596,7 
24,2 
15,7 
17,1 
895,7 Carry­
overs 
to 1986 
(5) 
1,7 
3,6 
0,7 
4,8 
0,4 
0,2 
0,4 
0,3 
0,0 
12,1 
5,5 
0,4 
5,8 
0,2 
0,2 
0,0 
12,1 Cancel­
lations 
(6) = (2)-
(4)-(5) 
1,6 
5,4 
2,3 
0,1 
0,0 
0,0 
0,2 
0,0 
0,0 
9,6 
2,2 
1,4 
3,8 
1,3 
0,7 
0,2 
9,6 Carr> 
Carry­
overs 
from 1984 
(7) 
1,7(4) 
3,2(4) 
0,6(4) 
4,2(4) 
0,4 
0,2 (4) 
0,0 
0,2 (4) 
— 
10,5(4) 
4,4 
0,5 
5,4(4) 
0,1 
0,1 
0,0 
10,5 (4) -overs from 
Payments 
(8) 
1,4 
2,2 
0,4 
3,8 
0,4 
0,1 
0,0 
0,2 
— 
8,5 
3,6 
0,5 
4,2 
0,1 
0,1 
0,0 
8,5 1984 
Cancel­
lations 
(9) = 
(7)-(8) 
0,3 
1,0 
0,2 
0,4 
0,0 
0,1 
0,0 
0,0 
— 
2,0 
0,8 
0,0 
1,2 
0,0 
0,0 
0,0 
2,0 
(') Parliament, Commission, Court of Justice, Court of Auditors, Economic and Social Committee. 
(2) Except for Item 3742 of Section II — Council (Operating expenditure in connection with the accession of Spain and Portugal) 
(3) Including the Office for Official Publications. 
(4) These amounts take into account the alteration to the Commission's budgetary nomenclature in 1985. 
Observations on the computerized systems for 
calculating salaries and for managing 
staff numbers 
11.7. The data concerning the lists of staff employed in 
each institution should tally with those used for 
calculating the salaries. The Court investigated the extent 
to which the computer systems set up by two of the 
institutions, namely the 'RAPE' (Parliament), 'Sysper' 
(Commission) and 'PAIE' (common to both institutions) 
systems, enabled the numbers of staff employed to be 
checked against the numbers paid. 11.8. The enquiry revealed that there were no 
arrangements for a reconciliation to be made between the 
various items of information recorded, either within each 
system or between one system and another, a fact which 
constitutes a major defect in the internal control of staff 
management. Not even the first stage of such a 
reconciliation has been achieved, in so far as there is no 
totalling of staff numbers within each system, with the 
result that they cannot be compared easily. Thus, for 
example: 
(a) in the 'PAIE' system, neither the monthly list of 
salaries paid, by official, nor the monthly bank lists 
mention the total number of staff paid; 
15. 12. 86 Official Journal of the European Communities 115 
Table 11.2 — Officials and temporary staff 
Institution 
(1) 
Parliament 
Council 
Commission 
(a) Administration excluding Office for Official 
Publications 
(b) Office for Official Publications 
(c) Research and investment: 
— Direct action 
— Indirect action 
Court of Justice 
Court of Auditors 
Economic and Social Committee 
Total 1984 
Posts 
authorized 
(2) 
2 966 
1 792 
10 037 
312 
2 222 
629 
480 
303 
398 
19 139(2) Staff at 
31. 12. 1984 
(3) 
2 826 
1 711 
9 587 
287 
2 155 
551 
438 
283 
398 
18 236 Difference 
(2) "(3) 
(4) 
140 
81 
450 
25 
67 
78 
42 
20 
— 
903 1985 
Posts 
authorized 
(5) 
2 941 (') 
1 888 
10 429 
331 
2 260 
662 
480 
307 
405 
19 703(2) Staff at 
31. 12. 1985 
(6) 
2917 
1 823 
10 027 
303 
2 164 
578 
441 
289 
402 
18 944 Difference 
(5)-(6) 
(7) 
24 
65 
402 
28 
96 
84 
39 
18 
3 
759 
(') Excluding, in 1985, a reserve of 57 posts. 
(2) This total includes neither the 43 staff of the European Centre for the Development of Vocational Training nor the 38 staff of the European Foundation 
for the Improvement of Living and Working Conditions. 
Source of data: the EC institutions. 
Table 11.3 — Auxiliary staff, local staff and special advisers 
Institution 
Parliament 
Council 
Commission: 
— Administration 
— Research and investment 
Court of Justice 
Court of Auditors 
Economic and Social Committee 
Total 31. 12. 1984 
Auxiliary 
staff Local 
staff 
(') Special 
advisers Total 
83 — — 83 
42 — — 42 
77 498 46 621 
67 — — 67 
20 10 1 31 
3 5—8 
17 — — 17 
309 513 47 869 31. 12. 1985 
Auxiliary 
staff Local 
staff Special 
advisers Total 
88(2) ^ ___ 88 
32(3) _ __ 32 
145 532 54 731 
98 — — 98 
18 (4) 12 1 31 
7 2—9 
22(5) _ _ 22 
410 546 55 1 011 
(') This figure does not include local staff paid by extra-budgetary bodies (restaurants, creches etc.). 
(2) 88 at 31. 12. 1985 but 253 during the financial year. 
(3) 32 at 31. 12. 1985 but 55 during the financial year. 
(4) 18 at 31. 12. 1985 but 30 during the financial year. 
(5) 22 at 31. 12. 1985 but 51 during the financial year. 
Source of data: the EC institutions. 
116 Official Journal of the European Communities 15. 12. 86 
(b) the lists of names produced by the day-to-day 
management systems, 'RAPE' and 'Sysper', give no 
final total of staff numbers, either overall or by 
category; 
(c) lastly, discrepancies have been found between the 
various documents issued by the 'Sysper' system and 
between these and the statements issued by the 'PAIE' 
system. 
The Commission has been notified of the anomalies 
found in its systems. It is investigating them in order to 
justify them. 
Observations on the institutions' management 
of the education allowances system 
11.9. The education allowances, part of the family 
allowances for which appropriations are entered under 
Items 1002 and 1101 of the five sections of the budget, 
gave rise to expenditure for the financial year 1985 
totalling 15,4 Mio ECU. An examination of this expendi­
ture at all the institutions resulted in some observations of 
general interest, which are set out below. 
11.10. The basic texts setting up the system of education 
allowances (3) lay down the principle of reimbursement of 
the actual education costs incurred for each child up to a 
maximum amount, which may in certain cases be 
doubled. For the purpose of putting these texts into effect, 
the current general implementing provisions (4) stipulate 
that part of the cost is covered by a fixed allowance, whilst 
the other part is reimbursed on the basis of the actual 
costs, up to the afore-mentioned maximum. Further­
more, since the financial year 1984, a subsidy to 
educational establishments, which is accessible to staff 
from all the institutions, has been entered under Item A 
2898 of the Commission budget. Analysis shows this 
subsidy to be a supplement to the education allowance. 
11.11. Whilst the management of the fixed part of the 
allowance is relatively simple and is, moreover, carried 
out through the computerized payroll systems, the same is 
not true for the part calculated according to the actual 
costs. This part, even though it represents only about 
20 % of the total expenditure, has proved very com­
plicated to manage because of the large number of cases 
and files to deal with and it results in differences in 
treatment which are hard to understand. Thus, for 
example: 
(a) where the education costs are exactly the same, twice 
the maximum amount is granted, for higher edu­
cation, to officials who receive expatriation allow­
ances and is refused in the case of officials who receive 
foreign residence allowances; (b) twice the maximum amount is granted to an official 
whose place of employment is over 50 km away from 
the educational establishment which his child attends, 
even though the family home may be less than 50 km 
away; 
(c) in the case of staff posted to an information office in 
their country of origin, twice the maximum amount is 
granted for primary and secondary education but 
refused for higher education. 
11.12. The 0,1 Mio ECU of appropriations entered 
under Item A 2898 are intended to cover the costs of 
schooling for children who, for overriding pedagogical 
reasons or because of the father's or mother's place of 
assignment (external offices), cannot be educated in a 
European School. The corresponding expenditure is 
questionable on two counts: because of its nature and 
because it is paid directly to the recipients it constitutes a 
supplement to the education allowance which, on the one 
hand, derogates from the rule of a maximum amount of 
reimbursement for education costs and, on the other, is 
artificially booked as subsidies to educational establish­
ments. The Court considers that this practice should 
cease, though specific provisions may be incorporated 
into the Staff Regulations to cover some particular cases 
(external offices). 
11.13. An examination of the management system for 
the education allowances highlights the complexity of the 
regulations regarding reimbursement of actual education 
costs. The conditions under which these regulations are 
applied require a cumbersome system of administration 
and result in errors, backdated reimbursements and 
discrimination, making it impossible to carry out any 
effective checks. The actual cases are not sufficiently 
varied or complex to merit such detailed rules. This being 
so, the Court recommends that this system be simplified 
on the basis of a fixed allowance for education costs for 
each of the three levels of education. 
Observations on the budgetary management of 
the Council and the Commission 
11.14. The main feature of the financial year 1985 was 
the application of the 'provisional twelfths' system until 
13 June, the date the budget was adopted. During its audit 
enquiries at the Council and the Commission, the Court 
noted the following two cases. 
11.15. In the first case, an examination of the 
management of the appropriations under the Council's 
Item 1110 'Auxiliary staff showed that, between 13 June 
and 7 October 1985, appropriations had first of all been 
overspent by 618 988 ECU, and then, after 1 August, by 
15. 12. 86 Official Journal of the European Communities 117 
amounts fluctuating between 30 000 and 60 000 ECU. 
The original deficit had been partially off-set by re­
charging payments totalling 584 131 ECU to Item 3741 
'Expenditure in connection with the accession of Spain 
and Portugal to the Communities'. Neither this oper­
ation, however, nor a subsequent transfer was sufficient 
to replenish Item 1110 adequately. Despite its negative 
balance, new expenditure continued to be charged to this 
item. A positive balance was not restored until 7 October 
1985, by means of a second transfer. These difficulties are 
partly attributable to the late adoption of the 1985 
budget, which caused the Council to keep on 35 Spanish 
and Portuguese members of staff as auxiliaries for six 
months, because of the future enlargement of the 
Communities. The Council then retroactively gave them 
the status of temporary staff, at the cost of a loss of 
contributions to the Belgian social security system equal 
to 57 400 ECU. Without underestimating the roots of the 
problem, the Court points out that the persistent use of 
Item 1110 between 13 June and 7 October 1985, in breach 
of the Financial Regulation (5), should not have been 
authorized at the various stages of the procedure for 
implementing the budget. 
11.16. The second case concerns the Commission's 
Item A 1141 'Annual leave travel expenses'. Spending 
exceeded available appropriations for this Item during 
June 1985. After the adoption of the budget on 13 June 
1985, the authorized appropriations amounted to 
5,3 Mio ECU. On 11 and 12 June the authorizing officer 
had drawn up two commitment proposals bringing the 
total appropriations committed to 6 Mio ECU. The 
Financial Controller, having examined the commitment 
proposals on 17 and 21 June, i.e. after the adoption of the 
budget, should have refused his approval because there 
was a shortfall of 0,7 Mio ECU of appropriations. 
Observations specific to the Commission's 
management of staff appropriations 
11.17. An examination of the Commission's manage­
ment of staff expenditure prompts the Court to make two 
groups of observations relating, on the one hand, to the 
remuneration of officials posted outside the Communities 
and, on the other, to expenditure on staff at the Joint 
Research Centre (JRC). 
Remuneration of staff posted outside the Communities 
11.18. Some Commission staff are employed, in various 
non-member countries, in its information offices and 
external delegations or at the European Association for 
Cooperation. These members of staff, whose jobs have 
been created as and when the need arose, face problems concerning adapting their standard of living, housing, 
foreign currency and safety, for which no provision was 
made when the Staff Regulations were adopted in 1962. 
For example, the Staff Regulations provide for the 
reimbursement of accommodation costs (6) outside the 
territory of the Member States only in the case of staff 
assigned to a post in Geneva. The Commission has 
therefore had to take specific measures, when the need 
arose, to cope with situations which in fact ought to have 
necessitated the introduction of proper special arrange­
ments within the Staff Regulations. It was not, however, 
until 6 March 1986 that a proposal for a regulation to this 
effect was submitted to the Council (7). The management 
of these matters during 1985, meanwhile, was charac­
terized not only by a failure to comply with the provisions 
of the Staff Regulations, but also by a lack of financial 
stringency in the two fields of accommodation costs and 
the payment of salaries. 
11.19. As regards accommodation costs, in 1985 the 
Commission paid 123 officials posted in 18 cities rent 
allowances worth a total of 2 Mio ECU (of which 0,7 Mio 
ECU in Tokyo, 0,4 Mio ECU in New York and 0,2 Mio 
ECU in Geneva), according to a method whereby the cost 
of the rent, minus a proportional contribution (15 to 20 % 
of the net salary) paid by the official, is borne by the 
Community. This practice does not comply with the 
provisions of Article 14 of Annex VII to the Staff 
Regulations, which states that the accommodation costs 
of officials shall be reimbursed only in cases — and they 
are the exception — where the officials in question 
regularly incur entertainment expenses. Furthermore, 
since this practice fails to establish either a maximum limit 
for the allowance or any objective criteria for assessing 
the true needs of the staff, it attracted some comment by 
the Financial Controller. Similarly, the Commission 
reimburses newly-posted officials the actual hotel ex­
penses they have incurred, minus the daily subsistence 
allowance normally paid, or the afore-mentioned propor­
tional contribution when the stay lasts longer than one 
month. This practice too is contrary to the provisions of 
Article 10 of Annex VII to the Staff Regulations. 
11.20. Regarding the payment of salaries, Article 63 
and Article 17 of Annex VII to the Staff Regulations lay 
down that payment shall be made to the official at the 
place and in the currency of the country where he carries 
out his duties. Derogating from these rules, the Commis­
sion allows 50 % of the salaries of officials serving in some 
non-member countries (Brazil, Chile, India, Israel, 
Lebanon, Venezuela, Yugoslavia) to be converted into a 
currency other than the local one, most usually the USD, 
and, what is more, at the August 1983 exchange rates (8), 
instead of the current rates, which ought normally to have 
been used. This practice was established by two Commis­
sion decisions which were the subject of two refusals of 
approval by the Financial Controller, in 1983 and 1984, 
followed by two overrulings by the superior authority. 
The corresponding expenditure related to 27 members of 
staff and totalled 1,1 Mio ECU in 1985, including an 
exchange-rate loss, resulting from the use of the 1983 
rates, estimated by the Court at 0,6 Mio ECU. The Court 
points out that this expenditure is contrary to the 
provisions of the Staff Regulations. 
11^ Official lournal of the European Communities ro 1^ ^o 
11.^1. In conclusion, theCourt,whilstitisawareof the 
tact that the Commission has had to make indispensable 
adjustmentsto the standard of li^ingof staff serving 
outside the Communities, finds that such measures have 
beenadoptedinapiecemeal and legally doubtfulmanner. 
It deplores the fact that no objective methodfor assessing 
the staffs true needs and the requisite adjustments was 
used in drawing up either the existing measures or the 
proposal foraCouncil regulation of o^archl^. 
^t^^ee^o^^o^ of t^e^nt^e^e^re^ Centre ^C^ 
11.^. According toalong^standing practice, the staff 
appropriations entered under^fitleslof the five sections 
of the budget are nondifferentiated appropriations 
divided up according to a nomenclature based on 
traditional headings phasic salaries,family allowances, 
other staff, etc.^, Phe IR^Cs staff appropriations, 
presented according toanomenclature based on action 
programmes, are difierentiated appropriations, like all 
the research and in^estmentappropriationsofChapterB 
7^ of the Commissions budget, ihe difficulty of 
identifying and monitoring the current components of 
statfexpenditure is therefore increased, as far as the I^.C 
is concerned, by the fact that the accumulated appropri 
ations may be kept over several financial years ^, 
whereas staffexpenditure must normally be restricted to 
the one financial year.Clnder cover of these exceptional 
arrangements, the IPC^smanagement of staff appropri 
ations has allowed various practices to become es 
tablished which gi^erisetoanomaliesthatarecontraryto 
budgetary orthodoxyand to theprincipleofequalratesof 
payforCommunity officials, as thefollowingparagraphs 
show. 
llB^el The total amount of the I^RC^sstaffappropri 
ationssystematically exceeds the strictneedsforeach 
financial year.^fhis surplus isaresult,^^^^, of the 
practice ofbasingtheestimatesfor appropriations on the 
number ofjobs on the list of posts without taking due 
account of vacant posts^estimates based on^^^ posts, 
ofwhichonly^l^ha^ebeenfilled^,and,toalesser 
extent, of the tact that the social appropriations per staff 
member arefixedatahigherle^elthanattheother 
institutions^^ioPCIlfor^^^I^Cstaffasopposed 
to0^^io^CClforl7^CouncilstafD,e^en though the 
special teatures of the IR.C partly justify this. 
11.^. l^he available appropriations thus released are 
used, for the most part, to co^er expenditure which no 
longer has any connection with staff l^he staff account 
containsaspecial category 1^ reserved, according to the 
financing plan, for ^appropriations accruing from any 
possible shortfallinstaff numbers. According to the 
I^Cs internal rules, this category is earmarked for 
covering^expenditure substituting for staff expenditure, 
i.e. thescientificexpenditureor theadministrati^e or technical operating expenditure normally cohered by 
appropriations of the same kind. Inl^eo, category 1^ 
recei^edafinal allocation of eo,7^viio^CL^, i.e. almost 
half the total allocation of appropriations originally set 
aside for IIoC research contracts. In this way, a 
permanent mechanism has been set upfortransferring to 
the operational side surplus appropriations entered for 
staff expenditure. 
11.^Bo. furthermore, according to a longstanding 
practice, the IPC provides its staff, except those at the 
Creel establishment, with free transportbetween their 
homes and their place of work. Lhe related expenditure 
amounted to O^^iio^CL^ for the financial year, ^uch 
benefits in kind, granted to all the staff, must be 
consideredascontrarytothe^tatfPegulations,whichdo 
not pro^ideforatransport allowance sa^einspecific 
cases governed by exceptional arrangements which must 
be interpreted inarestricti^e manners. In the absence 
of any legal provision, this practice must be regarded as 
irregular and the benefits granted to the staff as 
discriminatory towards the other staff of the ComD 
munities.Whilst it is acceptable and e^en useful that,for 
lack ofapublic transport system, as is the case at Ispra, 
the IR^Corgani^esacollecti^e transport system as best it 
can, the related cost, on the other hand, should be borne 
notbytheIR.Cbutbytheusers. 
11.^o. Similarly,by wayofcompensation, theIR.C 
grantsatransport allowance per kilometre to staff who, 
because of their special wording hours^staff on shiftwork 
or on call^, cannot make use of the free pick-up 
arrangements. Lhisgi^es rise to expenditure of 0,1 ^Vlio 
f^CL^. C^nce again, this is expenditure which is not 
provided for intheregulations,whichen^isageonlya 
fixed allowancefor journeys made in the performance of 
official duties and not between the place of residence and 
the place of work ^. 
11.^7. ^fhisanalysisoftheIR.Cstaffexpenditureshows 
the need to return no more orthodox management 
procedures in order, on the one hand, to guarantee 
greater clarityof budget choices and,ontheother,to 
present additional benefits beinggranted to staff. As 
regards the budget, this concern is shared by the 
Commission, which has made proposals,inthecontext of 
there^iewofthe^inancialR.egulation,witha^iewto 
creating a special title for staff expenditure, with a 
traditional nomenclature and nondifferentiated apD 
propriations.Lhe Court hopes that these proposals will 
be supplemented by the adoption of a more realistic 
method ofestimating appropriations and by the removal 
of the category of ^expenditure substituting for staff 
expenditure. 
15. 12. 86 Official Journal of the European Communities 119 
OPERATIONAL EXPENDITURE Observations on the transmission of 
supporting documents 
Summary of financial information 
11.28. Table 11.4 shows the appropriations available 
during the financial year 1985 for operational expenditure 
and their utilization by budget chapter and by institution. 11.29. As regards operational expenditure, the Court 
found that, for the financial year 1985, some institutions 
(Parliament and Council) had sent in their supporting 
documents rather irregularly, contrary to the time-limits 
laid down by Article 79 of the Financial Regulation. The 
Economic and Social Committee did not send the Court 
the supporting documents relating to the entire financial 
year 1985 until April 1986. 
Table 11.4 — Utilization of operating appropriations — by budget chapter and institution 
(Mio ECU) 
Budget chapter and institution 
(1) 
A. By budget chapter 
20 Investments in immovable property, rental 
of buildings and associated costs 
21 Expenditure on data-processing 
22 Movable property and associated costs 
23 Current administrative expenditure 
24 Commission — Postal charges and telecom­
munications 
24 Other institutions — Entertainment and 
representation expenses 
25 Expenditure on formal and other meetings 
26 Expenditure on studies, surveys and consul­
tations 
27 Expenditure on publishing and information 
28 Subsidies for balancing budgets (') 
29 Subsidies and financial contributions 
37 Expenditure relating to certain institutions 
and bodies (2) 
Total 
B. By institution 
Parliament 
Council (2) 
Commission (') 
Court of Justice 
Court of Auditors 
Economic and Social Committee 
Total 1985 budget 
Final 
appropria­
tions 
(2) 
137,1 
34,1 
23,2 
30,9 
17,0 
0,7 
27,3 
11,3 
51,2 
55,8 
12,1 
17,0 
417,7 
63,1 
54,3 
281,7 
6,9 
2,4 
9,3 
417,7 Commit­
ments 
(3) 
135,4 
33,9 
22,8 
30,4 
17,0 
0,6 
24,9 
11,1 
50,7 
54,6 
8,1 
17,0 
406,5 
60,6 
50,9 
276,9 
6,6 
2,3 
9,2 
406,5 Payments 
made 
(4) 
113,1 
23,7 
14,1 
23,8 
15,2 
0,5 
20,6 
2,9 
31,6 
52,5 
5,4 
11,1 
314,5 
50,0 
34,1 
215,2 
4,9 
1,8 
8,5 
314,5 Carry­
overs 
to 1986 
(5) 
22,3 
10,3 
8,7 
6,6 
1,8 
0,1 
4,3 
8,2 
19,1 
2,0 
2,7 
5,9 
92,0 
10,6 
16,8 
61,8 
1,6 
0,5 
0,7 
92,0 Cancell­
ations 
(6) = (2)-
(4) "(5) 
1,7 
0,1 
0,4 
0,5 
0,0 
0,1 
2,4 
0,2 
0,5 
1,3 
4,0 
0,0 
11,2 
2,5 
3,4 
4,7 
0,4 
0,1 
0,1 
11,2 Carr> 
Carry­
overs from 
1984 
(7) 
22,7 
8,5 
8,2 
11,4(3) 
2,6(3) 
0,1 (3) 
2,7 
8,0 
17,3(3) 
3,1 
0,8 
0,3 
85,7 (3) 
11,0 
12,5 
58,1 (3) 
2,4 
0,8 
0,9 
85,7 (3) -overs from 1984 
Payments 
(8) 
20,6 
8,2 
7,5 
10,9 
2,2 
0,1 
1,5 
7,7 
14,6 
3,0 
0,6 
0,2 
77,1 
8,2 
12,0 
53,5 
1,9 
0,7 
0,8 
77,1 Cancel­
lations 
(9) = 
(7)-(8) 
2,1 
0,3 
0,7 
0,5 
0,4 
0,0 
1,2 
0,3 
2,7 
0,1 
0,2 
0,1 
8,6 
2,8 
0,5 
4,6 
0,5 
0,1 
0,1 
8,6 
(') Including operating expenditure for the Office for Official Publications. 
(2) Except for Item 3741 of the Council budget (staff expenditure in connection with the accession of Spain and Portugal). 
(3) These amounts take account of the alteration to the budgetary nomenclature in 1985. 
120 Official Journal of the European Communities 15. 12. 86 
Observations on expenditure on the fitting-out 
of premises occupied by the Council and the 
Commission 
11.30. During the financial year, the Council and the 
Commission each carried out various improvements to 
the buildings they occupy in Brussels. The Court's 
enquiries focused in particular on the improvements to 
the Charlemagne building decided by the General 
Secretariat of the Council in the context of an outline 
contract relating to the period 1985-1989 for a total of 
3,4 Mio ECU in 1985 (Section II, Article 204 and Item 
3742), and on the work to renew the telephone network of 
the Commission's JECL building, also carried out under 
an outline contract, for a sum of 0,5 Mio ECU in 1985. 
11.31. Although each of these operations has its own 
special features and has been carried out independently, 
they give rise to similar comments which can be 
summarized as follows: 
(a) the outline contracts concluded by the Council and 
the Commission respectively do not contain the 
details necessary to allow the cost of the work to be 
carried out by the contractor to be checked and 
monitored, with the result that the institution is not 
able to verify the actual cost and the constituent parts 
of the prices invoiced. Moreover, in respect of the 
contract concluded by the Council, the invitation to 
tender did not cover the various aspects of the 
proposed contract (amount, full range of works to be 
performed, etc.); 
(b) despite the provisions of Article 56 of the Financial 
Regulation, no preliminary guarantee for the per­
formance of the contracts was required to be made, 
even for works involving an amount exceeding 
0,2 Mio ECU for which such a deposit is obligatory. 
11.32. The cost of the improvement of premises carried 
out by the Council and the Commission during the 
financial year in the Charlemagne and JECL buildings 
was met under a legal framework which, in many respects, 
did not comply with the provisions of the Financial 
Regulation and with the contractual obligations between 
the institutions and the owners of these premises. 
Similarly, it is evident that the institutions did not, in this 
instance, explore all the possible ways of getting the 
owners to share in the costs thus incurred. Observations specific to the Commission's 
management of operational appropriations 
Overruling of a refusal of approval by the Financial 
Controller 
11.33. The Financial Regulation (Article 32 et seq.) lays 
down that all measures which may give rise to expenditure 
must be preceded by a proposal for commitment of 
expenditure approved by the Financial Controller, who 
ascertains, inter alia, that the appropriations are avail­
able. In the case of a provisional commitment (to which 
several items of expenditure can be charged), the 
authorizing officer must check, on his own responsibility, 
that the individual commitments do not exceed the 
provisional commitment covering them. 
11.34. On this subject, the Court must point out that, 
for handling and removal expenses relating to the 
financial year 1985 (appropriations involved : 0,3 Mio 
ECU), the authorizing officer concerned made commit­
ments to a third party on behalf of the Commission 
without ascertaining beforehand that the necessary 
appropriations were available. The proposals for pro­
visional commitment, which were submitted late, were 
not accepted by the Financial Controller and the 
Commission decided in the end to overrule the latter's 
refusal of approval. 
11.35. On several occasions in the past (n), the Court 
has already drawn attention to failure by the Commission 
to comply with the basic provision laid down in Article 32 
of the Financial Regulation. Such failures constitute a 
major weakness in the present management system. The 
Commission should remedy it by improving the pro­
cedures for programming and monitoring expenditure. 
Implementation of a European television pilot-project 
11.36. The Commission awarded a private company a 
grant of 1 Mio ECU with a view to carrying out a 
'European television pilot-project' to investigate the 
possibility of a televised presentation of the content, aims 
and policies of the Communities. The Commission 
charged the grant to the financial years 1983 and 1984, 
but, because of delays in the implementation of the 
project, the payments did not cease until December 1985. 
15. 12. 86 Official Journal of the European Communities 121 
11.37. The Court's examination of the awarding and 
implementation of this subsidy calls for the following 
observations: 
(a) with regard to the awarding of this grant, the Court 
observes that the Commission's decisions were not 
accompanied by terms which were binding on the 
recipient, especially in respect of the costs actually 
borne by the latter (the resources, other than the 
Commission's, allocated to the project amounted in 
the end to only 0,4 Mio ECU instead of 0,6 Mio 
ECU, i.e. 26,9 % of the original budget instead of the 
36,8 % planned) or by conditions likely to ensure that 
the project stayed within the budgeted costs (expected 
cost: 1,6 Mio ECU; final cost stated by the recipient: 
1,9 Mio ECU); 
(b) with regard to the possibilities for assessing the 
expenditure paid out by the grant recipient, the Court 
observes that the payments by the Commission were 
made on the basis of a time-schedule which was not 
linked to the presentation of detailed reports on the 
expenses incurred, and that the final payment was 
made despite the inadequacy of the documents for the 
final accounts. Thus, the recipient's final accounts 
failed to give sufficient justification for or details of 
the unusual amount of expenditure on consultation, 
the undifferentiated presentation of major items 
(such as authors' royalties or general and enter­
tainment expenses) and the project's 0,4 Mio ECU 
deficit. 
11.38. The European television pilot-project received a 
grant which was not awarded on the kind of financial 
terms and subject to the kind of guarantees which the 
amount in question merited. When the partial and the 
final payments of this grant were made, the Commission 
did not make the necessary checks to ensure that the aim 
of the pilot-project had been achieved. 
Observations on the payment of invoices by 
the Court of Auditors 
11.39. In order to establish how long the Court took to 
pay the invoices it received, checks were made on a large 
number of invoices paid or received during the first 
quarter of 1985. These checks showed that, in one 
particular case, the Court had not asked for the discount 
which suppliers usually give on invoices paid within 15 
days. EXTERNAL BODIES 
General matters 
11.40. Under the terms of the Treaties and the derived 
legislation, the Court has a duty to perform an annual 
audit on the accounts of the bodies listed in paragraph 
11.4. The Commission pays annual subsidies to these 
various bodies external to the Communities out of 
appropriations entered in the general budget. The 
financial data relating to these bodies are set out in Table 
11.5. The main feature of these payments is that they 
constitute the lion's share of the resources available to 
these bodies and that, in the case of the Euratom Supply 
Agency and the European Schools, they are presented as 
true subsidies, given for the purpose of balancing the 
budget. For this reason, the amount charged to the 
Community budget depends directly on the quality of the 
management of these bodies, which, however, is in the 
hands of authorities that are independent of the 
Communities. 
Table 11.5 — Subsidies paid by the Commission 
to some bodies external to the Communities 
Body 
European 
Schools (') 
JET Joint Under­
taking 
Euratom Supply 
Agency 
Centre for the De­
velopment of Vo­
cational Training 
Foundation for the 
Improvement of 
Living and Working 
Conditions 
European Found­
ation Payments 
made by 
the body 
(Mio ECU) 
64,00 
94,00 
1,36 
4,69 
4,23 
— Commission 
subsidy 
(Mio ECU) 
41,00 
52,50 
1,34 
4,68 
4,32 
0,1 Importance 
of the subsidy 
in relation 
to payments 
64% 
56%(2) 
99% 
100% 
102 %(3) 
— 
(') The data for the European Schools relate to the financial year 1984 for 
the payments as well as for the Commission subsidy. 
(2) Since the implementation of the budget is influenced by payments 
made out of reserves accumulated from earlier years, the Commission 
subsidy appears to be lower than the 80 % laid down by the statutes of 
the JET. 
(3) Some payments were deferred until the following financial year 
because of carry-overs of appropriations. 
122 Official Journal of the European Communities 15. 12. 86 
11.41. Apart from the observations contained in the 
specific reports written by the Court on the management 
of these bodies, an examination of the use of these 
subsidies gives rise to two kinds of considerations. Firstly, 
the internal legal structure of some of these bodies has an 
effect on the use of the subsidies, and, secondly, the 
management of some of them is not as scrupulous as the 
Communities, in their capacity as the chief supplier of 
funds, have a right to expect. 
Observations on the legal structure of the 
recipient bodies 
European Schools 
11.42. The statutes of the European Schools lay down 
the way in which authority and responsibilities are to be 
divided up; this is done according to a model which 
concentrates in the hands of one and the same authority 
— the Board of Governors of the European Schools — 
the mutually incompatible duties of budgetary authority, 
managing authority and management-control authority 
(discharge authority). This situation is worrying because 
it is the failure to keep these powers separate that is chiefly 
to blame for the shortcomings noted for some years now 
in the administration of the schools. 
Euratom Supply Agency 
11.43. The Agency was set up and its functions defined 
in Chapter VI of the Euratom Treaty, which also 
provided that the Council, acting by a qualified majority 
on a proposal from the Commission, was to draw up the 
Agency's statutes. 
11.44. For various reasons, the Agency's activities have 
not developed as expected, with the result that there is a 
lack of legal clarity as regards the internal organization 
and the definition of the Agency's activities. The 
Commission's 1982 and 1984 proposals for new provi­
sions in Chapter VI of the Euratom Treaty are in fact still 
being considered by the Council, whilst the proposals 
provided for in Articles 171 and 183 of the Euratom 
Treaty concerning the drafting of a financial regulation, 
have still not been submitted (12). This situation has the 
following consequences for the general budget: (a) the Member States have paid only a first tranche of 
10 % of the authorized capital; 
(b) on a unanimous proposal from the Euratom Council, 
the Commission has since 1960 indefinitely post­
poned the introduction of the charge intended to 
cover the Agency's operating costs and has replaced it 
with a balancing subsidy which is included in the 
general budget. 
JET Joint Undertaking 
11.45. Although Article 3 of the JET statutes (13) 
stipulates that the budgetary authority (the JET Council) 
and the administrator (the Director of the Project) must 
be separate persons, Article 5.2(c) of these statutes 
encourages the watering down, to some extent, of the 
responsibilities as regards management decisions. The 
JET Executive Committee is obliged to play an increas­
ingly important role in the decision-making process by 
acting more as an administrative body responsible for 
approving some decisions proposed by the Director of the 
Project rather than as an advisory body responsible for 
appraising the budgetary authority's files. This practice, 
which has been backed up by various internal docu­
ments (14), gives particular cause for concern. 
Observations on the use made by some 
external bodies of the Communities' subsidies 
European Schools 
11.46. The Board of Governors of the European 
Schools decided, at its meeting of December 1985, to take 
follow-up action on two observations made previously by 
the Court: firstly, the question of the financing of the 
schools by public or private bodies which had concluded 
agreements with the Board of Governors and, secondly, 
the updating of the Financial Regulation. Nevertheless, 
although decisions of principle were taken in both these 
fields, they have not yet resulted in any specific 
improvement. 
11.47. Even though it has been raised by the Court on 
several occasions, the crucial question of the review of the 
system of remuneration of teachers seconded by the 
Member State governments has been examined only 
cursorily and no decision has yet been taken. Firmer 
action by the Commission at all stages of the budget 
procedure is now essential. 
15. 12. 86 Official Journal of the European Communities 123 
11.48. An examination of the schools' accounts for the 
financial year 1984 shows that the amount of the subsidy 
paid by the Communities could be significantly affected if 
all the possible ways of making savings or increasing 
revenue were systematically explored. This applies in 
particular to: 
(a) school fees required of non-entitled pupils; 
(b) the teachers' professional obligations; connection with the Community institutions and the 
original ceiling set for the subsidy has been far exceeded. 
11.50. In the Court's view, the Commission must 
seriously review the means at the disposal of its 
representative on the Board of Governors which enable 
him to play a more active role in the decision-making 
process, with a view to taking more effective action 
against the shortcomings noted in the Court's reports to 
the Board of Governors. 
(c) payment for overtime; 
(d) the pension scheme for substitute teachers; 
(e) the way in which classes are created and kept; 
(f) the management of some activities not included in the 
budget, in particular the canteens. 
11.49. For these various reasons and in view of the 
increasing shortcomings in the management of the 
schools, the Court considered, in its report to the Board of 
Governors on the European Schools' accounts for the 
financial year 1984, that a new agreement ought to be 
made between the Commission and the Board of 
Governors, with a view to settling unequivocably the 
conditions for drawing on funds from the Community 
budget and determining the guarantees necessary in 
respect of management and control. The temporary 
agreement entered into with the ECSC High Authority on 
11 December 1957, for only one school and for a period of 
one year, has never been re-considered. In the meantime, 
eight other schools have been set up and the number of 
pupils has risen from a few hundred to over 12 000; in 
addition, more than a third of these pupils have no JET Joint Undertaking 
11.51. In paragraph 7 of its report on the JET's 
financial statements for the financial year 1984, the Court 
pointed out that, whenever the rate of expenditure was 
proving to be slower than expected, the JET budget 
provisions ought to be revised in order to avoid needlessly 
immobilizing Community appropriations. In September 
1985, in the expectation that the slow-down in the rate of 
JET expenditure would probably continue until the end 
of the financial year, the Commission thought fit to 
obtain from the JET Council a cut in the budget of 
21,9 Mio ECU in payment appropriations. This cut was 
decided by the JET Council at its meeting of 25 October 
1985. The Court welcomes the Commission's initiative. 
11.52. At the end of the financial year 1983, the staff 
seconded from the UKAEA (15) to JET lodged an appeal 
before the Court of Justice of the European Communities 
against the Commission and the Council with a view to 
obtaining parity of employment conditions with the 
Euratom temporary staff. At 31 December 1985 the case 
was still pending and its financial consequences (concern­
ing about 200 people) for the Commission remain 
uncertain. 
124 Official Journal of the European Communities 15. 12. 86 
0 In addition to the appropriations of Title 1 of Section II 
(Council), in 1985 there were also the appropriations entered 
under Item 3741, Article 374 ('Expenditure in connection 
with the accession of Spain and Portugal to the Com­
munities'), of Title 3. 
(2) Appropriations also appear under Title 9 of Part B of the 
Commission's budget for some staff expenditure of the 
European Association for Cooperation (EAC) and the 
Commission delegations. They are not taken into account in 
this Chapter. 
(3) Article 67 of the Staff Regulations of officials and Article 3 
of Annex VII thereof; Articles 20 and 21 of the regulations 
applicable to other servants. 
(4) General implementing provisions which came into force on 
1.3.1975 (Parliament, Court of Justice, Commission), 
1.5.1978 (Economic and Social Committee), 4.5.1978 
(Council) and 3.3.1983 (Court of Auditors). 
(5) Article 1 of the Financial Regulation of 21.12.1977 
applicable to the general budget of the European Com­
munities, OJ L 356 of 31.12.1977. 
(6) Article 14a of Annex VII to the Staff Regulations and 
Regulation Nos 6/66/Euratom, 121/66/EEC of the Councils 
of 28.7.1966, OJ 150 of 12.8.1966, p. 2749. 
(7) OJC74of 3.4.1986, p. 11. (8) Exchange rate as at August 1984, then January 1985 and 
July 1985 for Israel. 
(9) Financial Regulation of 21.12.1977 applicable to the general 
budget of the European Communities: Article 88(3):'... the 
commitment appropriations shall remain valid until cancel­
led ...'; Article 6(2)(b) and Article 88(4): 'Payment 
appropriations not used by the end of the financial year for 
which they were entered shall be carried over automatically, 
for the next financial year only'. 
(10) See the Staff Regulations, Annex VII, Article 12(4) (travel 
on mission), Article 14b (difficult or acute transport 
problem) and Article 15 (constant journeys required by 
official's duties). 
(n) Annual report of the Court on the financial year 1981, 
paragraphs 11.6— 11.8, OJ C 344 of 31.12.1982. 
Annual report of the Court on the financial year 1982, 
paragraphs 12.34 — 12.36, OJ C 357 of 31.12.1983. 
(12) Since 1982, the Agency has been applying internal 
accounting instructions to counteract this legal vacuum. 
(13) Article 3 of the statutes of the JET Joint Undertaking, OJ L 
151 of 7.6.1978. 
(14) Financial Regulations and measures of implementation for 
Financial Regulations. 
(15) United Kingdom Atomic Energy Authority. 
15. 12. 86 Official Journal of the European Communities 125 
CHAPTER 12 
Loans, borrowings and interest-rate subsidies 
12.0. TABLE OF CONTENTS 
Introduction 
Summary of financial information 
Observations on the balance sheets and revenue and expenditure accounts of 
the New Community Instrument and Euratom mechanisms 
Observations on legality and sound financial management 
European Investment Bank management commissions 
NCI Treasury 
NCI loans and interest-rate subsidies for areas devastated by 
earthquakes 
Introduction 
Earthquake loans and interest-rate subsidies to Italy 
Earthquake loans and interest-rate subsidies to Greece 
Control by the Commission 
Conclusion 
NCI global loans Paragraph 
reference 
12.1 
12.5 
12.8 12.4 
12.7 
12.11 
12.12 
12.12 
12.15 
12.16 
12.16 
12.19 
12.31 
12.38 
12.41 
12.42 — 12.45 
— 12.14 
— 12.41 
— 12.18 
— 12.30 
— 12.37 
— 12.40 
— 12.45 
INTRODUCTION Community borrowings contracted through the NCI, 
Euratom and BP mechanisms. Interest-rate subsidies are 
entered under Chapter 69 of the general budget of the 
Communities. 
12.1. This chapter deals with New Community 
Instrument loans (NCI loans), European Atomic Energy 
Community loans (Euratom loans) and Balance of 
Payments loans (BP loans), as well as the borrowings 
contracted by the Communities in order to finance these 
three loan mechanisms. Loans and borrowings by the 
European Coal and Steel Community (ECSC) are dealt 
with in a separate report ('), which is not published in the 
Official Journal. Loans by the European Development 
Fund are dealt with in the second part of this report. 
12.2. Community loans and borrowings are adminis­
tered on an extra-budgetary basis and are included in the 
balance sheet of Community assets and liabilities. The 
'Commission' section of the general budget includes 
token entries which represent the budgetary guarantee for 
(') The footnotes appear at the end of each chapter. 12.3. Euratom loans are granted by the Commission 
and administered by the European Investment Bank 
(EIB) as the Commission's agent. In the case of NCI 
loans, the Commission decides on the eligibility of the 
projects; the loans are approved and administered by the 
EIB, acting under a mandate from the Commission, at the 
latter's risk and on the condition that the EIB fulfils its 
obligations. BP loans are granted by the Council of 
Ministers and are administered by the Bank for Inter­
national Settlements. The related borrowings for all these 
loans are contracted by the Commission. 
12.4. In 1985 the Court paid particular attention during 
the execution of its audit to NCI loans and interest-rate 
subsidies for areas devastated by earthquakes in Italy and 
Greece. 
126 Official Journal of the European Communities 15. 12. 86 
SUMMARY OF FINANCIAL 
INFORMATION OBSERVATIONS ON THE BALANCE 
SHEETS AND REVENUE AND 
EXPENDITURE ACCOUNTS OF THE NEW 
COMMUNITY INSTRUMENT AND 
EURATOM MECHANISMS 
12.5. Tables 12.1 and 12.2 give a summary of the 
evolution of loans and borrowings during the financial 
year 1985 and also show the extent to which the ceilings 
fixed by the Council were utilized. 
12.6. Of the approximate total of 245 Mio ECU of 
interest-rate subsidies granted over the whole period for 
NCI and EIB (own resources) loans for reconstruction 
measures in the areas of Greece and Italy devastated by 
earthquakes, namely, Campania and Basilicata in Italy 
and Attica, Boeotia, Corinth, Euboea and Phokis in 
Greece, 28,4 Mio ECU were disbursed in 1985. Of this 
sum, Italy received 25,7 Mio ECU and Greece 2,7 Mio 
ECU. 
12.7. In paragraph 14.4 of its annual report for the 
financial year 1984 (2) the Court recommended that the 
Commission should obtain a legal opinion on the correct 
interpretation of the relevant legislation in order to 
establish the ceilings for borrowings and loans relating to 
NCI earthquake transactions. Such a legal opinion has 
not yet been forwarded to the Court. 12.8. The Court examined the NCI and Euratom 
balance sheets at 31 December 1985 as well as the 
statements of revenue and expenditure relating to the two 
mechanisms for the financial year 1985. In so doing, it 
uncovered a number of mistakes in the case of the 
Euratom mechanism which have, for the most part, been 
corrected. 
12.9. If all the adjustments recommended by the Court 
had been implemented, the overall result for Euratom 
transactions for the financial year 1985 would have been a 
small loss (of about 50 000 ECU). The positive result for 
the year (137 000 ECU) should be attributed to an 
amendment to the procedure for amortizing the issuing 
costs of borrowings: costs arising from borrowings 
contracted for refinancing purposes are no longer treated 
as expenditure of the financial year but are amortized 
over the life of the new borrowings. Although this new 
procedure should be considered to be an improvement, 
and as such is welcomed by the Court, it nevertheless gives 
cause for two observations: 
(a) as amendments to the accounting procedures impair 
the comparability over time of the annual statements 
Table 12.1 — Evolution of loans and borrowings during 1985 
(Mio ECU) 
Mechanism 
Loans: 
— NCI 
— Euratom 
— Balance of payments 
Total 
Borrowings: 
— NCI 
— Euratom 
— Balance of payments 
Total Outstanding at 31. 12. 1984 
At the ECU 
exchange rate 
of 31. 12.1984 
(1) At the ECU 
exchange rate 
of 31. 12. 1984 
(2) 
4 034,1 3 795,3 
1 881,3 1 864,0 
4 931,7 3 967,8 
10 847,1 9 627,1 
4 431,6 4 183,2 
1 892,4 1 865,9 
4 931,7 3 967,8 
11 255,7 10 016,9 Operations carried out in 1985 (') 
New loan 
or 
borrowing 
(3) Effects of 
swap 
transactions 
(4) Repayment 
or 
amortization 
(5) 
1 043,8 — 81,2 
211,0 -10,7 63,6 
— — 732,0 
1 254,8 -10,7 876,8 
843,6 — 67,3 
344,1 — 197,4 
2 691,7 — 3 423,7 
3 879,4 — 3 688,4 Outstanding 
at 
31. 12. 1985 
(6) 
= (2)+ (3)+ (4) 
-(5) 
4 757,9 
2 000,7 
3 235,8 
9 994,4 
4 959,5 
2 012,6 
3 235,8 
10 207,9 
(') At the ECU exchange of 31. 12. 1985. 
15. 12. 86 Official Journal of the European Communities 127 
Table 12.2 — Main characteristics and ceilings of the various 
mechanisms at 31 December 1985 
(Mio ECU) 
Mechanism 
NCI* 
Euratom* 
Balance of 
payments Objective 
NCI I: 
Council Decision 78/870/EEC of 16. 10. 1978 to 
promote investment in the infrastructure, energy and 
industrial sectors 
NCI II: 
Council Decision 82/169/EEC of 15. 3. 1982 to finance 
projects in the fields of energy, infrastructure and the 
development of small and medium-sized enterprises 
NCI III: 
Council Decision 83/200/EEC of 19. 4. 1983 to finance 
projects in the fields of energy, infrastructure and the 
development of small and medium-sized enterprises 
NCI Italian earthquake: 
Council Decision 81/19/EEC of 20. 1. 1981 to re­
construct the means of production and the economic 
and social infrastructure in the areas affected by the 
1980 earthquake 
NCI Greek earthquake: 
Council Decision 81/1013/EEC of 14. 12. 1981 to 
reconstruct the means of production and the economic 
and social infrastructure in the areas affected by the 
1981 earthquake 
Council Decision 77/720/Euratom of 29. 3. 1977 and 82/ 
170/Euratom of 15. 3. 1982 to promote the production of 
electricity by nuclear power stations 
Council Regulations Nos (EEC) 397/75 of 17. 2. 1975 and 
(EEC) 682/81 of 16.3.1981 and (EEC) 1131/85 of 
30. 4. 1985 to alleviate balance of payments difficulties in 
the Member States Borrowing 
ceiling 
(1) 
1 000 
1000 
3 000(3) 
2 900(3) 
1 000(4) 
80,0(4) 
3 000 
3 000(7) 
Mio USD 
8 000 
Mio ECU Loans granted within 
this limit 
Disbursed 
(2) Undisbursed 
(3) 
1 000 
970,4 8,1(2) 
2 050,7 317,9(2) 
536,3(5) 56,4(2) 
79,8(5) 
1 997,4 — 
2 547,8 (7) 
Mio USD 
3 997,2 — 
Mio ECU Balance 
available 
(4) = 
(l)-(2)-(3) 
21,5 
531,4 
117,0(6) 
0,2 
1 002,6 
~(8) 
4 002,8 
Mio ECU 
* Sources: DG XVIII Commission. 
(') NCI I, II and III and Euratom loans, converted into their equivalent in terms of borrowings, i.e. including the issue costs of the corresponding borrowing 
operations, at the ECU conversion rate at the date on which each borrowing was raised. 
2) Loans undisbursed but contracted, at the exchange rates ruling on 31. 12. 1985. 
3) On 31. 12. 1985 two tranches (amounting to a total of 2 900 Mio ECU) had been approved. 
4) Ceiling applicable to the entire loan programme, and relating therefore to the NCI and EIB loans and borrowings. 
5) At the exchange rate ruling two working days before each disbursement (NCI loan). 
6) The balance has been calculated taking into account loans made out of the EIB's own resources and amounting to 290,3 Mio ECU. 
~) Principal and interest. 
) Balance not available (measure expired). 
of accounts, any such amendments should only be 
justified on grounds which are of general validity. The 
Court has commented on this matter in previous 
annual reports (3); 
(b) the amendment mentioned above, in common with 
the amendments which the Court commented on 
previously, once again points up the need for a review 
of all the accounting procedures used by the 
Commission. The Court has already called once for 
such a review (4). 12.10. During its audit of the NCI transactions the 
Court checked whether DG XVIIFs Internal Rules for 
the payment of interest on borrowings were being 
correctly applied. This check produced the following 
results: 
(a) in accordance with the written procedure E/556/83, 
the telexes relating to these payments must be signed 
by two persons (an official of DG XVIII and an 
official of DG XIX). Of the 27 telexes which the Court 
128 Official Journal of the European Communities 15. 12. 86 
examined, five, concerning payments of sums amoun­
ting to 39,9 Mio ECU, bore only one signature; 
(b) moreover, in the case of transactions involving sums 
of more than 15 Mio ECU, the Court would also 
welcome compliance with the rule laid down in the 
general provisions of the Internal Rules of DG XVIII, 
according to which the signature of the Director-
General or the Head of the 'Borrowings' Directorate 
is required. 
The Court must therefore call upon the Commission to 
revise its Internal Rules concerning signatures, as regards 
the management of NCI and Euratom bank accounts, 
and in so doing to ensure, in particular, that written 
procedure E/556/83 does not result in a degree of internal 
control which is less stringent than that provided for in 
the general provisions of the Internal Rules applicable to 
DG XVIII. 
12.11. In the case of transactions connected with the 
NCI Treasury, and more particularly loan transactions 
managed by the EIB, the Commission confines itself 
merely to incorporating the figures supplied to it by the 
EIB into its own accounts. At the same time, the entries 
are checked against documents which are also supplied by 
the EIB. In the Court's opinion, the Commission (using 
appropriate EDP means) ought to use information which 
has already been entered in the EIB's accounts and 
systematically compare it with the documents supporting 
the original transactions. 
OBSERVATIONS ON LEGALITY AND 
SOUND FINANCIAL MANAGEMENT 
European Investment Bank management 
commissions 
12.12. In 1985 the management commissions received 
by the EIB for the administration of NCI and Euratom 
loans amounted to 7,5 Mio ECU, compared with 6,2 Mio 
ECU in 1984. 
12.13. The Court has still not been able to ascertain to 
what extent the management commissions received by the 
EIB for the administration of these loans is consistent 
with the costs involved, as the information needed for the 
appraisal is still not available at the Commission. 
12.14. The Court finds it highly unsatisfactory that this 
matter has not yet been resolved, particularly in view of the Parliament's express request in that respect (5). The 
Court must accordingly reiterate its recommendation, set 
out in paragraph 14.23 of its Annual Report for the 
financial year 1984 (2), that the Commission should 
request the EIB, in respect of any new contracts, to make 
available an annual account of costs and income relating 
to NCI and Euratom loans. 
NCI Treasury 
12.15. The Court notes that the average balance of the 
NCI Treasury, or liquidity reserve, decreased from 
471,3 Mio ECU in 1984 to 249,7 Mio ECU in 1985 and 
that the balance at 31 December 1985 was 156,3 Mio 
ECU, compared with 321,7 Mio ECU a year earlier. As 
the interest paid by the EIB to the Commission on credit 
balances on the NCI Treasury accounts is, on average, 
some 1,4 % lower than the interest paid by the Commis­
sion on related borrowings, the net benefit of the 
reduction in the level of this reserve will amount to 
approximately 3,2 Mio ECU over a full year. 
NCI loans and interest-rate subsidies for 
areas devastated by earthquakes 
Introduction 
12.16. In response to the serious earthquakes which 
struck parts of Italy in November 1980 and parts of 
Greece in February and March 1981, the Council 
empowered (6) the Commission to contract borrowings 
on behalf of the European Economic Community for the 
purpose of financing investments for the reconstruction 
of the means of production and the economic and social 
infrastructure in the affected regions. Loans to support 
these investments are made from the resources of the NCI 
or the EIB, subject to ceilings of 1 000 Mio ECU for loans 
to projects in Italy and 80 Mio ECU for loans to Greek 
projects. All these loans qualify for interest subsidies of 
3 % a year for a maximum period of 12 years, chargeable 
to the general budget of the European Communities. If 
the ceilings are fully utilized, the total cost of these interest 
subsidies will be approximately 225 Mio ECU in the case 
of the Italian projects and approximately 20 Mio ECU 
for Greek projects. 
12.17. Five years after the occurrence of the 
earthquakes, the Court has reviewed the implementation 
of these Council Decisions to see whether they have 
15. 12. 86 Official Journal of the European Communities 129 
achieved the aim of bringing effective remedial action to 
the affected regions. Up to the end of 1984, this review 
was based on documents held by the Commission, which 
included some EIB documents as well. For the financial 
year 1985, however, it became apparent to the Court that 
a full appreciation of this subject could only be gained by 
going on the spot. 
12.18. The review of Community aid in 1985 to the 
Greek reconstruction projects, which led to the observ­
ations set out in this report, is on the other hand based 
solely on documents, since, at the request of the Greek 
authorities responsible for administering the aid, the on-
the-spot audit visit by representatives of the Court did not 
take place until June 1986. 
Earthquake loans and interest-rate subsidies to Italy 
Implementation of the Council Decision 
12.19. The value of loan contracts signed with the 
Italian authorities for each of the five years from 1981 to 
1985 is shown in Table 12.3, which also shows the value of 
disbursements made under these contracts. This table can 
be used to establish the rate of implementation of the 
Council Decision. The table shows that there was an 
unused balance — on the ceiling of 1 000 Mio ECU — of 
97,2 Mio ECU at 31 December 1985, more than five years 
after the occurrence of the earthquake. In reality, the 
actual unused balance as at 31 December 1985, calculated 
on the basis of the ECU exchange rate applicable at the 
time when the loans were disbursed, amounted to 
117 Mio ECU. 
12.20. Of the 13 projects financed from NCI resources, 
eight have suffered significant delays, the most extreme 
cases being the railways' projects, which are experiencing 
forecast delays of up to 3,5 years on a planned two-year 
contract, and the roads' project, which experienced a 
three-year delay on an 18 months' contract. 
12.21. The progress reports concerning the NCI 
earthquake loans issued by the EIB to the Commission do 
not provide much information on the causes of these 
delays. The Court's enquiries on the spot in November 
1985 revealed the following main causes: 
(a) unrealistic completion dates written into contracts; 
(b) projects launched before completion of the essential 
preparatory works; Table 12.3 — Loans for reconstruction measures in areas 
devastated by earthquakes (Italy) 
(Mio ECU) 
Year 
(1) 
1981 
1982 
1983 
1984 
1985 
Total Loans contracted (') 
NCI 
(2) EIB 
(3) Total 
amount 
(4) = 
(2) + (3) Amount 
disbur­
sed 
(5) Undis­
bursed 
amount 
(6) = 
(4) - (5) 
296,2 31,8 328,0 328,0 — 
78,4 116,4 194,8 194,8 — 
208,1 61,1 269,2 222,9 46,3 
14,6 51,8 66,4 66,4 — 
14,1 30,3 44,4 30,3 14,1 
611,4 291,4 902,8 842,4 60,4 
(') Converted at the ECU exchange rate on the last working day of the 
quarter preceding the loan signing. 
(c) delays in the transmission of the necessary appropri­
ations by the Italian Treasury to the relevant 
ministries and by them to the local authorities; 
(d) laborious national administrative procedures and 
clashes of different competences; 
(e) unforeseen technical difficulties. 
12.22. In the Court's opinion, some of these problems 
could have been avoided, or at least minimized, if steps 
had been taken in the Member State to ensure improved 
coordination of the efforts of the different authorities 
concerned and of the supervision of the overall planning 
and implementation of the different projects. 
Disbursement of loans and interest-rate subsidies 
12.23. Where disbursements under loan contracts with 
interest subsidies are concerned, it is necessary to seek as 
far as practicable to match the rhythm of disbursements 
to the rhythm of payments to be made by the final loan 
beneficiary. To this end, the EIB has a general rule that 
disbursements should be made on the basis of expenditure 
actually incurred, together with short-term future 
commitments. This general rule is included as a clause in 
some of the loan contracts. 
12.24. The Court could not monitor the application of 
this rule using the documents available at the Commis-
130 Official Journal of the European Communities 15. 12. 86 
sion. Table 12.4, which was compiled from information 
obtained by the Court on the spot, shows for selected 
projects the dates and amounts of disbursements 
compared with the annual project payments. It is clear 
from this table that disbursements have been made well in 
advance of the related payments, on one occasion by as 
much as 2,5 years, and that scant attention has been paid 
to the general rule described above and to the conditions 
of the contracts concerned. Acceptance of these recommendations would also 
provide an increased incentive for the authorities 
concerned to speed up the implementation of projects 
funded with subsidized loans. 
Eligibility of projects financed from NCI resources 
12.25. In a particular case decided on in 1985, the 
Commission and the EIB even approved and effected a 
disbursement of 50 000 Mio LIT (about 33,6 Mio ECU) 
before the works contracts had been negotiated. In the 
Court's view, such decisions are not consistent with the 
most prudent possible management of resources. 
12.26. The result of making disbursements so long in 
advance of the related payments is that loan funds with 
interest subsidies lie for considerable periods in the Italian 
Treasury accounts with the Bank of Italy. 12.28. The relevant Council Decision (6) lays down that 
the loans, amounting to 1 000 Mio ECU, and the interest-
rate subsidies, estimated as totalling 225 Mio ECU, shall 
be granted 'for the reconstruction of the means of 
production and the economic and social infrastructure in 
the (affected) regions'. 
12.29. In the Court's opinion, it is not evident that all 
the investments listed below are consistent with the 
Council's objective of reconstructing the economic and 
social infrastructure in the affected regions, and it is thus 
not evident that they are eligible for Community 
assistance: 
12.27. In order to avoid a recurrence of such an 
unsatisfactory situation, it is recommended that steps 
should be taken to ensure: (a) the construction of a barrack and administration 
block for the Carabinieri at an estimated cost of 
6 250 Mio LIT (about 4,6 Mio ECU) at Avellino; no 
such building existed before the earthquake; 
(a) that the disbursement profiles are more closely 
aligned by the EIB with the payment profiles; and (b) the construction of a police headquarters building at 
Avellino at an estimated cost of 10 250 Mio LIT 
(about 7,5 Mio ECU) (the old headquarters building 
at Avellino is still in use); 
(b) that interest subsidies are not granted by the 
Commission until payments have actually been 
incurred by the final loan beneficiaries. (c) the construction of a new pharmacy building at the 
University of Naples at an estimated cost of 
13 050 Mio LIT (about 9,5 Mio ECU) (the former 
faculty of pharmacy was slightly damaged in the 
Table 12.4 — Timetable of loan disbursements and payments made by the final beneficiaries (Italy) 
(Mio ECU) 
Project 
Railways IA 
Railways IB 
Railways IC 
Railways IIA 
Industrial 
plant I 
University 
buildings Disbursed 
by the 
EIB 
27,6 
21,9 
14,6 
14,6 
36,4 
29,2 
7,3 
6,7 Date 
1.7.81 
21. 1.83 
14. 3. 84 
26. 5. 83 
21. 11.83 
7. 9. 84 
11. 1.84 
28. 6. 85 Payments by the beneficiary 
1981 
1 
• 15,2 
-
} 1982 
15,1 1983 1984 
6,8 5,1 
— 
7,5 36,3 
5 1985 
2,5 
— 
18,6 
1 Total 
44,7 
— 
62,4 
5,1 
15. 12. 86 Official Journal of the European Communities 131 
earthquake but is being repaired with national funds 
and will continue in use as a university building); 
(d) there is, in addition, the example, not visited by the 
Court's representatives, of the military barracks 
being constructed at Persano at a cost of 55 000 Mio 
LIT (about 40,1 Mio ECU). No such facility existed 
before the earthquake. 
12.30. Favourable eligibility decisions were made by 
the Commission on the projects covering the sub-projects 
cited above on the basis of documents supplied by the 
EIB. Apart from the Persano barracks, which constitutes 
an individual project, these documents did not make it 
clear that the projects concerned included the construc­
tion of new buildings and not the reconstruction or 
restoration of buildings damaged or destroyed in the 
earthquake. 
Earthquake loans and interest-rate subsidies to Greece 
12.31. In November 1982, i.e. 20 months after the 
occurrence of the earthquake, a contract for a loan of the 
equivalent of 80 Mio ECU (about 5 332 Mio DRA) (7) 
from NCI resources was signed with the Greek Govern­
ment to provide the balance of finance required for the 
implementation of various projects forming part of a 
programme set up by the Greek authorities for the 
reconstruction of the means of production and the 
economic and social infrastructure, including housing, in 
the areas affected by the earthquake. 
12.32. The projects to be co-financed by the Com­
munity included the total or partial reconstruction or 
repair of roads, railway buildings and bridges and State-
run schools and assistance in the reconstruction of private 
housing. The total costs were estimated at 7 137 Mio 
DRA (about 107,1 Mio ECU), the work to be carried out 
between 1981 and 1985. 
12.33. The loan of 5 332 Mio DRA (about 80 Mio 
ECU) was disbursed in three tranches, the last in April 
1983. By January 1985, only 63 % of the disbursed loan 
(3 362 Mio DRA/about 50,5 Mio ECU) had been drawn 
from the special accounts at the Bank of Greece, which 
means that the loan and the related interest subsidy had 
been made available long before they were needed. 
12.34. Based on the information available at the 
Commission, the costs incurred as at 30 June 1985, that is, 
more than four years after the earthquake, compared with the initial projects co-financed by a NCI loan, may be 
estimated at 4 000 Mio DRA (about 60 Mio ECU), 
against forecast costs estimated at 7 137 Mio DRA 
(about 107,1 Mio ECU). 
12.35. The loan contract provides that half-yearly 
progress reports should be presented to the EIB. This 
requirement has not been satisfied. 
12.36. In April 1985 the Greek authorities proposed a 
number of modifications to the initial programme. The 
most significant changes were: 
(a) the inclusion of the repair of 42 541 private flats 
(actual cost out-turn as at 31 December 1985: 
1 325,9 Mio DRA, or about 19,9 Mio ECU); 
(b) the inclusion of the reconstruction of three buildings 
(four sub-contracts) in Nikaea-Piraeus, consisting of 
120 flats, 52 warehouses and 21 shop premises (actual 
cost out-turn as at 31 December 1985 : 437,2 Mio 
DRA, or about 6,6 Mio ECU); 
(c) an increase in the number of road sections to be 
repaired from 42 to 218 (actual cost out-turn as at 31 
December 1985: 1 697 Mio DRA, or about 25,5 Mio 
ECU, instead of the initial estimate of 872,3 Mio 
DRA, or about 13,1 Mio ECU). 
The programme thus amended was approved by the EIB. 
Total costs incurred as at 31 December 1985 amounted to 
6 648,1 Mio DRA (about 99,7 Mio ECU). 
12.37. The finance contract provides that the allocation 
of the NCI loan between the various parts of the 
programme may be modified by the parties by simple 
exchange of correspondence. However, in the Court's 
opinion, the extent of the modifications and the inclusion 
of a number of completely new projects under the assisted 
programme required a formal decision by the Commis­
sion on the eligibility of the projects to be added to the 
programme, especially as any modification has a direct 
effect on the level of the interest-rate subsidy. 
Control by the Commission 
12.38. The Commission's eligibility decisions on NCI-
financed projects, its opinions on projects financed from 
the EIB's own resources and its interest subsidy decisions 
are all based on documents submitted by the EIB. The 
EIB, as administrator of all the loans granted, furnishes 
the Commission with progress and completion reports for 
the projects financed from NCI resources. It does not, 
however, transmit to the Commission any progress or 
132 Official Journal of the European Communities 15. 12. 86 
completion reports for projects financed from its own 
resources, notwithstanding that the loans concerned also 
receive interest rebates payable from the general budget 
of the Community. In the Court's view, the Commission 
should insist on receiving relevant reports from the EIB 
for all projects for which budgetary resources have been 
made available. 
12.39. Under Article 7 of Council Decisions (6) 81/19/ 
EEC of 20 January 1981 and 81/1013/EEC of 14 
December 1981, the Commission is required to inform the 
Council and the European Parliament annually of 
transactions carried out under the Decisions. 
12.40. The Court's review of the reports made under 
this requirement shows that they merely explain the 
utilization of loan resources. They contain no inform­
ation on the progress of projects financed, reasons for 
delays, utilization of disbursed funds etc. nor do they 
contain any comment on the general effectiveness of the 
assistance granted. NCI global loans 
12.42. Since 1982 global loans have been made from 
NCI resources. The purpose of these loans is to make 
funds available to financial institutions in the Member 
States which then pass on these funds at their own risk in 
the form of loans to small and medium-sized enterprises 
engaged on projects which have been approved by the 
EIB. These loans have increased considerably in scale 
since they were introduced. Whereas no global loans were 
made under NCI 1,43 % of the loans made under NCI II, 
amounting to 988,5 Mio ECU altogether, were global 
loans, and as at 31 December 1985 global loans ac­
counted for 71 % of the total of 2 408 Mio ECU in loans 
approved under NCI III. 
12.43. In respect of these loans, the Court's audit for the 
financial year 1985 was limited to an examination of the 
records which the Commission maintains and which the 
EIB had contributed. 
Conclusion 
12.41. In the light of the above-mentioned inadequacies 
and the problems that have arisen with regard to these 
loans, the Commission should, in the Court's view, 
assume a more positive role in the monitoring and 
evaluation of the implementation of the Council Decision 
and should make its reports more informative. In 
particular, the Court recommends that the Commission 
should undertake a full evaluation of the effectiveness of 
the assistance granted so far in these cases so that lessons 
may be drawn for the benefit of these and any future 
emergency assistance programmes which might arise. 12.44. Examination of the available documents showed 
that they do not at present contain adequate information 
to allow the Commission and the Court to form an 
opinion regarding the extent to which the aims set out by 
the Council in the regulations, in particular concerning 
the number of jobs actually created, have been achieved. 
12.45. The Court, in association with the Commission, 
is at present seeking to establish implementation pro­
cedures for the execution of on-the-spot audits in this 
area. 
(') Report (Annex to the Annual Report ECSC 1985) on the 
accounting and financial management of the European Coal 
and Steel Community. 
(2) Annual Report on the financial year 1984, OJ C 326 of 
16.12.1985. 
(3) — Annual Report on the financial year 1984, OJ C 326 of 
16.12.1985, paragraphs 2.5-2.6. 
— Annual Report on the financial year 1983, OJ C 348 of 
31.12.1984, paragraphs 2.20-2.24. (4) 
(5) 
(6) 
(7) Annual Report on the financial year 1983, paragraph 2.38. 
Resolution of the European Parliament, of 18.4.1986, OJ L 
150 of 4.6.1986. 
Council Decisions 81/19/EEC of 20.1.1981, OJ L 37 of 
10.2.1981, and 81/1013/EEC of 14.12.1981, OJ L 367 of 
23.12.1981. 
All figures quoted in DRA have been converted into ECU at 
the exchange rate ruling on 15.11.1982. 
15. 12. 86 Official Journal of the European Communities 133 
PART II 
European Development Funds 
0. TABLE OF CONTENTS 
Introduction 
Summary of financial information 
Observations on the financial management 
Third and fourth EDF 
Fifth EDF 
Observations on the accounting systems and procedures 
Observations on the ACP States' role in defining the aid 
Aid programming 
Appraisal of projects 
Observations on the Community's responsibilities in the management of the aid 
Implementation of projects 
Evaluation of projects 
Stabex 
Use of Stabex transfers 
Refund by beneficiary States of Stabex transfers 
Sysmin 
Delays in implementation 
Control over funds managed by the European Investment Bank (EIB) Paragraph 
reference 
3 
3 
4 
5 
9 
10 
24 
43 
43 
51 
62 
62 
64 
67 
69 
73 — 4 
— 8 
— 42 
— 23 
— 42 
— 61 
— 50 
— 61 
— 66 
— 63 
— 66 
— 72 
— 72 
— 74 
INTRODUCTION SUMMARY OF FINANCIAL 
INFORMATION 
1. The European Development Funds (EDF) constitute 
the main instrument of the policy of cooperation that the 
EEC has been conducting since 1958 with a number of 
developing countries in Africa, the Caribbean and the 
Pacific (ACP States). Each EDF's allocation is separate 
from the general budget of the European Communities 
and is financed by the Member States' contributions, 
which are fixed according to an ad hoc scale of quotas. 
The implementation of each EDF is governed by a 
specific financial regulation. 2. The cumulative utilization of the third, fourth and 
fifth EDF at 31 December 1985 is summarized in Table 1, 
as are the total payments and sundry receipts recorded in 
1985. The allocation of aid by recipient country is shown 
in the second part of Annex III. 
134 Official Journal of the European Communities 15. 12. 86 
Table 1 — Utilization of the third, fourth and 
fifth EDF at 31 December 1985 
(Mio ECU) 
Resources 
and utilization 
Disbursements: 
—- prior to 1985 
— paid in 1985 
Total disbursement 
Not yet disbursed: 
committed 
— not committed 
Allocation 
Sundry receipts 
— prior to 1985 
— banked in 1985 
Total resources available 3rd EDF 
Yaounde II 
(expiry: 
1976) 
875,6 
5,9 
881,5 
17,8 
17,3 
916,6 
— 
916,6 4th EDF 
Lome I 
(expiry: 
1981) 
2 676,3 
105,6 
2 781,9 
216,9 
157,1 
3 155,9 
40,7 
3 196,6 5th EDF 
Lome II 
(expiry: 
1985) 
1 454,7 
586,3 
2 041,0 
1 621,3 
1 140,0 
4 802,3 
6,9 
20,2 
4 829,4 
OBSERVATIONS ON THE FINANCIAL 
MANAGEMENT 
Third and fourth EDF 
3. In 1985, the Commission continued to take financing 
decisions under the third EDF, thereby further delaying 
its closure. Most of the 17,8 Mio ECU committed under 
the third EDF but not yet paid concerns projects first 
started more than ten years ago. Surplus sums committed 
on such projects should in the Court's view now be 
released and transferred to the fifth EDF, together with 
the 17,3 Mio ECU which have not been committed. 
Similarly, the Commission should now propose appli­
cations for certain unused resources of the fourth EDF, 
such as unallocated programmable aid (47,1 Mio ECU) 
and sundry receipts (40,7 Mio ECU). Fifth EDF 
4. That part of the fifth EDF's resources which may be 
programmed in advance by the Commission amounts to 
3 147,4 Mio ECU. Article 110 of the Second Lome 
Convention (fifth EDF) (') specifies that the commit­
ments of programmable aid should be distributed as 
evenly as possible throughout the period of application of 
the convention, which expired on 28 February 1985. At 31 
December 1985, 77% of programmable aid had been 
committed. The breakdown by economic sector is in 
Table 2. Amongst the major beneficiaries, Sierra Leone, 
Liberia, Suriname, Papua New Guinea and Nigeria stand 
out as having particularly low rates of utilization (17 %, 
14%, 12%, 13% and 4% respectively). The rate of 
disbursement of the allocation for special loans is 
significantly lower than that for grants (24 % compared to 
37 %), partly because of the excessive time required to 
conclude the loan contracts. 
OBSERVATIONS ON THE ACCOUNTING 
SYSTEMS AND PROCEDURES 
5. In its annual report concerning the financial year 
1984 (2), and in previous annual reports, the Court of 
Auditors commented on the excessive level of calls by the 
Commission for payment of contributions by the 
Member States, on the late payment of these contri­
butions by certain Member States, and on the Com­
mission's inadequate accounting records concerning 
EDF bank balances. These deficiencies persisted in 1985, 
pending the adoption of changes proposed in the sixth 
EDF financial regulation, and pending a review of the 
cash recording system announced by the Commission in 
paragraph 15.13 of its reply to the Court's 1984 annual 
report. 
6. Similarly, many of the deficiencies noted in past years 
continued in the supporting documents concerning 
payments which are presented to the finance department 
for authorization or verification, as did certain delays in 
payment or accounting, in particular in the first quarter of 
the year, during which time the book-keeping was no 
longer continuous. 
(') The footnotes appear at the end of Part II. 
15. 12. 86 Official Journal of the European Communities 135 
Table 2 — Utilization of 5th EDF programmable aids at 31 December 1985 
Economic sector Indicative 
allocation 
Mio ECU of total Financing 
decisions 
Mio ECU Rate of 
financing 
decision Payments 
Mio ECU Payment 
rate 
against 
alloca­
tion Payment 
rate 
against 
financing 
decision 
(1) (2) (3) (4) (5) = %(4)/(2) (6) (7) = %(6)/(2) (8) = %(6)/(4) 
Rural development 
Transport and communications 
Social (health and training) 
Industry, energy, mining 
Housing, urban, sewerage and 
water supplies 
Technical cooperation 
Microprojects 
Trade promotion 
Reserve 1 235,0 
585,0 
410,0 
285,0 
210,0 
100,0 
47,0 
45,0 
230,4 39,2 
18,6 
13,0 
9,0 
6,6 
3,2 
1,5 
1,4 
7,5 838,8 
600,2 
314,7 
284,9 
221,8 
34,2 
61,7 
65,7 68,0 
102,6 
76,8 
100,0 
105,6 
34,2 
131,2 
146,0 346,6 
317,1 
108,7 
143,1 
105,3 
21,0 
32,4 
24,8 28,1 
54,2 
26,5 
50,2 
50,1 
21,0 
68,9 
55,1 41,3 
52,8 
34,6 
50,2 
47,5 
61,4 
52,5 
37,7 
Total programmable aids 3 147,4 100,0 2 422,0 77,0 1 099,0 34,9 45,4 
Table 3 — Percentage of the aid audited by the Court, 
per country visited 
Ghana 
95% Guinea 
91% Cape Verde 
61% Madagascar 
67% Mauritius 
53% Kenya 
57% Somalia 
82% 
7. The EDF computer system is a major source of 
delays: given the computing power available to the 
Commission, it should be possible for authorizing and 
accounting staff to have direct access to EDF magnetic 
files, through terminals for example, thus eliminating the 
present excessively long wait before receiving printed 
accounting records, which are updated by the time-
consuming means of handwritten forms and punched 
cards. supporting documents in their delegation, concerning for 
example exceptional aids totalling 80 Mio ECU granted 
under the Dublin Plan. 
OBSERVATIONS ON THE ACP STATES' 
ROLE IN DEFINING THE AID 
8. The deficiencies noted in the supporting documents 
reflect inter alia the lack of a detailed procedures manual, 
required to define and harmonize the work of officials in 
the Commission's finance departments and delegations. 
The need to define and apply verification procedures has 
become particularly urgent since, in the interest of rapid 
implementation, an increasing volume of payments is 
made by the Commission in Brussels on receipt of simple 
telex instructions from the delegates who keep all 9. During the audit visits it made in 1985 to seven 
countries (Ghana, Guinea, Cape Verde, Madagascar, 
Mauritius, Kenya and Somalia) and to departments of 
the Commission, the Court examined 63 projects and 
numerous micro-projects financed in the context of the 
national indicative programmes and regional cooper­
ation, as well as various measures relating to emergency 
aid and the stabilization of export earnings. These audit 
136 Official Journal of the European Communities 15. 12. 86 
enquiries concerned sectors as diverse as rural develop­
ment, agricultural production, the agro-industry, manu­
facturing, road, water and sanitary infrastructures, the 
credit system, aid to small and medium-sized undertak­
ings and training. Moreover, as Table 3 shows, the 
proportion, in financial terms, of the aid audited in 
relation to the total amount of aid granted under the 
fourth and fifth EDF in each of these countries varies 
between 53 % and 95 %. 
Aid programming 
Identification of the beneficiary Member States' priority 
needs 
10. According to Article 109 of the Second Lome 
Convention (fifth EDF) (3), 'the schemes financed by the 
Community, which are complementary to the ACP 
States' own efforts, shall be integrated into the economic 
and social development plans and programmes of the said 
States and shall tie in with the development objectives and 
priorities which they set both at national and regional 
level'. When scrutinized, a great many of the indicative 
programmes are found to be more an amalgamation of 
independent projects rather than a set of coordinated 
measures to achieve specific objectives. 
11. Some programmes thus lack any element of 
selectivity or priority. For instance, in Guinea, which is 
one of the least developed of the ACP States within the 
meaning of the Lome Conventions, the fourth EDF 
mainly financed industrial investments and purchases of 
agricultural machinery, despite the lack of basic infra­
structure (electricity, roads, tracks, etc.) essential for their 
operation. The power-supply difficulties plaguing this 
country are chiefly to blame for the delay of almost three 
years affecting the reconstruction of the Sanoyah textile 
complex and for the fact that the Community's contri­
bution to this project had to be increased from 30 to 
43,2 Mio ECU. The one-year delay in achieving a steady 
rate of output at the Soguiplast plastics factory and the 
investment of an extra 0,5 Mio ECU of EDF finance can 
also be attributed to the inadequacy of the electricity 
supply network. Furthermore, if this shortcoming 
persists, it will seriously jeopardize the operation of these 
two complexes. In the case of the cotton-production 
development project in Upper Guinea, the reasons for its 
failure are to be found, in part, in the fact that the service 
roads and the bridges in this area are virtually impassable, 
making it particularly difficult to inform and instruct the 
farmers and to supply the inputs. The bottlenecks which 
these projects have encountered prove that an important 
stage has been omitted in the planning process, namely that of compiling an accurate list of the priority needs of 
the national economy, prior to making a judicious 
selection of the measures to be promoted. 
Taking account of national constraints resulting from 
the state of public finances and foreign-exchange 
reserves 
12. Article 110 of the Second Lome Convention (fifth 
EDF) lays down that when the aid is being programmed, 
the optimum pace for overall commitments shall be 
worked out with the ACP State concerned 'in the light of 
the various constraints on the parties and priorities to be 
observed by them'. The nature of the difficulties 
encountered by many of the projects examined suggests 
that, when the indicative programmes were being drawn 
up, insufficient account was taken of the factors acting as 
constraints upon the development strategies of most of 
the beneficiary States. Some of these constraints, linked 
as they are with economic trends, are hard to take account 
of when drawing up a five-year programme. The 
indicative programmes' failure even to mention structural 
constraints is nevertheless surprising, to say the least. The 
latter include the very precarious situation of many 
national budgets and the chronic lack of foreign 
exchange, constraints which, through having all too often 
been swept under the carpet, have hampered the 
completion or operation of many projects. 
13. Because of the delicate situation of their public 
finances, some national authorities have experienced 
difficulties either in honouring their commitments in 
jointly-financed operations or in defraying running costs, 
and it is these problems which lie behind the troubles that 
dog a great many projects. 
14. As regards jointly-financed projects, the Court has 
observed, in the case of a project to construct and extend a 
hospital and health centres in Kenya, that the construc­
tion of one centre originally planned has had to be 
abandoned, and that the construction work on two other 
centres was suspended in 1982 for several years, because 
of the difficulties encountered by the State in paying the 
undertakings responsible for the construction, even 
though the financing agreement laid down that this 
expenditure was to be met from national funds. In Ghana, 
the programme for the rehabilitation and construction of 
staff housing for the Prestea oil-palm plantation was 
supposed to be financed, in part, out of national 
resources. Since the Ghanaian authorities were not able 
to provide this finance, the construction of the houses had 
to be temporarily abandoned, thus making it even more 
difficult to provide the plantation with skilled staff. A 
similar situation arose in the same country at the Twifo 
oil-palm plantation. Alterations of this kind are likely to 
upset the internal economic balance of each project 
15. 12. 86 Official Journal of the European Communities 137 
concerned and, consequently, to jeopardize its viability. 
In these circumstances, the Commission should under­
take to participate in jointly-financed operations only 
with States offering reliable guarantees that they are able 
to meet the obligations they enter into. 
15. The operation of completed projects may also be 
impeded by ailing national budgets. For example, the 
audit visit to three hospital centres in Guinea revealed a 
marked under-utilization of the equipment financed by 
the fourth EDF, which was due to shortages of health­
care materials and basic instruments. It is clear merely 
from reading through the budget of these institutions that 
the appropriations allocated to them are insufficient for 
them to be able to operate satisfactorily. In view of this 
situation, it would no doubt have been preferable to focus 
the Community aid measures on a small number of 
investments and, within this context, to carry out 
integrated operations involving 100 % financing of the 
various component parts of each of these projects. 
16. In the absence of any specific reference by the 
indicative programmes, the budgets of the beneficiary 
States also have to bear the cost of maintaining the 
majority of the investment projects financed by the EDF. 
It must be pointed out that, in many of the cases 
examined, the public finances of these States did not 
enable the latter to carry out this obligation. 
17. For example, the Somali government had under­
taken to earmark every year in its budget the appropri­
ations required for the upkeep of the Goluen-Gelib road 
and to notify the Commission of the corresponding 
amounts. These conditions have never been met. As a 
result, the state of the road has seriously deteriorated 
which, on some sections, will mean that it will have to be 
remade. In the programme of public services and 
development of urban sites in Mathare Valley in Kenya, 
the inadequate maintenance of the infrastructures by the 
Nairobi City Council explains the poor state of the roads 
and the defects of the sewerage system. In Madagascar, 
the ever-dwindling maintenance budgets for the Am-
bilobe-Vohimarina and Manakara-Irondo roads bode ill 
for the future development of these projects. 
18. In the same country, a great many of the investment 
projects financed in the agricultural sector in the years 
1970 - 1983 have failed, mainly because the maintenance 
was inadequate or even non-existent. This is the case for 
the Lower Mangoky development project where, as a 
result of the silting up of the water supply and distribution 
network, less than 50 % of the developed areas are 
cultivated. The consequences of this situation, in terms of 
the scrapping of expensive equipment and the shortage of 
rice and cotton for Madagascar, are out of all proportion 
to the relatively modest maintenance budget required for 
managing a stock of spare parts for the main machines 
and for the regular upkeep of the irrigation networks. 
19. Given the situation of the public finances of these 
countries, it was possible to foresee that these States would have problems — perhaps even insurmountable 
ones — in defraying the maintenance costs of all the 
projects. This being so, it is regrettable that no provision 
for financing the maintenance was made in the indicative 
programmes, despite the fact that Article 153 of the 
Second Lome Convention (fifth EDF) provides for the 
possibility of financing 'running costs' serving to cover 
'the cost of operating, maintaining or managing capital 
projects implemented previously, in order to ensure that 
full use is made of such projects, in particular by 
providing maintenance equipment and/or carrying out 
large-scale repair work'. 
20. The second constraint which, when it affects a 
country, has little chance of being overcome in the short 
term, and of which account must therefore be taken when 
programming aid, is the shortage of foreign exchange. 
Several of the projects audited show that this has not 
always been the case, far from it, in fact. For example, the 
Soguiplast factory in Guinea can operate only by 
importing huge amounts of raw materials. Since the 
Guinean State does not have sufficient foreign exchange, 
the only way to date of preventing production at the 
factory being halted, has been by granting additional 
Community funds. It is out of the question, however, to 
go on indefinitely using external aid to cover a factory's 
supplies of raw materials, even supposing this aid to be 
forthcoming. In the case of a project to develop coconut 
production in Madagascar, the State is unable to supply 
Soavoanio, the company running the project, with the 
necessary funds to finance imports of inputs (fertilizers, 
pesticides, etc.). Since here too it is obliged to rely on 
external assistance, the company is deprived of control of 
a vital aspect of its management. The programming 
should endeavour to encourage States which have a long-
term balance-of-payments deficit to submit for EDF 
financing projects which are economical in their use of 
imported commodities. 
Complementarity of Community and national efforts 
21. Article 109 of the Second Lome Convention (fifth 
EDF) stipulates that the Community schemes should be 
complementary to the ACP States' own efforts. Since in 
some projects the Community and the national author­
ities are directing their efforts in opposite directions to 
each other, it is somewhat doubtful whether any such 
complementarity actually exists. 
22. For example, in Mauritius, the Rodrigues Island 
agricultural development project included a scheme 
aimed at halving the size of a 10 000-head herd of cattle, 
most of which were of a degenerate breed, and at 
restricting the movements of the animals in order to be 
able to apply proper veterinary practices and curb 
overgrazing and the destruction of crops. Far from 
putting these measures into practice, the State extended to 
Rodrigues Island the right to benefit from provisions to 
138 Official Journal of the European Communities 15. 12. 86 
promote cattle-breeding on Mauritius, such as subsidies 
for concentrated feedingstuffs and supplies of medical 
products free of charge. This inconsistency jeopardizes 
that aspect of the project which aims to increase the maize 
yield, since in the absence of any cutback in the number of 
animals and of any restrictions on their movements, the 
damage caused by free-ranging cattle prevents this 
scheme being implemented. 
23. In Guinea, the fourth EDF financed supplies of 
equipment to five secondary-level polytechnic colleges. 
At the same time, the Ministry of Intermediate Technical 
Education and Professional Training went on allocating 
these colleges remarkably low budgets which were wholly 
inadequate for repairing the premises supposed to house 
this equipment, for acquiring the tools necessary for its 
use and for training the staff essential for operating this 
equipment. As a result, a large proportion of the 
equipment delivered disappeared, whilst the remainder 
was under-used and deteriorated rapidly. The fate of the 
scientific apparatus supplied to the agronomy faculties 
was no better. One of the beneficiary faculties, in Labe, 
quite simply no longer exists. The material financed by 
the EDF is stored in crates which have been broken open, 
the equipment has been badly damaged and much of it is 
unusable. In another faculty visited, in Kankan, a 
considerable proportion of the equipment is still in store 
in crates several years after delivery because there are no 
buildings to accommodate it. This situation casts grave 
doubts on the consistency of, on the one hand, the 
Community aid aiming to support these establishments 
and, on the other, the Guinean policy condemning the 
same institutions to neglect. 
Appraisal of projects 
Analysis of the commercial aspects 
24. The need to guarantee the disposal of a project's 
expected production calls for a two-fold approach at the 
appraisal stage: firstly, the needs to be met have to be 
identified in order to assess the quantity and quality of 
existing outlets; secondly, the distribution networks have 
to be examined so as to set up an efficient link between the 
project and the market. The difficulties experienced by 
several projects in disposing of their products indicate 
that these two phases have not always been carried out as 
thoroughly as is necessary. 
25. In appraising some projects, the market's ab-
sorbency may not have been assessed with sufficient 
accuracy. For example, in the Rodrigues Island agricul­
tural development project, the plan was to increase onion production from 540 tonnes in 1981 to 1 500 tonnes in 
1986. Production was in fact cut by half, ending up at 285 
tonnes. Since the Mauritian market was saturated from 
the very outset, the production targets were far from 
realistic. In Madagascar, the coconut-production de­
velopment project has led to a sharp rise in the production 
of copra. Because the company running the plantations, 
Soavoanio, cannot manage to dispose of this production, 
it is building up large stocks and is experiencing cash-flow 
problems. The reasons behind this are the partial 
insolvency of the oil-mills that are its customers and their 
inability to procure the other raw materials required for 
manufacturing soap. Furthermore, plans to build an 
additional oil-mill to absorb the surplus production have 
come to nothing. In the case of other projects, not enough 
attention has been paid to the preferences of potential 
customers, because of a failure to research the market in 
sufficient depth. This applies to the Soguiplast factory in 
Guinea, whose shoes, intended for the domestic market, 
are very slow to sell because the styles produced are not to 
the taste of the consumers, who prefer shoes imported 
from Sierra Leone. 
26. In some projects, efforts to market the products are 
also hampered by an inefficient distribution system. In the 
case of the Soguiplast factory mentioned in paragraph 25, 
the entire production is bought up by the Ministry of 
Domestic Trade, which sells it in its State shops. The same 
Ministry determines the selling prices administratively. 
The company therefore does not have any influence over 
its profit margins. Owing to the present liberalization of 
the Guinean economy, competing products are flooding 
in from neighbouring countries. These imported goods 
are distributed by small private traders who use some 
aggressive trading tactics and who adjust their selling 
prices in order to gain a bigger share of the market. Under 
these conditions, the Soguiplast products, hampered by 
an inflexible pricing system and by an inefficient 
distribution network, are experiencing great difficulty in 
coping with this competition. 
Technical studies 
27. The purpose of the technical studies, which are an 
important stage in a project's cycle, is to make it possible 
to tackle the problems connected with determining the 
location and scale of the investment, the availability of 
equipment, of raw materials and of services essential for 
production. With regard to these various aspects, the 
sample of projects examined revealed numerous defects 
relating to the design of the studies and to the 
implementation of their conclusions. 
28. Sufficient thought is not always given at the 
appraisal stage to selecting the projects' location, as the 
following cases show. On the basis of a study of the 
15. 12. 86 Official Journal of the European Communities 139 
development of the Juba Valley made in 1976, the Somali 
authorities decided to set up an agricultural experimen­
tation centre in Sakow. For this purpose, they received 
two grants from the fourth EDF totalling 6,35 Mio ECU. 
The initial technical studies carried out in the context of 
the project cast doubt upon the conclusions of the 1976 
study, especially in respect of the economic profitability 
of the investment and the suitability of the soil in the 
chosen region for the proposed work. Furthermore, the 
limited accessibility of the site necessitated infrastructure 
work which was out of all proportion to the scale and 
purpose of the investment project. Despite these warn­
ings, issued as early as 1979, about the inadvisability of 
locating the experimentation centre in Sakow, the work 
was not stopped until November 1983, by which time 
897 000 ECU had been spent needlessly. At that juncture, 
the project's location was reconsidered. The Commission 
then proposed siting the centre in Alexandra, a town 150 
km away from the original location. The Somali 
authorities, pleading administrative difficulties, did not 
accept this proposal and in the end it was decided to build 
the centre on a third site, Bardeera. These prevarications 
over the choice of site, which caused a delay of at least 
three years as well as heavy financial losses, could have 
been avoided had the Commission immediately taken 
account of the conclusions of the studies carried out in 
1979. 
29. In Madagascar, the coconut-production develop­
ment project provided for 405 ha of village plantations to 
be created. Only 105 ha have been planted and the 
plantations are for the most part run by the Soavoanio 
company and not by the local farmers, as was planned. 
The original design was at fault, insofar as the coconut 
palms have been concentrated in large plantations, 
whereas the local farmers wanted smaller plantations 
situated near to the villages so that a closer watch could be 
kept on them. 
30. The technical studies have not always examined the 
size of the projects with sufficient care, with the result that 
situations have arisen where supply has exceeded 
demand. In Somalia, the project to develop the Goluen-
Bulo Mererta grapefruit farm included the installation of 
a power station; this comprised three 200-kw generators, 
one of which was a reserve generator, and one 100-kw 
generator, even though the peak requirement of the farm 
after its enlargement is no more than 100 kw. 
31. The rough estimates which are drawn up on the 
basis of earlier data and included in the financing 
proposals often prove to be far too vague. For example, in 
Kenya, the project to build up the health-care infrastruc­
ture of the Machakos district estimated that constructing 
and equipping a new polyclinic, extending and equipping 
four existing health centres, constructing a new health 
centre and building staff-housing would cost 2,3 Mio 
ECU. In fact, the cost of constructing and equipping the polyclinic alone amounted to over 3 Mio ECU. As a 
result of this considerable underestimation of the cost, a 
large part of the project had to be abandoned. 
32. Similarly, in a project to rehabilitate rice farms, in 
Kenya, it was planned to extend the area of four existing 
holdings from 130 ha to 650 ha. These targets had to be 
lowered and were fixed at 500 ha. The original targets had 
been set at the time the financing proposal was drawn up 
in October 1981, whilst the corresponding feasibility 
study had not been completed until May 1982. As a result, 
the cost of the project was underestimated in the financing 
proposal and the planned enlargement of the holdings 
had subsequently to be curtailed. 
33. The technical studies have failed, in respect of 
several of the investment projects audited, to check up on 
the availability of the requisite material and equipment, 
as well as the raw and consumable materials essential for 
the proper running of the projects. In the case of a rural 
development project in Guinea, the inputs were not 
delivered in sufficient quantity and were not of adequate 
quality. The low rice yields recorded in the Mansaya and 
Donka plains (500 to 600 kg/ha), despite the clayey soil 
which is favourable for rice growing, are attributable in 
part to the lack of fertilizers. In Kono and in Sagana, the 
shortage of weedkillers has hampered both the maize and 
the dry-rice crop. The same project has been handicapped 
by the fact that the farm machinery and implements 
available (tractors and ploughs) were unsuitable for the 
work to be done. In a water-engineering micro-project in 
Madagascar, the local farmers experienced great dif­
ficulty in obtaining supplies of selected seed and of 
fertilizers on the local market. Because of this shortage, 
the farmers were unable to achieve the expected increase 
in the rice yields for the areas concerned. 
Examination of the projects' administrative and financial 
context 
34. The appraisal stage is also the right moment to 
examine a number of administrative and financial matters 
influencing the operation of the project. The shortcom­
ings found during the audits indicate that no systematic 
investigation has been made of the reliability of the 
financing plans, the problems relating to the management 
of the investments, and the administrative provisions and 
regulations which are in force in the beneficiary countries 
and which may affect the smooth running of the projects. 
35. Scrutiny of the financing plan and the estimated 
operating account at the time of a project's appraisal 
should enable the Commission to ensure that the project's 
working-capital needs can be covered. This elementary 
precaution has been omitted in some cases. For example, 
in the project to reconstruct the Sanoyah textile complex 
1^0 Cofficialiournal of the European Communities ro i^ ^ 
in Cruinea, the cash needs of the company were covered, 
during the startup phase,hyaState grant however, 
since there are no commercial banl^s in this country,the 
question which springs to mind concerns the method 
whichwillbeusedtofinance the short-term structural 
need generatedby the inevitable replemshmgofstocl^s 
and by credit given to customers Lhe enquiries made on 
the spot and atthe Commission have notelicited any 
answer to this problem which, nevertheless, is crucial to 
the future existence of the complex 
^ Lhe appraisal must also ensure that the conditions 
under which the projects are managed in the beneficiary 
Ivtember Statesarenot suchas toupsetthepro^ects^ 
smooth running ^omeofthe investment projects audited 
do in fact suffer fromashortage of manpower and from 
defective management structures Eor example, in 
Crhana,durmgtheinitialphaseoftheLwifooiPpalm 
plantation development project, trie ^tate set the salaries 
atalevel which was not even sufficient to coverafamily^s 
basic needs Lhis unsuitable wagepohcy,coupledwith 
the geographical isolation of the project, led toashortage 
of staff on the project, especially skilled staff, which 
seriously affected its progress Inthewaterengmeermg 
micropro^ect financed in Madagascar, some of the 
structures were not made sufficiently profitable because 
of inadequate backup Idie advisory service did not have 
sufficient resourcesavailable to enable optimum use to be 
madeoftheirngatedareasandthesupportservice proved 
to be incapable of encouraging the local farmers to 
manage and maintain the structures they had acquired by 
virtue of the aid project 
^ Lhemanagement of somepro^ects suffers from 
uncoordinated administrative intervention Eor example, 
mawatersupply and drainage project, financed by the 
fourth E10E,mthe town ofrraia on CapeVerde, three 
ministries werepartyto the project the ministry ofRural 
lOevelopmentfor the management of water resources, the 
ministry of public ^Vorl^s for water supply and the 
ministry of the interior for financial management I^he 
fact that the responsibilities are divided up amongst so 
many bodies has adversely affected the proper running of 
the project As provided for by this pro^ecCs financing 
agreement under the fifth EL^E,efficient management of 
the project depended uponamanagement body being set 
up whichen^oyedfinancial autonomy and which was 
provided with suitable legal, administrative and technical 
means for carrying out and running the project Lhe 
partial failure of thet^pperCiuineacottonproduction 
development project is also attributable to some extent to 
excessive State intervention foepnvedofanyadminis 
trativeorfinancialautonomy,thosemanagmgthe project 
were subject to the supervision of the national admmis 
tration and the technical assistance was allowed to play 
onlyavery minor role 
^ ^VithmLheC^umeanadmmisrration, conflicts have 
arisen over responsibilities in the rural development 
project Even though the geographical dispersion of the 
worl^ in the regions of ^eanl^an and Labe called for 
coordination on the part of the national authorities, the 
various ministries playing a part in this project each adopted a different or even divergent approach Eor 
instance, the Commission putforwardashortlistoffour 
consultancies able to provide the technical assiSLancefor 
the project to support district agnpastoral farms 
^Eapa^ Lhe ministry for International Cooperation 
informed the delegation that none of the proposed 
consultancies met withitsapproval Virtually at the same 
time,thelvtmistry for the^Eapa^told the Commission 
that it was opting for one of tne proposed consultancy 
bureau^gone of whose e^pens was admirably suited to 
the mam tasl^ to be entrusted to the consultants^ I^hese 
few examples highlight the need to determine clearly,at 
the appraisal stage, the competences and responsibilities 
in the execution and managemenr of the projects, and to 
identify the systems and practices, in the national 
administrations, which are lively to hamperthee^ecution 
andrunnmgof the projects Lhese preliminary studies 
should mal^e it possible to set up suitable management 
systems 
^ Lentil the end of 1^^, the Crumean economy had 
two price systems, one based on theofficiale^changerate 
for the syli, and the other on the freemarl^et rate, 
calculated onapurchasmgpowerfor the syli which was 
ten times lower Lhe purchase pncefor cotton paid to the 
farmers,mthe content of the above-mentioned cottons 
production development pro^ecpwasfi^ed by reference 
to the official e^changerate for the syli,although those 
living in the countryside had access, for the most part, 
only to products sold on the market at the blac^marl^et 
e^changerate I^he consequent deterrents eftect on the 
cotton producers has contributed quite considerably to 
thepro^ecCsfailure 
^ In the same country,apro^ect to assist small and 
mediumsi^edundertal^mgs^lvl^ included the granting 
ofalme of credit to the ^Credit l^ationalM^tional Loan 
Ban^forLhe financing ofloans to ^^viC^ Lheimplemen 
tationofthe financing agreement was subject to the entry 
into force of a finance contract between the ^Credit 
l^ationaPandtheCommissionLnerelevantCommission 
departments drew up a draft finance contract which 
looked lively to meet with the approval of the contracting 
parties It was not until this lengthy preparatory worlo on 
the contract was completed that the Commission 
departments suddenly realised that the ^Credit ^ational^ 
was not legally empowered tocontract this typeofloan it 
then proved necessary to revise the arUcles of association 
ofthis financial institution ttis regrettable that there has 
been a lengthy delay in meeting the undertakings^ 
financing needs asaresultoflegaland administrative 
obstacles which couldquicl^lyhavebeenelimmatedby 
means of thorough appraisal of the project 
^1 Lhese shortcomings largely stem from Lhe fact that, 
during Lheplanmngstage, theCommissionadopteda 
globalandessentiallyfinanciallyonentedapproachghus 
sometimes ignoring t^he national characteristics of the 
AC^ states As a result, the indicative programmes 
drawn up wnheacn beneficiary ^tate have barely made it 
possible to identify the priority needs of the latter, have 
15. 12. 86 Official Journal of the European Communities 141 
taken insufficient account of the constraints arising from 
the state of the public finances and foreign-exchange 
reserves of these States and have not always ensured that 
Community and national efforts are complementary, as 
required. Taking these factors into consideration should 
in future mean that the Community will assume a greater 
share of the costs of the maintenance measures in the 
poorest countries. 
42. The appraisal of several of the projects audited was 
found to be inadequate in one or other of these stages: 
(a) on many occasions the analysis of the commercial 
aspects was inadequate, in that it has not made it 
possible to assess the potential outlets for some 
products sufficiently accurately, nor to set up 
effective distribution channels; 
(b) the technical studies have resulted in ill-advised 
locations and unsuitable scales for projects and have 
not always paid due regard to the availability of the 
equipment, raw materials and services crucial for 
running the projects; 
(c) the scrutiny of the administrative and financial 
context of the projects has not made it possible to 
anticipate the problems connected with incompetent 
management bodies, with interference by national 
administrations and with financing plans that are not 
reliable enough. 
OBSERVATIONS ON THE COMMUNITY'S 
RESPONSIBILITIES IN THE 
MANAGEMENT OF THE AID 
Implementation of projects 
The general conditions of the public works contracts 
financed by the EDF 
43. The common rules governing the general provisions 
and conditions applicable to the placing and performance 
of public works contracts financed by the Fund which, 
pursuant to Article 22 of Protocol No 2 annexed to the 
First Lome Convention (fourth EDF) (4), ought to have 
been adopted by a decision of the Council of Ministers at 
its second meeting following the date of entry into force of 
the Convention, were not in fact adopted during this Convention's period of application. This resulted in the 
implementation of a transitional provision laying down 
that, in the meantime, the placing and performance of the 
public works contracts in question would be governed, as 
regards the ACP States party to the Yaounde Convention 
(third EDF), by the legislation in force on 31 January 
1975 and, as regards the other ACP States, by their 
respective national laws or their established practices 
regarding international contracts. 
44. This deficiency was not remedied during the period 
of application of the Second Lome Convention (fifth 
EDF) since this virtually repeated the provision concern­
ing the common rules and the transitional provision 
contained in the First Convention (fourth EDF). This 
new shortcoming led to these provisions being in­
corporated into Article 237 of the Third Lome Conven­
tion (sixth EDF) (5). Desirable though it may be, it seems 
hardly likely that the Council is considering implementing 
any common rules in the immediate future. 
45. The failure to adopt any general conditions for the 
public works contracts financed by the EDF, in so far as 
this entailed applying the national legislation of ACP 
States not party to the Yaounde Convention (third EDF), 
made it necessary to keep a permanent and regularly 
updated register of this legislation. To date, no such 
action has been taken. 
The arbitration procedure for disputes arising in 
connection with the performance of public works 
contracts 
46. Under Article 23 of Protocol No 2 annexed to the 
First Lome Convention (fourth EDF), 'any dispute 
arising between the authorities of an ACP State and a 
contractor or supplier in the course of execution of a 
contract financed by the Fund shall be settled by 
arbitration in accordance with rules of procedure adopted 
by a decision of the Council of Ministers not later than its 
second meeting following the entry into force of the 
Convention'. 
47. By a joint declaration, the Member States and the 
ACP States agreed that 'as a transitional measure and 
pending implementation of the decision referred to in 
Article 23 of Protocol No 2 any disputes will be 
definitively settled in accordance with the rules of 
conciliation and arbitration of the International Cham­
ber of Commerce'. 
48. As this Convention expired without the rules of 
procedure having been adopted, provisions to the same 
effect were incorporated into the Second Lome Conven­
tion (fifth EDF) and, in the continuing absence of formal 
adoption, into Article 238 of the Third Lome Convention 
(sixth EDF). 
142 Official Journal of the European Communities 15. 12. 86 
49. Because of this, it is all the more regrettable that 
there is no comprehensive register of the disputes brought 
before the various national judicial and administrative 
bodies and before the International Chamber of Com­
merce and the Court of Justice of the European 
Communities. 
50. The value of such a register, divided up into 
different categories (sectors concerned, parties involved, 
nature of the dispute), is all the more obvious in that most 
of these disputes are not without financial consequences 
for the EDF, either because of overspending of budget 
estimates or because of additional expenditure resulting, 
inter alia, from price rises where time-limits have been 
exceeded. 
Evaluation of projects 
Evaluation during implementation 
51. Pursuant to Article 118(1) of the Second Lome 
Convention (fifth EDF), 'evaluation may be undertaken 
during the implementation of projects and programmes. 
The ACP States concerned and the Community shall 
draw up a joint progress report, at agreed intervals, on the 
various aspects of the project and its results'. It is 
regrettable that the Commission has not made more 
frequent use of this provision. Had it been applied, it 
would in fact have enabled some bottlenecks or devi­
ations from the stated objectives to be identified promptly 
and would thus have given new impetus or new direction 
to projects in difficulties. 
52. The integrated development project for the 
Machakos region in Kenya includes an agricultural 
advisory operation intended to improve the working 
methods of the region's farmers. Several years after the 
start of this measure, no information is available about its 
effect on local agriculture. Without underestimating the 
difficulties of the task, it seems essential to evaluate the 
impact of the advisory operations on the region's 
agricultural production, otherwise there is a risk of losing 
the opportunity of correcting any of the possibly 
unsuitable instruments of this agricultural extension 
work, during their implementation. 
53. During their implementation, the projects must be 
regularly and systematically monitored. This has not 
occurred in all the countries to which audit visits were 
made. For example, in Guinea, most of the contracts 
financed by the EDF as of 1981 were arranged by mutual 
agreement, sometimes after limited consultation and very 
often with the same suppliers. Moreover, the supporting documents rarely refer to the firms consulted previously 
and to their tenders. 
54. In the same country, many payments have been 
made solely on the basis of pro forma invoices. Some 
handwritten invoices are of dubious validity. For 
example, a sum of 300 000 sylis for the supply of 10 000 
litres of diesel oil was paid on the basis of a handwritten 
invoice and the corresponding payment order makes no 
mention of any bank account. Until 1982, the ac­
knowledgements of receipt of material were very 
frequently missing. Whilst subsequently they were 
annexed to the payment orders more systematically, they 
were usually terse and sometimes bore no date. Moreover, 
despite frequent late deliveries, the penalties for delay 
have hardly ever been applied. Lastly, there is no exact 
information about the whereabouts of numerous quan­
tities of spare parts, fuel and even lorries financed by the 
EDF. 
55. Article 103(3) of the Second Lome Convention 
(fifth EDF) stipulates that 'any profit accruing to the 
ACP State because it receives either a grant or a loan for 
which the interest rate or the repayment period is more 
favourable than that of the final loan shall be used by the 
ACP State for development purposes on the conditions 
laid down in the financing agreement'. The use made by 
the ACP States of the profit generated by interest-rate 
differentials for special loans is not often followed up as 
required. For example, the Mauritian State made a profit, 
under the fourth EDF, on a special loan worth 3,04 Mio 
ECU within the framework of a project tackling the 
country's housing problem. The on-the-spot audit visits 
did not enable any information to be gathered as regards 
the use of the profit generated by the part of the loan 
already used up. Similarly, the financing agreement for 
the project to rehabilitate the Prestea plantation in Ghana 
stipulates that the interest on the special loan granted 
must be used in projects for agricultural purposes. 
Although this interest started becoming available in 1982, 
no agricultural project has to date benefited from it, 
despite the fact that there is considerable need in this 
sector. 
Ex-post-facto evaluation of projects 
56. Article 118(2) of the Second Lome Convention 
(fifth EDF) lays down that: 
(a) 'The ACP States concerned and the Community shall 
organize the joint evaluation of completed projects 
and programmes. Evaluation shall concern the 
results, by comparison with the objectives, and also 
the administration, operation and maintenance of the 
schemes. The two parties shall study the results of 
such evaluations. 
15. 12. 86 Official Journal of the European Communities 143 
(b) The relevant authorities of the Community and of the 
ACP States concerned shall each take the appropriate 
measures called for by the results of the evaluation 
work'. 
57. The Commission makes too little use of this 
provision. The poor conditions under which some 
completed projects are having to operate, however, would 
have called for Community action. By way of illustration, 
in the Sahambavy tea-plantation project in Madagascar, 
most of the production is for export. From 1978, when the 
factory came into operation, to 1982, the body re­
sponsible for the tea-growing operation marketed the 
production by itself with great success since the quality of 
the tea produced was appreciated on the international 
market. From 1982 onwards, the State put the marketing 
in the hands of a State-owned company, Somacodis, 
which endeavoured to find buyers directly rather than 
continue to trade through the London Commodity 
Exchange. This new distribution system failed: in July 
1985, the top-grade production from the 1984 tea-
growing year, which should have been sold six months 
earlier, was still stored at the port of Tamatave, and the 
second-grade production from the 1983 year was rotting 
at the plantation. Furthermore, the price offered by 
Somacodis is only 60 pence/kg, whereas the world rate for 
the first half of 1985 fluctuated between 260 and 140 
pence/kg, and only half the price is paid upon shipment, 
with the balance being settled after sale. As a result, the 
tea-producing complex is selling only a small proportion 
of its production and that at a loss, so much so that the 
viability of the entire operation is in jeopardy. The 
Commission has hardly taken any steps at all to 
encourage the national authorities to reintroduce a 
suitable distribution system. 
Use made of the Court's earlier observations 
58. Several of the projects audited by the Court in 1985 
in Madagascar, Kenya and Somalia had already been the 
subject of an earlier on-the-spot visit, Some of the 
observations made on that occasion have not been acted 
upon and the shortcomings pointed out on the initial 
visits persist. For example, in Kenya, in the project to 
irrigate and resettle the Bura area, the enquiries made by a 
Court audit team revealed, as of 1980, that the initial cost 
assessments were substantially underestimated, and that 
the project's management by the National Irrigation 
Board left much to be desired. No remedial action was 
taken until 1983, and this three-year delay served only to 
aggravate the difficulties faced by the project. In the same 
country, the objectives for water-resources development 
put forward in the integrated development programme 
for the Machakos region seemed to be far too optimistic. 
These fears proved to be well-founded, since the number 
of small water-supply pipes had to be cut back from 200 to 
100 and the number of large pipes from 50 to 20 and then 
down to 12. 59. In Madagascar, the situation of the project to 
develop the Andapa Basin has developed little since the 
visit by a Court audit team in 1979. The work has 
continued to be delayed by supply problems and the lack 
of spare parts. Most of the civil-engineering machinery is 
out of order. The government decree of 22 December 
1978 abolishing the practice of sharecropping has still not 
been implemented and the plots of land are still too 
concentrated. No rent system has been introduced, even 
though this measure was provided for in a regulation of 22 
December 1981. This being so, the management company 
recorded an operating loss of 0,6 Mio ECU in 1983. 
Furthermore, no action was taken to remedy the poor 
maintenance of the pumping station noted in 1979. As 
regards the implementation reports, it is difficult to use 
them for following up the project because they are of poor 
quality. 
60. Just from these few examples, it is clear that the 
Commission does not always act upon the Court's 
observations, which have been put forward in a spirit of 
constructive criticism. If greater attention were to be paid 
to them, however, it would be possible in many cases to 
put a stop to some divergent tendencies in the execution of 
projects and even to anticipate the consequences of 
defects relating to the aid-programming and project-
appraisal phases. 
61. In conclusion, the implementation of the measures 
has to cope with legislative shortcomings relating to the 
general conditions of the public works contracts financed 
by the EDF and the arbitration procedure for disputes 
arising in connection with the performance of these 
contracts. Furthermore, the evaluation of the projects has 
proved to be inadequate both during their execution and 
after their completion. Also, only a few of the observ­
ations made previously by the Court have been followed 
up. 
STABEX 
Use of Stabex transfers 
62. The causes of the fall in revenue which leads to a 
Stabex transfer may be local in nature. For example, 
unrealistic pricing policies, deficient transport infrastruc­
ture and ineffective parastatal structures were all factors 
which contributed to the reduction in Ghana's cocoa 
production from 281 000 tonnes in 1979 to 178 000 tonnes 
in 1982. This reduction resulted in claims of 102,2 Mio 
ECU under Stabex for losses of revenue in 1981 and 1982. 
Stabex resources being insufficient in 1981, Ghana finally 
received 56,8 Mio ECU of the claim, of which 40 % was 
144 Official Journal of the European Communities 15. 12. 86 
used to import consumer goods unrelated to cocoa 
production. Under the rules of Stabex, there was no 
obligation for Ghana to obtain a prior Community 
agreement for a programme to revitalize cocoa produc­
tion, no tying of international procurement to Com­
munity suppliers, no requirement for competitive bidding 
and no provision for financial and technical supervision 
by the delegation (although Ghana did permit the 
delegation to observe the award of contracts). 
63. As regards the use made of the foreign exchange 
received under Stabex, Madagascar intends to justify the 
major part of the 6,1 Mio ECU received under the Second 
Lome Convention (fifth EDF) by submitting reports on 
expenditure of an equivalent sum in local currency, and 
Cape Verde has submitted no reports at all. Thus the use 
of Stabex transfers escapes all the controls applied to 
other financial cooperation under the Lome Conven­
tions. 
Refund by beneficiary States of Stabex 
transfers 
64. Article 21 of the First Lome Convention (fourth 
EDF) and Articles 43 and 44 of the Second Lome 
Convention (fifth EDF) provide that certain ACP States 
shall refund to the EDF the payments they received under 
the Stabex system, should the trend of their export 
earnings or their financial situation so permit. 
65. The refundable transfers made under the fourth 
EDF totalled 127,3 Mio ECU, of which 5,0 Mio ECU 
have since been refunded to the EDF, 26,1 Mio ECU have 
been recovered by deduction from transfers payable 
under subsequent years and 6,2 Mio ECU have been 
waived following the reclassification of the States 
concerned as 'least developed countries'. A payment of 
0,4 Mio ECU regarding an overseas territory remains to 
be refunded by the United Kingdom. The ACP — EEC 
Council of Ministers has not yet decided whether the 
remaining total of 89,6 Mio ECU, transferred to five 
ACP States (Congo, Gabon, Liberia, Madagascar, 
Senegal), should be refunded to the EDF or waived. The 
Commission has prepared proposals concerning refunds 
and waivers, but these proposals are not based on precise 
criteria as there are no implementation rules concerning 
Article 21(4) of the First Lome Convention (fourth EDF), 
which only states that the balance of payments, exchange reserves and foreign indebtedness of the ACP States 
concerned 'shall be taken into consideration' before 
deciding whether a refund should be claimed. 
66. At 31 December 1985, the refundable transfers 
made under the fifth EDF totalled 261,2 Mio ECU. At 
that date, the amount of refund claims notified by the 
Commission under Article 43 of the Second Lome 
Convention (fifth EDF), following the recovery of ACP 
export quantities and prices, had reached 161 Mio ECU, 
whereas throughout the whole period of the First Lome 
Convention (fourth EDF) the comparable sum was only 
5,0 Mio ECU. This situation shows that there has been a 
substantial improvement in the level of export earnings of 
the ACP States concerned, but this improvement may not 
have been sufficient to allow all beneficiary countries to 
meet their legal obligations to refund the transfers over 
the seven year repayment period laid down in Article 42 of 
the Second Lome Convention (fifth EDF), which 
commences in 1986. 
SYSMIN 
67. The Sysmin system was established under the 
Second Lome Convention (fifth EDF) with an allocation 
of 282 Mio ECU, with a view to assisting ACP States with 
economies largely dependent on specified mining sectors 
to cope with a decline in their exporting capacity and the 
corresponding decline in their export earnings. Sysmin 
funds are tied to the restoring of the revenue-earning 
capacity of the affected sector under the close supervision 
of the Commission and their use is subject to EDF 
financial regulation and procurement rules. The amount 
received by a beneficiary State is decided by the 
Commission on no precise basis, though one of the 
factors which the Commission is required to take into 
account is the loss of earnings incurred (Article 54(2), 
Second Lome Convention (fifth EDF)). The period over 
which the loss of earnings is calculated is not clearly 
defined, and a very wide timescale can be considered, for 
example the period 1976 to 1980 was chosen as the basis of 
aid payments to Zambia and Zaire in 1980 and 1981. 
68. By 31 December 1985, five Sysmin financing 
decisions had been taken in favour of four States for a 
total of 128,8 Mio ECU, of which 92,6 Mio ECU had 
been disbursed. The situation is summarized in Table 4. 
Requests from five other States were still being appraised. 
15. 12. 86 Official Journal of the European Communities 145 
Table 4 — Implementation of Sysmin under Lome II (Convention at 31 December 1985) 
Beneficiary 
Zambia: 
— 1st decision 
— 2nd decision 
Zaire: 
— 1st decision 
— 2nd decision 
Guyana: 
— advance 
— remainder 
Rwanda: 
— artisanal mining 
— commercial mining 
Subtotal 
Remainder 
Lome II Sysmin allocation Financing decision 
Date 
4/82 
10/85 
7/82 
not yet 
taken 
10/84 
not yet 
taken 
7/85 
not yet 
taken Amount 
(Mio ECU) 
55,0 
28,0 
40,0 
p.m. 
3,0 
p.m 
2,8 
p.m. 
128,8 
153,2 
282,0 Paid at 
31. 12. 1985 
(Mio ECU) 
55,0 
37,4 
0,2 
— 
92,6 
189,4 
282,0 Comments 
Financing agreement not yet signed 
Eligibility decided in December 1985, financing 
proposal not yet agreed 
Eligibility decided in July 1984, 22-32 Mio ECU 
financing proposal not yet submitted to Com­
mission 
Financing contract not yet signed 
Eligibility decided in September 1984,12-17 Mio 
ECU financing proposal not yet appraised. 
Delays in implementation 
69. The Sysmin system stands out as having been 
implemented particularly slowly, only two projects 
having been completed, and only 33 % of the allocation 
having been disbursed by 31 December 1985. For the two 
completed projects, it has taken four to six years since the 
financing requests were submitted in January 1981 for the 
aid to reach the beneficiary countries. Sysmin has thus not 
immediately cushioned the economies of beneficiary 
States against falls in their foreign-exchange earnings. 
70. A large part of this delay is caused by the 
requirement implicit in Article 52(1) of the Second Lome 
Convention (fifth EDF), that the beneficiary States must 
first agree to restore the mines to a viable and economic 
level of production. 
71. The length of the implementation period is also 
determined by the many administrative steps involved before Sysmin aid is disbursed. Firstly, after consulting 
the EDF Committee of the Council, the Commission 
decides whether a financing request is eligible, and then, 
after appraising a specific project or programme and 
again consulting the EDF Committee, it decides on the 
amount and the conditions of the finance. Three 
agreements are signed at separate times with the 
beneficiary: a statement of common accord concerning 
policy objectives, a financing agreement and then the loan 
contract. 
72. The Second Lome Convention (fifth EDF) under­
lines the need for rapid implementation of Sysmin aid, 
and provides for the payment of advances to permit the 
implementation of precautionary measures during ap­
praisal or implementation. Although long delays are 
apparent for each beneficiary, only one advance has been 
granted, of 3 Mio ECU to Guyana. Despite having 
received this advance, part of which was earmarked for 
technical assistance, no proposal for the use of the 
promised further 22 to 32 Mio ECU of finance had been 
forwarded to the Commission by the Guyanese author­
ities. 
146 Official Journal of the European Communities 15. 12. 86 
CONTROL OVER FUNDS MANAGED BY 
THE EUROPEAN INVESTMENT BANK 
(EIB) 
73. In its special report (6) on the management of 
Community development aid funds by the EIB, the Court 
commented on the inadequacy of the files available to it 
concerning projects financed by the EDF and managed 
by the EIB. The Parliament adopted a resolution on this 
subject on 22 October 1985 (7). Although there has been 
some improvement, the Commission's files are still very 
inadequate, as there is no information on the implemen­
tation of projects decided before 1 January 1984, 
although disbursements continue to be made on these 
projects, and there is no information on the implemen­
tation of any project receiving interest-rate subsidies, 
although the EDF contribution amounts to over 30 % of 
the loan granted from the EIB's own resources. As regards on-the-spot audits of the projects managed by the 
EIB, the Court considers it appropriate in this connection 
to reaffirm the position it clearly expressed in its opinion 
on the draft Financial Regulation applicable to the sixth 
EDF (8) (and, moreover, already touched on in the afore­
mentioned special report), namely that there can be no 
question of reducing by subsequent acts the scope of the 
Court's audit powers, which were laid down, without any 
restrictions, by the Treaty establishing the Court of 
Auditors. 
74. The Court has been unable to comply with the 
Parliament's invitation, included in its resolution of 22 
October 1985 (7), to provide it with an analysis of the 
EIB's earnings and expenditure concerning development 
aid, as it has not been able to find the necessary 
information for such an analysis in the files made 
available to it by the Commission. 
0 (2) 
(3) 
(4) OJ L 347 of 22.12.1980. (5) 
OJC 326 of 16.12.1985. (6) 
Article 51 of the First Lome Convention contains a 
provision to the same effect. (?) 
OJL 25 of 30.1.1976. (8) OJL 86 of 31.3.1986. 
Special report 2/84 adopted on 10.5.1984, not published but 
available at the Court. 
OJC 343 of 31.12.1985, p. 27. 
OJC 361 of 31.12.1985 
15. 12. 86 Official Journal of the European Communities 147 
ANNEX I 
Allocation of responsibilities among Members of the 
Court of Auditors at the time this report was adopted 
Secretariat, personnel and administration of the Court and external relations Marcel MART, 
President 
Audit Group I 
Own resources 1: 
customs duties and agricultural revenue Richie RYAN 
Own resources 2: 
VAT own resources, balancing of the budget and miscellaneous revenue Josep SUBIRATS 
European Agricultural Guidance and Guarantee Fund, Guarantee Section 1: 
management and budgetary control procedures and general matters Charles J. CAREY 
European Agricultural Guidance and Guarantee Fund, Guarantee Section 2: 
common market organizations Keld BRIXTOFTE 
Audit Group II 
European Social Fund Paul GAUDY 
European Agricultural Guidance and Guarantee Fund, Guidance Section (operations other 
than regional measures) 
Fisheries 
European Development Funds Aldo ANGIOI 
Cooperation with developing countries and other non-member States Pierre LELONG 
148 Official Journal of the European Communities 15. 12. 86 
European Regional Development Fund 
European Agricultural Guidance and Guarantee Fund, Guidance Section 
(regional measures) Andre J. MIDDELHOEK 
Audit Group III 
General audit matters Marcel MART 
Loans and borrowings 
European Coal and Steel Community 
General accounts 
Accounting principles Lothar HAASE 
Staff and operational expenditure of institutions 
Office for Official Publications 
Press and information offices 
European Schools Stergios VALLAS 
Research, technology and new policies Carlos MORENO 
Subsidies 
15. 12. 86 Official Journal of the European Communities 149 
ANNEX II 
Reports and opinions adopted by the Court of Auditors during the last Ave years 
The Court of Auditors is required by the terms of the Treaties to 
produce an annual report. It is also required, by the Treaties and 
other regulations, to produce annual reports on certain 
Community bodies and activities. The Treaties further give the Court the power to submit observations on specific questions 
and to deliver opinions at the request of one of the institutions. 
The reports and opinions adopted by the Court during the last 
five years are listed below. 
Title Date of 
adoption Publication 
Fourth annual report, concerning the financial year 1980 26 November 1981 OJ C 344, 
31. 12. 1981 
Study of the financial systems of the European Communities (1981) 26 November 1981 OJ C 342, 
31.12.1981 
Special report on expatriation and foreign residence allowances 4 February 1982 Available from the Court 
of Auditors 
Opinion on a proposal for a Council Regulation amending the Financial 18 February 1982 OJ C 122, 
Regulation of 21 December 1977 applicable to the general budget of the 13. 5. 1982 
European Communities 
Special report on sales of reduced-price butter within the Community 
Report on the 1981 accounts of the Euratom Supply Agency 
Report on the 1981 JET financial statements 
Report on the financial statements of the European Coal and Steel 
Community for the financial year 1981 (Art. 78 f (5) ECSC) 
Special report (observations) on the members' cash office of the European 
Parliament 
Special report on loans and borrowings 
Special report on job creation or maintenance in the granting of aid to regional 
investments 
Report on the accounts of the European Schools for 1980 18 March 1982 
29 April 1982 
29 April 1982 
27 May 1982 
6 July 1982 
19 July 1982 
30 July 1982 
30 July 1982 OJC 143, 
7.6. 1982 
Not published 
Not published 
OJ C 270, 
14. 10. 1982 
OJ C 202, 
5.8. 1982 
OJC 319, 
6. 12. 1982 
OJ C 345, 
31.12.1982 
Not published 
Special report on the Community inward processing system 16 September 1982 OJ C 88, 
30.3. 1983 
150 Official Journal of the European Communities 15. 12. 86 
Title Date of 
adoption Publication 
Opinion 1/82 on four proposals for Council Regulations amending certain 16 September 1982 OJ C 324, 
provisions concerning the European Centre for the Development of 10. 12. 1982 
Vocational Training and the European Foundation for the Improvement of 
Living and Working Conditions 
Special report on the 'Como' frauds 
Special report on the financial management of multiannual programmes of the 
Joint Research Centre 
Report on the 1981 accounts of the European Foundation for the 
Improvement of Living and Working Conditions (Dublin) 
Report on the 1981 accounts of the European Centre for the Development of 
Vocational Training (Berlin) 
Report (Annex to the annual report ECSC 1980) on loans - borrowings -
interest rebates 
Special report (observations) concerning clearance of the accounts of the 
EAGGF Guarantee Section — the structure and operation of the system 16 September 1982 
7 October 1982 
7 October 1982 
7 October 1982 
12 October 1982 
12 October 1982 Not published 
Available from the Court 
of Auditors 
Not published 
Not published 
Not published 
OJC313, 
29. 11. 1982 
Opinion 2/82 on a proposal for a Council Regulation amending Regulation 16 November 1982 OJ C 133, 
(EEC, Euratom, ECSC) No 2891/77 implementing the Decision of 21 April 20. 5. 1983 
1970 on the replacement of financial contributions from Member States by the 
Communities' own resources 
Opinion 3/82 on a proposal for a Council Regulation amending and extending 16 November 1982 OJ C 151, 
the terms of validity of Regulation (EEC, Euratom, ECSC) No 2892/77 9. 6. 1983 
implementing in respect of own resources accruing from value-added tax the 
Decision of 21 April 1970 on the replacement of financial contributions from 
Member States by the Communities' own resources 
Report (Annex to the annual report ECSC 1981) on loans for housing 
Fifth annual report, concerning the financial year 1981 
Opinion 4/82 on a draft Commission Regulation concerning financial 
provisions applicable to the European Agency for Cooperation and provisions 
relating to the Agency's relations with the Commission 
Opinion 5/82 on a proposal for a Council Regulation amending Regulation 
(EEC) No 2744/80 establishing supplementary measures in favour of the 
United Kingdom 
Opinion 6/82 on a proposal for a Council Regulation instituting a special 
energy development programme 25 November 1982 
25 November 1982 
9 December 1982 
16 December 1982 
16 December 1982 Not published 
OJ C 344, 
31. 12. 1982 
Not published 
OJC160, 
18.6. 1983 
OJC199, 
26. 7. 1983 
p. 7 
Opinion 7/82 on a proposal for a Council Regulation amending Regulation 2 February 1983 OJ C 199, 
(EEC) No 2779/78 on the procedure for applying the ECU to legal acts 26. 7. 1983, 
adopted in the customs sphere p. 8 
15. 12. 86 Official Journal of the European Communities 151 
Title Date of 
adoption Publication 
Special report 1/83 on the expenditure of the European Parliament in 10 March 1983 Available from the Court 
connection with inter-parliamentary conferences of Auditors 
Special report 2/83 on the application of Regulations (EEC) No 1078/77 and 14 April 1983 OJ C 278, 
(EEC) No 1041/78 introducing a system of premiums for the non-marketing of 17. 10. 1983 
milk and milk products and for the conversion of dairy herds 
Report on the accounts of the European Schools for 1981 
Report on the 1982 JET financial statements 
Special report 3/83 on the restaurants, canteens, cafeterias and staff shops 
Report on the 1982 accounts of the Euratom Supply Agency 
Special report 4/83 on the budgetary management of the programme for 
supplying agricultural products and foodstuffs to Poland 
Special report 5/83 on aid to skimmed milk processed into casein and 
caseinates 
Report on the financial statements of the European Coal and Steel 
Community for the financial year 1982 (Art. 78 f (5) ECSC) 
Report on the 1982 accounts of the European Foundation for the 
Improvement of Living and Working Conditions (Dublin) 
Report on the 1982 accounts of the European Centre for the Development of 
Vocational Training (Berlin) 28 April 1983 
28 April 1983 
18 May 1983 
26 May 1983 
9 June 1983 
9 June 1983 
22 June 1983 
14 July 1983 
14 July 1983 Not published 
Not published 
Not published 
Not published 
OJ C 278, 
17. 10. 1983 
OJC41, 
15.2. 1984 
OJ C 339, 
19. 12. 1984 
Not published 
Not published 
Opinion 1/83 on a draft Commission Regulation (EEC) relating to the 21 July 1983 Not published 
operation of the system of advances for expenditure financed under the 
Guarantee Section of the European Agricultural Guidance and Guarantee 
Fund (EAGGF) 
Report in response to the conclusions of the European Council of 18 June 1983 
Sixth annual report, concerning the financial year 1982 
Report (Annex to the Annual Report ECSC 1982) on the accounting and 
financial management of the ECSC 
Special report 6/83 on the European Social Fund Computer System 6 October 1983 
24 November 1983 
7 December 1983 
15 December 1983 OJ C 287, 
24. 10.1983 
OJ C 357, 
31. 12. 1983 
Not published 
Available from the Court 
of Auditors 
Opinion 2/83 on the proposal for a Council Regulation on interest subsidies 12 January 1984 OJ C 55, 
for certain loans granted under the European Monetary System 28. 2. 1984 
152 Official Journal of the European Communities 15. 12. 86 
Title Date of 
adoption Publication 
Report on the accounts of the European Schools for 1982 23 February 1984 Not published 
Opinion 4/83 on the second amendment to the proposal for a Council 14 March 1984 OJ C 163, 
Regulation amending Regulation (EEC, Euratom, ECSC) No 2891/77 23. 6. 1984 
implementing the Decision of 21 April 1970 on the replacement of financial 
contributions from Member States by the Communities' own resources 
Special report 1/84 on the coordination of Community aid to third countries 
Opinion 3/83 on the proposal for a Council Decision empowering the 
Commission to help finance innovation within the Community 
Special report 2/84 on the management of Community development aid funds 
by the European Investment Bank 
Opinion 1/84 on the proposal for a Council Regulation introducing measures 
to cover budgetary requirements in 1984 given the exhaustion of own 
resources 
Report on the 1983 accounts of the Euratom Supply Agency 
Report on the 1983 JET financial statements 
Report on the financial statements of the European Coal and Steel 
Community for the financial year 1983 
Special report 3/84 on the operation of the common organization of the 
market in sheepmeat 
Special report 4/84 on the implementation of Directive 77/435/EEC of 27 June 
1977 on scrutiny by the Member States of transactions forming part of the 
system of financing by the EAGGF (Guarantee Section) 
Report on the 1983 accounts of the European Centre for the Development of 
Vocational Training (Berlin) 
Report on the 1983 accounts of the European Foundation for the 
Improvement of Living and Working Conditions (Dublin) 
Seventh annual report concerning the financial year 1983 
Report (Annex to the Annual Report ECSC 1983) on the accounting and 
financial management of the ECSC 
Special report 5/84 on the system of aid for liquid skimmed milk used as animal 
feed 14 March 1984 
5 April 1984 
10 May 1984 
7 June 1984 
19 June 1984 
19 June 1984 
26 June 1984 
19 July 1984 
11 October 1984 
24 October 1984 
24 October 1984 
22 November 1984 
13 December 1984 
13 December 1984 OJ C 224, 
25. 8. 1984 
OJ C 163, 
23. 6. 1984 
Available from the Court 
of Auditors 
OJ C 228, 
30. 8. 1984 
Not published 
Not published 
OJ C 350, 
31. 12. 1984 
OJ C 234, 
4. 9. 1984 
OJ C 336, 
17. 12.1984 
Not published 
Not published 
OJ C 348, 
31. 12. 1984 
Not published 
OJC91, 
12. 4. 1985 
Special report 1/85 on the common organization of the market in olive oil 25 April 1985 OJ C 134, 
3. 6. 1985 
15. 12. 86 Official Journal of the European Communities 153 
Title Date of 
adoption Publication 
Opinion 1 /85 on a proposal for a Council Regulation (EEC) on the application 2 May 1985 OJ C 138, 
of the agreement in the form of an exchange of letters between the EEC and the 6.6. 1985 
Portuguese Republic concerning the implementation of specific financial aid 
for improving agricultural and fisheries structures in Portugal 
Opinion 2/85 on a proposal for a Council Regulation (EEC, Euratom, ECSC) 26 June 1985 OJ C 261, 
extending the terms of validity of Council Regulation (EEC, Euratom, ECSC) 12. 10. 1985 
No 2892/77 implementing in respect of own resources accruing from value 
added tax the Decision of 21 April 1970 on the replacement of financial 
contributions from Member States by the Communities' own resources 
Report on the financial statements of the European Coal and Steel 26 June 1985 OJ C 360, 
Community for the financial year 1984 31.12. 1985 
Special report 2/85 on the system for the payment of refunds on agricultural 26 June 1985 OJ C 215, 
exports (Audit of the export of agricultural products) 26. 8. 1985 and 
OJ C 238, 
19.9. 1985 
Special report 3/85 on certain aspects of technical cooperation financed by 
Community development aid 
Report on the accounts of the European Schools for 1983 
Report on the accounts of the Euratom Supply Agency for 1984 
Report on the 1984 JET financial statements 
Report on the 1984 accounts of the European Centre for the Development of 
Vocational Training (Berlin) 
Report on the 1984 accounts of the European Foundation for the 
Improvement of Living and Working Conditions (Dublin) 
Report (Annex to the Annual Report ECSC 1984) on the accounting and 
financial management of the ECSC 
Eighth annual report concerning the financial year 1984 
Special report 4/85 on the common organization of the market in fishery 
products 
Special report 5/85 on the Community contribution towards schemes 
concerning developing countries carried out by non-governmental organiza­
tions 12 July 1985 
17 July 1985 
17 July 1985 
17 July 1985 
17 October 1985 
17 October 1985 
19 November 1985 
19 November 1985 
28 November 1985 
12 December 1985 Available from the Court 
of Auditors 
Not published 
Not published 
Not published 
Not published 
Not published 
Not published 
OJ C 326, 
16.12.1985 
OJ C 339, 
31. 12. 1985 
Available from 
the Court of 
Auditors 
Opinion 3/85 on the draft amendments to certain articles of the draft 12 December 1985 Not published 
Commission Regulation laying down detailed rules for the implementation of 
certain provisions of the Financial Regulation of 21 December 1977 (not 
translated into English) 
Opinion 4/85 on the proposal for a Council Regulation (EEC) amending 12 December 1985 OJ C 357, 
Regulation (EEC) No 2681/74 on Community financing of expenditure 31. 12. 1985 
incurred in respect of the supply of agricultural products as food aid 
154 Official Journal of the European Communities 15. 12. 86 
Title Date of 
adoption Publication 
Opinion 5/85 on the draft Financial Regulation applicable to the Sixth 12 December 1985 OJC361, 
European Development Fund 31. 12. 1985 
Special report 1/86 on the contract measures for the expansion of markets for 20 February 1986 OJ C 127, 
milk and milk products financed by proceeds of the co-responsibility levy 26. 5. 1986 
Opinion 1/86 on the proposal for a Council Regulation amending Regulation 6 March 1986 OJ C 80, 
(EEC) No 1883/78 on the general rules for the financing of interventions by the 9. 4. 1986 
European Agricultural Guidance and Guarantee Fund, Guarantee Section 
Report on the 1985 accounts of the Euratom Supply Agency 29 May 1986 Not published 
Report on the financial statements of the ECSC at 31 December 1985 17 June 1986 OJ C 208, 
19.8.1986 
Special report 2/86 on the ERDF's specific Community regional development 10 July 1986 OJ C 262, 
measures (non-quota measures) 20. 10. 1986 
Special report 3/86 on the subsidy system for oilseeds 10 July 1986 Available from 
the Court of 
Auditors 
Report on the accounts of the European Schools for the financial year 1984 25 September 1986 Not published 
Report on the 1985 accounts of the European Centre for the Development of 23 October 1986 Not published 
Vocational Training (Berlin) 
Report on the 1985 accounts of the European Foundation for the 11 November 1986 Not published 
Improvement of Living and Working Conditions (Dublin) 
Opinion 2/86 on a draft Financial Regulation on the application of the 11 November 1986 OJ C 302, 
Financial Protocols concluded with Algeria, Morocco, Tunisia, Egypt, 27. 11. 1986 
Lebanon, Jordan, Syria, Malta and Cyprus 
Report on the 1985 JET financial statements 19 November 1986 Not published 
Report (Annex to the ECSC 1985 Annual Report) on the accounting and 19 November 1986 Not published 
financial management of the ECSC 
Ninth annual report concerning the financial year 1985 19 November 1986 In this 
edition 
15. 12. 86 Official Journal of the European Communities 155 
ANNEX III 
Financial information relating 
to the general budget of the European Communities 
and 
to the European Development Funds 
(1985) 
Preliminary remarks 
1. Source of financial data 
The financial data in this Annex have been drawn from the revenue and expenditure accounts and the balance 
sheets of assets and liabilities of the European Communities (1) and of the European Development Funds and 
from other financial records provided by the Commission. 
2. Monetary unit 
All the financial data are presented in millions of ECU (Mio ECU), rounded to one decimal place. 
3. Change in nomenclature of the general budget 
Changes are sometimes made to the budgetary nomenclature. The Court uses the nomenclature of the current 
financial year for the presentation of the historical data and each time the nomenclature is changed it adapts the 
data of the previous financial years in accordance with the current nomenclature. 
Thus the data given in § 14 to §19 are comparable year by year. 
(1) For the financial year 1985: revenue and expenditure account and balance sheet of assets and liabilities relating to operations under the 
1985 budget (Doc. COM(86) 208, 209, 210, 211, 212). 
156 Official Journal of the European Communities 15. 12. 86 
4. Abbreviations and symbols 
EC 
ECSC 
EEC 
EAEC or Euratom 
EAGGF 
GNP 
VAT 
BFR 
DKR 
DM 
DRA 
FF 
IRL 
LIT 
LFR 
HFL 
UKL 
u.a. 
EUA 
ECU 
Mio ECU 
DA 
NDA 
CA 
PA 
AFC 
AFP 
B 
DK 
D 
GR 
F 
IRL 
1 
L 
NL 
UK 
EUR 10 
EDF 
ACP 
OCT 
FOD 
Stabex 
Sysmin 
FR 
OJ 
S 
T 
Ch 
— 
0,0 
% 
§ European Community(ies) 
European Coal and Steel Community 
European Economic Community 
European Atomic Energy Community 
European Agricultural Guidance and Guarantee Fund 
Gross national product 
Value-added tax 
Belgian franc 
Danish crown 
German mark 
Greek drachma 
French franc 
Irish pound 
Italian lira 
Luxembourg franc 
Dutch guilder 
Pound sterling 
Unit of account (until 1977) 
European unit of account (from 1978 to 1980) 
European currency unit (as from 1 January 1981) 
Millions of European currency units 
Differentiated appropriations 
Non-differentiated appropriations 
Commitment appropriations 
Payment appropriations 
Appropriations for commitment 
Appropriations for payment 
Belgium 
Denmark 
Federal Republic of Germany 
Greece 
France 
Ireland 
Italy 
Luxembourg 
The Netherlands 
United Kingdom 
Total of the 10 Member States of the European Communities 
European Development Fund 
African, Caribbean and Pacific States 
Overseas Countries and Territories 
French Overseas Departments 
Stabilization of export earnings 
System of stabilization of export earnings from mining produ 
Financial Regulation of 21 December 1977 
Official Journal of the European Communities 
Budgetary section 
Budgetary title 
Budgetary chapter 
Nil 
Data between zero and 0,05 
Percentage 
Sections referring within this annex to texts, diaarams and ta 
Peo. P^. ^ C^ftlci^^ourn^ofth^r^urop^nC^ornrnuniti^ Po7 
Contents 
Cart^^enera^ budget ottne^uro^eanCon^un^es ^ge 
^ 1. Oacl^ground information on the generai budget 158 
e^e^e^^^^er^^^e^e^^^^^^^e^eB7r^^ 
^ 2. general budget 1985:estimated revenue 182 
^ 3 general budget 1985:estimated expenditure— appropriations for payment 183 
^ 4 (3enerai budget 1985:appropriations for commitment 184 
^ 5 Estimated and actual revenue in1985 185 
^ 8. Appropriations for commitment available in1985 and their utiiization 188 
^ 7 Appropriations for payment available in1985 and their utilization 187 
^ 8 Actual own resources in1985 188 
^ 9. Hate of utilization of appropriations available in1985 189 
^ 10. The consolidated revenue and expenditure account and the balance of the financial year 1985 178 
^ 11. payments made in1985—by sector and by recipient Member State 171 
^ 12. EA(3(3F-o3uarantee:paymentsmadein1985—by market and by recipient Member State 172 
^ 13. The structural Funds:commitments entered into and payments made in1985—by recipient Member State 173 
^ 14. Evolution and utilization of the appropriations for payment for the period 1981 1985—by sector 174 
^ 15. Otilization rates of the appropriations for payment from1981to1985— by sector 175 
^ 18. Annual payments during the period 19811985—by sector 178 
^ 17. Evolutionoftheratioof annual payments by sector'to total of annual budgetary payments'(1981-1985).. 177 
^ 18 Annual payments to the Member States (19811985) 178 
^ 19 Actual own resources — by Member State (19811985) 179 
^artttt^The^uro^eanOeve^o^n^ent^unds^O^ (position at 310ecember 1985) 
^ 20. general information on the EOF 180 
^ 21. The 4th and 5th EOF:ailocations,financing,distribution of aid, utiiization rates 181 
^ 22. The 4th EOF:aid by type and by recipient country 182 
^ 23 The4thEOF:financial implementation of aid by recipient country 183 
^ 24. The 5th EOF:aid by type and by recipient country 184 
^ 25. The5thEOF:financiai implementation of aid by recipient country 185 
^ 28 The 4th and 5th EOF^utiii^ation of aid by economic sector 188 
^ 27 The five EOF^evolution of annual payments (1980-1985) 187 
158 Official Journal of the European Communities 15. 12. 86 
Part I: General budget of the European Communities 
§ 1. Background information on the general budget 
1.1. Origin of the general budget 
The general budget was created by the Merger Treaty (1) (Article 20). It replaced, on 1 January 1968, the three separate EC 
budgets which existed before then: the ECSC administrative budget, the EEC budget and the Euratom operating budget. The 
Euratom research and investment budget was incorporated in the general budget as from 1971 by the Treaty of 
Luxembourg (2) (Article 10). 
1.2. Legal basis 
The general budget is governed by the financial provisions of the Treaties of Paris (3) (Article 78 ECSC) and Rome (4) (5) 
(Articles 199 to 209 EEC and Articles 171 to 183 Euratom) and by amendments resulting from the Merger Treaty (1), the 
Council Decision on own resources (6), the Treaty of Luxembourg (2), the Treaty of Accession (7) and the Treaty of 
Brussels (8). The Financial Regulation (9) governs the procedure for establishing and implementating the budget and for 
presenting and auditing the accounts. The Financial Regulation is supplemented by further specific enactments governing 
the details of budgetary implementation. 
1.3. Main budgetary principles prescribed by the Treaties and the Financial Regulation 
The budget is authorized for one financial year (annuality). The budget presented must be in balance. Budgetary revenue is 
to be used without distinction to finance all expenditure entered in the budget (non-assignment). All items of Community 
revenue and expenditure are to be included in the budget (unity). All items of revenue and expenditure are to be entered in 
full in the budget and in the accounts without any adjustment against each other (universality). There are some exceptions to 
these general principles. 
1.4. Content and structure of the general budget 
The general budget comprises the estimates of administrative expenditure of the ECSC and corresponding revenue, of 
revenue and expenditure of the EEC and of revenue and expenditure of Euratom. 
The budget consists of five separate sections subdivided into statements of (estimated) revenue and expenditure: 
(I) Parliament; (II) Council (annexed: Economic and Social Committee); (III) Commission; (IV) Court of Justice; (V) Court of 
Auditors. 
Within each section, revenue and expenditure are classified under budget headings (titles, chapters, articles and items) 
according to their type or the use to which they are to be applied. 
1.5. Monetary unit of the general budget 
Until 1977 the budget was established and implemented in units of account (u.a.): 1 u.a. = 0,88867088 g gold (= 1 US dollar 
between 1934 and 1972). 
From 1978 to 1980 the budget was established and implemented in European units of account (EUA): 1 EUA corresponds to 
the total of the following amounts of the currencies of the EC Member States: 0,828 DM + 0,0885 UKL + 1,15 FF + 109 LIT + 
0,286 HFL + 3,66 BFR + 0,14 LFR + 0,217 DKR + 0,00759 IRL. 
As from 1981 the budget has been established and implemented in European currency units (ECU). Like the EUA, the ECU is 
a unit based on a basket of national currencies. For 1981, 1982 and 1983 the value and composition of the ECU basket is the 
same as that of the EUA (the Greek currency, the drachma, was not included in the ECU basket). For 1984 and 1985 1 ECU = 
0,719 DM + 0,0878 UKL + 1,31 FF + 140,0 LIT + 0,256 HFL + 3,71 BFR + 0,14 LFR + 0,219 DKR + 0,00871 IRL + 
1,15 DRA. 
The rates of conversion at 31 December 1985 between the ECU and the national currencies were as follows: 1 ECU = 
2,18386 DM = 0,615334 UKL = 6,70474 FF = 1 489,94 LIT = 2,46133 HFL = 44,6450 BFR/LFR = 7,95672 DKR = 
0,714055 IRL = 131,200 DRA. 
1.6. Financing of the general budget (budgetary revenue) 
The general budget is mainly financed by the own resources of the Communities (6): customs duties, agricultural levies, 
sugar and isoglucose levies and VAT up to a maximum of 1 % of a uniform EC assessment basis (10); there are also other 
smaller sources of revenue. 
As from January 1971, pursuant to the Council Decision of 21 April 1970 (6), the system of own resources progressively 
replaced the former system of fixed percentage financial contributions by the Member States. Until it became possible to 
apply the uniform VAT basis, financial contributions continued to be paid by the Member States. As from 1975 these financial 
contributions were calculated on the basis of the gross national product (GNP) shares of Member States. In 1979 own 
resources included VAT own resources for the first time. This was paid by Member States other than the Federal Republic of 
Germany, Ireland and Luxembourg, which continued to pay GNP-based financial contributions. In 1980 the VAT system was 
applied by all Member States. From 1981 to 1985 all the Member States paid VAT own resources with the exception of 
Greece which paid a financial contribution based on the GNP. 
(1) Merger Treaty (8 April 1965): Treaty establishing a Single Council and Single Commission of the European Communities. 
(2) Treaty of Luxembourg (22 April 1970): Treaty amending certain budgetary provisions of the Treaties establishing the European Communities and of the 
Merger Treaty. 
(3) Treaty of Paris (18 April 1951): Treaty establishing the European Coal and Steel Community (ECSC). 
(4) Treaty of Rome (25 March 1957): Treaty establishing the European Economic Community (EEC). 
(5) Treaty of Rome (25 March 1957): Treaty establishing the European Atomic Energy Community (Euratom). 
(6) Council Decision 70/243/ECSC, EEC, Euratom of 21 April 1970 on the replacement of financial contributions from Member States by the Communities' own 
resources (OJ L 94, 28. 4. 1970). 
(7) Treaty of Accession (22 January 1972): Act concerning the Conditions of Accession and the Adjustments to the Treaties. 
(8) Treaty of Brussels (22 July 1975): Treaty amending certain financial provisions of the Treaties establishing the European Communities and of the Merger 
Treaty. 
(9) Financial Regulation of 21 December 1977 (OJ L 356, 31. 12. 1977). 
(10) See Sixth Council Directive of 17 May 1977, common system of VAT: uniform assessment basis (OJ L 145, 13. 6. 1977). 
15. 12. 86 Official Journal of the European Communities 159 
1.7. Types of budget appropriations 
To cover estimated expenditure, the following types of budget appropriations are distinguished in the general budget: 
a) Differentiated appropriations (DA) are used to finance multiannual activities in certain sectors. They comprise 
commitment appropriations and payment appropriations: 
— commitment appropriations (CA) cover, for the current financial year, the legal obligations to be entered into for 
activities whose implementation extends over several financial years; 
— payment appropriations (PA) cover expenditure arising from commitments entered into in the financial year and/or 
preceding financial years. 
b) Non-differentiated appropriations (NDA) cover for annual activities both commitments and payments for the same 
financial year. 
Thus it is possible to establish the following two totals for the same financial year: 
— the total of appropriations for commitment (AFC) (1) 
— the total of appropriations for payment (AFP) (1) non-differentiated appropriations (NDA) 
+ commitment appropriations (CA) (1); 
= non-differentiated appropriations (NDA) 
+ payment appropriations (PA) (1). 
Revenue raised in the budget is to cover the total appropriations for payment. Commitment appropriations are not financed 
until the corresponding payment appropriations have been entered in the budget. 
The following simplified scheme (with illustrative amounts) shows the impact of these types of appropriations in each 
budget year: 
Appropriations for commitment: Amounts allo­
cated in the budgets of years 1, 2, 3 for 
commitments in those years. 
Key: 
Appro­
priations 
for 
commitment 
(AFC) , | 1 Commitment 
appropriations 
V ' (CA) 
Non-differentiated 
appropriations 
(NDA) 
year 2: AFC: 180 
year 3: AFC: 215 K)A •• 50-
NDA:100-
-CA: 60-
NDA: 120-
-CA: 65-
NDA:150-Commitment 
appropriations 
(CA) 
of prior years 
Summary of all types of appropriations: 
\ °§ 
\ ^~°-
1 \ 
m \ 
year 1 
year 2 
year 3 < 
si 
*= Q. 
O °" 
(1) 
100 
120 
150 Differentiated 
appropriations 
(DA) 
|| 
O §"9-
(2) 
50 
60 
65 si 
ll" 
(3) 
27 
38 
75 o 
< 
P B 
5'i 
g-E 
2° 
(D + (2) 
150 
180 
215 sr 
-c. 
.2 | 
§•>. 
2° 
(D + (3) 
127 
158 
225 Financial schedule: This shows in which year each part of the AFC 
allocated for years 1, 2, 3 is to be financed: NDA are financed in the 
year to which they are allocated; the CA are financed over several 
j 
T 
100 10 Amounts 
I financed in: 
year 3 
I 
20 
I 
I 
150 16 later 
1 
• 
A 
The vertical totals of this schedule indicate for each year the 
appropriations for payment (AFP) which are necessary to finance the 
legal obligations resulting for this year from the AFC allocated. For 
each year there are: AFP = NDA + payment appropriations (PA), the 
PA of the year being the total of all CA to be financed in that year. 
~3~T T~r ^-r 
Appropriations lor payment: 
1 
Key: 
Appro­
priations 
for 
payment 
(AFP) o Payment appropriations 
(PA) 
Non-differentiated 
appropriations (NDA) 
(1) Note: It is important to note the differences between appropriations for commitment and commitment appropriations and between appropriations for 
payment and payment appropriations. The two terms commitment appropriations and payment appropriations are used exclusively in the context of 
differentiated appropriations. 
160 Official Journal of the European Communities 15. 12. 86 
1.8. Establishment of the general budget 
Before 1 July of each year each institution draws up estimates of its expenditure for the following financial year (running 
from 1 January to 31 December). The Commission enters these estimates in a preliminary draft budget, and, not later than 1 
September, places this before the Council, which with Parliament constitutes the budgetary authority. The Council 
establishes the draft budget and forwards it to Parliament not later than 5 October of the same year. Parliament can propose 
modifications to the draft budget for compulsory expenditure (1) and make amendments for non-compulsory expenditure; 
these modifications and amendments are submitted to the Council. For compulsory expenditure the Council takes the final 
decision. For non-compulsory expenditure Parliament may, within the limits of a statistical maximum rate of increase, make 
amendments before taking the final decision. The President of Parliament declares that the budget has been finally 
adopted. However, Parliament may reject the draft budget and ask for a new draft to be submitted (2). 
If at the beginning of a financial year the budget has not been voted, particular provisions of the Treaties and the Financial 
Regulation relating to the authorization of expenditure are to be applied (3). 
Amending budgets (which do not alter the total amount of the annual budget) or supplementary budgets (which alter the 
total amount) can be adopted by the budgetary authority (4). 
The budgetary allocation to a specific budget heading can be modified by transfers (5) from other budget headings. 
1.9. Implementation of the general budget 
1.9.1. Responsibility for implementation 
The Commission implements the budget on its own responsibility in accordance with the Financial Regulation and within 
the limits of the appropriations allotted; it also confers upon the other institutions the requisite powers for the 
implementation of the sections of the budget relating to them (6). The Financial Regulation lays down the implementation 
procedures and, in particular, the responsibilities of the authorizing officers, accounting officers, administrators of advance 
funds and financial controllers of the institutions (7). 
1.9.2. Implementation of revenue 
The estimated revenue is entered in the budget subject to change by amending and supplementary budgets (4). 
The budgetary implementation of revenue consists in establishing the entitlements and recovering the revenue due to the 
Communities (own resources and other revenue); it is governed by special provisions (8). The actual revenue of a financial 
year is defined as the sum of recoveries upon entitlements established during the current financial year and recoveries 
upon entitlements still to be recovered from previous financial years. 
1.9.3. implementation of expenditure 
The estimated expenditure is entered in the budget. According to the nature of the legal obligation involved, it is covered by 
appropriations for commitment or appropriations for payment. The budgetary implementation of expenditure, i.e. the 
evolution and utilization of appropriations, may be summarized as follows: 
a) Appropriations for commitment. 
— Evolution of appropriations: The appropriations for commitment allocated in the initial budget can undergo certain 
modifications until the final appropriations for commitment are obtained: final appropriations for commitment = 
initial budget (NDA and CA) ± amending and supplementary budgets (4) + supplementary receipts (9) ± transfers (5) 
+ commitment appropriations remaining from the preceding financial year (10) + non-automatic carry-overs (11) 
from the preceding financial year (uncommitted NDA) + released commitment appropriations from preceding 
financial years. 
— Utilization of appropriations: The final appropriations for commitment are available in the financial year for use in the 
form of commitments entered into (appropriations for commitment utilized = amount of commitments entered into). 
— Appropriations remaining available for the next financial year: Non-differentiated appropriations which have not 
been committed, may be carried over non-automatically to the next financial year after approval by the Council (11). 
Non-utilized commitment appropriations remain available for the next financial year (10). 
— Cancellation of appropriations: The balance is cancelled. 
b) Appropriations for payment of the financial year. 
— Evolution of appropriations: Appropriations for payment may also undergo modifications leading to the final 
appropriations for payment: final appropriations for payment = initial budget (NDA and PA) ± amending and 
supplementary budgets (4) + supplementary receipts (9) ± transfers (5). 
— Utilization of appropriations: The final appropriations for payment are available in the financial year for use as 
payments (utilized appropriations for payment of the financial year = amount of payments made from the 
appropriations of the financial year). 
15. 12. 86 Official Journal of the European Communities 161 
— Carry-overs of appropriations to the next financial year: Appropriations not paid may be carried over to the next 
financial year in the form of automatic (12) or non-automatic (11) carry-overs. 
— Cancellation of appropriations: The balance is cancelled. 
c) Appropriations for payment carried over from the preceding financial year (automatic and non-automatic carry-overs). 
In each financial year these appropriations (after possible transfers) are also available for use as payments. Carry-overs 
which remain unused during the year are cancelled, except in certain cases where carry-overs can be repeated (13). 
Amounts cancelled in this way are added to the result of the financial year in the consolidated revenue and expenditure 
account (see 1.9.4.). 
With regard to actual expenditure, a distinction is made between: 
— actual expenditure during a financial year = total payments during the financial year = payments against 
appropriations for payment of the financial year plus payments against appropriations for payment carried over from 
the preceding financial year. 
— actual expenditure charged to a financial year = expenditure charged to the consolidated revenue and expenditure 
account (see 1.9.4.) = payments against appropriations for payment of the financial year plus appropriations for 
payment of the financial year carried over to the following financial year. 
1.9.4. The consolidated revenue and expenditure account and the balance of the financial year 
After the closure of each financial year the consolidated revenue and expenditure account is drawn up. The balance of the 
year, which is to be entered in the budget of the next financial year on the occasion of an amending budget, is determined 
therein (14) (see § 10). 
1.10. Presenting the accounts 
Not later than 1 June of the year following the closure of the financial year, the Commission forwards to Parliament, the 
Council and the Court of Auditors the accounts of that year: the accounts comprise a revenue and expenditure account and a 
balance sheet, together with an analysis of the financial management (15). 
1.11. External audit 
As from 1977 the external audit of the general budget has been carried out by the Court of Auditors of the European 
Communities (16). The Court of Auditors examines the accounts of all revenue and expenditure of the general budget, 
whether revenue has been received and expenditure incurred in a lawful and regular manner, and whether the financial 
management has been sound. The audits may be carried out before the closure of the financial year in question. The audits 
are performed on the basis of records and, where necessary, on the spot in the institutions of the Communities and in the 
Member States. The Court of Auditors draws up an annual report for each financial year and may also, at any time, submit 
observations on specific questions and deliver opinions at the request of one of the institutions of the Communities. 
1.12. Discharge and follow-up 
As from 1977 the following provisions are applicable (17): Parliament, on the recommendation of the Council, gives, before 
30 April of the second year following the financial year in question, discharge to the Commission on the implementation of 
the budget. To this end the Council and Parliament in turn examine the accounts presented by the Commission and the 
annual report of the Court of Auditors. 
The institutions must take appropriate action on the comments appearing in the decisions giving discharge and report on 
the measures taken (18). 
(1) 
(*)• 
(a) (4) (b) (B) (') (8) 
(9) (10) 
(11) (12) 
(13) 
(14) 
(15) 
(16) 
(17) (18) Cor 
For 
Art 
Art 
Art 
Art 
Art 
Art 
27. 
Art 
Art 
Art 
Art 
Art 
Art 
Art 
Art 
Art 
Art Compulsory expenditure is that resulting necessarily from the Treaties or from acts adopted in accordance with them. 
For details concerning the budgetary procedure see Articles 78 ECSC, 203 EEC and 177 Euratom. 
cle 8 of the Financial Regulation. 
cle 1 (5) of the Financial Regulation. 
cle 21 of the Financial Regulation. 
cles 78d ECSC, 205 EEC, 179 Euratom and Article 18 (2) of the Financial Regulation. 
cles 17 to 49 and 68 to 72 of the Financial Regulation. 
cles 23 to 31 of the Financial Regulation; Council Regulations (EEC, Euratom, ECSC) Nos 2891/77 and 2892/77 of 19 December 1977 (OJ L 336, 
12. 1977). 
cle 87 of the Financial Regulation and Article 91 (2) of the modified Financial Regulation. 
cles 6 (2) (a) and 88 (3) of the Financial Regulation. 
cle 6 (1) (b) of the Financial Regulation. 
cles 6 (1) (c), 6 (2) (b) and 88 (4) of the Financial Regulation. 
cles 6 (4) and 108 (3) (a, b) of the Financial Regulation. 
cle 27 of the Financial Regulation and Articles 15 and 16 of Council Regulation (EEC, Euratom, ECSC) No 2891/77 (OJ L 336, 27. 12. 1977). 
cles 73 to 77 of the Financial Regulation. 
cles 78e, 78f ECSC, 206 and 206a EEC, 180 and 180a Euratom and Articles 78 to 84 of the Financial Regulation. 
cles 78g ECSC, 206b EEC, 180b Euratom. 
cle 85 of the Financial Regulation. 
162 Official Journal of the European Communities 15. 12. 86 
§ 2. General budget 1985: estimated revenue 
(for more detailed information: see also § 5) 
(Mio ECU and %) 
Non-refundable advances: 1 981,6 (7,0 %) -*-
Other revenue: 287,4 (1,0 %) 
VAT own resources 
and financial contributions: 15 461,6 (54,4%) 
Customs duties 
8 596,1 (30,2% 
Key: 
• ( 
ci ) °S i £ I Total own resources (by Member State) 
Agricultural levies 
Sugar and isoglucose levies 
Customs duties 
VAT own resources and financial contributions 
Other revenue/Non-refundable advances Sugar and isoglucose 
levies: 
1 025,0 (3,6 %) 
Agricultural levies: 
1 081,5 (3,8%) 
15. 12. 86 Official Journal of the European Communities 163 
§ 3. General budget 1985: estimated expenditure — appropriations for payment 
(for more detailed information: see also § 7, column 3) 
(Mio ECU and %) 
10. Provisional appropriations and contingency reserve: 23,2 (0,1 %) (incl. NDA: 9,3) 
9. Cooperation with developing countries: 1 039,2 (3,6 %) (incl. NDA: 169,7) 
8. Repayments to Member States: 1 266,8 (4,4 %) 
7. Research, energy, etc.: 700,3 (2,5 %) (incl. NDA: 36,1) 
6. Social policy: 1 625,3 (5,7 %) (incl. NDA: 209,1) 
5. Regional policy and transport: 1 697,8 (6,0 %) (incl. NDA: 3,8) 
4. Fisheries: 105,4 (0,4 %) (incl. NDA: 59,8) 
3. Agricultural structures: 687,7 (2,4 %) (incl. NDA: 45,2) 
S 2.11. Other expenditure: -30,0 (-0,1%) 
\ 2.10. Agri-monetary measures: 110,0 (0,4 %) 
2.9. Other markets: 669,0 (2,4 %) 
2.8. Meat, eggs, poultry: 3 198,0 (11,2 %) 
2.7. Milk products: 6 602,0 (23,2 %) 
2.6. Tobacco: 841,0 (3,0 %) 
*- 2.5. Wine: 998,0 (3,5%) 
*- 2.4. Fruit and vegetables: 1356,0(4,8%) 
2.3. Fats and protein plants: 2 107,0 (7,4 %) 
2.2. Sugar: 1 689,0 (5,9%) 
2.1. Cereals and rice: 2 415,0 (8,5%) 
Key 
Non differentiated appropriations (NDA) 
Sectors with differentiated appropriations: 
payment appropriations 
Appropriations available to the Commission 
Appropriations available to the other 
institutions 
164 Official Journal of the European Communities 15. 12. 86 
§ 4. General budget 1985: appropriations for commitment 
(for more detailed information: see also § 6, column 3) 
(Mio ECU and %) 
->- 10. Provisional appropriations and contingency reserve: 68,8 (0,2 %) (incl. NDA: 9,3) 
-*- 9. Cooperation with developing countries: 1 284,3 (4,2 %) (incl. NDA: 169,7) 
->~8. Repayments to Member States: 1 266,8 (4,1 %) 
->- 7. Research, energy, etc.: 1 027,9 (3,4 %) (incl. NDA: 36,1) 
-*- 6. Social policy: 2 229,3 (7,3 %) (incl. NDA: 209,1) 
->- 5. Regional policy and transport: 2 588,6 (8,5 %) (incl. NDA: 3,8) 
*- 4. Fisheries: 150,2 (0,5 %) (incl. NDA: 59,8) 
*- 3. Agricultural structures: 712,7 (2,3 %) (incl. NDA: 45,2) 
Note: For the sectors to which differentiated appropriations are 
allocated, this diagram shows the amounts of the commitment 
appropriations rather than the payment appropriations shown 
in § 3, the amounts of the non-differentiated appropriations and 
their diagrammatical presentation being the same. 
The total appropriations for commitment are not balanced by 
the budgetary revenue of 1985 as the commitment appropri­
ations also include amounts to be financed by budgetary 
revenue of subsequent years (see § 1 (1.7)). 
Total 
appropriations 
for 
commitment: 
30 616,1 
Mio ECU (1) 
Sum of non-differentiated 
appropriations 
(23 087,3 Mio ECU) 
and commitment appropri 
ations 
(7 528,8 Mio ECU) 2. EAGGF-Guarantee: 19 955,0(65,2%) 
(for the breakdown of these appropriations 
by market, see § 3) 
1. Administration (all institutions): 1 332,5 (4,3 %) 
(for the breakdown of these appropriations 
by institution, see § 3) Key: 
Non-differentiated appropriations (NDA) 
Sectors with differentiated appropriations: 
commitment appropriations 
15. 12. 86 Official Journal of the European Communities 165 
§ 5. Estimated and actual revenue in 1985 
A. Estimated and actual revenue in 1985: 
Type of revenue 
(the Titles (T) or Chapters (Ch) 
corresponding to the budgetary 
nomenclature for 1985 are given in brackets) 
1. Own resources: 
— agricultural levies (Ch 10) 
— sugar and isoglucose levies (Ch 11) 
— customs duties (Ch 12) 
— VAT own resources (Ch 13) 
— financial contribution (GNP) Greece 
(Ch 20, 21) 
— balances and adjustments prior to 1985 of 
VAT own resources and financial contri­
butions (Ch 31) 
Total own resources 
2. Surplus available from the preceding financial 
year (Ch 30) 
3. Other revenue (T 4; 5; 6; 7; 8 except for 
Ch82; 9) 
4. Advances granted by the Member States 
(Ch 82): 
— non-refundable advances 
— refundable advances (entitlements 
carried forward from 1984) 
Total revenue Revenue as estimated in the 1985 budget 
Mio ECU % 
1 081,5 3,8 
1 025,0 3,6 
8 596,1 30,2 
15 198,1 53,5 
263,5 0,9 
p.m. — 
26 164,2 92,0 
p.m. — 
287,4 1,0 
1 981,6 7,0 
28 433,2 100 Actual revenue in 1985 
(revenue collected during the financial year) 
Mio ECU % 
1 121,7 4,0 
1 057,4 3,8 
8 310,1 29,6 
15 218,9 54,2 
260,9 0,9 
111,8 0,4 
26 080,8 92,9 
353,6 1,3 
1 242,4 4,4 
408,3 1,4 
28 085,1 100 
B. Estimated and actual own resources in 1985 by Member State: 
(Mio ECU) 
Type of resource 
Agricultural levies: 
— estimated 
— actual 
Sugar and isoglucose levies: 
— estimated 
— actual 
Customs duties: 
— estimated 
— actual 
VAT own resources/financial 
contributions (1): 
— estimated 
— actual 
Balances and adjustments prior to 
1985: 
— estimated 
— actual 
Total own resources: 
— estimated 
— actual Belgium 
160,0 
197,2 
75,3 
78,4 
493,5 
489,3 
554,5 
554,6 
p.m. 
-26,9 
1 283,3 
1 292,6 Denmark 
7,0 
9,7 
43,0 
43,5 
218,0 
208,2 
342,6 
342,6 
p.m. 
16,4 
610,6 
620,4 FR of 
Germany 
130,0 
142,0 
300,0 
286,3 
2 500,0 
2 414,5 
4 693,9 
4 699,0 
p.m. 
-37,5 
7 623,9 
7 504,3 Greece 
21,0 
18,1 
16,3 
12,0 
118,9 
95,9 
263,5 
260,9 
p.m. 
1,1 
419,7 
388,0 France 
88,0 
74,1 
330,7 
348,0 
1 206,0 
1 174,7 
3 788,3 
3 792,5 
p.m. 
-70,1 
5 413,0 
5 319,2 Ireland 
5,5 
5,9 
14,9 
15,0 
134,7 
137,2 
148,9 
148,9 
p.m. 
-10,6 
304,0 
296,4 Italy 
276,1 
314,4 
70,2 
75,8 
860,0 
820,1 
2 501,9 
2 491,4 
p.m. 
-72,2 
3 708,2 
3 629,5 Luxem­
bourg 
0,1 
0,2 
— 
5,0 
6,0 
43,9 
43,9 
p.m. 
0,6 
49,0 
50,7 Nether­
lands 
125,9 
131,7 
88,8 
104,1 
790,0 
781,5 
824,1 
825,4 
p.m. 
46,7 
1 828,8 
1 889,4 United 
Kingdom 
267,9 
228,4 
85,8 
94,3 
2 270,0 
2 182,7 
2 300,0 
2 320,6 
p.m. 
264,3 
4 923,7 
5 090,3 EUR 10 
1 081,5 
1 121,7 
1 025,0 
1 057,4 
8 596,1 
8 310,1 
15 461,6 
15 479,8 
p.m. 
111,8 
26 164,2 
26 080,8 
(1) Greece paid a financial contribution based on its GNP. 
166 Official Journal of the European Communities 15. 12. 86 
§ 6. Appropriations for commitment available in 1985 and their utilization 
(Mio ECU) 
in 
O 
^1 
c 
S 
0. 
§ 
*= 
CO 
o 
.<2 
E E o o Sector 
(the Sections (S), Titles (T) and Chapters (Ch) 
corresponding to the 1985 budgetary nomen­
clature are shown in brackets) 
(D 
1. Administration 
1.1. Parliament (S I) 
1.2. Council (S II) 
(of which: Economic and Social Committee) 
1.3. Commission (S III, Part A) 
1.4. Court of Justice (S IV) 
1.5. Court of Auditors (S V) 
2. EAGGF-Guarantee (T 1, 2) 
2.1. Cereals and rice (Ch 10) 
2.2. Sugar (Ch 11) 
2.3. Fats and protein plants (Ch 12, 13) 
2.4. Fruit and vegetables (Ch 15) 
2.5. Wine (Ch 16) 
2.6. Tobacco (Ch 17) 
2.7. Milk products (Ch 20) 
2.8. Meat, eggs, poultry (Ch 21 - 24) 
2.9. Other markets (Ch 14, 18, 25) 
2.10. Agri-monetary measures (Ch 27, 28) 
2.11. Other expenditure (Ch 29) 
3. Agricultural structures (T 3) 
(of which: non-differentiated appropriations) 
3.1. EAGGF-Guidance (Ch 30 - 33) 
3.2. Specific measures (Ch 38) 
4. Fisheries (T 4) 
(of which: non-differentiated appropriations) 
4.1. Common organization of the market (Ch 40) 
4.2. Other measures (Ch 41 - 43, 45 - 46) 
5. Regional policy 
and transport (T 5) 
(of which: non-differentiated appropriations) 
5.1. Regional Fund (Ch 50, 51) 
5.2. Transport (Ch 58) 
5.3. Other measures (Ch 52 - 57) 
6. Social policy (T 6) 
(of which: non-differentiated appropriations) 
6.1. Social Fund (Ch 60-61) 
6.2. Other measures (Ch 63 - 67, 69) 
7. Research, energy, etc. (T 7) 
(of which: non-differentiated appropriations) 
7.1. Energy (Ch 70) 
7.2. Research and investment (Ch 73) 
7.3. Industry (Ch 77) 
7.4. Other measures (Ch 71, 72, 75, 79) 
8. Repayments to Member States (T 8) 
8.1. Costs incurred in collecting 
own resources (Ch 80) 
8.2. Other repayments (Ch 81 - 86) 
9. Cooperation with developing countries (T 9) 
(of which: non-differentiated appropriations) 
9.1. Food aid (Ch 92) 
9.2. Financial aid (Ch 93 - 99) 
10. Provisional appropriations and contingency reserve 
(Ch 100, 101) 
(of which: non-differentiated appropriations) 
jriations: 
ated 
is (NDA); 
appropria-
O c o •£ 
o- « ~ E < 
o72|co a, c o. E c S O Q-O o 
§; c co o -.= H I I 
(2) 
NDA 
NDA 
NDA 
(NDA) 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA + CA 
(NDA) 
CA 
NDA + CA 
NDA + CA 
(NDA) 
NDA 
NDA + CA 
NDA + CA 
(NDA) 
CA 
NDA + CA 
NDA + CA 
NDA + CA 
(NDA) 
CA 
NDA + CA 
NDA + CA 
(NDA) 
NDA + CA 
CA 
NDA + CA 
NDA + CA 
NDA 
NDA 
NDA 
NDA + CA 
(NDA) 
NDA + CA 
NDA + CA 
NDA + CA 
(NDA) Evolution of appropriations 
1 1 
CO 
(3) 
1 332,5 
237,8 
158,5 
(25,9) 
884,5 
32,6 
19,1 
19 955,0 
2 415,0 
1 689,0 
2 107,0 
1 356,0 
998,0 
841,0 
6 602,0 
3 198,0 
669,0 
110,0 
-30,0 
712,7 
(45,2) 
656,0 
56,7 
150,2 
(59,8) 
24,1 
126,1 
2 588,6 
(3,8) 
2 289,9 
91,6 
207,1 
2 229,3 
(209,1) 
2 010,0 
219,3 
1 027,9 
(36,1) 
141,3 
821,7 
36,8 
28,1 
1 266,8 
1 070,3 
196,5 
1 284,3 
(169,7) 
635,6 
648,7 
68,8 
(9,3) c 
O 
o — 
a Q-oo 
il oj-r-
(4) 
1 336,0 
237,8 
158,5 
(26,6) 
888,0 
32,6 
19,1 
19 859,0 
2 394,0 
1 807,0 
2 192,5 
1 236,0 
925,0 
865,0 
5 981,0 
3 484,0 
741,0 
196,0 
37,5 
978,9 
(45,2) 
918,2 
60,7 
215,4 
(59,9) 
24,1 
191,3 
3 035,5 
(3,8) 
2 654,9 
171,6 
209,0 
2 767,1 
(209,1) 
2 536,3 
230,8 
1 327,8 
(38,3) 
169,5 
1 049,4 
70,6 
38,3 
1 266,8 
1 070,3 
196,5 
1 487,6 
(203,8) 
689,1 
798,5 
46,3 
(5,8) i 
«>.<= 
c o 
1! E £ 
o c 
O 0) 
(5) 
1 314,4 
232,7 
153,1 
(26,3) 
879,4 
31,0 
18,2 
19 728,1 
2 360,3 
1 804,5 
2 175,4 
1 230,7 
921,4 
862,9 
5 933,2 
3 476,6 
736,1 
189,8 
37,2 
910,9 
(44,8) 
852,8 
58,1 
121,7 
(46,8) 
16,1 
105,6 
2 640,7 
(3,0) 
2 495,3 
81,2 
64,2 
2 283,5 
(80,6) 
2 188,5 
95,0 
977,2 
(31,9) 
155,6 
734,9 
58,8 
27,9 
1 244,0 
1 048,8 
195,2 
1 139,5 
(202,9) 
689,1 
450,4 
— (—) 1 
<2'co 
5 > 
.2 to 
"5 o)£ 
a! 8 
O Jg O) 
°- E "~~ 
(6) 
— 
— — (-) — — — 
— 
— — — — — — — — — — — 
54,6 
(-) 52,5 
2,1 
57,6 
(—) 
— 57,6 
356,2 
(-) 122,0 
90,0 
144,2 
418,0 
(122,5) 
288,2 
129,8 
340,6 
(—) 
13,9 
313,6 
3,5 
9,6 
— 
— — 
343,8 
(—) 
— 343,8 
— (—) CO 
1 
1 
O 
(7) = 
(4) - (5) 
~ (6) 
21,6 
5,1 
5,4 
(0,3) 
8,6 
1,6 
0,9 
130,9 
33,7 
2,5 
17,1 
5,3 
3,6 
2,1 
47,8 
7,4 
4,9 
6,2 
0,3 
13,4 
(0,4) 
12,9 
0,5 
36,1 
(13,1) 
8,0 
28,1 
38,6 
(0,8) 
37,6 
0,4 
0,6 
65,6 
(6,0) 
59,6 
6,0 
10,0 
(6,4) 
0,0 
0,9 
8,3 
0,8 
22,8 
21,5 
1,3 
4,3 
(0,9) 
— 4,3 
46,3 
(5,8) 
Grand total NDA + CA 
NDA 
CA 30 616,1 32 320,4 
23 087,3 23 027,7 
7 528,8 9 292,7 30 360,0 
22 696,5 
7 663,5 1 570,8 
122,5 
1 448,3 389,6 
208,7 
180,9 
(1) Budget appropriations amended after taking account of commitment appropriations remaining from 1984, appropriations corresponding to receipts for services performed on behalf 
of outside bodies and transfers between budget headings. 
(2) Non-differentiated appropriations not automatically carried over to 1986 and commitment appropriations remaining at the closure of the 1985 accounts. 
15. 12. 86 Official Journal of the European Communities 167 
§ 7. Appropriations for payment available in 1985 and their utilization 
(Mio ECU) 
Sector 
(for the corresponding terms 
and budget heading see § 6, 
column 1) 
(D 
1. Administration 
1.1. Parliament 
1.2. Council 
(of which: ESC) 
1.3. Commission 
1.4. Court of Justice 
1.5. Court of Auditors 
2. EAGGF-Guarantee 
2.1. Cereals and rice 
2.2. Sugar 
2.3. Fats and protein plants 
2.4. Fruit and vegetables 
2.5. Wine 
2.6. Tobacco 
2.7. Milk products 
2.8. Meat, eggs, poultry 
2.9. Other markets 
2.10. Agri-monetary measures 
2.11. Other expenditure 
3. Agricultural structures 
(of which: NDA) 
3.1. EAGGF-Guidance 
3.2. Specific measures 
4. Fisheries 
(of which: NDA) 
4.1. Common organ, of market 
4.2. Other measures 
5. Regional policy and 
transport 
(of which: NDA) 
5.1. Regional Fund 
5.2. Transport 
5.3. Other measures 
6. Social policy 
(of which: NDA) 
6.1. Social Fund 
6.2. Other measures 
7. Research, energy, etc. 
(of which: NDA) 
7.1. Energy 
7.2. Research and investment 
7.3. Industry 
7.4. Other measures 
8. Repayments to Member States 
8.1. Costs incurred in collecting 
own resources 
8.2. Other repayments 
9. Coop, with developing countries 
(of which: NDA) 
9.1. Food aid 
9.2. Financial aid 
10. Provisional appropriations and 
contingency reserve 
(of which: NDA) 
Type of appropriations: 
- non-differentiated 
appropriations (NDA); 
- payment 
appropriations (PA) 
(2) 
NDA 
NDA 
NDA 
(NDA) 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA 
NDA + PA 
(NDA) 
PA 
NDA + PA 
NDA + PA 
(NDA) 
NDA 
NDA + PA 
NDA + PA 
(NDA) 
PA 
NDA + PA 
NDA + PA 
NDA + PA 
(NDA) 
PA 
NDA + PA 
NDA + PA 
(NDA) 
NDA + PA 
PA 
NDA + PA 
NDA + PA 
NDA 
NDA 
NDA 
NDA + PA 
(NDA) 
NDA + PA 
NDA + PA 
NDA + PA 
(NDA) A. Appropriations of the financial year 1985 
Evolution of 
appropriations 
-r?m 
CD? 
(3) lie 
III 
(4) 
1 332,5 1 336,0 
237,8 237,8 
158,5 158,5 
(25,9) (26,6) 
884,5 888,0 
32,6 32,6 
19,1 19,1 
19 955,0 19 859,0 
2 415,0 2 394,0 
1 689,0 1 807,0 
2 107,0 2 192,5 
1 356,0 1 236,0 
998,0 925,0 
841,0 865,0 
6 602,0 5 981,0 
3 198,0 3 484,0 
669,0 741,0 
110,0 196,0 
-30,0 37,5 
687,7 747,7 
(45,2) (45,2) 
632,5 692,5 
55,2 55,2 
105,4 107,4 
(59,8) (59,9) 
24,1 24,1 
81,3 83,3 
1 697,8 1 697,8 
(3,8) (3,8) 
1 610,0 1 610,0 
35,6 35,6 
52,2 52,2 
1 625,3 1 626,2 
(209,1) (209,1) 
1 410,0 1 410,0 
215,3 216,2 
700,3 692,2 
(36,1) (38,3) 
83,3 83,3 
553,2 543,1 
43,7 44,7 
20,1 21,1 
1 266,8 1 266,8 
1 070,3 1 070,3 
196,5 196,5 
1 039,2 1 092,7 
(169,7) (203,8) 
507,9 561,4 
531,3 531,3 
23,2 11,3 
0,3) (5,8) cu 
CO 
E 
® S 
<° 7 
a. .E 
(5) 
1 210,3 
216,6 
135,1 
(25,6) 
811,8 
29,2 
17,6 
19 723,7 
2 359,8 
1 804,5 
2 172,1 
1 230,7 
921,4 
862,9 
5 933,2 
3 476,6 
735,5 
189,8 
37,2 
690,8 
(33,2) 
654,5 
36,3 
72,6 
(45,6) 
16,1 
56,5 
1 501,9 
(0,6) 
1 495,0 
0,3 
6,6 
1 373,1 
(54,5) 
1 317,5 
55,6 
469,6 
(7,9) 
42,4 
406,0 
11,1 
10,1 
1 239,3 
1 046,0 
193,3 
855,2 
(163,2) 
536,4 
318,8 
(—) <3° 
(6) 
104,1 
16,1 
18,0 
(0,7) 
67,6 
1,8 
0,6 
4,4 
0,5 
3,3 
0,6 56,5 
(11,6) 
38,0 
18,5 
21,7 
(1,2) 
21,7 
195,1 
(2,4) 
115,0 
35,1 
45,0 
247,1 
(148,6) 
92,5 
154,6 
215,9 
(24,0) 
40,9 
136,8 
28,0 
10,2 
4,7 
2,8 
1,9 
236,6 
(39,7) 
25,0 
211,6 
(—) o 
aj 
"cu 
CO 
O 
(7) = 
(4) - (5) 
- (6) 
21,6 
5,1 
5,4 
(0,3) 
8,6 
1,6 
0,9 
130,9 
33,7 
2,5 
17,1 
5,3 
3,6 
2,1 
47,8 
7,4 
4,9 
6,2 
0,3 
0,4 
(0,4) 
0,4 
13,1 
(13,1) 
8,0 
5,1 
0,8 
(0,8) 
0,2 
0,6 
6,0 
(6,0) 
6,0 
6,7 
(6,4) 
0,0 
0,3 
5,6 
0,8 
22,8 
21,5 
1,3 
0,9 
(0,9) 
0,9 
11,3 
(5,8) B. Carry-overs from 1984 
1- I 
= CO % 
c ° co « 
Q-'E E£ 
(8) 
96,4 
15,4 
13,9 
(0,9) 
63,6 
2,5 
1,0 
2,6 
1,9 
0,7 
55,2 
(5,3) 
35,6 
19,6 
38,4 
(6,9) 
38,4 
232,6 
(59,7) 
129,2 
80,4 
23,0 
125,9 
(24,7) 
95,5 
30,4 
269,5(2) 
(73,7) 
88,2 
126,7 
41,4 
13,2 
8,7 
4,9 
3,8 
264,6 
(129,2) 
7,4 
257,2 
(—) c0 
E 
0. .£ 
(9) 
85,7 
11,9 
13,3 
(0,8) 
57,7 
1,9 
0,9 
2,2 
1,6 
0,6 
47,8 
(4,8) 
35,6 
12,2 
9,2 
(6,7) 
9,2 
223,6 
(55,4) 
129,2 
75,7 
18,7 
117,6 
(19,8) 
95,5 
22,1 
237,9 
(71,3) 
83,8 
104,6 
38,7 
10,8 
8,7 
4,9 
3,8 
229,5 
(126,6) 
7,4 
222,1 
(—) So 
(10) 
(—) 
— 
(—) 
(—) 
(—) 
(—) 
4,4 
(-) 
4,4 
— 
(—) 
(—) CO 
o 
(11) = 
(8) - (9) 
- (10) 
10,7 
3,5 
0,6 
(0,1) 
5,9 
0,6 
0,1 
0,4 
0,3 
0,1 
7,4 
(0,5) 
7,4 
29,2 
(0,2) 
29,2 
9,0 
(4,3) 
4,7 
4,3 
8,3 
(4,9) 
8,3 
27,2 
(2,4) 
4,4 
17,7 
2,7 
2,4 
— 
35,1 
(2,6) 
0,0 
35,1 
(—) C. 
Total 
pay­
ments 
made 
in 
1985 
(12) = 
(5) + (9) 
1 296,0 
228,5 
148,4 
(26,4) 
869,5 
31,1 
18,5 
19 725,9 
2 359,8 
1 804,5 
2 173,7 
1 230,7 
921,4 
862,9 
5 933,2 
3 476,6 
736,1 
189,8 
37,2 
738,6 
(38,0) 
690,1 
48,5 
81,8 
(52,3) 
16,1 
65,7 
1 725,5 
(56,0) 
1 624,2 
76,0 
25,3 
1 490,7 
(74,3) 
1 413,0 
77,7 
707,5 
(79,2) 
126,2 
510,6 
49,8 
20,9 
1 248,0 
1 050,9 
197,1 
1 084,7 
(289,8) 
543,8 
540,9 
(—) 
Grand total NDA + PA 
NDA 
PA 28 433,2 28 437,1 
23 087,3 23 027,7 
5 345,9 5 409,4 27 136,5 
22 478,3 
4 658,2 1 086,1 
340,7 
745,4 214,5 
208,7 
5,8 1 093,9 
407,2 
686,7 962,2 
381,2 
581,0 4,4 
4,4 127,3 
26,0 
101,3 28 098,7 
22 859,5 
5 239,2 
(1) Budget appropriations amended after taking account of transfers between budget headings, receipts for services performed on behalf of outside bodies and 1984 carry-overs 
transfered to the 1985 appropriations. 
(2) After transfers of 1,0 Mio ECU to the non-differentiated appropriations of the financial year 1985. 
168 Official Journal of the European Communities 15 12 86 
§ 8. Actual own resources in 1985 
(for basic figures, see § 5) 
A. Actual own resources in 1985 — by type 
(Mio ECU and %) 
«9 
10 
CD 
Jl> 
m to 
§ 
° 3 
(!>£; O C h: O X" s« iJ 
H-n 
< c > W 8? O) 
2 
£ <B 
£ 
? H % 3 
s 
•o 
rn 
ci) 
r « 2 
1 
o 
c 
/ 
Total: 26 080,8 Mio ECU B. Actual own resources in 1985 — by Member State and by type 
(Mio ECU and %) 
Total: 26 080,8 Mio ECU 
C Shares of Member States in each type of own resources (%): 
29,9 
3,4 2,3 VAT own resources 
and financial contributions (%) 
23,9 
1,7 0,9 15,5 
B DK D GR IRL 0,3 16,5 
5,6 
NL UK 29,1 Customs duties (%) 
B DK D GR NL UK 
32,9 
Agricultural levies (%) 28 0 
11.7 
#' 
«''.». £**> 20 4 
km' 
& 
pr-fe& 
»v Sugar and isoglucose 
levies (%) 
NL UK NL UK 
15. 12. 86 Official Journal of the European Communities 169 
§ 9. Rate of utilization of appropriations available in 1985 
5#S 
=> Q.0) 
3$s I. Final appropriations 
commitment in 1985 
(see § 6 columns 4 to 7) for II. Final 1985 appropriations 
for payment 
(see § 7 columns 4 to 7) 
a Total: 
32 320,4 Mio ECU 
m 
1 
1 
F S 
-
f 
i <^ 
J 
CD 2 
O to 
LUO 
oo 
jK 
1 ii 
£S 
" ? 
^ 
i lO 
o 
-J 
5 
ii 
* 1 
m "2 
LO 
r 
i 
X 
# 
1 # 
5 fo 
M-
5 
CD 
f 
*" 
^ 
1 a> 
1 
£% 
*-
# 5? 
IU 
5f 
6 SI 
00 
f s %- (1) 
ii 
z% a> irJ 
&8 
°. 
Iwg ;^M i^H 
*•• m Total: 
28 437,1 Mio ECU n 
n 
% 
H 
• 
• Key: 
— Non-differentiated 
appropriations 
— Commitment 
appropriations 
— Payment appropriations 
— Rate of commitment 
— Rate of payment 
— Rate of unused 
appropriations 
remaining available for 
1986 (appropriations 
remaining and/or 
carried over) 
— Cancellations 
III. Appropriations for 
ment carried over 
1984 pay-
from 
(see § 7, columns 8 to 11) 
Total: 1 093,9 Mio ECU 
$ 1 
% 
F 
•D 
< ^ in 
CM ID 
4 
WO 
CM 75 
ii 
o,r_: < « CO 1 
^ ",. 15 
II 
<u c 
lO 1-
s-a 
o 
CD ^ 
? fc 
1 
s a> a 
r-N 
1 ,4 
r )r 
! 
<U -
a. y 
00 5p 
<^ So 
is 1? 
o m U-o 
o> 
^ 
» 
3S 
o TO o 
o 
^ 
« TO TO S 
^ 
5? 
* SS 
<R 
(D a? 
ID 
2 
00 £ 
m 
S? 
•* 
CO £ 
» 
<o ^ 
S-
S? 
« * « 
N " 
ss 
1 • 
£ 
5 • 
, 
(O 1 1 V 
3 . 
$ s 
i w 
to 
i s 
s • 
£ 
& 
-1,2 % 
-4 9 % 88,0 % 
E—11 6 % 
Xo,4 % 
170 Official Journal of the European Communities 15. 12. 86 
§ 10. The consolidated revenue and expenditure account and the balance of the financial year 1985 
(application of Article 15 of Council Regulation (EEC, Euratom, ECSC) No 2891/77) 
Revenue: 
Funds actually available for 
the financial year 1985 
Total: 
28 237,3 Mio ECU Expenditure: 
Application of funds available 
for the financial year 1985 
Total: 
28 237,3 Mio ECU 
(Mio ECU) 
(6) Balance (deficit) 
for the financial year 1985 
(5) Cancellations of carry­
overs from 1984 
(see § 7, column 11) 
(4) Carry-overs from 1984 
transferred to the 
appropriations 1985 
(see § 7, note (2)) 
(3) Refundable (408,3) 
and non-refundable 
advances (1 242,4) 
(2) Other actual 
revenue 
(see § 5) 23,9 
127,3 
1 650,7 
353,6 
r 
(1) Total actual own re­
sources in 1985: 
26 080,8 (see § 5) < VAT own 
resources 
and financial 
contributions: 
15 591,6 
(including 
balances 
and adjustments 
before 1985) H 
V 14,7 (9) Exchange 
rate differences 
(8) 1985 appropriations 
for payment carried 
over to 1986 
(see § 7, column 6) 
27 136,5 (7) Payments made in 
1985 against appro­
priations of the 
1985 budget 
(see § 7, column 5) 
Note: The result of the financial year 1985, defined as (1) + (2) + (3) - (7) - (8), is -137,5 Mio ECU. 
15. 12. 86 Official Journal of the European Communities 171 
§ 11. Payments made in 1985 — by sector and by recipient Member State 
Note: Payments made in 1985 = payments against 1985 appropriations plus payments against carry-overs from 1984 
A. Payments by sector (Mio ECU): 
(see also § 7, column 12, and § 14) 
2. EAGGF-Guarantee: 19 725,9 -* 
1. Administration: 1 296,0 
9. Cooperation with 
developing countries: 1 084,7 
8. Repayments 
to Member States: 1 248,0 
7. Research, energy, etc.: 707,5 
B. Payments to Member States: 
(for more detailed figures see § 12 and § 13) >~ 3. Agricultural structures: 738,6 
4. Fisheries: 81,8 
5. Regional policy 
and transport: 1 725,5 
6. Social policy: 1 490,7 
^ ./ 
/ /^7\ 
/ 
-v Specific 
measures 
Costs incurred in 
collecting own 
resources 
EAGGF-Guidance 
Regional Fund 
Social Fund 
Fisheries 
EAGGF-Guarantee 
(Mio ECU) 
-?=T DK GR IRL NL UK A,Won EUR 10 5 
EAGGF-Guarantee (T1 - 2) (1) 
EAGGF-Guidance 
(Ch 30-33) 
Fisheries (Ch 40-43, 45-46) 
Regional Fund (Ch 50-51) 
Social Fund (Ch 60-61) 
Costs incurred in collecting 
own resources (Ch 80) 
Specific measures 
(Ch 82, 86; articles 583, 707) 916,3 
12,4 
3,1 
12,3 
49,4 
76,5 829,3 
13,0 
2,9 
7,7 
33,5 
26,1 3 625,6 
81,0 
2,3 
61,7 
109,8 
284,5 
20,1 1 192,6 
83,7 
1,7 
309,0 
79,0 
12,2 
24,6 4 633,3 
122,3 
12,1 
233,2 
255,6 
159,9 1 166,8 
73, 
3, 
118, 
171, 
15,8 3 410,9 
175,3 
6,0 
381,1 
383,5 
123,5 4,8 
1,8 
0,7 
0,6 
0,6 2 047,4 
18,1 
2,3 
16,4 
46,0 
101,7 1 894,7 
109,4 
12,5 
483,9 
284,0 
250,1 
72,8 4,2 
35,7 19 725,9 
690,1 
81,8 
1 624,2 
1 413,0 
1 050,9 
117,5 
Total 1 070,0 
(4,3%) 912,5 
(3,7%) 4 185,0 
(17,0%) 1 702,8 
(6,9%) 5 416,4 
(21,9%) 1 548,7 
(6,3%) 4 480,3 
(18,1%) 8,5 
(0,0%) 2 231,9 
(9,0%) 3 107,4 
(12,6%) 39,9 
(0,2%) 24 703,4 
(100%) 
(1) For the EAGGF-Guarantee these figures include adjusted monetary compensatory amounts (see § 12 D, footnote (1)). 
172 Official Journal of the European Communities 15. 12. 86 
§12. EAGGF-Guarantee: payments made in 1985 — by market and by recipient Member State 
A. Payments made in 1985, 
by market (Mio ECU and %) 
II l/ £ZZZ> 
Total: 19 725,9 Mio ECU B. Payments made in 1985, by recipient Member State 
(Mio ECU and %): 
Key: 
- for the colour 
corresponding 
to each market, 
see A 
Total: 19 725,9 Mio ECU 
C. Distribution by recipient Member State of payments made in 1985 for the principal markets (%): 
27 3 Milk products (%) 
21,5 21,2 33,3 
4,3 6,5 Meat, eggs, 
poultry (%) 
23,2 Cereals and 
rice (%) 
0,1 8,0 
2,6 0,1 20,1 
8,4 
B DK D GR F IRL I L NL UK 
34,8 
Fats and 
protein 
plants 
19,0 B DK D GR F IRL I L NL UK 
4-8 2.4 17,9 
6,0 
0,1 Sugar(%) ^3 
15,5 17,7 
0,0 7,1 
0,1 3,6 
0,3 42,9 
9,0 
0.8 l^1! 0,0 7,1 
B DK D GR F IRL I L NL UK B DK D GR F IRL I L NL UK 18,4 
6,1 
3,2 2,1 19,1 
0,6 13,4 
3,8 
0,0 I 
B DK D 
Fruit and i 
(%) 
0,3 0,2 0,5 GR 
rege 
27,7 F IRL 
tables 
10,0 
0,0 I 
^ L NL UK 
60,3 
— 0,5 0,5 
B DK D GR F IRL I L NL UK 
D. Record of payments made in 1985, by recipient Member State and by market: (Mio ECU) 
Market 
2.1. Cereals and rice 
2.2. Sugar 
2.3. Fats and 
protein plants 
2.4. Fruit and vegetables 
2.5. Wine 
2.6. Tobacco 
2.7. Milk products 
2.8. Meat, eggs, poultry 
2.9. Other markets 
2.10. Agri-monetary 
measures (1) 
2.11.Other expenditure 
Total B 
143,7 
278,8 
104,7 
3,0 
— 6,7 
256,9 
90,8 
29,3 
1,6 
0,8 
916,3 DK 
74,8 
64,9 
51,3 
2,0 
0,0 
— 387,3 
193,8 
52,4 
7,2 
-4,4 
829,3 D 
434,8 
320,2 
413,2 
6,4 
8,5 
44,1 
1 617,3 
548,8 
64,3 
46,8 
121,2 
3 625,6 GR 
50,8 
5,7 
130,6 
341,4 
34,6 
352,1 
8,1 
17,8 
217,5 
38,3 
-4,3 
1 192,6 F 
786,2 
774,8 
388,4 
123,2 
329,5 
81,8 
1 273,7 
807,4 
79,0 
-14,9 
4,2 
4 633,3 IRL 
13,9 
14,0 
1,7 
0,2 
— — 477,0 
619,0 
36,8 
5,0 
-0,8 
1 166,8 I 
450,6 
56,1 
757,4 
742,1 
548,2 
377,5 
150,7 
328,5 
40,9 
-1,8 
-39,3 
3 410,9 L 
0,3 
0,0 
0,0 
— — — 4,1 
0,2 
0,1 
0,0 
0,1 
4,8 NL 
89,1 
162,1 
170,1 
6,6 
— 0,7 
1 257,4 
171,1 
117,3 
99,1 
-26,1 
2 047,4 UK 
315,6 
127,9 
153,2 
5,8 
0,6 
500,7 
699,2 
97,4 
8,5 
-14,2 
1 894,7 Alloca­
tion 
not 
avail­
able 
3,1 
1,1 
— 
4,2 EUR 10 
2 359,8 
1 804,5 
2 173,7 
1 230,7 
921,4 
862,9 
5 933,2 
3 476,6 
736,1 
189,8 
37,2 
19 725,9 
(1) The agri-monetary measures include monetary compensatory amounts (MCAs) adjusted to cancel the effect of the application of Article 2 of Council Regulation (EEC) 
No 974/71, under which exporting Member States themselves pay directly the MCAs due on import into certain importing Member States. The MCA adjustment consists in 
allocating to these importing Member States the amounts which are chargeable to them. 
15. 12. 86 Official Journal of the European Communities 173 
§ 13. The structural Funds: commitments entered into and payments made in 1985 
by recipient Member State 
Notes: 
The structural Funds (EAGGF-Guidance, Social Fund, Regional Fund) are 
provided with differentiated appropriations, which comprise both commitment 
appropriations and payment appropriations with different financial incidence 
(see § 1 (1.7)). The commitments entered into in 1985 relate to multiannual 
projects which are financed in 1985 and in subsequent years; the payments 
made in 1985 relate to commitments entered into in 1985 and in previous years. 
(a) Commitments 
(b) Payments 
EAGGF-Guidance: 
(a) Commitments 
(b) Payments 
Regional Fund: 
(a) Commitments 
(b) Payments 
Social Fund: 
(a) Commitments 
(b) Payments 
Total: 
(a) Commitments 
(b) Payments 16,3 
12,4 
24,4 
12,3 
99,3 
49,4 
140,0 
74,1 18,3 
13,0 
13,3 
7,7 
49,9 
33,5 
81,5 
54,2 89,3 
81,0 
83,6 
61,7 
113,5 
109,8 
286,4 
252,5 133,6 
83,7 
409,5 
309,0 
123,6 
79,0 
666,7 
471,7 152,8 
122,3 
309,9 
233,2 
387,2 
255,6 
849,9 
611,1 82,7 
73,1 
156,5 
118,2 
268,8 
171,6 
508,0 
362,9 225,8 
175,3 
871,0 
381,1 
568,2 
383,5 
1 665,0 
939,9 0,9 
1,8 
0,7 
1,1 
0,6 
2,0 
3,1 19,3 
18,1 
18,9 
16,4 
46,4 
46,0 
84,6 
80,5 113,8 
109,4 
608,2 
483,9 
530,5 
284,0 
1 252,5 
877,3 852,8 
690,1 
2 495,3 
1 624,2 
2 188,5 
1 413,0 
5 536,6 
3 727,3 3 
o 
LU 
i 
174 Official Journal of the European Communities 15. 12. 86 
§14. Evolution and utilization of the appropriations for payment for the period 1981-1985 - by sector 
(Mio ECU) 
Sector and financial year 
General budget 
-total-
1. Administration 
(all institutions) 
2. EAGGF-
Guarantee 
3. Agricultural 
structures 
4. Fisheries 
5. Regional 
policy and 
transport 
6. Social policy 
7. Research, 
energy, etc. 
8. Repayments to 
Member States 
9. Cooperation 
with developing 
countries 
10. Provisional 
appropriations 
and contingency 
reserve 
(Commission) 1981 
1982 
1983 
1984 
1985 
1981 
1982 
1983 
1984 
1985 
1981 
1982 
1983 
1984 
1985 
1981 
1982 
1983 
1984 
1985 
1981 
1982 
1983 
1984 
1985 
1981 
1982 
1983 
1984 
1985 
1981 
1982 
1983 
1984 
1985 
1981 
1982 
1983 
1984 
1985 
1981 
1982 
1983 
1984 
1985 
1981 
1982 
1983 
1984 
1985 
1981 
1982 
1983 
1984 
1985 A. Appropriations for payment for the financial year 
Evolution of appropriations 
budget 
(1) budget (1) 
(2) Final 
appropria­
tions (2) 
(3) 
19 327,6 18 434,0 18 441,5 
21 984,4 21 -984,4 21 994,3 
21558,5 25 061,1 25 068,8 
25 361,5 27 248,6 27 270,7 
28 433,2 28 433,2 28 437,1 
1 007,7 1 015,7 1 037,7 
1 103,2 1 103,2 1 121,2 
1 153,4 1 161,6 1 162,9 
1 229,1 1 236,6 1 245,6 
1 332,5 1 332,5 1 336,0 
12 675,0 11580,0 11538,0 
13 217,3 13 217,3 13 124,3 
14 050,0 15 811,0 15 822,2 
16 150,0 17 983,0 18 358,0 
19 955,0 19 955,0 19 859,0 
468,9 518,9 553,0 
772.1 772,1 763,7 
651.2 653,4 668,5 
655.6 660,1 666,9 
687.7 687,7 747,7 
44,3 49,3 49,9 
75,8 75,8 81,5 
70,1 70,1 45,7 
101,4 112,4 87,4 
105,4 105,4 107,4 
1 675,7 1 798,8 2 417,8 
2 824,5 2 824,5 2 959,3 
1 484,3 2 397,5 2 397,5 
1 488,6 1 488,6 1 967,7 
1 697,8 1 697,8 1 697,8 
670,6 732,6 732,7 
1 022,3 1 022,3 1 130,7 
1 410,6 1 430,6 1 430,7 
1 369,3 1 369,4 1 638,1 
1 625,3 1 625,3 1 626,2 
301.1 308,1 317,1 
408,9 408,9 461,1 
527.2 1 360,4 1 380,7 
610,7 664,4 1 191,6 
700.3 700,3 692,2 
1 506,6 1 431,9 969,1 
1 120,9 1 120,9 1 123,8 
1 122,9 1 089,0 1 089,0 
1 103,5 1 150,2 1 083,2 
1 266,8 1 266,8 1 266,8 
603,6 791,3 816,2 
803,3 803,3 945,3 
966,5 981,2 984,6 
893,1 893,1 1 032,2 
1 039,2 1 039,2 1 092,7 
374,1 207,4 10,0 
636,1 636,1 283,4 
122,3 106,3 87,0 
1 760,2 1 690,8 — 
23,2 23,2 11,3 Payments 
(4) 
16 712,0 
19 320,3 
23 101,6 
26 119,2 
27 136,5 
886,1 
957,0 
1 019,2 
1 127,2 
1 210,3 
10 951,5 
12 257,3 
15 785,7 
18 328,2 
19 723,7 
457,0 
483,5 
513,7 
611,1 
690,8 
37,7 
50,7 
31,9 
46,6 
72,6 
2 164,8 
2 766,2 
2 268,1 
1 733,9 
1 501,9 
580,9 
910,0 
801,0 
1 509,4 
1 373,1 
214,1 
345,3 
1 213,6 
922,0 
469,6 
869,5 
952,2 
950,6 
1 073,8 
1 239,3 
550,4 
598,1 
517,8 
767,0 
855,2 
— Carry-overs 
to the follow­
ing financial 
(5) 
1 172,8 
1 385,5 
1 706,8 
1 090,1 
1 086,1 
69,9 
106,6 
100,5 
96,4 
104,1 
162,4 
2,7 
0,1 
2,6 
4,4 
93,3 
277,2 
131,5 
55,2 
56,5 
4,1 
30,4 
12,5 
38,4 
21,7 
243,2 
175,5 
126,9 
232,6 
195,1 
148,5 
220,0 
617,7 
125,9 
247,1 
95,8 
111,8 
155,0 
265,7 
215,9 
97,1 
116,0 
99,5 
8,7 
4,7 
258,5 
345,3 
463,1 
264,6 
236,6 
— Cancella­
ted (3)-(4)-(5) 
556,7 
1 288,5 
260,4 
61,4 
214,5 
81,7 
57,6 
43,2 
22,0 
21,6 
424,1 
864,3 
36,4 
27,2 
130,9 
2,7 
3,0 
23,3 
0,6 
0,4 
8,1 
0,4 
1,3 
2,4 
13,1 
9,8 
17,6 
2,5 
1,2 
0,8 
3,3 
0,7 
12,0 
2,8 
6,0 
7,2 
4,0 
12,1 
3,9 
6,7 
2,5 
55,6 
38,9 
0,7 
22,8 
7,3 
1,9 
3,7 
0,6 
0,9 
10,0 
283,4 
87,0 
11,3 B. Carry-overs from the previous financial year 
overs (3) 
(7) 
1 435,1 
1 404,1 
1 521,0 
1 696,6 
1 093,9 
66,2 
69,9 
106,7 
100,6 
96,4 
8,7 
162,4 
2,6 
0,1 
2,6 
343,7 
302,7 
397,3 
131,2 
55,2 
12,7 
4,1 
30,4 
12,5 
38,4 
72,6 
243,2 
175,5 
126,9 
232,6 
269,4 
159,4 
226,8 
617,7 
125,9 
192,7 
106,8 
120,4 
162,5 
269,5 
86,8 
97,1 
116,0 
99,5 
8,7 
382,3 
258,5 
345,3 
445,6 
264,6 
— Payments 
(8) 
1 080,8 
1 102,4 
1 211,4 
1404,4 
962,2 
56,8 
53,3 
91,2 
88,9 
85,7 
8,7 
112,2 
2,5 
0,1 
2,2 
117,7 
162,6 
236,0 
91,7 
47,8 
12,2 
4,1 
22,9 
10,5 
9,2 
72,6 
243,2 
141,4 
80,4 
223,6 
255,8 
150,6 
219,9 
526,9 
117,6 
162,1 
91,3 
90,4 
122,9 
237,9 
86,8 
97,1 
114,1 
99,4 
8,7 
308,1 
188,0 
293,0 
383,6 
229,5 
— Carry-overs 
to the follow­
ing financial 
0) 
231,3 
135,4 
7,5 
4,8 
4,4 
— 
— 
209,4 
120,1 
— 
— 
10,9 
6,7 
11,0 
8,6 
7,5 
4,8 
4,4 
— Cancella-
(10) = 
(7)-(8)-(9) 
123,0 
166,3 
302,1 
287,4 
127,3 
9,4 
16,6 
15,5 
11,7 
10,7 
50,2 
0,1 
0,0 
0,4 
16,6 
20,0 
161,3 
39,5 
7,4 
0,5 
7,5 
2,0 
29,2 
0,0 
0,0 
34,1 
46,5 
9,0 
2,7 
2,1 
6,9 
90,8 
8,3 
19,6 
6,9 
22,5 
34,8 
27,2 
1,9 
0,1 
74,2 
70,5 
52,3 
62,0 
35,1 
— 
(1) After amending and supplementary budgets. 
(2) After supplementary receipts and transfers. 
(3) After transfers between budget headings and 'transfers' to the appropriations for the current financial year. 
15. 12. 86 Official Journal of the European Communities 175 
§ 15. Utilization rates of the appropriations for payment from 1981 to 1985 — by sector 
Key: [ 
2gl 
lis A. Appropriations for the financial year 
(final appropriations = 100 %) 
(for basic figures see § 14) 
1981 
1982 
1983 
1984 
1985 B. Carry-overs from the previous financial year 
(appropriations carried over = 100 %) 
(%) 
90,6 
87,8 
92,2 
95,8 
95,4 3,0 
59 
1,0 
0,2 
08 75,3 sssmsj 
78,5 mam 
79,6 
82,8 
88,0 0,5^#BSM 
0,3"#SS 
0,4 -§ 
is}! 
II 
H! 
H< 
fill £S 
i 52,6 949 
93,4 
99,8 
99,8 
99,3 i,t jm 
0,0-MM 
0,0-1 
oo-j 0,0-1 
981 
982 
983 
984 
985 82,6 
63,3 
76,8 
91,6 
92,4 #MSM frj 
981 
982 
983 
984 
985 75,6 Exstm 
62.2 Kmmasssmm 69,8 asmemm 
53,3 waaemsmssmei 67,6 BHssMsM 
981 
982 
983 
984 
985 79,3 
80,5 
56,0 ImEJeE* 
92,1 
84,4 3,7 
66 
02 
0,2 
0,7 
0,5 
0,4 
3,5 
0 1 
0,0 
BUBI 
981 
982 
983 
984 
985 67,5 
74,9 
87.9 
77,4 
67,8 Msm?3 -#sjm* 
981 
982 
983 
984 
985 89,7 ggjgg 
84,7 Hsmnm 
87,3 aH^sl 
99,1 
97,8 0,8-J 
0,4-f| 2,3 
0,9 
0,9 
03 
1,0 
0,3 
5,0 
3,6 
0,1 
0,9 
0,2 
0,4 
0,1 
0,1 85,8 
76.3 
88,9 
69,1 
96,2 
84,6 
80,6 
86,1 
86,7 1 14,2 
34,2 
53,7 K_k':&!3W#% 
MsmB 59,4 sssm 
69,9 | ZZ3az"B 
;*mm»me 
86,6 BJ1 
100 I 
100 
'MW—WM Msmmmnmnsmsm 
96,1 BJ 
95,0 
94,5 40 MM 
4,2 Mi 
97,0 • 
sssMPJ 
93,4 ^^^H 
84,1 5,7 gg| 
85,5 SJ 
75,1 
75,6 
88,3 6,2 Hsm 3,0*JBSBS 
1,6-| 0,0 
0,0 
194 
36,6 
39 
1,0 
1,3 
3,0 
14,7 
6,6 
100 
100 
98,4 1 99,9 
100 I 1.« 
0 1 
27,3 
15,1 
176 Official Journal of the European Communities 15. 12. 86 
§ 16. Annual payments during the period 1981-1985, by sector 
Notes: 
1. Annual payments = payments against appropriations of the financial year plus payments against carry-overs from the previous 
financial year. 
2. For the budget headings corresponding to the 1985 budgetary nomenclature, see § 6, column (1). 
Sector 
1. Administration 
1.1. Parliament 
1.2. Council 
(of which: the Economic and 
Social Committee) 
1.3. Commission 
1.4. Court of Justice 
1.5. Court of Auditors 
2. EAGGF-Guarantee 
2.1. Cereals and rice 
2.2. Sugar 
2.3. Fats and protein plants 
2.4. Fruit and vegetables 
2.5. Wine 
2.6. Tobacco 
2.7. Milk products 
2.8. Meat, eggs and poultry 
2.9. Other markets 
2.10. Agri-monetary measures 
2.11. Other expenditure 
3. Agricultural structures 
3.1. EAGGF-Guidance 
3.2. Specific measures 
4. Fisheries 
4.1. Common organization of the 
market 
4.2. Other measures 
5. Regional policy and transport 
5.1. Regional Fund 
5.2. Transport 
5.3. Other measures 
6. Social policy 
6.1. Social Fund 
6.2. Other measures 
7. Research, energy, etc. 
7.1. Energy 
7.2. Research and investment 
7.3. Industry 
7.4. Other measures 
8. Repayments to Member States 
8.1. Costs incurred in collecting own 
resources 
8.2. Other repayments 
9. Cooperation with developing 
countries 
9.1. Food aid 
9.2. Financial aid 1981 
Mio ECU % 
942,9 5,3 
. 168,0 0,9 
103,9 0,6 
(20,0) (0,1) 
635,4 3,6 
23,1 0,1 
12,5 0,1 
10 960,2 61,6 
1 951,8 11,0 
767,5 4,3 
1 090,7 6,1 
641,1 3,6 
459,4 2,6 
361,8 2,0 
3 342,7 18,8 
1 867,0 10,5 
400,8 2,3 
238,4 1,3 
-161,0 -0,9 
574,7 3,2 
566,5 3,1 
8,2 0,1 
49,9 0,3 
28,0 0,2 
21,9 0,1 
2 237,4 12,6 
798,7 4,5 
1,0 0,0 
1 437,7 8,1 
836.7 4,7 
745.8 4,2 
90,9 0,5 
376,2 2,1 
63.1 0,3 
295,6 1,6 
7,3 0,1 
10.2 0,1 
956,3 5,4 
807,0 4,6 
149,3 0,8 
858,5 4,8 
601.7 3,4 
256.8 1,4 1982 
Mio ECU % 
1 010,3 5,0 
173,3 0,9 
109,7 0,5 
(20,6) (0,1) 
688,3 3,4 
25,4 0,1 
13,6 0,1 
12 369,5 60,6 
1 874,8 9,2 
1 241,8 6,1 
1 295,0 6,3 
914,3 4,5 
570,6 2,8 
622,6 3,0 
3 327,8 16,3 
1 625,9 8,0 
583,6 2,9 
313,1 1,5 
646.1 3,2 
638.2 3,2 
7,9 0,0 
54,8 0,3 
34,0 0,2 
20,8 0,1 
3 009,4 14,7 
973,0 4,8 
1,1 0,0 
2 035,3 9,9 
1 060,6 5,2 
905,6 4,4 
155,0 0,8 
436,6 2,1 
44,0 0,2 
367,6 1,8 
15,2 0,1 
9,8 0,0 
1 049,3 5,1 
909,3 4,4 
140,0 0,7 
786.1 3,8 
540.2 2,6 
245,9 1,2 1983 
Mio ECU % 
1 110,4 4,6 
214,8 0,9 
116,7 0,5 
(22,4) (0,1) 
736,3 3,0 
27,2 0,1 
15,4 0,1 
15 788,2 64,9 
2 534,1 10,4 
1 316,2 5,4 
1 764,7 7,2 
1 196,1 4,9 
659.2 2,7 
671.3 2,8 
4 396,1 18,1 
2 310,3 9,5 
559,7 2,3 
488,6 2,0 
-108,1 -0,4 
749,7 3,1 
719,7 3,0 
30,0 0,1 
54,8 0,2 
25,8 0,1 
29,0 0,1 
2 409,5 9,9 
1 255,9 5,2 
3,7 0,0 
1 149,9 4,7 
1 020,9 4,2 
890,9 3,7 
130,0 0,5 
1 304,0 5,4 
828,0 3,4 
423,3 1,7 
41,0 0,2 
11,7 0,1 
1 064,7 4,4 
921,9 3,8 
142,8 0,6 
810,8 3,3 
388,7 1,6 
422,1 1,7 1984 
Mio ECU % 
1 216,1 4,4 
245,5 0,9 
126,7 0,4 
(24,2) (0,1) 
798,4 2,9 
28,6 0,1 
16,9 0,1 
18 328,3 66,6 
1 697,8 6,2 
1 631,5 5,9 
1 965,6 7,1 
1 454,6 5,3 
1 222,6 4,4 
776,4 2,8 
5 441,7 19,8 
3 246,1 11,8 
541,3 2,0 
376,2 1,4 
-25,5 -0,1 
702,8 2,5 
646,8 2,3 
56,0 0,2 
57,1 0,2 
15,7 0,0 
41,4 0,2 
1 814,3 6,6 
1 350,6 4,9 
430,8 1,6 
32,9 0,1 
2 036,3 7,4 
1 606,3 5,8 
430,0 1,6 
1 044,9 3,8 
545,7 1,9 
441,0 1,6 
43,9 0,2 
14,3 0,1 
1 173,2 4,3 
1 109,9 4,1 
63,3 0,2 
1 150,6 4,2 
709,2 2,6 
441,4 1,6 1985 
Mio ECU % 
1 296,0 4,6 
228,5 0,8 
148.4 0,5 
(26,4) (0,1) 
869.5 3,1 
31,1 0,1 
18,5 0,1 
19 725,9 70,2 
2 359,8 8,4 
1 804,5 6,4 
2 173,7 7,7 
1 230,7 4,4 
921,4 3,3 
862,9 3,1 
5 933,2 21,1 
3 476,6 12,4 
736,1 2,6 
189,8 0,7 
37,2 0,1 
738,6 2,6 
690,1 2,4 
48,5 0,2 
81,8 0,3 
16,1 0,1 
65,7 0,2 
1 725,5 6,2 
1 624,2 5,8 
76,0 0,3 
25,3 0,1 
1 490,7 5,3 
1 413,0 5,0 
77,7 0,3 
707.5 2,5 
126,2 0,4 
510.6 1,8 
49.8 0,2 
20.9 0,1 
1 248,0 4,4 
1 050,9 3,7 
197,1 0,7 
1 084,7 3,9 
543.8 2,0 
540.9 1,9 
Grand total 17 792,8 100 20 422,7 100 24 313,0 100 27 523,6 100 28 098,7 100 
15. 12. 86 Official Journal of the European Communities 177 
§ 17. Evolution of the ratio off 'annual payments by sector' 
to 'total off annual budgetary payments' (1981-1985) 
(for detailed figures see § 16) 
A. General budget (all sectors): 
Total of annual budgetary payments = 100 % 100 % 
50 % -
10% 
5% -
1 % 
0,5% -
0,1 % Log 
2. EAGGF-Guarantee 
->- 5. Regional policy and transport 
6. Social policy 
->~1. Administration 
8. Repayments to Member States 
9. Cooperation with developing countries 
3. Agricultural structures 
7. Research, energy, etc. 
4. Fisheries 
1981 1982 1983 1984 1985 
B. EAGGF-Guarantee (all markets): 
100 0/ Total of annual budgetary payments = 100 % 
50 % -
10% 
5% 
1 % 
0,5% -
0,1 % 2.7. Milk products 
2.8. Meat, eggs and poultry 
2.1. Cereals and rice 
2.3. Fats and protein plants 
2.2. Sugar 
2.4. Fruit and vegetables 
2.5. Wine 
2.6. Tobacco 
2.9. Other markets 
2.10. Agri-monetary measures 
.2.11. Other expenditure 
1981 1982 1983 1984 1985 
178 Official Journal of the European Communities 15. 12. 86 
§ 18. Annual payments to the Member States (1981-1985) 
Notes: 
1. This table summarizes the annual payments to the Member States under the principal sectors. For the period under consideration 
these payments represent 88 % of total budgetary payments (= the aggregate of the totals in § 16). 
2. Annual payments = payments against appropriations for the financial year plus payments against carry-overs from the previous year. 
3. Payments under the EAGGF-Guarantee include adjusted monetary compensatory amounts (see § 12 D, footnote (1)). 
(Mio ECU) 
Financial year/sector 
1 EAGGF-Guarantee (T 6 - 7) 
EAGGF-Guidance (Ch 80 - 83) 
Fisheries (Ch 86 - 89) 
Regional Fund (Ch 55 - 56) 
Social Fund (Ch 50 - 52) 
Costs incurred in collecting own 
resources (Ch 40) 
Specific measures (Ch 49, 57, 58) 
Total Bel-
489,1 
21,7 
0,8 
9,2 
15,3 
61,8 
597,9 
(3,9 %) Den-
507,8 
20,7 
1,4 
10,7 
18,5 
16,2 
575,3 
(3,7 %) FR of 
Ger-
2 031,5 
134,1 
2,8 
36,2 
72,3 
225,4 
2 502,3 
(16,1 %) Greece 
146,2 
122,0 
6,6 
8,9 
111,0 
394,7 
(2,5 %) France 
3 014,2 
120,8 
4,3 
66,8 
155,3 
123,1 
3 484,5 
(22,5 %) Ireland 
437,9 
57,6 
5,4 
80,3 
60,4 
8,8 
66,6 
717,0 
(4,6 %) Italy 
2 092,1 
78,5 
6,7 
211,7 
207,1 
94,9 
122,3 
2 813,3 
(18,1 %) Luxem-
4,1 
2,3 
0,9 
0,6 
0,4 
8,3 
(0,1 %) Nether-
1 157,2 
21,9 
8,4 
5,7 
14,3 
77,3 
1 284,8 
(8,3 %) United 
King-
1 080,1 
108,9 
8,2 
255,2 
195,4 
190,2 
1 286,7 
3 124,7 
(20,1 %) Allocation 
available 
11,9 
11,9 
(0,1 %) EUR 10 
10 960,2 
566,5 
49,9 
798,7 
745,8 
807,0 
1 586,6 
15 514,7 
(100 %) 
C\J 
S EAGGF-Guarantee (T 1 - 2) 
EAGGF-Guidance (Ch 30 - 33) 
Fisheries (Ch 40 - 42, 45 - 47) 
Regional Fund (Ch 50 - 51) 
Social Fund (Ch 60 - 62) 
Costs incurred in collecting own 
resources (Ch 80) 
Specific measures (Ch 52, 53, 82, 86) 
Total 535,1 
17,7 
0,6 
10,8 
16,8 
68,3 
— 
649,3 
(3,6 %) 556,7 
20,8 
3,2 
14,6 
17,6 
17,6 
— 
630,5 
(3,5 %) 2 027,5 
107,1 
3,7 
61,6 
89,9 
237,0 
— 
2 526,8 
(14,0 %) 684,6 
14,5 
— 152,3 
23,5 
18,3 
92,7 
985,9 
(5,5 %) 2 866,2 
167,4 
3,6 
130,0 
119,3 
134,7 
— 
3 421,2 
(19,0 %) 496,5 
84,3 
7,8 
93,5 
115,0 
10,2 
72,7 
880,0 
(4,9 %) 2 502,6 
125,0 
8,9 
281,8 
235,1 
102,6 
142,6 
3 398,6 
(18,8 %) 2,6 
1,6 
— 0,1 
1,1 
0,4 
— 
5,8 
(0,0 %) 1 416,7 
32,2 
8,3 
3,2 
9,0 
83,9 
— 
1 553,3 
(8,6 %) 1 278,3 
67,6 
9,8 
225,1 
278,3 
236,3 
1 866,5 
3 961,9 
(22,0 %) 2,7 
— 8,9 
— — 
— — 
11,6 
(0,1 %) 12 369,5 
638,2 
54,8 
973,0 
905,6 
909,3 
2 174,5 
18 024,9 
(100%) 
CO 
§ EAGGF-Guarantee (T 1 - 2) 
EAGGF-Guidance (Ch 30 - 33) 
Fisheries (Ch 40 - 43, 45 - 46) 
Regional Fund (Ch 60 - 62) 
Social Fund (Ch 60 - 62) 
Costs incurred in collecting own 
resources (Ch 80) 
Specific measures (Ch 52, 53, 82, 86; 
article 707) 
Total 611,9 
18,1 
0,2 
7,0 
20,6 
77,7 
— 
735,5 
(3,4 %) 680,7 
20,5 
3,6 
16,7 
14,7 
20,3 
— 
756,5 
(3,5 %) 3 075,8 
107,7 
2,8 
45,0 
81,5 
241,8 
270,7 
3 825,3 
(17,7 %) 1 007,4 
21,9 
0,1 
214,6 
20,4 
16,6 
70,4 
1 351,4 
(6,2 %) 3 566,6 
182,0 
3,9 
219,3 
140,5 
142,5 
— 
4 254,8 
(19,6 %) 619,4 
84,1 
21,6 
94,5 
134,2 
11,6 
60,8 
1 026,2 
(4,7 %) 2 820,5 
103,0 
5,1 
344,5 
221,2 
105,9 
174,8 
3 775,0 
(17,4 %) 4,2 
0,6 
— 0,0 
0,3 
0,5 
— 
5,6 
(0,0 %) 1 707,8 
32,2 
6,4 
18,1 
12,6 
83,4 
— 
1 860,5 
(8,6 %) 1 691,0 
149,6 
8,4 
296,2 
244,9 
221,6 
1 471,9 
4 083,6 
(18,9 %) 2,9 
— 2,7 
— — 
— 
— 
5,6 
(0,0 %) 15 788,2 
719,7 
54,8 
1 255,9 
890,9 
921,9 
2 048,6 
21 680,0 
(100%) 
„. o> EAGGF-Guarantee (T 1 - 2) 
EAGGF-Guidance (Ch 30 - 33) 
Fisheries (Ch 40 - 43, 45 - 46) 
Regional Fund (Ch 50 - 51) 
Social Fund (Ch 60-61) 
Costs incurred in collecting own 
resources (Ch 80) 
Specific measures (Ch 82, 86; articles 
707, 783) 
Total 686,4 
12,9 
0,7 
6,0 
52,1 
82,0 
— 
840,1 
(3,5 %) 879,6 
13,9 
3,8 
28,1 
68,7 
26,0 
— 
1 020,1 
(4,2 %) 3 323,0 
89,3 
5,1 
43,9 
63,8 
302,5 
191,7 
4 019,3 
(16,7 %) 961,2 
52,8 
0,6 
216,7 
71,3 
14,8 
46,6 
1 364,0 
(5,7 %) 3 592,0 
143,9 
9,5 
201,7 
225,7 
169,7 
— 
4 342,5 
(18,1 %) 884,4 
64,2 
10,3 
104,1 
131,4 
16,0 
— 
1 210,4 
(5,0 %) 3 909,4 
127,8 
4,1 
435,1 
368,5 
117,5 
— 
4 962,4 
(20,7 %) 3,6 
3,9 
— 2,5 
0,5 
0,7 
— 
11,2 
(0,1 %) 1 964,2 
24,8 
3,6 
14,8 
14,1 
101,1 
— 
2 122,6 
(8,8 %) 2 121,3 
113,3 
9,5 
297,7 
610,2 
279,6 
660,9 
4 092,5 
(17,1 %) 3,2 
— 9,9 
— — 
— 
— 
13,1 
(0,1 %) 18 328,3 
646,8 
57,1 
1 350,6 
1 606,3 
1 109,9 
899,2 
23 998,2 
(100%) 
m 
a> EAGGF-Guarantee (T 1 - 2) 
EAGGF-Guidance (Ch 30 - 33) 
Fisheries (Ch 40 - 43, 45 - 46) 
Regional Fund (Ch 50 - 51) 
Social Fund (Ch 60-61) 
Costs incurred in collecting own 
resources (Ch 80) 
Specific measures (Ch 82, 86; articles 
583, 707) 
Total 916,3 
12,4 
3,1 
12,3 
49,4 
76,5 
— 
1 070,0 
(4,3 %) 829,3 
13,0 
2,9 
7,7 
33,5 
26,1 
— 
912,5 
(3,7 %) 3 625,6 
81,0 
2,3 
61,7 
109,8 
284,5 
20,1 
4 185,0 
(17,0 %) 1 192,6 
83,7 
1,7 
309,0 
79,0 
12,2 
24,6 
1 702,8 
(6,9 %) 4 633,3 
122,3 
12,1 
233,2 
255,6 
159,9 
— 
5 416,4 
(21,9%) 1 166,8 
73,1 
3,2 
118,2 
171,6 
15,8 
— 
1 548,7 
(6,3 %) 3 410,9 
175,3 
6,0 
381,1 
383,5 
123,5 
— 
4 480,3 
(18,1 %) 4,8 
' 1,8 
— 0,7 
0,6 
0,6 
— 
8,5 
(0,0 %) 2 047,4 
18,1 
2,3 
16,4 
46,0 
101,7 
— 
2 231,9 
(9,0 %) 1 894,7 
109,4 
12,5 
483,9 
284,0 
250,1 
72,8 
3 107,4 
(12,6 %) 4,2 
— 35,7 
— — 
— 
— 
39,9 
(0,2 %) 19 725,9 
690,1 
81,8 
1 624,2 
1 413,0 
1 050,9 
117,5 
24 703,4 
(100 %) 
15. 12. 86 Official Journal of the European Communities 179 
§19. Actual owns resources — by Member State (1981-1985) 
(Mio ECU) 
Financial year/Type of resource 
1 Agricultural levies 
Sugar and isoglucose levies 
Customs duties 
VAT own resources (1) (2) 
Total Bel-
178,4 
27,8 
408,4 
375,9 
990,5 
(5,5 %) Den-
10,1 
19,3 
135,2 
189,8 
354,4 
(2,0 %) FR of 
Germany 
179,9 
126,9 
1 943,8 
2 806,5 
5 057,1 
(28,1 %) Greece 
17,4 
1,0 
84,6 
151,5 
254,5 
(1.4%) France 
103,1 
154,5 
977,3 
2 256,2 
3 491,1 
(19,4 %) Ireland 
4,3 
4,6 
81,9 
68,1 
158,9 
(0,9 %) Italy 
247,6 
62,5 
633,0 
1 582,9 
2 526,0 
(14,0 %) Luxem-
0,1 
4,5 
22,6 
27,2 
(0,1 %) Nether-
175,4 
39,1 
572,8 
499,8 
1 287,1 
(7,1 %) United 
Kingdom 
348,6 
46,9 
1 550,9 
1 930,8 
3 877,2 
(21,5%) EUR 10 
1 264,9 
482,6 
6 392,4 
9 884,1 
18 024,0 
(100 %) 
1 Agricultural levies 
Sugar and isoglucose levies 
Customs duties 
VAT own resources (1) (2) 
Total 238,6 
44,4 
403,7 
461,6 
1 148,3 
(5,4 %) 7,5 
25,3 
142,6 
226,8 
402,2 
(1,9%) 201,9 
190,2 
1 966,5 
3 339,9 
5 698,5 
(26,9 %) 63,5 
13,1 
108,7 
196,3 
381,6 
(1,8%) 70,9 
211,0 
1 071,2 
2 872,8 
4 225,9 
(20,0 %) 6,0 
7,0 
87,8 
107,7 
208,5 
(1,0%) 285,1 
83,5 
660,8 
1 457,8 
2 487,2 
(11,8%) 0,1 
4,3 
25,7 
30,1 
(0,1 %) 172,5 
58,9 
585,2 
649,8 
1 466,4 
(6,9 %) 475,9 
72,4 
1 784,5 
2 782,7 
5 115,5 
(24,2 %) 1 522,0 
705,8 
6 815,3 
12 121,1 
21 164,2 
(100 %) 
1 Agricultural levies 
Sugar and isoglucose levies 
Customs duties 
VAT own resources (1) (2) 
Total 293,9 
65,8 
423,8 
432,4 
1 215,9 
(5,3 %) 6,9 
38,9 
159,8 
274,3 
479,9 
(2,1 %) 143,0 
270,5 
2 019,8 
4 038,8 
6 472,1 
(28,1 %) 38,0 
16,7 
107,4 
215,6 
377,7 
(1,6%) 78,9 
293,7 
1 051,8 
3 082,1 
4 506,5 
(19,6 %) 7,0 
11,6 
100,4 
150,6 
269,6 
(1,2%) 323,2 
95,0 
657,1 
1 923,4 
2 998,7 
(13,0 %) 0,1 
4,6 
39,2 
43,9 
(0,2 %) 135,8 
82,2 
633,2 
713,7 
1 564,9 
(6,8 %) 320,3 
73,6 
1 830,8 
2 859,7 
5 084,4 
(22,1 %) 1 347,1 
948,0 
6 988,7 
13 729,8 
23 013,6 
(100 %) 
1 Agricultural levies 
Sugar and isoglucose levies 
Customs duties 
VAT own resources (1) (2) 
Total 211,0 
83,9 
470,0 
473,4 
1 238,3 
(5,0 %) 8,0 
38,0 
197,3 
289,6 
532,9 
(2,1 %) 158,6 
350,2 
2 309,7 
4 233,9 
7 052,4 
(28,4 %) 19,5 
16,6 
99,4 
220,3 
355,8 
(1,4%) 94,2 
406,3 
1 100,0 
3 201,8 
4 802,3 
(19,3 %) 6,9 
16,8 
126,7 
135,9 
286,3 
(1,2%) 288,5 
84,1 
750,9 
2 319,9 
3 443,4 
(13,8 %) 0,1 
5,9 
45,3 
51,3 
(0,2 %) 131,8 
76,9 
740,8 
738,3 
1 687,8 
(6,8 %) 341,4 
103,6 
2 160,1 
2 824,4 
5 429,5 
(21,8%) 1 260,0 
1 176,4 
7 960,8 
14 482,8 
24 880,0 
(100 %) 
1 Agricultural levies 
Sugar and isoglucose levies 
Customs duties 
VAT own resources (1) (2) 
Total 197,2 
78,4 
489,3 
527,7 
1 292,6 
(5,0 %) 9,7 
43,5 
208,2 
359,0 
620,4 
(2,4 %) 142,0 
286,3 
2 414,5 
4 661,5 
7 504,3 
(28,8 %) 18,1 
12,0 
95,9 
262,0 
388,0 
(1,5%) 74,1 
348,0 
1 174,7 
3 722,4 
5 319,2 
(20,4 %) 5,9 
15,0 
137,2 
138,3 
296,4 
(1,1 %) 314,4 
75,8 
820,1 
2 419,2 
3 629,5 
(13,9 %) 0,2 
6,0 
44,5 
50,7 
(0,2 %) 131,7 
104,1 
781,5 
872,1 
1 889,4 
(7,2 %) 228,4 
94,3 
2 182,7 
2 584,9 
5 090,3 
(19,5%) 1 121,7 
1 057,4 
8 310,1 
15 591,6 
26 080,8 
(100 %) 
(1) Including the balances and adjustments of previous financial years. 
(2) Greece paid a financial contribution based on its GNP. 
180 Official Journal of the European Communities 15. 12. 86 
Part II: The European Development Funds (EDF) 
(position at 31 December 1985) 
§ 20. General information on the EDF 
THE FIRST THREE EDF 
20.1 General information and detailed financial information on the first three EDF, established under agreements in force 
between 1959 and 1976, has most recently been given in the annual report of the Court of Auditors on the financial year 1980. 
Only a few small amounts still remain to be paid under the 3rd EDF. 
A summary of the annual payments made under the first three EDF is given in § 27. 
THE 4th AND 5th EDF 
20.2. Legal provisions 
a) Legal basis in respect of ACP States: 
— 4th EDF: ACP-EEC Convention signed in Lome on 28 February 1975 (Lome I), 
— 5th EDF: second ACP-EEC Convention signed in Lome on 31 October 1979 (Lome II). 
b) Legal basis in respect of the OCT and FOD: 
— 4th EDF: Council Decision 76/568/EEC of 29 June 1976, 
— 5th EDF: Council Decision 80/1186/EEC of 16 December 1980 (no longer concerns the FOD). 
c) Establishment of the EDF: 
— 4th EDF: internal agreement of 11 July 1976, 
— 5th EDF: internal agreement of 20 November 1979. 
d) Financial Regulations: 
— 4th EDF: Financial Regulation 76/647/EEC of 27 July 1976, 
— 5th EDF: Financial Regulation 81/215/EEC of 17 March 1981. 
20.3. Allocations, financing, distribution and type of aid 
The EDF allocations after changes (1) by the Council are as follows: 
— 4th EDF: 3 155,9 Mio ECU, 
— 5th EDF: 4 802,3 Mio ECU. 
The EDF are financed by the EC Member States (with the exception of Greece for the 4th EDF) in proportions laid down in the 
internal agreements. 
The above-mentioned internal agreements provide for distribution of the allocations of the 4th and 5th EDF between the ACP 
States and the OCT/FOD and between grants, special loans, risk capital, Stabex (2) and Sysmin (3) for the 5th EDF. 
Part of the allocation in the form of grants is reserved for exceptional aid and for interest subsidies on loans granted by the 
European Investment Bank. The rest of the allocation in the form of grants and the allocation in the form of special loans are 
distributed among the recipient countries, with the exception of funds for the regional projects, administrative costs and a 
contingency reserve. The amounts thus allocated to the recipient countries, called indicative programmes in the case of the 
ACP States, are used to finance the projects adopted. 
20.4. Monetary unit 
The EDF amounts are given in ECU; for conversion into ECU of the monetary units previously applied, it has been agreed 
that 1 u.a. = 1 EUA = 1 ECU. 
20.5. Date of entry into force 
— 4th EDF: 1 April 1976, 
— 5th EDF: 1 January 1981. 
20.6. Financial implementation 
The Commission draws up a timetable of requests for contributions, which in principle are to be paid quarterly by the 
Member States of the European Communities (4th EDF: six-monthly). The use of the EDF resources is shown in the accounts 
in three stages: (I) financing decision, (II) signing of contracts against funds allocated to national authorizing officers, (III) 
authorization of payments to contractors. 
20.7. External audit 
The Court of Auditors is responsible for the audit of the EDF (in accordance with the Treaty). 
20.8. Authority giving discharge 
The European Parliament gives discharge of the financial management of the EDF, on the recommendation of the Council 
(in accordance with internal agreements). 
(1) The initial allocations were altered by Council Decisions, and are increased by various receipts such as reconstitution of Stabex transfers and bank 
interest. 
(2) System designed to guarantee the stabilization of earnings from exports by the ACP States to the Community (Lome I, Article 16, and Lome II, Article 23) 
( ) System designed to aid ACP States whose economies are largely dependent on the mining sectors and in particular towards helping them cope with a 
decline in their capacity to export mining products to the Community (Lome II, Article 49). 
15. 12. 86 Official Journal of the European Communities 181 
§ 21. The 4th and 5th EDF: allocations, financing, distribution of aid, utilization rates 
Allocation and financing Distribution of aid (Mio ECU) Utilization at 31.12.1985 
(Mio ECU and %) 
4th EDF: Allocation: 
3 155,9 Mio ECU 
Financing by 
DK: 2,40 % 
IRL: 0,60% 
L: 0,20 % Programmable 
y aid: 
r 2 466,0 o 
§ CD 
Q-C 
ea* Programming 
of aid: 
< 
OCT/FOD: 67,6 f 
K ACP States: 
2 398,4 
«- CM 
s- § s" 
° <lj 
o ° JS ® <D £ 
'o .£ >, onal 
inist 
inge 
..rr < o 
5 
o 
>' 
r v Utilization: 
|j|| 
ill illl HI 
Ssll 
||| 
Ww 
WM 1111 
*Pli 
IBiS 
Hi • •lis ^§IM 
fc 
lip IP 
•ii IliiS 
Sill Not yet 
•N utilized 
Financing 
S- decisions: 
2 359,4 (95,7 %) 
Risk 
capital Non-
programmed 
aid: 
689,9 PJIPfPi Not yet 
utilized 
Financing 
V decisions: 
687,1 (99,6 %) 
5th EDF: 
Allocation: 
4 802,3 Mio ECU 
Financing by: Programming 
of aid: Utilization: 
Nature of aid: 
Special loans: 
545,0 
Grants: 
3 037,0 
IRL: 
0,59 % 
L: 
0,20 % Q. 
O < 
If < 
Pro- o>„ 
I grammable | 
'aid: a>. 
3 198,0 -2_ 
ll 
OCT: 50,6 V. ACP States: 
3 147,4 
of which: 
regional projects: 
631,5 Financing 
decisions: 
2 449,6 
(76,6 %) 
Non-programmed 
aid: 
i 604,3 Financing 
decisions: 
1 212,7 
(75,6 %) 
182 Official Journal of the European Communities 15. 12. 86 
§ 22. The 4th EDF: aid by type and by recipient country 
(financial implementation: situation at 31 December 1985) 
(Mio ECU) 
Recipient country 
(D 
I. ACP States 
including: 
Ethiopia 
Tanzania 
Sudan 
Uganda 
Mali 
Madagascar 
Burkina-Faso 
Malawi 
Guinea 
Somalia 
Senegal 
Rwanda 
Burundi 
Cameroon 
Chad 
Ghana 
Zambia 
Ivory Coast 
Central African Republic 
Togo 
Mauritania 
Sierra Leone 
Congo 
Liberia 
Lesotho 
Guinea-Bissau 
Jamaica 
Botswana 
Suriname 
Mauritius 
Guyana 
Swaziland 
Gambia 
Papua 
New Guinea 
Fiji 
Gabon 
Solomon Islands 
Nigeria 
Other ACP States: 
Bahamas 
Barbados 
Cape Verde 
Comoros 
Djibouti 
Dominica 
Grenada 
Equatorial Guinea 
Kiribati 
Sao Tome and Principe 
Saint Lucia 
Saint Vincent 
Western Samoa 
Seychelles 
Trinidad and Tobago 
Tuvalu 
Vanuatu 
(Total other countries) 
II. Regional projects 
Administrative costs 
Contingency reserve 
Total ACP (I + II) 
III. OCT/FOD 
Total 4th EDF A. Non-programmed aid 
Financing decisions 
*- a>-^ Interes 
subsidi 
(grants 
(2) 
57,6 
0,1 
8,5 
0,9 
1,6 
2,3 
0,4 
1,8 
4,2 
1,9 
1,5 
7,1 
0,4 
3,6 
1,2 
1,3 
2,0 
2,0 
1,1 
4,0 
9,0 
1,2 
1,5 
— 
(2,7) 
2,6 
60,2 
1,5 
61,7 3 
Q. 
£ 
(3) 
90,9 
7,7 
5,6 
6,5 
0,3 
6,4 
1,2 
2,3 
0,9 
7,6 
1,6 
0,3 
0,2 
7,4 
3,0 
0,5 
5,0 
7,5 
0,2 
3,3 
0,4 
0,9 
3,0 
3,1 
0,4 
0,1 
1,7 
0,0 
3,2 
1,1 
2,4 
1,6 
0,1 
3,6 
0,0 
1,0 
0,2 
0,6 
— 
(5,4) 
6,1 
97,0 
1,1 
98,1 "5'to 
1-
LU cfl 
(4) 
125,8 
4,7 
0,3 
19,0 
4,9 
3,3 
1,0 
1,3 
1,5 
7,7 
2,6 
3,0 
13,3 
4,6 
5,9 
2,1 
2,3 
0,3 
2,7 
16,4 
0,0 
0,1 
1,0 
1,4 
0,2 
1,1 
0,5 
1,2 
2,7 
4,5 
0,0 
0,7 
3,6 
— 
0,1 
1,4 
3,0 
1,3 
3,9 
0,4 
0,3 
0,3 
1,0 
0,2 
— 
(11,9) 
11,2 
137,0 
0,5 
137,5 55 
(5) 
377,5 
14,4 
20,7 
41,8 
20,6 
9,8 
5,7 
22,7 
7,3 
1,9 
65,1 
0,6 
1,5 
4,1 
7,3 
5,2 
20,4 
15,0 
7,8 
3,6 
37,0 
4,0 
7,4 
7,6 
11,3 
13,2 
7,5 
2,1 
6,7 
— 
1,2 
2,8 
1,2 
— 
(5,2) 
— 
377,5 
12,3 
389,8 ^ 
+ 
m Total 
(2) + ( 
+ (5) 
(6) 
651,8 
19,1 
28,8 
24,6 
53,2 
24,2 
17,2 
11,0 
9,5 
32,2 
16,5 
6,5 
3,7 
15,4 
78,9 
9,5 
4,1 
15,6 
15,1 
10,0 
21,2 
20,8 
23,1 
8,8 
7,0 
42,0 
4,0 
10,7 
9,2 
1,2 
11,8 
1,2 
5,7 
6,5 
3,2 
16,3 
10,6 
2,7 
9,8 
6,7 
9,0 
1,3 
6,2 
3,0 
2,3 
3,9 
0,4 
0,3 
0,3 
1,? 
2,8 
0,6 
1,4 
1,5 
— 
(25,2) 
19,9 
~ 
671,7 
15,4 
687,1 o 
CO 
e 
c 
CD 
E 
CO 
Q. 
(7) 
646,7 
19,1 
28,9 
24,5 
53,1 
24,2 
17,1 
10,7 
9,5 
32,2 
16,5 
6,0 
3,5 
15,5 
78,9 
9,5 
4,1 
15,3 
14,6 
10,0 
21,2 
20,7 
22,7 
8,8 
7,0 
41,6 
4,0 
10,7 
9,1 
1,2 
11,8 
1,1 
5,2 
6,5 
3,2 
15,8 
10,6 
2,7 
9,4 
6,7 
9,0 
0,8 
6,1 
3,0 
2,3 
3,9 
0,4 
0,3 
0,3 
1,2 
2,8 
0,6 
1,4 
1,4 
— 
(24,5) 
19,7 
~ 
666,4 
15,3 
681,7 B. Programmable aid (indicative programmes 
ACP and other aid) 
CO 
o 
o 
< 
(8) 
1 934,0 
118,2 
103,4 
96,5 
90,6 
73,6 
73,5 
72,0 
69,2 
68,5 
68,0 
67,9 
64,0 
63,6 
59,0 
58,7 
58,1 
55,3 
51,9 
48,0 
45,1 
44,3 
40,0 
37,3 
35,7 
33,6 
31,1 
30,0 
25,0 
22,0 
20,0 
20,0 
19,0 
18,0 
15,3 
12,8 
12,0 
11,3 
10,0 
9,9 
9,5 
9,0 
9,0 
1,8 
2,6 
4,0 
6,3 
2,7 
0,5 
2,0 
7,0 
3,4 
1,8 
0,9 
4,6 
2,4 
3,2 
10,3 
0,6 
(54,1) 
303,9 
108,3 
52,2 
2 398,4 
67,6 
2 466,0 Financing decisions 
CO 
CD 
(9) 
1 533,2 
118,1 
69,9 
88,0 
74,7 
63,9 
71,9 
34,2 
62,6 
68,4 
59,7 
56,0 
38,1 
57,1 
39,3 
56,0 
52,2 
32,7 
43,8 
28,4 
27,1 
37,1 
16,9 
37,2 
33,2 
33,3 
27,3 
23,1 
20,2 
18,8 
19,5 
10,0 
18,0 
2,9 
4,6 
5,9 
8,4 
11,2 
6,3 
3,2 
2,0 
0,8 
8,7 
0,7 
0,9 
4,0 
6,3 
2,5 
0,5 
2,0 
7,0 
3,2 
1,8 
0,9 
3,6 
2,4 
3,1 
3,0 
0,6 
— 
(42,5) 
222,5 
108,3 
1 864,0 
36,6 
1 900,6 CO 
(10) 
362,9 
32,8 
8,0 
15,0 
9,7 
1,4 
37,8 
6,0 
7,0 
11,6 
25,4 
19,3 
2,6 
5,0 
20,8 
7,6 
19,6 
17,6 
0,3 
22,8 
2,3 
3,8 
6,7 
4,8 
3,0 
8,6 
0,6 
11,5 
10,6 
6,8 
3,5 
3,5 
6,7 
7,4 
6,8 
— 
1,1 
1,6 
0,9 
0,1 
2,3 
— 
(6,0) 
72,1 
435,0 
23,8 
458,8 o 
10 + 
(11) 
1 896,1 
118,1 
102,7 
96,0 
89,7 
73,6 
73,3 
72,0 
68,6 
68,4 
66,7 
67,6 
63,5 
57,1 
58,6 
58,6 
57,2 
53,5 
51,4 
48,0 
44,7 
37,4 
39,7 
37,2 
35,5 
33,3 
31,1 
29,8 
25,0 
21,8 
19,5 
18,6 
18,6 
14,4 
15,2 
12,7 
11,9 
11,2 
9,8 
9,9 
9,4 
7,6 
8,7 
1,8 
2,5 
4,0 
6,3 
2,5 
0,5 
2,0 
7,0 
3,2 
1,8 
0,9 
4,5 
2,4 
3,2 
5,3 
0,6 
— 
(48,5) 
294,6 
108,3 
2 299,0 
60,4 
2 359,4 CD 
CO 
E 
c 
0) 
E 
CO 
a. 
(12) 
1 695,7 
110,9 
91,6 
83,6 
79,5 
53,6 
67,0 
69,9 
63,3 
63,3 
56,1 
63,6 
62,4 
49,5 
54,4 
57,0 
51,4 
44,6 
47,4 
47,3 
40,2 
32,7 
29,7 
34,4 
32,3 
31,7 
26,8 
29,3 
18,4 
18,8 
18,2 
13,2 
16,8 
9,2 
10,5 
12,6 
11,4 
10,6 
8,4 
9,6 
8,9 
7,5 
6,4 
1,6 
1,9 
3,7 
5,4 
2,1 
0,5 
2,0 
6,5 
2,0 
1,8 
0,8 
4,5 
2,4 
3,1 
2,8 
0,6 
— 
(41,7) 
248,1 
105,5 
2 049,3 
50,9 
2 100,2 Total (A + B) 
c c 
'5.2 
« 5 
.E <D 
LL "D 
(13) = 
(6) + (11) 
2 547,9 
137,2 
131,5 
120,6 
142,9 
97,8 
90,5 
83,0 
78,1 
100,6 
83,2 
74,1 
67,2 
72,5 
137,5 
68,1 
61,3 
69,1 
66,5 
58,0 
65,9 
58,2 
62,8 
46,0 
42,5 
75,3 
35,1 
40,5 
34,2 
23,0 
31,3 
19,8 
24,3 
14,4 
21,7 
15,9 
28,2 
21,8 
12,5 
19,7 
16,1 
7,6 
17,7 
1,8 
3,8 
10,2 
9,3 
4,8 
4,4 
2,4 
7,3 
3,2 
2,1 
2,1 
7,3 
3,0 
4,6 
6,8 
0,6 
— 
(73,7) 
314,5 
108,3 
2 970,7 
75,8 
3 046,5 CO 
E 
c 
E 
CO 
D. 
(14) = 
(7)+ (12) 
2 342,4 
130,0 
120,5 
108,1 
132,6 
77,8 
84,1 
80,6 
72,8 
95,5 
72,6 
69,6 
65,9 
65,0 
133,3 
66,5 
55,5 
59,9 
62,0 
57,3 
61,4 
53,4 
52,4 
43,2 
39,3 
73,3 
30,8 
40,0 
27,5 
20,0 
30,0 
14,3 
22,0 
9,2 
17,0 
15,8 
27,2 
21,2 
11.1 
19,0 
15,6 
7,5 
15,4 
1,6 
2,7 
9,8 
8,4 
4,4 
4,4 
2,4 
6,8 
2,0 
2,1 
2,0 
7,3 
3,0 
4,5 
4,2 
0,6 
— 
(66,2) 
267,8 
105,5 
2 715,7 
66,2 
2 781,9 
15. 12. 86 Official Journal of the European Communities 183 
§ 23. The 4th EDF: financial implementation 
(for detailed 
A. Non-programmed aid of aid by recipient country (31 December 1985) 
figures see § 22) 
B. Programmable aid 
(indicative programmes ACP and other aid) 
Mio ECU 50 
Key 
Financing 
decisions 
Paymen ts 10 Recipient country 10 50 100 Mio ECU 
Ethiopia 
Tanzania 
Zaire 
Sudan 
Uganda 
Mali 
Kenya 
Madagascar 
Niger 
Burkina-Faso 
Malawi 
Guinea 
Somalia 
Senegal 
Rwanda 
Burundi 
Cameroon 
Chad 
Ghana 
Zambia 
Benin 
Ivory Coast 
Central African 
Republic 
Togo 
Mauritania 
Sierra Leone 
Congo 
Liberia 
Lesotho 
Guinea-Bissau 
Jamaica 
Botswana 
Suriname 
Mauritius 
Guyana 
Swaziland 
Gambia 
Papua New Guinea 
Fiji 
Gabon 
Solomon Islands 
Nigeria Key: 
Allocations 
Financing decisions 
Pa /ments 
Other 
ACP States 
248,1 294,6 303,9 
Regional projects 
Administrative costs 
Contingency reserve ynrrsi 
OCT-FOD 
184 Official Journal of the European Communities 15. 12. 86 
§ 24. The 5th EDF: aid by type and by recipient country 
financial implementation: situation at 31 December 1985) 
K (Mio ECU) 
Recipient country 
(1) 
I. ACP States 
including: 
Ethiopia 
Tanzania 
Sudan 
Uganda 
Mali 
Madagascar 
Burkina-Faso 
Malawi 
Guinea 
Somalia 
Senegal 
Rwanda 
Burundi 
Cameroon 
Chad 
Ghana 
Zambia 
Ivory Coast 
Central African Republic 
Togo 
Mauritania 
Sierra Leone 
Congo 
Liberia 
Lesotho 
Guinea-Bissau 
Jamaica 
Botswana 
Suriname 
Mauritius 
Guyana 
Swaziland 
Gambia 
Papua New Guinea 
Fiji 
Gabon 
Solomon Islands 
Nigeria 
Zimbabwe 
Other ACP States: 
Antigua and Barbuda 
Bahamas 
Barbados 
Cape Verde 
Comores 
Djibouti 
Dominica 
Grenada 
Equatorial Guinea 
Kiribati 
Sao Tome and Principe 
Saint Christopher 
and Nevis 
Saint Lucia 
Saint Vincent 
Western Samoa 
Seychelles 
Trinidad and Tobago 
Tuvalu 
Vanuatu 
(Total other countries) 
II. Regional projects 
Administrative costs 
Total ACP (I + II) 
III. OCT 
Total 5th EDF A. Non-programmed aid Interest 
subsidies 
(grants) 
(2) 
114,0 
8,6 
3,6 
1,2 
1,1 
5,6 
20,9 
8,5 
10,6 
1,5 
5,3 
0,5 
0,7 
6,3 
0,7 
2,1 
1,4 
6,8 
9,4 
5,1 
6,7 
1,9 
0,3 
5,2 
— 
(7,4) 
1,3 
115,3 
2,9 
118,2 Financing 
— 
(3) 
244,3 
12,5 
11,0 
18,2 
10,2 
10,0 
3,4 
1,5 
21,2 
7,0 
13,5 
2,7 
9,6 
4,2 
0,7 
6,5 
2,0 
13,6 
1,5 
4,5 
5,1 
7,0 
0,5 
0,7 
6,0 
3,8 
5,0 
4,3 
0,5 
4,0 
0,0 
13,8 
7,8 
2,5 
5,4 
0,6 
1,7 
0,2 
2,3 
1,0 
2,4 
2,0 
0,2 
0,0 
1,0 
3,3 
4,0 
2,3 
0,1 
3,0 
(24,1) 
25,9 
270.2 
6,7 
276,9 -g 
-~ « 
Exception; 
emergenc 
(grants) 
(4) 
172,3 
48,2 
0,5 
2,8 
17,5 
4,5 
14,1 
2,4 
1,8 
13,6 
0,5 
0,4 
1,1 
16,2 
2,1 
2,0 
0,2 
1,6 
11,7 
4,4 
1,6 
1,5 
0,8 
0,5 
0,6 
4,4 
0,1 
0,2 
0,1 
0,1 
0,0 
4,3 
7,5 
0,2 
1,2 
0,4 
0,3 
0,5 
0,1 
0,2 
0,2 
0,1 
0,2 
1,4 
0,2 
(5,0) 
— 
172,3 
0,9 
173,2 decisions 
CD 
•2 
55 
(5) E 
CO 
(6) 3, 
+ CO Total 
(2) + (3) 
+ (5) + ( 
(7) 
505,8 128,8 1 165,2 
10,8 — 71,5 
19,2 — 30,7 
— 40,0 61,0 
32,2 — 59,9 
— — 14,5 
9,9 — 27,4 
31,1 — 43,6 
6,1 — 29,1 
— — 17,2 
1,0 — 8,5 
4,7 — 19,8 
— — 4,9 
2,8 — 28,6 
64,9 — 76,8 
7,7 2,8 13,2 
11,6 — 18,3 
17,3 — 39,8 
6,1 — 19,8 
63,9 — . 81,9 
— 83,0 94,6 
4,1 — 10,1 
54,5 — 65,9 
4,2 — 9,8 
28,8 — 30,9 
— — 11,4 
13,6 — 13,6 
— — 5,8 
— — 1,2 
1,3 — 7,4 
3,4 — 7,2 
3,2 — 8,9 
— — 6,5 
— — 4,3 
— — 1,3 
— 3,0 7,0 
8,2 — 10,4 
14,3 — 14,3 
41,8 — 57,0 
2,1 — 21,0 
— — 11,9 
3,8 — 3,8 
— — 5,1 
— — 19,6 
— — 0,2 
— — 1,9 
— — 0,9 
0,5 — 3,4 
6,6 — 7,2 
— — 2,6 
3,0 — 4,5 
4,0 — 6,4 
— — 2,0 
1,6 — 1,8 
7,0 — 7,1 
1,3 — 2,5 
— — 0,2 
5,1 — 8,5 
— — 4,2 
4,0 — 7,7 
— — 5,2 
0,1 — 0,2 
— — 3,2 
(33,2) (—) (69,7) 
— — 27,2 
_ 
505,8 128,8 1 192,4 
9,8 — 20,3 
515,6 128,8 1 212,7 CD 
E 
E 
CO 
0-
(8) 
907,4 
37,0 
28,3 
46,1 
38,4 
13,2 
23,0 
41,4 
17,4 
14,7 
1,5 
9,6 
2,5 
27,6 
74,1 
9,6 
16,4 
31,2 
15,6 
66,4 
62,8 
5,5 
58,8 
9,2 
30,9 
4,0 
13,5 
5,0 
1,2 
3,8 
4,9 
5,9 
5,0 
0,1 
0,9 
0,2 
10,4 
14,3 
53,9 
11,3 
9,5 
3,8 
5,1 
13,5 
0,1 
0,9 
0,9 
3,4 
7,2 
2,5 
4,4 
6,1 
1,8 
7,1 
2,1 
0,2 
8,5 
1,2 
7,3 
5,2 
0,2 
0,8 
(59,9) 
5,9 
~ 
913,3 
16,8 
930,1 B. Programmable and (Indicative 
programmes ACP and other aid) 
CO 
o 
o 
< 
(9) 
2 515,9 
141,0 
120,7 
104,0 
103,0 
87,0 
96,0 
88,0 
78,0 
80,5 
84,5 
80,0 
80,0 
79,3 
69,0 
79,0 
77,0 
69,0 
62,0 
60,0 
58,0 
55,0 
54,0 
49,0 
43,0 
43,0 
48,5 
31,5 
31,0 
29,0 
25,0 
26,4 
23,0 
18,0 
20,5 
14,6 
18,5 
14,0 
23,0 
13,0 
16,0 
12,0 
50,0 
49,0 
2,7 
2,1 
3,7 
5,5 
16,0 
14,5 
5,4 
3,5 
3,5 
8,5 
4,0 
4,0 
2,2 
3,7 
3,7 
6,2 
3,6 
4,1 
10,5 
1,0 
4,5 
(112,9) 
631,5 
~ 
3 147,4 
. 50,6 
3 198,0 Financing dec 
CO 
(10) 
1 685,3 
107,8 
93,2 
71,4 
85,8 
60,1 
61,2 
51,4 
60,1 
67,4 
67,6 
57,0 
54,5 
49,9 
36,0 
52,8 
50,7 
26,6 
52,7 
35,2 
33,0 
36,3 
17,8 
41,8 
29,4 
27,8 
24,2 
18,4 
15,5 
19,5 
18,5 
16,5 
17,2 
2,9 
12,7 
13,0 
11,9 
12,0 
6,2 
9,9 
8,0 
6,0 
30,8 
26,9 
0,0 
2,0 
3,7 
0,1 
13,6 
9,8 
4,6 
3,5 
3,3 
4,8 
4,0-
4,1 
1,7 
3,7 
3,4 
6,2 
3,6 
3,1 
6,9 
1,1 
4,5 
(87,7) 
352,3 
3,0 
2 040,6 
20,1 
2 060,7 cd 
CO° 
(11) 
316,3 
31,0 
11,6 
16,6 
16,4 
11,0 
9,8 
8,0 
7,0 
11,8 
7,0 
17,3 
11,9 
11,7 
17,9 
7,0 
2,0 
6,4 
18,3 
4,7 
6,9 
8,7 
2,4 
12,0 
4,7 
8,8 
9,1 
2,3 
2,7 
7,7 
4,7 
4,4 
5,1 
8,1 
0,8 
0,5 
— 
(1,3) 
68,8 
385,1 
3,8 
388,9 sions 
+ 
C0^ 
I- zz. 
(12) 
2 001,6 
138,8 
104,8 
88,0 
85,8 
60,1 
77,6 
62,4 
69,9 
75,4 
74,6 
68,8 
61,5 
49,9 
53,3 
64,7 
62,4 
44,5 
52,7 
42,2 
35,0 
42,7 
36,1 
46,5 
36,3 
36,5 
26,6 
30,4 
20,2 
28,3 
18,5 
25,6 
19,5 
5,6 
20,4 
13,0 
16,6 
12,0 
10,6 
9,9 
13,1 
6,0 
30,8 
35,0 
0,8 
2,0 
3,7 
0,1 
13,6 
9,8 
4,6 
3,5 
3,3 
4,8 
4,0 
4,1 
2,2 
3,7 
3,4 
6,2 
3,6 
3,1 
6,9 
1,1 
4,5 
(89,0) 
421,1 
3,0 
2 425,7 
23,9 
2 449,6 CO 
E 
CD 
E 
CO 
Q_ 
(13) 
895,2 
81,8 
45,5 
40,0 
62,1 
28,6 
31,1 
26,7 
28,2 
29,5 
37,3 
19,3 
25,0 
24,2 
24,1 
35,5 
17,9 
17,5 
21,3 
14,0 
9,8 
11,7 
24,2 
27,7 
23,7 
20,7 
8,2 
28,3 
4,4 
12,6 
8,5 
6,0 
5,1 
2,2 
7,5 
6,4 
4,0 
4,1 
3,0 
6,6 
8,9 
2,0 
2,2 
11,1 
0,0 
0,3 
1,3 
0,1 
2,5 
3,8 
2,1 
2,7 
1,8 
1,0 
0,6 
2,6 
1,9 
2,8 
5,9 
2,2 
0,7 
1,8 
0,4 
2,2 
(36,7) 
204,2 
2,5 
1 101,9 
9,0 
1 110,9 Total 
(A + B) 
o.o 
5-S2 
£ CD 
LL -a 
(14) = 
(7)+ (12) 
3 166,8 
210,3 
135,5 
149,0 
145,7 
74,6 
105,0 
106,0 
99,0 
92,6 
83,1 
88,6 
66,4 
78,5 
130,1 
77,9 
80,7 
84,3 
72,5 
124,1 
129,6 
52,8 
102,0 
56,3 
67,2 
47,9 
40,2 
36,2 
21,4 
35,7 
25,7 
34,5 
26,0 
9,9 
21,7 
20,0 
27,0 
26,3 
67,6 
30,9 
25,0 
9,8 
35,9 
54,6 
1,0 
2,0 
5,6 
1,0 
17,0 
17,0 
7,2 
8,0 
9,7 
6,8 
5,8 
11,2 
2,2 
6,2 
3,6 
14,7 
7,8 
10,8 
12,1 
1,3 
7,7 
(158,7) 
448,3 
3,0 
3 618,1 
44,2 
3 662,3 CD 
E 
E 
CO 
(15) = 
(8)+ (13) 
1 802,6 
118,8 
73,8 
86,1 
100,5 
41,8 
54,1 
68,1 
45,6 
44,2 
38,8 
28,9 
27,5 
51,8 
98,2 
45,1 
34,3 
48,7 
36,9 
80,4 
72,6 
17,2 
83,0 
36,9 
54,6 
24,7 
21,7 
33,3 
5,6 
16,4 
13,4 
11,9 
10,1 
2,3 
8,4 
6,6 
14,4 
18,4 
56,9 
17,9 
18,4 
5,8 
7,3 
24,6 
0,1 
0,3 
2,2 
1,0 
5,9 
11,0 
4,6 
7,1 
7,9 
1,0 
2,4 
9,7 
4,0 
3,0 
14,4 
3,4 
8,0 
7,0 
0,6 
3,0 
(96,6) 
210,1 
2,5 
2 015,2 
25,8 
2 041,0 
15. 12. 86 Official Journal of the European Communities 185 
§ 25. The 5th EDF: financial implementation of aid by recipient country (31 December 1985) 
(for detailed figures see § 24) 
A. Non-programmed aid B. Programmable aid 
(indicative programmes ACP and other aid) 
Mio ECU 50 10 Recipient country 10 50 100 Mio ECU 
138,8 141,0 
%TT Ethiopia 
Tanzania 
Zaire 
Sudan 
Uganda 
Mali 
Kenya 
Madagascar 
Niger 
Burkina-Faso 
Malawi 
Guinea 
Somalia 
Senegal 
Rwanda 
X Burundi 
Cameroon 
Chad 
Ghana 
Zambia 
94,6 Benin 
Ivory Coast 
Central African 
Republic 
Togo 
Mauritania 
Sierra Leone 
Key: 
Financing 
decisions 
Paymen ts Congo 
Liberia 
Lesotho 
Guinea-Bissau 
Jamaica 
Botswana 
Suriname 
Mauritius 
Guyana 
Swaziland 
Gambia 
Papua New Guinea 
Fiji 
Gabon 
Solomon Islands Key: 
Allocations 
Payments 
Nigeria 
Zimbabwe 
Other 
ACP States m jp 
Regional projects 
Administrative costs 
OCT imm; 204,2 421,1 631,5 
186 Official Journal of the European Communities 15. 12. 86 
§ 26. The 4th and 5th EDF: utilization of aid by economic sector (situation at 31 December 1985) 
Allocation and total utilization Financing decisions and payments by economic sector 
4th EDF: 
Allocation: 
3 155,9 Mio ECU (100%) 
o 
'5 5? 
w 0_v 
Financing 
decisions (Mio ECU) Oi 
*sM •o o 
CO t 
IO 
Total: 
3 046,5 By economic sector: 
718,9 
627,1 742,5 
668,5 238,6 
223,2 171,6 
163,8 18,8 
17,5 250,4 
217,0 69,0 
56,4 112,9 
97,9 31,9 
26,3 137,5 
137,2 389,8 
389,8 56,3 108,3 
Payments (Mio ECU) 2 781,9 51,6 I 105,6 
5th EDF: 
Allocation: 
4 802,3 Mio ECU (100%) rO 
"°.2 
CO t 
O 
"s^p* I9I 
Financing 
decisions (Mio ECU) Total: 
3 662,3 y ecor 
936,9 
396,9 lomic se 
642,2 
339,9 ctor: 
314,3 
165,9 250,1 
127,6 206,0 
128,6 252,3 
86,0 67,8 
26,1 228,9 50,6 174,0 476,5 59,7 
32,9 3,0 
Payments (Mio ECU) 2 041,0 109,0 19,2 I 129,9 476,5 2,5 
15. 12. 86 Official Journal of the European Communities 187 

15. 12. 86 Official Journal of the European Communities 189 
Replies of the institutions to the observations 
of the Court of Auditors concerning the financial year 1985 
PARTI 
REPLIES OF THE COMMISSION TO 
CHAPTER 1 
General matters 
INTRODUCTION I. FINANCIAL MANAGEMENT 
In Chapter 1 of its Annual Report for the financial year 
1985, the Court of Auditors makes a number of general 
remarks arising from its analysis of the execution of the 
budget in the various areas of Community activity. 
The Commission would like to make it clear from the 
outset that it has always, and particularly since the 
beginning of its present term of office in January 1985, set 
great store by the proper financial management of 
Community resources made even more imperative by 
current budgetary difficulties. 
Like last year, the Commission has set out here, in its 
reply to Chapter 1 of the Court of Auditors' report, its 
general comments on the execution of the budget, 
explaining its position and its planned action. 
As the Court of Auditors' specific observations are 
contained in the sectoral chapters of the report, reference 
should be made to the Commission's detailed replies to 
these chapters. 1. Monitoring the implementation of the 
budget 
As early as the beginning of 1984, when faced with the 
impending exhaustion of available own resources, the 
Commission introduced new arrangements for adminis­
tering and monitoring expenditure, designed to ensure 
that the budget was implemented in the best possible 
conditions. 
The Commission would confirm the particular import­
ance it attaches to the administration of the Community's 
financial resources, a point which was stressed in the 
Commission's policy statement to the European Parlia­
ment on 14 January 1985. It has accordingly decided to 
improve monitoring of the Community's revenue and 
expenditure, leaving no doubt about the leading role it is 
determined that this activity should play. 
190 Official Journal of the European Communities 15. 12. 86 
2. Action on comments by the supervisory 
authorities 
Follow-up action to comments made by the supervisory 
authorities — by the European Parliament in its resol­
ution accompanying the discharge decision and by the 
Court of Auditors in its annual report and special 
reports — is of constant concern to the Commission. 
The Commission considers it essential to respect its 
undertakings to these institutions. Thus, in order to have 
an overall view of the action taken and, where ap­
propriate, to make the necessary adjustments, the 
Commission has set up an internal procedure to keep it 
informed each year of the undertakings given to the 
supervisory authorities, the measures planned or already 
in force by way of follow-up action and the schedule for 
their implementation. This procedure was first applied in 
spring 1986. 
In general terms, the Commission would repeat that it is 
at the disposal of the European Parliament and the Court 
of Auditors to assist them in the exercise of their 
supervisory powers. 
3. Four-year financial perspective 
The Commission stresses the importance in financial 
management of medium-term financial planning. This 
can help enhance the transparency of the budget and the 
consistency between policy decisions and their financial 
consequences. 
With this in view, the Commission presented to the 
European Parliament and the Council on 2 April 1986 a 
communication setting out the four-year financial 
perspective for the Community— 1987-90. 
This financial perspective is an essential tool, especially in 
the present climate of budget stringency, for medium-
term financial planning, which can help the Community 
to attain its priority objectives. 
The annual budget exercise will in future be made to fit 
into the four-year financial perspective the policy 
implications of which must be considered with the 
greatest care by the two arms of the budgetary authority. 
These perspectives will be periodically reviewed — a 
feature of proper financial planning — and any desirable 
improvements will be made. 4. The management of Community policies 
One of the Commission's constant concerns is to improve 
the management of Community policies. It has therefore 
carried out a constructive analysis of the observations of 
the Court of Auditors. 
As regards the structural funds, the Commission intends 
to make use of the mandate provided by Article 130 D of 
the new Title V of the EEC Treaty on economic and social 
cohesion, to make whatever adjustments are required to 
the structure and operation of the structural funds in 
order to enhance their effectiveness. The Commission 
intends to carry out this mandate in close cooperation 
with the other competent institutions. Discussions within 
the Commission will begin in autumn 1986. 
The Commission has also given one of its Members 
special responsibility for the coordination of structural 
instruments, and, in its internal organization, has set up a 
new Directorate-General to handle this area of activity. 
As regards clearance of the EAGGF Guarantee accounts, 
the Commission would point out that it set itself the target 
of taking the clearance decision for the 1985 accounts by 
30 June 1987, provided that it received the Mem­
ber States' declarations at least a year before that date. 
On 6 December 1985 the President of the Commission 
himself wrote to the Member States to impress on them 
the importance of the clearance procedure and the need to 
make up the backlog. In addition, the Commission has 
adopted the necessary legislation for speeding up 
clearance operations. In 1986 the Commission has 
already cleared the 1982 accounts and is also planning to 
clear those for 1983 before the end of the year. 
With regard to the problem of stocks of agricultural 
products, the Commission announced in 1986 an addi­
tional programme for the disposal of old stocks in its 
proposal on agricultural prices (Doc. COM(86) 20 final, 
point 14). Decisions on the appropriations for this 
programme were adopted in the budgets for 1986 and 
1987. At the same time, the Commission is continuing its 
efforts to ensure special sales to reduce the level of stocks. 
However, it is plain to see that this problem can only be 
solved with the appropriate resources and with the 
cooperation of all the institutions invojved, notably the 
Council. 
As far as the EAGGF Guidance Section is concerned, the 
Commission, in line with the undertaking it gave in its 
most recent proposal on agricultural structures policy 
(Doc. COM(86) 199 final of 21 April 1986), would 
confirm its intention of ensuring greater coherence 
15. 12. 86 Official Journal of the European Communities 191 
between the operations of the two sections of the 
EAGGF. It would stress, however, that in some regions in 
difficulty it is not possible to subordinate structures 
policy to considerations related solely to agricultural 
markets. 
In the case of food aid, the Commission set up a working 
party with a view to amending the existing legislation and 
identifying possible ways of improving procedures for 
taking management decisions. The working party 
produced a Commission proposal repealing Council 
Regulation (EEC) No 3331/82, which was sent to the 
European Parliament and the Council in July 1986 (l). 
The Commission is also planning other measures 
designed to enhance the efficiency of food aid policy, in 
particular as regards the delivery of aid. 
With regard to research and the new technologies, on 
1 August 1986 the Commission sent to the Council and 
the European Parliament a proposal for a Regulation 
concerning the first framework programme of Com­
munity activities in the field of research and technological 
development (1987-91). This proposal was drawn up in 
the light of the discussions in the Council (Research) on 
the broad lines of a new framework programme which the 
Commission presented in March 1986. 
II. IMBALANCE BETWEEN REVENUE 
AND EXPENDITURE 
In its report on the implementation of the 1984 budget the 
Court of Auditors already highlighted the lack of 
coherence between revenue-generating mechanisms and 
those determining expenditure. The Commission replied 
in considerable detail to this comment (2), which it 
considered pertinent, but the reasons for which it felt were 
to be found in the provisions governing the exercise of 
powers as contained in the Treaty itself. 
The Commission naturally shares the Court of Auditors' 
concern about the need for a balance between revenue 
and expenditure: it would repeat once more that it made 
appropriate proposals in good time. Unfortunately, the 
situation in which the Commission found itself again in 
1985 was the consequence above all of the delay in 
adopting the new own resources decision (which did not 
enter into force until 1 January 1986). 
(') The footnotes appear at the end of each chapter. The Commission also regrets, with the Court of Auditors, 
that the Member States resorted to a non-Community 
formula — based on an intergovernmental agreement — 
to provide additional finance for the 1985 budget (as had 
already occurred in 1984). Recourse to this formula 
represents a violation of the principle of the Community's 
financial autonomy, which was the objective of providing 
the Community with own resources. 
In this context, the four-year financial forecasts should 
shed some light on the problems of achieving a balance in 
the medium term between revenue and expenditure. 
At all events, in accordance with the undertakings given 
at the Fontainebleau European Council in June 1984, the 
Commission will be presenting a report in late 1986 on the 
system of Community financing and on the improve­
ments and developments which could be made. 
III. PROVISIONAL TWELFTHS 
ARRANGEMENTS 
In addition to the points made in its replies to specific 
observations (especially those on the EAGGF Guarantee 
Section), the Commission supports the Court of Audi­
tors' call for the legislation in force to be made more 
comprehensive. 
The Commission has been well aware for many years that 
the relevant provisions of the Financial Regulation 
(Article 8 of the present text) leave many gaps. For this 
reason, the Commission prepared a far more com­
prehensive text in its initial proposal for the revision of the 
Financial Regulation — drawn up as long ago as 1980 — 
in order to eliminate all the shortcomings observed in the 
past. 
After the Court of Auditors and the European Parliament 
had delivered their opinions, the Commission produced 
its final proposal in March 1984 (Doc. COM(84) 
123 final). The Commission hopes that the Council — 
with the additional prompting of the observations of the 
Court of Auditors — will now adopt the revised version 
of the Financial Regulation as soon as possible. This 
would solve most of the problems underlying the Court of 
Auditors' observations. 
As regards the regularity of the management of the 
budget under the provisional twelfths arrangements, the 
Commission takes the view that, according to its 
192 Official Journal of the European Communities 15. 12. 86 
interpretation of the arrangements — with all their 
shortcomings — it acted entirely in accordance with the 
rules in force. 
IV. FINANCIAL COMMITMENTS 
DERIVING FROM THE PAST 
The Court of Auditors is rightly concerned about how it 
has come about that expenditure originating in past years 
is going to have to be met in the future. 
In its preliminary draft budget for 1987, the Commission 
distinguished between Community commitments ac­
cording to four criteria: 
— commitments which, although politically binding, 
arise from declarations such as those of the European 
Council on stepping up the Community's role in 
research and development and providing real growth 
in the structural funds; 
— political commitments which arise from a legal 
instrument setting up a Community programme to be 
carried out over several years, for example the five-
year financial allocation for the EAGGF Guidance 
Section and multiannual research programmes; 
— commitments arising directly from legally binding 
Community instruments, such as common agricul­
tural policy regulations, the repayment of 10% of 
traditional own resources to Member States and the 
financial allocation for the integrated Mediterranean 
programmes; 
— commitments which impose legal obligations on the 
Community, such as salaries, rents, commitment 
appropriations remaining for the structural funds, 
financial protocols with non-member countries, etc. 
In connection with the Court of Auditors' report, the 
Commission feels that two of these types of commitment 
merit special attention: 
— outstanding commitments, particularly in connection 
with the structural funds, 
— expenditure connected with the disposal of agricul­
tural stocks. 1. Outstanding commitments 
The Commission (and the Court of Auditors) puts these 
commitments at 11 805 Mio ECU at the end of 1985 (see 
Volume V of the revenue and expenditure account, 
page 29). If the corresponding payment appropriations 
carried over to 1986 are subtracted, the balance remaining 
to be met from subsequent Community budgets is 
11 116,4 Mio ECU. 
The existence of an 'outstanding balance' is in itself 
perfectly normal, since it is associated with the differenti­
ation between commitment appropriations and payment 
appropriations. This 'cost of the past' is the price to be 
paid for a deliberate policy on the part of the budgetary 
authority, as proposed by the Commission, to develop all 
the structural policies and new Community actions. 
The Court of Auditors points out that the 'outstanding 
balance' has been increasing in size over the years. While 
one cause of this, as already mentioned, is the deliberate 
decision to strengthen the role of these funds, the trend 
has been accentuated by the slower than anticipated 
execution of commitments and by the inadequacy of the 
payment appropriations granted. 
The payments resulting from these commitments will be a 
liability for the future development of structural policies, 
if the resources available to the budget in coming years do 
not increase at a corresponding rate. 
The Commission has presented the problems clearly and 
suggested solutions both in its preliminary draft budgets 
and in its four-year forecasts. In its preliminary draft 
budget for 1987 the Commission has proposed appropri­
ations to cover payments to be made in 1987 against 
earlier commitments; at the same time it has taken 
account of the unavoidable need to contain the increase in 
new commitment appropriations. 
It would again state clearly that the desire for sound 
financial management is incompatible with the temp­
tation to defer payments due. 
2. Expenditure connected with the disposal of 
agricultural stocks 
Since 1983 agricultural stocks have increased con­
siderably in both volume and value, largely because 
increases in productivity have not been matched by 
equally rapid growth in domestic consumption and 
because export opportunities have proved to be limited. 
15. 12. 86 Official Journal of the European Communities 193 
Thus the book value of the stocks held by intervention 
agencies, estimated at some 4 000 Mio ECU at the end of 
1982, had risen to 7 000 Mio ECU by the end of 1983, 
8 800 Mio ECU by the end of 1984 and 10 500 Mio ECU 
at the end of 1985, when the market value represented 
around 5 000 Mio ECU. 
These enormous stocks therefore constitute a major 
liability for future financial years because of the potential 
losses which they represent. One way of dealing with this 
increase in the value of stocks given the level of 
production would have been to increase expenditure, 
either in the form of refunds for exports and for other 
kinds of disposal or in the form of annual financial 
depreciation of stocks. 
The Commission decided to effect a depreciation of 
stocks at the end of 1985 (435,1 Mio ECU) and early 
1986, using the appropriations entered for this purpose in 
the 1986 budget (471 Mio ECU). These sums are quite 
inadequate and would need to be increased considerably 
for any appreciable results to be achieved. The Commis­
sion will take every opportunity in the coming years to 
continue its policy of reducing the gap between the book 
value of stocks and their market value. 
The Commission would also point out that the new rules 
on depreciation adopted by the Council in 1986 on a 
proposal from the Commission now make it possible to 
apply the method recommended by the Court of 
Auditors. 
For 1987 the Commission is planning to continue its 
three-year stock-disposal programme started in 1986. 
However, the problem of stocks is continuing to worsen 
and will require exceptional measures going far beyond 
those taken so far. 3. Presentation of the accounts 
The Commission enters in the Community's balance sheet 
liabilities which derive from actual operations and which 
result from its accounting system, e.g. the amount of 
advances to be refunded to the Member States or the 
deficit for the year. 
In addition, it enters outside the balance sheet future 
liabilities already registered, such as commitments against 
differentiated appropriations to be covered at a later date 
by payment appropriations. 
Finally, since 1984 the Commission has attached a note to 
the revenue and expenditure account relating to the 
financing by the EAGGF Guarantee Section of interven­
tion stocks and the potential liabilities connected with the 
disposal of these stocks. 
The Commission is prepared to consider what would be 
an appropriate form for indicating certain potential 
liabilities in the annual financial statements, for example, 
in the commitments shown outside the balance sheet. It 
cannot, however, entertain a list of potential liabilities 
which might not even exist, which cannot be accurately 
estimated and whose schedule is subject to unforeseeable 
factors. 
The Commission does not believe that this kind of 
information would enable the budgetary authority to 
draw conclusions for future Community budgets. 
(') Proposal for a Council Regulation on food aid policy and 
food management repealing Regulation No 3331/82. (Doc. 
COM(86) 418 final/2 of 29.9.1986). (2) OJ C 326 of 16.12.1983, p. 60, point II.2. 
194 Official Journal of the European Communities 15. 12. 86 
REPLIES OF THE INSTITUTIONS TO 
CHAPTER 2 
Accounting matters 
REPLIES OF THE PARLIAMENT 
OBSERVATIONS ON THE GENERAL 
ACCOUNTS AND THE BALANCE SHEETS 
Cash deficit 
2.2 - 2.3. The European Parliament refers the Court of 
Auditors to its decision of 11 July 1986 on the implemen­
tation of Parliament's budget for the financial year 1982 
(OJ C 227/154 of 8.9.1986). This cash deficit could be 
partially covered with funds from the credit balance on 
the guarantee accounts provided for in Article 70(3) of the 
Financial Regulation, within the limits and in accordance 
with the terms laid down by that regulation and its 
implementing provisions. The European Parliament 
proposes to review the matter of the amount which would 
not be covered if recourse were taken to the guarantee 
accounts. 
Imprest accounts 
2.4. The European Parliament's political and adminis­
trative activities are spread over three working places with 
meetings of its political organs being held frequently 
throughout and sometimes indeed outside Europe. This 
diversity of activity over a wide geographical area fully 
justifies the European Parliament in having recourse to 
the mechanism of making payments promptly and 
efficiently through imprest accounts. efficiently and speedily regularized and booked to the 
budget. On the creation of an imprest account, the 
Accounting Officer issues to the authorizing officer 
concerned and the imprest account officer, instructions 
on the time-limits for the submission and regularization 
of expenditure. 
The question of eliminating cash payments to Members 
of the European Parliament was examined by the College 
of Quaestors in May 1985; on 9 July 1985 the Bureau 
adopted the College's proposal that Members should 
continue to be able to choose the method of payment of 
their travel and daily allowances. 
Salary arrears 
2.5. The Council Regulation of 17 December 1985 
adjusting remunerations (OJ L 343 of 20 12.1985). The 
European Parliament charged as much as possible of the 
amounts to be paid (a total of 2,6 Mio ECU) to the 
financial year 1985 and the remainder to the financial 
year 1986. The reason for this was the late date on which 
the regulation was adopted. 
No other course of action was possible because the date of 
the adoption of the regulation by the Council made it 
impossible to take recourse to the usual transfer of 
appropriations before the end of 1985. The Commission, 
which was in the same position, also opted for the 
solution chosen by Parliament. 
Imprest accounts are not necessarily to be eschewed if 
realistic ceilings are fixed and if payments made are The institution does not share the Court of Auditors' 
opinion that it was irregular to charge the revenue 
15. 12. 86 Official Journal of the European Communities 195 
generated by expenditure in a given financial year to that 
same financial year. Indeed, the revenue accruing from 
the expenditure on the arrears for 1985 relates to the 
financial year 1985 and must automatically be charged to 
that year. Stoppages on 1985 remunerations cannot be 
spread over two financial years. 
Only two solutions are possible if in future we are to avoid 
charging such expenditure to two financial years: 
(a) A more generous allocation of appropriations under 
Chapter 11 of the budget, making it possible to meet 
every contingency. This solution would probably be 
opposed by the budgetary authority, which for 
OBSERVATIONS ON THE GENERAL 
ACCOUNTS AND THE BALANCE SHEETS 
Recoverable taxes and duties 
2.8. The problem referred to by the Court of Auditors 
arises only if exemption from the payment of VAT to the 
Commission is based on Articles 3 and 4 of the Protocol 
on the privileges and immunities of the European Com­
munities. 
Assuming the contractor is subject to VAT, then the 
amount of tax is included, in accordance with Article 8.6 
of the standard study contract, in the all-in sum provided 
for in Article 4 of the contract by way of payment for the 
work carried out. 
The Commission is well aware of the difficulties involved 
in the recovery of sums to which it is entitled and, once the 
rules governing the management of study contracts were 
introduced, carefully defined the obligations incumbent 
on contractors so that it can recover the sums it has paid 
in VAT. 
The provisions are set out in particular in: 
— the second paragraph of Article 8.6 of the standard 
contract; 
— the tax arrangements set out in point VI(c) of the 
guide to the application of the coordinated directives 
for studies regarding the budgetary implementation 
of contracts, which require contractors to make 
available to the Commission any supporting docu-several years has been asking for these appropriations 
to be calculated as accurately as possible. 
(b) The Council could be asked to take its decisions on 
the adjustment of salaries either before the first of 
December in the year concerned or after the first of 
January in the following year. There would then be no 
doubt as to the year to which the adjustments were to 
be charged and the European Parliament could take 
the necessary measures. 
A final solution can be found only through consultation 
between the institutions. 
ments which will enable it to obtain reimbursement of 
VAT from the national authorities. 
Furthermore, both contractors and the Commission 
departments which manage study appropriations have on 
several occasions been reminded of their obligations. 
To allay the Court of Auditors' concern, a proposal that 
study contracts should show the amount payable as VAT 
has been made within the Commission. This should make 
things perfectly clear in future and so remove any 
obstacles to the actual recovery of sums due to the 
Commission in connection with contracts. 
2.9. The accounting arrangements for taxes and duties 
paid and recoverable from the Member States, which the 
Commission announced in its reply to the comments 
regarding the 1984 financial year, are due to become 
operational in 1987. They will make it possible to identify 
and determine the amount of all potential claims to be 
entered in the balance sheet. 
The 0,6 Mio ECU of recoverable taxes and duties was 
entered in two different items in the assets side of the 
balance sheet. In the light of the Court of Auditors' 
comment, the Commission will make sure that this kind 
of double entry does not occur in future. 
2.10. At the end of June 1986 the Commission wrote to 
the Member States not operating the direct system of 
VAT exemption to request that talks be started to find 
ways and means of amending the implementing provi­
sions for Articles 3 and 4 of the Protocol on the privileges 
and immunities of the European Communities. REPLIES OF THE COMMISSION 
196 Official Journal of the European Communities 15. 12. 86 
Revenue to be recovered 
2.11. In January 1985 a computerized system was 
introduced for registering claims and recoveries. The 
programs have had to be modified during the first year of 
operation. A major effort is currently being made to 
monitor and recover claims which have fallen due. 
Advances to staff and staff current accounts 
2.12. Because of problems of staff numbers and 
computers, about 150 files could not be entered into the 
computerized payment system by the end of 1985. As a 
result, the staff concerned, although they had been in 
service for several months, had to be paid advances which 
were charged to an extra-budgetary account. The 
situation was put right during the first few months of 
1986, and so the readjustments, both budgetary and 
extra-budgetary, will appear in the 1986 accounts. This is 
the main reason for the amount of advances to staff at 
31 December 1985, but it must nevertheless be borne in 
mind that it is virtually impossible to incorporate new 
staff in the computerized payment system within two 
months of their taking up their duties. 
Both in 1985 and since then the Commission departments 
responsible have been looking carefully at the advance 
accounts and the staff current accounts. They have been 
able to settle quite a large number of the accounts in 
question. 
Salary arrears 
2.13. (a) Any Council decision on salary adjustments 
represents the culmination of a lengthy procedure which 
begins with the transmission of figures by the Mem­
ber States to the Commission. In 1985, the Commission 
was unable to send a draft decision to the Council until 
26 November. The Council took its decision on 17 De­
cember. 
In view of the late date on which the Council decision was 
taken in 1985, the Commission was unable to make 
appropriate transfers. Nor could the Commission request 
a transfer on the basis of its proposal, because the final 
decision is the Council's and, the appropriations being 
provisional, the Council cannot approve a transfer in the 
absence of such a decision, on which the transfer is based. In order to respect the principle of annuality and to ensure 
budgetary transparency, the Commission charged 1985 
salary arrears to the 1985 financial year, the year to which 
they should normally be charged, as far as appropriations 
would allow. The Commission had to meet its legal 
obligations by charging the remainder to the 1986 
appropriations. 
The Commission can do little to influence the timetable of 
the salary review. There would be no problem if in future 
the procedure could be completed with a Council decision 
in November so that the Commission would then have 
time to make the necessary arrangements for covering the 
expenditure involved in a suitable manner. 
(b) The Commission takes the view that the rules for 
booking revenue are different from those for the charging 
of expenditure. Furthermore, it is technically very 
difficult to give the same breakdown by financial year for 
revenue as is given for the corresponding expenditure. 
Various items of revenue to be credited 
2.14. The delay in the issue of recovery orders to enable 
revenue to be booked to the appropriate budget items was 
due to difficulties encountered by the departments 
concerned. The Commission will draw their attention to 
the provisions regarding the establishment of claims. 
Press and information offices and external 
delegations 
2.15. The Commission carries out an annual review of 
the ceiling fixed for the imprest accounts to adjust them to 
actual requirements. The review is based on the average 
expenditure over the previous 11 months (»). It considers 
that 3 months' cover is necessary to take account of any 
delays in communications, particular requirements of far 
outlying offices and any sudden changes in the flow of 
expenditure. A revision based on the period from 
December 1984 to November 1985 was carried out in 
June 1986. 
Reimbursement of expenditure incurred on 
behalf of the ECSC 
2.16-2.17. The sum owed remained outstanding for 
some time because of difficulties encountered by the 
accounting departments in the past in analysing the 
accounts (see reply to paragraph 2.8 of the 1984 report) 
together with chance circumstances in the clearing of the 
item of expenditure by the Commission departments 
concerned. 
(!) The footnotes appear at the end of each chapter. 
15. 12. 86 Official Journal of the European Communities 197 
The Commission accepts that the administrative adjust­
ment for the cost of the work on the Washington 
residence was late. 
OBSERVATIONS ON THE COMMISSION'S 
CASH MANAGEMENT 
2.18-2.22. The Commission has in fact undertaken a 
general renegotiation of the terms offered by banks both 
in the light of the Court of Auditors' comments and on its 
own initiative. Some results have been obtained, as the 
Court of Auditors was pleased to point out in para­
graph 2.20. The negotiations have been delayed by the 
heavy workload they created and their particular nature. 
The Commission regrets the delay and would point out 
that this matter is nevertheless still a priority objective. 
With regard to paragraph 2.20, it should be noted that: 
(a) A study has since been undertaken by the Direc­
torate-General for Budgets on procedures, security, 
etc., and a study of relations with banks is also to be 
carried out. 
(c) The 'considerable volume of Community business' 
could be a negative factor. 
(d) The Commission Accounting Officer held an initial 
meeting with his counterparts in other institutions on 
16 June 1986 to discuss the problem of bank terms. 
With regard to paragraph 2.21: 
(a), (b) and (d) The difficulties referred to in the previous 
paragraph have meant that for the time being it has been 
impossible to launch the systematic action requested by 
the Court of Auditors. (c) Major exchange transactions (transfers from one 
Member State to another) under Article 208 of the Treaty 
are effected via the central banks, which generally make 
the conversion on the basis of the average rates at the 
fixing. 
ECU purchases are made by taking the best offer from 
competing banks (the way exchange brokers work). 
As far as value dates are concerned, the Commission's 
main concern at the moment is to make sure that orders 
reach the banks rapidly. The addition of a value date will 
only delay the execution of an order. If the payment calls 
for a value date, then the Commission of course indicates 
one. 
The Commission would also add that it makes payments 
by telegraphic transfer whenever necessary. 
System of management based on estimates 
and cash distribution 
2.23 - 2.24. The Court of Auditors maintains that the 
deterioration to which it refers (paragraph 2.23 (a)) is due 
to the unreliability of the estimates submitted by the 
authorizing departments to the department responsible, 
although it observes that progress has been made in the 
mode of calculation. 
It is in fact the budget situation in 1985 (and at present) 
that caused the decrease in funds available for distri­
bution. Under the circumstances it is clear that a 
difference of the same absolute amount has far greater 
repercussions in percentage terms. 
Reference should also be made to Article 12 of Council 
Regulation (EEC) No 2891/77 of 19 December 1977 and 
in particular to the phrase 'as far as possible', which is of 
utmost significance and importance. The object of this is 
to avoid making unnecessary work out of cash manage­
ment. 
(•) The external offices close their accounts for November 
during the first ten days of December, the rest of December 
and January being covered by a single statement. 
198 Official Journal of the European Communities 15. 12. 86 
REPLIES OF THE COMMISSION TO 
CHAPTER 3 
Revenue 
SUMMARY OF FINANCIAL 
INFORMATION 
Exhaustion of own resources and financing of 
the budget 
3.4. The advances were entered under Title 8 to allow a 
direct comparison between the advances for 1984 and 
those for 1985 and to ensure budget transparency. 
Furthermore, the heading of Title 8 — Borrowing and 
lending operations—is the most suitable in the statement 
of revenue to accommodate advances, even those which 
are non-refundable. 
3.5. The delay in the budgetary procedure was the 
reason why only part of the 1984 deficit was entered in the 
1985 budget. In financial terms, it must be borne in mind 
that the balance for 1984 would also have included the 
VAT balance (111,8 Mio ECU) and the 1984 intergovern­
mental advances paid in 1985 (408,3 Mio ECU). This 
gives a net deficit of 134,7 Mio ECU. 
Deficit for the financial year 
3.7 - 3.9. Owing to the delay in payment by the Member 
States of the intergovernmental advances for the 1984 and 
1985 financial years, an accurate picture can be gleaned 
only if account is taken of the balances for 1984 and 1985 
and the advances for 1985 paid in 1986: 
Mio ECU 
1984: deficit 827,3 (0 
1985: deficit 23,9 
1986: payment of advances 
for 1985 financial year 727,9 
Net deficit 123,3 
(*) The footnotes appear at the end of each chapter. The real deficit for the 3 years is therefore 123,3 Mio 
ECU. 
The remainder of the deficit for 1984 could only be 
incorporated into the accounts for 1985 by means of a 
budget. It would have been accompanied by the VAT 
balances and the advances which had not been paid in 
1984 (see reply to paragraph 3.5). The remaining 
134,7 Mio ECU would have been covered by other 
measures to balance the budget, and in this way the deficit 
for 1984 would have been completely covered. 
3.8. With reference to the calculation of the balance for 
the financial year, the procedure laid down in the 
Financial Regulation was complied with, and the 
calculations were made in accordance with the provisions 
of Article 15 of Council Regulation (EEC) No 2891/77 of 
19 December 1977. 
With regard to the deficit for 1984, the Commission 
would refer back to its reply to paragraph 3.5. 
As no supplementary or amending budget was adopted in 
1985, the remainder of the deficit for 1984 had to be 
entered as budget expenditure. 
It should be emphasized however that the Community's 
consolidated balance sheet (page 19 of Volume V) clearly 
shows, in the item 'current assets', the total deficit to be 
covered at the close of the 1985 financial year 
(678,8 Mio ECU), equal to the sum of the deficits for the 
1984 financial year (remainder of 654,8 Mio ECU) and 
the 1985 financial year (24,0 Mio ECU). 
15. 12. 86 Official Journal of the European Communities 199 
VAT OWN RESOURCES 
Amounts written off or in arrears 
3.12 - 3.16. As the Commission already pointed out in 
its reply to the observations of the Court of Auditors on 
the 1984 financial year (2), Article 3 of Council Regu­
lation (EEC) No 2892/77 as amended stipulates that each 
Member State may opt for either method, and the first 
paragraph of Article 6 of the same Regulation states that, 
for Member States having chosen Method B, the VAT 
own resources base is derived from the total net VAT 
revenue collected by that Member State for a given year. 
The situation described by the Court of Auditors is 
therefore in accordance with this Regulation, which has 
been correctly applied. 
However, the Commission would re-emphasize the 
following points: 
(i) Council Regulation (EEC, Euratom, ECSC) 
No 3735/85 of 20 December 1985 extending the term 
of validity of Regulation No 2892/77 stipulated that 
the Commission should present proposals for a 
uniform method of determining the assessment basis 
for VAT own resources before 31 December 1987. 
The Commission intends to study all the issues 
connected with equality of treatment between 
Member States in the determination of the assessment 
basis. 
(ii) The fact that all the Member States paying VAT own 
resources have opted for Method B with effect from 
1986 will make for greater equality of treatment 
between them. 
(iii) Since the Member States retain the bulk of the VAT 
revenue they collect (between 88 % and 95 % ac­
cording to the individual case) they have most to 
benefit financially from ensuring that all VAT due is 
actually collected. The Commission would, however, 
recall that it is continuing its efforts to secure greater 
harmonization of the VAT system within the 
Community and has already presented various 
proposals which are now before the Council. 
(iv) The existence of arrears at the end of the financial 
year does not entail a loss of own resources. Its only 
consequence is to defer the inclusion of certain 
transactions in the VAT base, since they are included 
in the base for the year in which they are actually collected, and hence are subject to the call-in rate for 
that year. The changes in the amount of arrears from 
one year to the next are more significant than the 
amount of arrears at the end of any one year. 
Furthermore, comparisons are difficult with the 
figures contained in Table 3.3, as their sources lie 
outside the scope of the rules on own resources, and 
they therefore reflect differing national situations. 
Limitation on audit examination 
3.17 - 3.20. The Commission is unable to comment on 
the problems encountered by the Court of Auditors in 
carrying out its enquiries in the Member States. 
The Commission for its part exercises its powers of 
control in accordance with the rules in force. 
CUSTOMS DUTIES 
Release of goods for free circulation under 
simplified declaration procedures 
3.21 - 3.22. The Commission has taken note of the 
disparities observed by the Court of Auditors in the 
application by the Member States of the provisions 
governing the special procedures provided for in Ar­
ticles 16-21 of Council Directive 79/695/EEC. 
Like the Court of Auditors it wants to see that the 
procedures are applied in such a way as to ensure uniform 
treatment of Community importers and to maintain an 
essential level of customs control while reducing for­
malities to a minimum. 
With regard to the first of these objectives, the Court of 
Auditors correctly points out that, under the above 
Directive, the Member States must apply the procedures 
in question 'in so far as their administrative organization 
allows it'. 
200 Official Journal of the European Communities 15. 12. 86 
As there are considerable differences in the present 
administrative structures of the Member States, the 
frequency with which these procedures are used, and the 
arrangements for applying them, are bound to vary, while 
remaining within the confines specified by the Directive. 
Nevertheless, the systematic restriction of the simplified 
procedures to goods exempted from import duties is not 
permissible under Community law. 
With reference to the second objective, the Commission 
would point out that, while the Community rules are 
clearly designed to enable customs to continue to inspect 
goods before they are given clearance, the practical 
application of these rules must be adapted to the features 
of each case, such as the nature of the goods, whether or 
not the import operation is one of a regular series, the 
distance from the customs office responsible for monitor­
ing, etc. 
3.23. The Commission is planning to carry out a 
detailed examination in the coming months of the way in 
which the simplified procedures are actually applied in the 
Community. 
If necessary, the Commission will propose an implement­
ing directive for Article 20 of Directive 79/695/EEC. It 
must be made clear however, that while such a directive 
would undoubtedly lead to greater harmonization of the 
way in which the simplified procedure operates in the 
Member States where it is in fact applied, it could not 
result in the procedure being used in all the Member 
States. 
Simplified procedures relating to the carriage 
of goods by rail in large containers under the 
Community transit system 
3.24-3.27. The simplified Community transit pro­
cedure for the carriage of goods by rail in large containers 
was devised along lines which are comparable in every 
respect with those of the simplified procedure applicable 
to ordinary rail transport. The procedure is very largely 
based on the trust which can be placed in the railways and 
in the transport undertaking concerned, which, in both 
legal and practical terms, is an offshoot of the railways. 
This has meant that the simplified procedure for 
transport in large containers, like the procedure for ordinary rail traffic, can be based on an audit mechanism 
operated by the Member State concerned, which in this 
case involves inspecting the books of the national 
representative or representatives of the transport under­
taking. It should be added that this solution was adopted 
following a detailed study and an on-the-spot exami­
nation, which revealed that it provided all the necessary 
guarantees. 
The Commission would draw the attention of the Court 
of Auditors to the difficulties involved in conducting an 
inspection at the head office of an undertaking located in 
a non-member country. 
With regard to the question of how the national 
authorities carry out these controls, the Commission's 
departments will remind the authorities, notably at 
meetings of the Committee on the Movement of Goods, 
of the responsibilities they must assume and of the need to 
make use of the provisions on inspection laid down in 
Community law. 
AGRICULTURAL CHARGES 
Co-responsibility levy on milk 
3.28. The Court of Auditors expresses the view that the 
co-responsibility levy on milk should be part of the own 
resources system. As pointed out in the reply to 
paragraph 4.4 of the present report however, the levy is an 
intervention mechanism and as such is bound by the rules 
governing the EAGGF Guarantee Section. The system 
for collecting the milk levy differs from the system for 
agricultural levies, which is why the amounts are entered 
into the accounts on the same basis as the payments, i.e. 
on the basis of amounts received. 
3.29. In one Member State, the time limit of 45 days for 
payment of the levy was exceeded, and amounts due in 
1982 were only credited to the EAGGF in 1983. At the 
request of the Commission, the national authorities 
concerned applied strict measures, and the situation has 
improved appreciably. 
However, one other Member State continues to be in 
arrears in paying the levy collected from producers, in 
spite of being repeatedly urged by the Commission to take 
15. 12. 86 Official Journal of the European Communities 201 
appropriate steps to remedy the situation, the Com­
munity rules making no provision for imposing penalties. 
On 21 May 1986 the Commission decided to make a 
negative adjustment of 690 000 ECU for the 1982 
financial year, in order to take into account the amounts 
due in 1982 which were not credited until 1983. 
In addition, the Commission initiated the infringement 
procedure, which prompted the national authorities to 
introduce measures to solve the problem. The Commis­
sion will check that these new measures are being applied 
when it undertakes the clearance of the accounts for 1984 
and 1985. 
3.30. The Commission would: 
(a) point out that it satisfied itself that, apart from the 
case referred to in the reply to paragraph 3.29, the 
Member States adopted the necessary measures to 
ensure collection of the levy, 
(b) confirm the information already supplied at the 
request of the Court of Auditors to the effect that it 
took the measures referred to in the reply to 
paragraph 3.29 to guarantee payment of the levy 
within the specified time-limit. 
While it is true that the rules governing the collection of 
the co-responsibility levy make no provision for appli­
cation of penalties at Community level in the event of late 
payment, this situation is catered for by general 
Community legislation. For instance, in 1986 the 
Commission made a substantial negative adjustment to 
the accounts of the Member State in question for the 1982 
financial year. Furthermore, the Member States make use 
of national administrative or even legal procedures to 
recover amounts from dairies or individuals. 
Physical examination of CAP goods 
3.31 - 3.32. As the Court of Auditors points out in 
paragraph 3.32, the Commission, in the light of the 
observations made by the Court of Auditors in its special 
report on the system for the payment of refunds on 
agricultural exports, agreed to explore the possibility of 
adopting Community provisions in this field. The 
Commission has since been active on this matter and 
intends to present a proposal for a Regulation to the 
Council before the end of the year (see reply to 
paragraph 3.33). This should serve to allay the concern of 
the Court of Auditors about the lack of harmonization 
between Member States with regard to practices and the 
need to introduce arrangements to determine the level of examination which is regarded as the minimum to ensure 
effective control by customs authorities of export 
declarations for agricultural products qualifying for 
refunds. 
3.33 - 3.34. The Commission agrees with the Court of 
Auditors about the need to ensure that agricultural levies 
are collected on imports and that goods are properly 
inspected. 
It is particularly important that importers be fully aware 
that such checks can be carried out at any time, so that 
they are deterred from attempting to secure financial 
advantages by irregular means. 
This is the aim of Article 9 of Directive 79/695/EEC, 
which stipulates that: 
— 'without prejudice to any other means of control at its 
disposal, the customs authority may examine all or 
part of the goods entered' (paragraph 1) and 
— 'when examining the goods, the customs authority 
may take samples for analysis or for more detailed 
examination' (paragraph 5). 
Articles 11-17 of Commission Directive 82/57/EEC of 
17 December 1981 (3), laying down certain provisions for 
implementing Directive 79/695/EEC set forth a number 
of rules on the examination of goods and the taking of 
samples. 
However, in most cases, it is the customs department 
which must decide, on the basis of the specific circum­
stances of the case and its own subjective assessment, 
which particular type of goods or particular import 
transaction merits inspection. The customs department 
must therefore be allowed considerable freedom of 
manoeuvre in this respect. 
For this reason the Commission feels that no new 
proposal for a directive should be drawn up on the 
physical inspection of goods entered for free circulation 
until the outcome of the Council's deliberations on the 
proposal concerning the physical inspection of exports 
eligible for refunds is known, so that this may be taken 
into account in preparing the new text (see the reply to 
paragraphs 3.31 and 3.32 of the Court of Auditors' 
report). 
202 Official Journal of the European Communities 15. 12. 86 
Triangular traffic concerning rice imports The production quota/levy scheme 
3.35-3.39. As it pointed out in its replies to the 
observations of the Court of Auditors on the 1978 and 
1980 financial years, the Commission is not in favour of 
introducing monetary compensatory amounts in this 
sector, particularly in view of the fact that MCAs affect 
not only intra-Community trade, but also trade with non-
member countries. 3.43. Article 28 of Council Regulation (EEC) No 1785/ 
81 stipulates that the calculations in respect of self-
financing in the sugar sector should be done cumulatively, 
with the positive or negative balance being carried over to 
the following marketing year. 
The problems highlighted by the Court of Auditors 
continue to receive the close attention of the Commission. 
Self-financing objectives within the sugar 
market Conclusions on sugar 
Introduction 
3.41. Although the guarantee granted to producers for 
A and B quotas applies to a quantity of 11,8 Mio tonnes, 
real production is in fact closer to the level of consump­
tion (e.g. 10,9 Mio tonnes in 1983/84 and 11,1 Mio tonnes 
in 1984/85). In reality, therefore, the disparity between the 
level of consumption and A and B sugar production is less 
than stated. 
The compensation scheme for storage costs 
3.42. The aim of the compensation scheme for storage 
costs is not only to ensure regular marketing of sugar, but 
also to obviate the need for sugar to be sold into 
intervention. The fact that intervention sales are very rare 
is proof of the effectiveness of the system. 3.45. The Commission would remind the Court of 
Auditors that on 7 August 1985 it proposed the renewal 
of the quota system for sugar production, coupled with a 
substantial tightening-up of the self-financing mecha­
nism. The proposal, which provided for an increase in the 
maximum levy on A sugar from 2 % to 2,5 % of the 
intervention price, and on B sugar from 37,5 % to 47 % of 
the intervention price, was rejected by the Council. 
However, the Council did agree to the introduction of the 
elimination quota, which is designed to eliminate the 
accumulated deficit. The provisions were contained in 
Council Regulation No 934/86 of 24 March 1986. The 
levy is based firstly on the contributions paid in the past 
by all sugar beet and sugar cane growers, and producers 
of sugar and isoglucose in each region, and, secondly, on 
estimated production in these regions calculated by 
reference to production during the 1984/85 marketing 
year. 
The Commission would emphasize that, for practical and 
commercial reasons, the amount of the levy must be set 
before the beginning of the marketing year to which it 
applies. At that stage, even the final production figures 
for the current marketing year are still uncertain and the 
forthcoming crop, the pace of exports and the level of 
stocks carried over can only be estimated. In view of this, 
the Commission does not share the view of the Court of 
Auditors that it should have been possible to achieve 
annual equilibrium in the compensation scheme for 
storage costs sooner. The Commission does everything 
within its power to maintain an overall balance. 3.46. The Commission would stress that there are no 
sugar stocks in public storage. This being so, there are no 
potential costs of the kind referred to by the Court of 
Auditors in paragraph 4.23. 
As to potential losses on the exportable surplus, the 
Commission would point out that this information is 
published in the annual EAGGF financial report. 
15. 12. 86 Official Journal of the European Communities 203 
3.47. The revenue accounts and the documents making 
up the revenue and expenditure account are set out in 
accordance with the nomenclature of the budget as 
adopted, with revenue in the sugar sector continuing to be 
treated as own resources within the meaning of the 
Decision of 7 May 1985. It should be noted that the 
EAGGF annual financial report contains some details of 
the deficit recorded each year. 3.48. As explained in the reply to paragraph 3.45, the 
Council has already adopted the measures required to 
eliminate the accumulated deficit, in the form of the 
elimination levy introduced in Regulation No 934/86. 
(!) Of this, a total of 172,5 Mio ECU is entered in the 1985 
budget. 
(2) OJ C 326 of 16.12.1985, p. 176. (3) OJL28of 5.2.1982, p. 38. 
204 Official Journal of the European Communities 15. 12. 86 
REPLIES OF THE COMMISSION TO 
CHAPTER 4 
European Agricultural Guidance and Guarantee Fund, 
Guarantee Section (EAGGF-Guarantee) 
OBSERVATIONS ON THE 
IMPLEMENTATION OF THE BUDGET Guarantee detailed figures in the financial report on milk 
co-responsibility levies and the use made of them. 
Presentation of the accounts and balance 
sheet (d) The same arguments apply as regards the 'super levy'. 
Its aim is chiefly to discourage production of milk in 
excess of quotas by imposing very stiff penalties. 
4.4. (a) The Commission will, from 1986 onwards, add 
a note on its reservations regarding the acceptance of 
expenditure declared by the Member States to the table 
showing the breakdown by budget item of the effects of 
clearance decisions which it attaches to the revenue and 
expenditure account (page 144 of Volume II in 1985). 
(b) Information on irregularities is given in the EAGGF 
annual financial report (number of cases, financial 
implications and amounts recovered). Since the findings 
of the working party referred to in its reply to 
paragraph 4.25 of the Court of Auditors' report for 1984 
have not yet been evaluated, the Commission must 
maintain the position set out in that reply. 
(c) As the Commission explained in the reply to the 1983 
annual report (paragraph 4.5), the concept of negative 
expenditure is the result of special provisions introduced 
into Community regulations for both political and 
practical reasons. The co-responsibility levy is considered 
to be a measure equivalent to operations designed to 
restore equilibrium to the markets (!). The method of 
inclusion in the budget was in fact determined by the 
budgetary authority. The situation described by the Court of Auditors is the 
result of two factors: 
The additional levy to be paid by farmers or dairies is 
calculated for each milk year. The first payment made 
at the end of 1984 was inevitably provisional pending 
the final statements. Because of the time involved in 
adapting milk production, the amount due for a year 
was in some cases less than the initial payment, and so 
reimbursements had to be made. 
Council Regulation (EEC) No 1305/85 authorizes the 
Member States to use the proceeds of the super-levy 
in 1984/85 and 1985/86 for national measures to 
reorganize milk production. For this reason, the 
EAGGF accounts show only that part of the levy 
which was not used for these measures. In order to 
facilitate control activities, the Commission has 
requested that the statements submitted by the 
countries concerned should cover all operations 
relating to the levy. 
The disadvantages in terms of budgetary transparency 
are reduced by the use of a detailed nomenclature which 
makes it possible to ascertain the proceeds of the levy. 
The Commission also publishes each year EAGGF-
(') The footnotes appear at the end of each chapter. The provisional twelfths system 
4.7. The Commission would restate its position regard­
ing the provisional twelfths arrangements: they are 
stopgap measures designed to ensure the continued 
operation of the public service. 
15. 12. 86 Official Journal of the European Communities 205 
4.8 - 4.10. Article 8 of the Financial Regulation does 
not contain any specific provisions for the EAGGF-
Guarantee. However, Article 96 of the Regulation states 
that EAGGF-Guarantee 'advances', for the purposes of 
budget execution, are equivalent to 'provisional global 
commitments'. 
The advances therefore do constitute commitments, 
although of a special kind as a result of the specific 
financing arrangements for the EAGGF Guidance 
Section. 
The funds available for commitments in January 1985 
therefore amounted to three twelfths. 
As the Court of Auditors states, funds available in March 
proved to be insufficient, and so the Commission 
requested an additional twelfth. 
This twelfth was calculated, in accordance with Article 8 
of the Financial Regulation, on the basis of the two limits 
constituted by the 1984 budget, including transfers, and 
the rejected draft budget for 1985. 
The budgetary authority, however, held that in the event 
of the budget being rejected, the only limit to be applied 
was the previous year's budget and that an additional 
twelfth was therefore not necessary since sufficient funds 
were available. The Commission executed the appropri­
ations made available as a result of this decision; but it 
made clear that it was upholding its initial position and it 
stressed the ever growing importance of completing the 
revision of the Financial Regulation, which has been 
pending since December 1980. 
Once the new draft budget for 1985 was adopted on 
24 April 1985, thereby establishing the second limit 
accepted by the budgetary authority, the Commission 
was able to work again according to the principle of the 
double limit. 
4.11. In the light of the above, the Commission does not 
share the Court of Auditors' view that it evaded the 
constraints of the provisional twelfths arrangements. 
Like the Court of Auditors (see paragraph 1.35), the 
Commission would like the revision of the Financial 
Regulation to be concluded as soon as possible so that it 
will be clear what rules are applicable in this area and the 
current difficulties of interpretation will not be en­
countered in future. Cash management 
in the Member States 
and 
Conclusions with regard to the implementation 
of the budget 
4.12-4.13. The Commission shares the Court of 
Auditors' concern regarding the need to reduce the large 
balances and notes its interest in the efforts being 
undertaken to improve the system of EAGGF-Guarantee 
payments. The improvement will require changes in the 
operation of the Member States' paying agencies, which 
come under the national authorities, and the introduction 
of a computerized system linking all the Member States 
and the Commission. In July 1986 the Commission 
therefore decided, as a first step, to set up a pilot project 
with Denmark, which has adapted its national system to 
the Commission's requirements. It feels that this rep­
resents an advance which should eventually lead to a 
system for improving the management of EAGGF-
Guarantee appropriations throughout the Community. 
Furthermore, with regard to the comment in para­
graph 4.12(a), it should be noted that a prolonged strike 
by civil servants in a Member State helped to create the 
situation described by the Court of Auditors. 
OBSERVATIONS ON THE FINANCIAL 
MANAGEMENT 
Public storage: general aspects 
Changes in stocks 
4.14. Like the Court of Auditors, the Commission 
regrets the increase in stocks at the end of 1985; it made its 
price proposals for 1986/87 accordingly. It deliberately 
used the financial depreciation facility because of the 
lower commercial value of the stocks, and thus achieved 
savings in interest charges. 
4.16. The Commission would stress that world produc­
tion of cereals in 1985 was a record and that demand from 
the main importing countries was limited. 
^ro Cofficial journal of the European Communities ro,l^ ^ 
respite this,the Community managedto increase its 
exports, as the Court of Auditors also noted. 
L^he Court of Auditors recognizes the important non^ 
financial considerations which the Commission has to 
take into account in its endeavours to promote agricul^ 
tural exports and which afiect any changes in these 
exports. 
Ct^^u^e^eeedu^e 
^.pA A comparison ofe^penditure in 1985 and 1984, 
with allowance beingmadeforthe financial depreciation 
ofstocks by 439 ^lio ECU in 1985, shows an increase of 
1^7^ 
^.^. Phe Community system for financing storage 
costs is a standardDrate system, the application and 
control of which are subject toanumber of tactors and 
cost levels which are not harmonized between the 
member States.The standard amount provided for the 
financing of these storage costs therefore does not cover 
the full costs incurred by some intervention agencies, 
BecauseoftheCommunity^scurrentbudgetdifficulties,a 
restrictive approach is taken as regards the reimbursed 
ment of financing and storage costs,This approach was 
tightenedevenmore between 198o and 1988 by the 
Council, which adopted regulation ^EEC^o 1334^ 
after obtaining the opinion of the European Parliament, 
however, it should be noted that the member States pay 
only afraction^l^O,^^ioEC^ofe^penditure^ the 
measures involved are temporary and do not call into 
question the Community character of the policy. 
PoteBh^o^^nddeerec^uo^ 
4B^L The Commission shares the Court of Auditors^ 
view that a fi^ed rule should be established tor the 
valuation of stocksatapricelevelclosertomarketreality, 
however, it feels that in view of the present limit on own 
resources and the very high level of stocks, this is not the 
time to introduce sucharule, 
^Vhen it considers that the time is right, the Commission 
will propose a permanent change to the method of 
valuation of stocks held in intervention, 
Inthemeantime,theCommissionistakingeveryisolated 
opportunityfordepreciation within the framework ofthe 
existing regulations. Its scope for doing so has been 
increased by Council regulation ^EEC^o9^8^, ^.^.^ Until 1985, the financial impact of anticipated 
losses was includedunderthebudgetheadings^other 
storage costs^, but it is also stated separately in the 
Commission^sfinancialreportontheEACCF,Forl98ro, 
the Commission prompted the budgetary authority to 
create two newitemsforthe depreciation of stocks in the 
chapters on milk products and beef^veal^these items are 
retained in the 1987 budget. 
^The Commission felt that its main concern should be 
to avoidanegative balance in the execution of the 1985 
budget,anewestimateofownresourcesbeinglowerthan 
the amount entered in the budget. For this reason it did 
not use all the appropriations available for the financial 
depreciation of stocks, 
FCIoCr 
^If the Commission were to base itself on the stocks at 
the end of the financial year for determining the 
maximum possible depreciation, it would have to wait 
until January of the following year to know what this 
ma^imumwas,i,e,whenit wastoolatetoactinthe 
financial year concerned. Furthermore, a change of 
method would not ha^e had an^ practical effect in 1985 
since the maximum appropriations available for such an 
operation wouldinany caseha^ebeenless than one third 
of the maximum depreciation. 
^The Commission distributed the depreciation across 
the range ofproducts on the basis of Council regulation 
^EEC^o 1883^78 and taking into account depreciation 
potential, thesizeofstocksandtheprospectsfordisposal. 
It gave priority to butter in view of the large stocks held 
and the significant losses on disposal. 
PheeoteBt^co^ 
4.^3.^ The Commission first attached a note on 
potential costs to the 198^ revenue and expenditure 
account. It did so again in!985,when it provided an 
estimate of disposal value. 
l^he Commission therefore teels that it has mo^ed in the 
direction advocated b^ the Court of Auditors, 
Prom 198^o onwards, it will attach to the financial 
statementsananne^onforeseeablerevenue from disposal 
and potential costs. 
15. 12. 86 Official Journal of the European Communities 207 
(b) The 'normal stock' taken by the Commission as a basis 
for calculation of potential costs is an assessment based 
on past experience and relative consumption levels. 
'Normal stocks' represent 5-40 days' consumption, 
depending on the product, which does not seem excessive 
when compared with other sectors such as oil, for which 
stocks are often about 90 days. 
In its 4-year perspective, the Commission tried to assess 
the real value of intervention stocks on the basis of a 
different assumption, namely that of the disposal of all 
stocks in the short term putting greater pressure on 
disposal prices. 
Conclusions with regard to public storage: general 
aspects 
4.24 - 4.26. With regard to potential costs, the Commis­
sion has complied with the wishes of the Court of 
Auditors by providing additional information with the 
accounts. With regard to the small part of storage 
expenditure borne by the Member States, the Commis­
sion would refer to its reply to paragraph 4.20. 
The Commission's view is that the stock problems depend 
above all on various economic factors and the Com­
munity's agricultural regulations. 
Public storage: cereals 
Introduction 
4.27-4.28. The Commission is fully aware that the 
production of cereals is increasing faster than the means 
of disposal. It therefore insisted, in the price negotiations 
for 1985/86 and 1986/87, that the Council adopt measures 
to adjust the common organization of the market in 
cereals. Quality 
Commercial and Community criteria 
4.29 - 4.30. The quality criteria for the sale of cereals 
into public intervention were tightened up on 1 July 1986 
by Council and Commission regulations (Regulations 
(EEC) Nos 1580/86, 2134/86 and 2135/86), which 
changed the standard level of humidity acceptable for 
intervention cereals from 16 to 14%. The Council also 
imposed stricter criteria regarding the definition of wheat 
of bread-making quality. These measures were ac­
companied by reductions in the intervention prices of 
wheat not meeting the criteria specified. 
Quality control 
4.31. The Commission recognizes that in practice 
differences exist between the ways in which public 
intervention operations are conducted in the various 
Member States. It would however draw attention to the 
provisional nature of the findings of the Court of 
Auditors' preliminary inquiry. 
4.32. With regard to checks on the quality of cereals 
bought into intervention, the Court of Auditors' obser­
vations reflect the individual administrative structures of 
the Member States. In order to avoid high administrative 
costs, intervention is organized in each Member State to 
resemble commercial practice as closely as possible. 
4.33. As the Court of Auditors mentions, the stockists 
are contractually responsible to the intervention agencies 
of the Member States for both the quantity and the 
quality of the intervention cereals in their charge. 
Although it is more difficult to question their action as far 
as quality is concerned, the Commission would point out 
that, where such cases are revealed by its own checks, it 
adjusts expenditure — assuming the Member States have 
not done so themselves in their statements of expendi­
ture — in its clearance decisions. 
4.34. The Commission is aware of the problems 
revealed by the Court of Auditors' preliminary inquiry. 
It would point out that, at the present time, storage 
arrangements are based on the infrastructure of existing 
warehouses; this may mean that large consignments are 
held in storage, giving rise to difficulties in identification 
and in determining the degree of homogeneity. However, 
any other storage arrangements would probably involve 
208 Official Journal of the European Communities 15. 12. 86 
reserving warehouses for the exclusive use of the 
intervention agency and/or major restructuring of 
existing warehouses, all this at considerable cost. 
4.35. The Commission will take account of this valuable 
information when it clears the accounts for the Member 
States concerned. 
4.36-4.37. The Commission shares the Court of 
Auditors' concern regarding the need to tighten up 
quality control. 
It accordingly analysed nearly 2 000 samples of interven­
tion cereals in 1985/86 and is having the information it 
collected processed by computer. Once it has studied the 
findings, the Commission plans to propose further 
inquiries and any improvements to the control system 
which prove to be necessary, taking account of the Court 
of Auditors' suggestions. 
Other aspects of national management 
4.38. (a) As regards the time allowed for payment — 
originally something determined by the Member 
States — the Commission, as a first step towards an 
alignment, stipulated that it should be 60-120 days. This 
range was reduced by Commission Regulation (EEC) 
No 2180/85 of 30 July 1985 to 90-120 days. 
(b) The situation referred to by the Court of Auditors may 
arise if the intervention agency requests delivery after the 
date specified in the offer for technical reasons or because 
of a lack of storage capacity. 
(c) and (d) The Commission will ensure that the control 
procedures (including the organization of accounts 
within the intervention agencies), which are the respons-
' ibility of the Member States, meet the requirements of 
Community regulations. 
Conclusions on the public storage of cereals 
4.39. The Commission's view is that the production of 
cereals is subject first and foremost to various factors such 
as guaranteed prices, production costs, estimates of 
alternative crops, and weather conditions. The tech­
nological and biotechnological revolution has been the chief factor behind the considerable increase in yields and 
production. 
The Commission responded to this situation in 1984 by 
proposing a reduction in prices for cereals and the 
introduction of a co-responsibility levy in this sector. At 
the same time it tightened up the terms for buying into 
public intervention. 
The Commission is well aware of the importance of 
improving quality control. It will take whatever action 
seems appropriate on the basis of the findings of the 
studies currently being conducted by the various Com­
munity institutions. 
OBSERVATIONS ON THE INTERNAL 
CONTROLS 
Frauds and irregularities 
The reliability and comprehensiveness of the information 
4.40. The increase in the cases reported in comparison 
with 1984 concerns the majority of Member States and 
practically all product sectors, which may indicate an 
improvement in the application of the regulations. 
However, for a more precise evaluation of the reliability 
and representativity of the statistics, it is necessary to 
consider a number of factors such as the control systems 
applied, the relative financial significance of the expendi­
ture per Member State, for certain measures the number 
of transactions, for other measures the number and type 
of beneficiaries. 
In reply to the Court of Auditors' report for 1984, the 
Commission indicated that it had initiated an investi­
gation to obtain a more precise picture of why some 
Member States report considerably more irregularities 
than others. This investigation is still continuing. The 
Commission will inform the institutions concerned as 
soon as it has completed its investigations. It is expected 
that the results of the examination will be available at the 
end of 1986. 
15. 12. 86 Official Journal of the European Communities 209 
Recovery of claims 
4.42 - 4.43. As stated in the reply to paragraph 4.4.(b) 
above, the Commission would refer to its reply to 
paragraph 4.25 of the Court of Auditors' report for 1984. 
Mutual assistance in the campaign against fraud 
4.44. The Commission is actively engaged in the 
development of mutual assistance between the adminis­
trative authorities of the Member States, and of 
cooperation between the latter and the Commission. This 
development finds its expression in the daily contacts and 
regular meetings which take place between the Member 
States and the Commission. Its proposal to amend 
Council Regulation (EEC) No 1468/81 is designed to 
reinforce this cooperation as far as possible at the present 
time. It is planned in particular that Member States 
should send the Commission any appropriate infor­
mation it requests on cases of large-scale abuse or 
irregularities which might have ramifications in other 
Member States. 
It should be added that on 1 July 1986, the Commission 
adopted an amendment to its initial proposal (under the 
second paragraph of Article 149 of the EEC Treaty) for 
transmission to the Council (2). This amendment would 
enable the Commission to carry out inspections in the 
Member States. 
Clearance of the accounts 
Checks by the Commission 
4.46. It is true that if the 1985 accounts are to be cleared 
by 30 June 1987, the procedures will need to be modified, 
with emphasis being placed on the priority aspects of the 
controls. 
4.47. The Commission has continued its efforts to 
introduce systems audits. A systems audit inspection 
manual has been drawn up on the basis of experience and 
will be used in future. It will help to make the inspections 
more comprehensive and to standardize the procedures 
followed by the inspectors. A second inspection visit was subsequently made to the 
main paying agencies in the Member States to examine 
the changes made to the systems since the first visit, and 
two other paying agencies were audited for the first time. 
In addition, the Commission examined the reliability of 
the national systems of inspection from the viewpoint of a 
number of important measures. 
4.48. The quality of the individual on-the-spot checks 
has been maintained and the elimination of the present 
clearance backlog will make it possible to make checks 
more thorough and improve their effectiveness from 
30 June 1987. 
The problem of reserves 
4.49 - 4.51. In view of the Court of Auditors' comments 
and criticism over the past few years regarding the 
problem of reserves, the Commission has reconsidered its 
general approach to this subject, which it feels it should 
explain in full. A distinction needs to be made between 
general reserves in respect of specific investigations in 
progress and one-off reserves. 
1. The purpose of general reserves is to safeguard the 
Commission's right to draw financial conclusions 
from specific investigations being conducted in­
dependently of the procedures for the clearance of 
accounts for a given year. These specific investi­
gations concern in particular procedures regarding 
the examination of cases of infringements (procedure 
under Article 169 of the Treaty), national aid not 
compatible with the common market (procedure 
under Article 93 of the Treaty) and presumed cases of 
irregularities or negligence (procedure under Article 6 
of Regulation (EEC) No 283/72 or Article 9 of 
Regulation No 729/70). 
In fact, the only link with the clearance of the 
accounts is that the clearance decision is the means of 
dealing with any financial consequences resulting 
from the specific investigations. General reserves 
have been introduced into clearance decisions so as to 
safeguard the Commission's right to draw financial 
conclusions at a later date. 
2. One-off reserves are directly linked to the clearance of 
the accounts and may take the form of provisional 
acceptances (positive reserves) or refusals (negative 
reserves). 
210 Official Journal of the European Communities 15. 12. 86 
(a) Provisional acceptance was given where the 
tendency was in favour of allowing the expendi­
ture, but at the same time a doubt still existed, 
making further examination of the case necess­
ary. 
A different approach is currently used in cases 
which warrant additional checks. In such cases, 
the Commission may, so as not to hold up its 
clearance decision, decide to exclude the declared 
expenditure from the clearance decision. Clear­
ance of this expenditure is then held over to a later 
date. This practice, which was first applied in the 
1980/81 and the 1982 clearances, eliminates cases 
of provisional acceptance of expenditure (positive 
reserve) but makes it necessary to break up the 
clearance decision. from the inquiry in France were incorporated into the 
clearance decisions for the years from 1978 to 1982. 
It should also be emphasized that measures were taken in 
both Italy and France to improve the control systems in 
the sectors concerned as soon as the shortcomings 
become apparent. 
As the Commission stated in its reply to the 1984 annual 
report (Chapter 1, section III.4), it is aware of the need to 
improve the monitoring of the implementation of 
Community policies. The Commission therefore shares 
the Court of Auditors' concern at the length of time 
France and Italy are taking to complete the inquiries it 
requested and is continuing its efforts to solve these 
problems. 
(b) Provisional refusals of expenditure can be divided 
into: Cooperation of Member States 
— provisional refusals pending a judgment of 
the Court of Justice in a similar case; 
provisional refusals on other grounds, in 
general pending additional proof to be 
provided by the Member State. Such cases of 
provisional refusal are exceptional and must 
be properly justified. The amounts involved 
in 1980/81 were about 24MioECU out of 
total declared expenditure of 21200 
Mio ECU. These refusals are subject to a time 
limit, the Commission, in principle, taking a 
final decision in the following clearance 
exercise. 4.56. The Commission would confirm the reply it made 
to the Court of Auditors' report for 1984 (para­
graphs 4.43 - 4.44) regarding the importance it attaches 
to having access to the national control reports. It has 
approached the Member States to find solutions to the 
problems in this area. 
It should be noted that on 6 December 1985 the President 
of the Commission sent a letter to all Member States to 
draw their general attention to the problems of clearance 
of the accounts and to ask them to step up their 
cooperation with Commission departments. 
(c) The amounts involved in provisional refusals and 
deferments are specified in the clearance deci­
sions, and a note will be attached to the revenue 
and expenditure account. FOLLOW-UP TO THE SPECIAL REPORT 
ON AID FOR OLIVE OIL 
4.52 - 4.55. The inquiries referred to by the Court of 
Auditors, namely those in the olive oil sector in Italy and 
the fruit and vegetables sector in France, are specific 
inquiries being carried out by the national authorities at 
the request of the Commission under Article 9 of 
Regulation (EEC) No 729/70. They are being undertaken 
independently of the clearance procedure. 
With regard to the inquiry in Italy, it was explained in the 
summary report on clearance for 1982 (point 3.4.1.1) that 
the findings of the inquiry do not call for financial 
adjustments. The financial consequences hitherto drawn Production aid 
Olive oil control agencies 
4.58-4.59. There has, in fact, been a delay in the 
application of the controls and the other duties attributed 
by Council Regulation (EEC) No 2262/84 to the control 
agencies for olive oil in Italy and Greece. This delay is 
mainly due to administrative and/or legislative difficulties 
experienced within the two Member States concerned, 
15. 12. 86 Official Journal of the European Communities 211 
which emerged when the initial steps were taken to 
establish the agencies. 
Normal checks 
4.60. From the outset the Commission has closely 
followed developments in setting up the agencies. Under 
Article 8 of Regulation (EEC) No 27/85, the Member 
States are obliged to carry out the checks prescribed by 
Community legislation in the olive oil sector, until such 
time as the agencies are fully operative. 
The Commission sent Greece a letter of formal notice on 
25 July 1986 regarding the computerized files. It has not 
yet received a reply. On the same date, it also sent such a 
letter to Italy concerning the computerized files to be set 
up in that country. 
Olive Cultivation Register 
4.62. The Commission has asked the Italian authorities 
to use the completed part of the register to check olive 
growers' statements from 1983/84. 
Work on the register in Greece has not yet started since 
the detailed arrangements are still being discussed by the 
Greek authorities and the Commission. Its introduction 
has been delayed by the absence of a land survey register 
in Greece, which proposes that such a register be 
compiled together with the Olive Cultivation Register. 
Clearance of accounts 
4.63. The accounts referred to by the Court of Auditors 
have not yet been cleared since they are the subject of a 
specific inquiry, the findings of which are not yet 
available. The Commission expressed a general reserve on this case (see the reply to paragraphs 4.46 - 4.55) and will 
remind the Member State concerned of its obligations. 
Stocks of olive oil 
4.64. Such a discrepancy may occur as a result of ex post 
checks carried out by the Member States for the purpose 
of preparing their clearance of accounts statements, for 
example. 
In the case at hand, the Italian authorities provided an 
explanation following a request from the Commission. It 
emerged that the stocks established on 30 December 1984 
were later adjusted to take account of differences 
discovered during the checks. The adjustment has been 
made provisionally subject to a check during the 
clearance procedure. 
Conclusion on olive oil 
4.65. The creation of the control agencies was a specific 
response to the difficulties encountered in the olive oil 
sector. 
Despite the delays mentioned in paragraph 4.59 in the 
introduction of certain aspects of the new system, the 
Commission considers that the problems connected with 
production aid can be solved by the measures provided 
for in 1984. 
The delay concerns the establishment and bringing into 
full operation of the agencies, rather than the principles of 
the control mechanisms adopted. 
It should also be noted that the Commission plans by 
summer 1987 to propose the main points for the 
adjustment of the 'acquis communautaire' in the veg­
etable oils and fats sector, in accordance with the joint 
declaration annexed to the Act of Accession of Spain and 
Portugal to the European Communities. 
(!) Regulation (EEC) No 1079/77, second recital. (2) Doc. COM(86) 381 final of 2. 7. 1986. 
212 Official Journal of the European Communities 15. 12. 86 
REPLIES OF THE COMMISSION TO 
CHAPTER 5 
European Agricultural Guidance and Guarantee Fund, 
Guidance Section (EAGGF-Guidance), and 
specific agricultural measures 
OBSERVATIONS ON BUDGETARY 
MANAGEMENT 
Recovery of sums paid in excess 
5.6. The Commission would refer to its reply to 
paragraph 2.11 of the Court of Auditors' report. 
Expenditure still to be disbursed 
5.7. The Commission agrees that sums corresponding 
to requests for reimbursement which, for whatever 
reason, have not been paid by the end of the year should 
be recorded in an appropriate form in the financial 
documents for that year. 
Naturally, such sums would be purely indicative and 
without prejudice to the decisions to be taken by the 
Commission once the requests for reimbursement had 
been checked. 
5.8. A distinction should be made between open-ended 
indirect measures (sociostructural measures and com­
pensatory allowances for less-favoured areas) and specific 
indirect measures with a programme. 
In the first case, it is impossible to calculate costs with any 
degree of precision before reimbursement is requested. In the case of specific measures with a programme 
adopted by Council regulation, the programmes are such 
that the costs indicated are often for guidance only. 
5.9. The Commission is willing to consider the Court of 
Auditors' suggestion. 
5.10. The figure mentioned by the Court of Auditors is 
no more than a preliminary estimate under the five-year 
financial framework fixed by the Council in Regulation 
(EEC) No 729/70 (see reply to Chapter 1). 
Management of the appropriations of 
Article 320 
5.11. The Commission would refer to its reply to 
paragraph 6.9 of the Court of Auditors' report. 
5.12. Because the 1985 budget for the EAGGF Gui­
dance Fund was prepared in a climate of austerity, the 
appropriations for many articles of Chapter 32 were 
inadequate. 
The Commission was aware of this situation and decided 
to give priority to specific measures for the following 
reasons: (a) continuation of these measures depends on 
Community finance; (b) they involve expenditure in the 
middle of the year, unlike appropriations for the 
compensatory allowance for less-favoured areas, which 
are used towards the end of the year. To allow 
implementation of these measures to proceed at a normal 
pace, transfers were made in a first phase from Article 320 
to other items in the same chapter. In a second phase, 
which had to wait until the end of the year, the 
15. 12. 86 Official Journal of the European Communities 213 
Commission made a transfer from Title 2 to Article 320 
so that reimbursement could be made in all cases where 
checks had been completed. 
The Commission therefore considers that it acted 
responsibly in implementing the budget, given the 
particularly difficult circumstances. 
Drawing up the likely schedules of payments 
5.13 - 5.14. The Commission would point out that the 
time taken by the budgetary procedure and the general 
rules adopted for the preparation of schedules of 
payments mean that it is not always in possession of all 
the information it needs to draw up accurate schedules. 
Supplementary expenditure under Item 3841 
'Research programmes' 
5.15. The Commission would point out that its decision 
that supplementary expenditure incurred by third parties 
in national currency should be reimbursed in ECU was 
prompted by a desire to develop utilization of the ECU 
and to bring such payments into line with current practice 
on research contracts. 
Nevertheless, it appreciates the concern which underlies 
the Court of Auditors' comment and is willing to consider 
its suggestion provided it does not pose excessive 
monitoring or management difficulties. 
Appropriations entered under Item 3892 
'Slaughter of pigs and processing of pigmeat 
in the United Kingdom' 
5.16. It is true that despite the Court of Auditors' 
comments on the charging of expenditure to budget 
Item 3892 the Commission, in implementing the 1985 
budget, continued to feel that 'the note inserted in 
amending and supplementary budget No 2/83, creating 
Item 3892, faithfully reflected the budgetary authority's 
intention and constituted a sufficiently valid basis for 
charging the appropriations to this item' (*). 
C1) The footnotes appear at the end of each chapter. However, in its preliminary draft budget for 1987, the 
Commission proposed that payments still to be made on 
the basis of commitments entered into for this measure 
should be charged to Article 301 of the budget in future. 
This means that Item 3892 no longer appears in Chapter 
38 of the 1987 preliminary draft. 
APPLICATION OF THE MEASURES TO 
IMPROVE THE CONDITIONS UNDER 
WHICH AGRICULTURAL PRODUCTS ARE 
PROCESSED AND MARKETED (Regulation 
(EEC) No 355/77), TO ASSIST FRUIT AND 
VEGETABLE UNDERTAKINGS 
Problems connected with the guarantees of the projects' 
profitability 
5.19-5.20. The Commission has to consider the 
question of profitability before projects are implemented 
while the Court of Auditors comments after the event. It 
is obvious that assessments based on information 
available when the application is being considered may 
prove inaccurate in some cases for a wide variety of 
reasons. 
5.20. (a) The Commission is not surprised that the French 
cooperative has been trading at only a slight profit or a 
slight loss. This is true of virtually all cooperatives, whose 
aim is to provide their members with the most ad­
vantageous prices and conditions. 
(b) In this case the Court of Auditors is comparing 
estimates made in 1979 with actual results for 1984/85. A 
slight loss (very slight as a percentage of turnover) over 
one or two years is no indication of medium- or long-term 
profitability. The project is not giving any particular 
cause for concern. 
(c) When aid was granted at the end of 1981, the balance 
sheets for 1977, 1978 and 1979 showed that the economic 
and financial situation was healthy. Indeed, the undertak­
ing made a profit in 1981. 
214 Official Journal of the European Communities 15. 12. 86 
Estimates of the profitability of the investment were 
satisfactory too. 
The problem appears to be a management one created by 
the retirement of the marketing manager. 
(d) Subsequent unfavourable developments could not be 
foreseen when the decision to grant aid was taken, 
particularly since the company had been very stable over 
many years. 
(e) It is obvious that the Commission, in granting 
EAGGF-Guidance aid to a project, cannot guarantee 
that market conditions will always be favourable to 
certain enterprises. 
Furthermore, as the Court of Auditors points out, the 
Commission took appropriate action as soon as the 
situation deteriorated (see answer to Written Question 
No 1631/85 by Mr Happart to the Commission) (2). 
Problems connected with processing capacities for 
tomatoes 
5.22. The Court of Auditors rightly notes that the 
projects did not involve an increase in tomato processing 
capacity; they therefore satisfied the selection criteria. By 
laying down selection criteria pursuant to Regulation 
(EEC) No 355/77 the Commission ensures that EAGGF-
Guidance aid is not granted systematically to promote 
surplus production. 
It is clear however, that firms which invest in completely 
viable projects cannot be denied the aid allowed by the 
rules simply because they have legitimately invested their 
own resources in other sectors. 
Nevertheless, the Commission recognizes the problem 
and will examine cases which could involve such risks as 
far as its resources allow. 
Problems connected with compliance with the financing 
arrangements for projects 
5.26. (a) It is true that in certain cases (some of them cited 
by the Court of Auditors) contradictions or erroneous certifications have been detected in the supporting 
documents submitted. The Commission has asked the 
appropriate authorities for an explanation and requested 
them to ensure that Community rules are strictly applied. 
The French authorities have already responded by 
reorganizing certain procedures, which should prevent 
such cases recurring. 
(b) The problem facing the Commission is that projects in 
countries where inflation is high and implementation slow 
would not be completed if the Member States were not 
allowed to bear the portion of the excess costs which are 
not borne by the beneficiary. This is why the Commission 
applies the proportional share rule to payment of eligible 
costs, without exceeding the amount of aid fixed in the 
decision. 
(c) It is true that the internal instructions on the 
proportional share rule were not correctly applied in the 
case of the French project and attention has been drawn 
to the need for scrupulous observance of these instruc­
tions. However, since the incorrectly calculated figure 
appeared in the decision and the beneficiary acted in good 
faith being unaware of the internal instructions, aid could 
not be refused or recovered. 
(d) In the Dutch case, the Commission was obliged to pay 
the full amount of the aid because it was less than the 25% 
legal maximum. 
This meant that the beneficiary, though spending less 
than expected, received a proportionally higher aid. Since 
the end of 1985 the Commission has been inserting a 
clause in its decisions designed to prevent similar 
situations recurring. 
(e) For the United Kingdom project aid of UKL 16 493 
was calculated correctly in the first instance. When 
payment was made, the Member State had not paid its full 
contribution according to the rules in force. The 
Commission did not check on this subsequently. It has 
nevertheless contacted the British authorities to regu­
larize the situation. Steps have been taken to prevent 
similar situations recurring. 
(f) In this case explanations of the aid mentioned have 
been requested. But it will not necessarily entail a 
reduction in Community aid. This is reduced only when 
combined national and Community aid exceed 50% of 
costs since in such circumstances the beneficiary's 
contribution does not reach the minimum required. 
15. 12. 86 Official Journal of the European Communities 215 
(g) In this instance the beneficiary provided documen­
tation showing: 
— the invoice date; 
— the amount; 
— the method of payment; and 
— the date of payment. 
The Commission considered this sufficient although it 
agrees with the Court of Auditors that documentation is 
usually more complete. The Commission will reconsider 
the case in the light of the Court of Auditors' comment. 
Problems connected with the alteration of projects after 
the granting of aid 
5.28. It is true that considerable changes were made to 
the project to take account of the market situation. 
However, under the Commission's very precise internal 
instructions, these changes were found to be acceptable. 
When the decision was amended, the legal status of the 
beneficiary company had not changed although part of 
the capital had been acquired by a private company. The 
large cooperative group still held more than one third of 
the capital and the change did not affect contracts with 
the producers. 
Problems connected with repeated grants of aid 
5.30 - 5.31. The mere fact that a firm receives several 
grants of aid is not in itself grounds for criticism. Such 
cases usually involve beneficiaries who adopt a prudent 
investment policy and confine their aid applications to 
investments which can show a profit in the very short 
term. Many beneficiaries have received far larger sums 
than those mentioned by the Court of Auditors on the 
basis of a single application. More generally, the Commission can assure the Court of 
Auditors that it takes particular care to ensure that the 
conditions of competition are not affected. 
COMMON MEASURES TO ASSIST STOCK 
FARMING IN ITALY 
Regulation (EEC) No 1944/81 
5.33. Following a favourable opinion from the Euro­
pean Parliament, the Council laid down maximum 
eligible amounts for certain common measures and a total 
amount for the various types of intervention to be met 
from the Fund in Regulation (EEC) No 1944/81. The 
framework programme was drawn up in conformity with 
that regulation. 
5.34. In reply to the Court of Auditors' comment 
concerning sales into intervention, the Commission 
considers that account was taken of the market situation 
for beef and veal when the regulation was drawn up and 
would refer the Court of Auditors to its reply to 
paragraph 4.15 of the 1984 report. 
The amendments made by Council Regulation (EEC) No 
797/85 are not such as to alter this assessment since they 
merely align the conditions for granting aid under 
Regulation (EEC) No 1944/81 on those laid down in that 
regulation, which is of general application. 
5.35. The Commission agrees that application of 
Regulation (EEC) No 1944/81 is limited and that so far 
only six regions have submitted payment requests. 
This can be explained in part at least by the innovative 
nature of both the mechanisms and the objectives of the 
programme. This, combined with a highly decentralized 
national administration, has delayed start-up. 
The Commission believes that implementation should 
speed up, notably as a result of the amendments made to 
the regulation by Regulation (EEC) No 797/85. 
216 Official Journal of the European Communities 15. 12. 86 
Regulation (EEC) No 2969/83 
5.37. The fact that Regulation (EEC) No 2969/83 
covers a larger number of holdings than Regulation 
(EEC) No 1944/81 in no way prevents it from facilitating 
implementation of that regulation. 
5.38. The Commission admits that it acted on the basis 
of forecasts transmitted by the national authorities. This 
is a typical case of implementation depending directly on 
how a measure is received by farmers. Estimates cannot 
be accurate in such cases, and the results are inevitably 
subject to variation. 
The Commission would also emphasize that the banks 
were responsible for applying this measure. 
DEMARCATION OF MOUNTAIN AREAS 
AND OTHER LESS-FAVOURED AREAS 
Justification of the extension of areas 
5.45. The Commission's proposals on the classification 
of areas as less-favoured are always based on close 
examination of information supplied by the Member 
States. 
In the case of the United Kingdom there was a statistical 
problem in that a large part of the area was rough grazing. 
Nevertheless the difference between the areas declared in 
1974 and 1982 was analysed and checked by the 
Commission. 
In other cases, France for instance, the Commission 
would point out that extensions and adjustments, and hence the transfer from one category to another in line 
with Community criteria, appear justified, given the fact 
that the areas originally designated were rather small. 
5.46. General classification criteria are set out in 
Directive 75/268/EEC. But these criteria have to be 
translated into statistical categories and these categories 
may vary between Member States, regions or over time to 
take better account of each situation. 
When the Commission amends the criteria it applies, the 
amendments are specifically mentioned in its proposal so 
that the Council and the European Parliament can judge 
for themselves. 
Amendment of the categories for Ireland in 1985 followed 
an extremely thorough investigation. 
GENERAL OBSERVATIONS ON REGIONAL 
AID MEASURES 
5.48. The Commission agrees with the Court of 
Auditors. It will take experience acquired into account in 
drafting proposals for the adaptation of structural 
policies for transmission to the Council. 
5.49. The Commission agrees that the economic impact 
of measures must be assessed. 
The Commission has always kept a close watch on the 
implementation and consequences of the various meas­
ures. It intends to step up its efforts in this direction, 
notably by invoking Article 22 of Regulation (EEC) 
No 797/85 which provides for the financing of studies to 
assess the economic efficiency of the measures provided 
for in the regulation. 
(0 OJ C 326 of 16.12.1985, paragraph 5.12. (2) OJC29of 10.2.1986, p. 21. 
15. 12. 86 Official Journal of the European Communities 217 
REPLIES OF THE COMMISSION TO 
CHAPTER 6 
Common fisheries policy 
INTRODUCTION Expenditure arising from the fisheries 
agreement concerning Greenland 
6.3. The Commission has considered the conclusions 
drawn by the Court of Auditors in its special report on the 
common organization of the market in fishery products 
and has taken account of them as appropriate in the 
follow-up action on the undertakings it gave for 1985. 
OBSERVATIONS ON BUDGETARY 
MANAGEMENT 
Utilization of available appropriations 
6.7. Detailed rules concerning applications for re­
imbursement entered into force in September 1985 
(Commission Decision 85/474/EEC of 16 September 
1985) Q). However, fewer applications have been received 
from Member States than expected. 
6.8. On 14 November 1985 the Commission adopted an 
amended proposal for a Council Regulation on the 
coordination and promotion of research in the fisheries 
sector. The proposal is still before the Council (2). 6.9. To meet a legal obligation under an international 
agreement (Council Regulation (EEC) No 2/85) to pay 
26,5 Mio ECU to the Local Government of Greenland, 
which it could not do under the provisional twelfths 
arrangements, the Commission submitted this matter to 
the budgetary authority. 
As agreed with the two arms of the budgetary authority, 
10 Mio ECU was charged to Article 422 and 16,5 Mio 
ECU to Article 320. 
The payment was subsequently charged in full to the 
appropriate Article 424, when the 1985 budget was 
adopted. 
Payments under the fishing agreements with 
certain developing countries 
6.10. The series of payments made in December 198 5 to 
a French body responsible for grant-holders in certain 
African countries covered costs for the 1985/86 and 1986/ 
87 academic years. 
The costs are based on estimates of expenditure for each 
student for the duration of the training period which 
cannot be confirmed until the end of the period. 
0) The footnotes appear at the end of each chapter. The payments made are therefore to be considered as 
advances. 
218 Official Journal of the European Communities 15. 12. 86 
It should be noted that, in addition to the estimates 
provided, a regular statement of actual expenditure 
incurred by each grant-holder is requested and this 
statement is checked by Commission staff. 
6.11. The Commission had to accept such a clause in the 
agreement with Madagascar, which specifically requested 
it. 
OBSERVATIONS ON THE COMMON 
MEASURES FOR DEVELOPING THE 
FISHING INDUSTRY AND 
AQUACULTURE (ARTICLE 460 OF THE 
BUDGET) 
Special observations 
Italian projects 
6.18 - 6.21. The Commission has suggested repeatedly, 
in particular during an on-the-spot audit, that the Italian 
authorities pay the national aid in full before submitting 
the application for final payment to the Commission. 
According to the Italian authorities national law does not 
allow the payment in full of national aid until the 
Commission has already paid 80% of the aid. The 
Commission is fully aware that this practice delays the 
processing of files and unnecessarily increases the number 
of payment operations. 
With regard to the financing plans submitted by the 
beneficiaries, Commission staff have no way of ensuring 
that the funds held by fishermen at the time of application 
will still be available when the project is executed. 
It is clear that small-scale fishermen sometimes have to 
use their modest capital for contingencies such as repairs 
or accidents. The 1982 law referred to by the Court of 
Auditors was introduced to alleviate financial problems 
but, as the report states, it is not yet fully in operation. Irish projects 
6.22 - 6.25. Because these projects are experimental, it 
is not always possible for the beneficiaries to keep to the 
planned schedule. 
The national authorities are supposed to consider in 
advance the reliability of the balance sheets and the 
trading accounts and therefore to submit only those 
projects which offer the best guarantee of ultimate 
success. However, it should be noted that a large number 
of fishermen are legally entitled to keep simplified records 
and accounts and that investments in the fishing industry 
are by nature operations involving an element of risk. 
With regard to projects IRL/61/80 and IRL/109/82 (the 
first for the rearing and the second the fattening of young 
eels), the application submitted for the second project 
revealed that the first was operational. Not only was the 
second project immediately examined in detail but during 
an on-the-spot check, it was also found that the first 
project had progressed satisfactorily and that the site 
planned for the second project met the relevant standards. 
Outside events then occurred which hampered the 
progress of the work. Firstly, an abundance of young eels 
in the natural habitat was, within two seasons, suddenly 
followed by their total disappearance, something which 
occasionally happens with migratory fish. The project 
was furthermore dependent on the supply of hot water 
from a power station. In September 1983 the Electricity 
Supply Board announced that it was going to carry out a 
study to determine the cost of running the power station, 
which was threatened with closure. In 1985 the authority 
decided to keep the power station open, and the project 
started up again and produced 6 tonnes of eels, all 
exported to the Community market. The projects will be 
terminated in 1986/87. 
The Commission is of course required to ask the national 
authorities for information on the progress of projects. 
However, the Member States' replies can only be checked 
by on-the-spot inspections, which often take a long time. 
The Commission will do its best to carry out such 
inspections with the resources currently at its disposal. 
Greek projects 
6.28 - 6.31. The Commission sent a team to Greece in 
March 1986 to inspect a number of projects to check the 
15. 12. 86 Official Journal of the European Communities 219 
supporting documents held by the national authorities. 
Following the visits by the Court of Auditors and the 
Commission, 23 projects were cancelled. General observations 
Because the collective projects were only in the start-up 
phase they fell somewhat behind schedule, but the delays 
should be eliminated once the normal running speed is 
achieved. The introduction of the measures proposed by 
the Commission will be of particular value (see reply to 
paragraph 6.32). 6.32. The Commission is currently considering the 
possibility of simplifying and speeding up the procedures 
at each stage of projects within the framework of the new 
structural measures proposed to the Council (Doc. 
COM(86) 446 final). 
(1) OJL 284 of 24.10.1985. (2) Doc. COM(85) 590 final. 
220 Official Journal of the European Communities 15. 12. 86 
REPLIES OF THE COMMISSION TO 
CHAPTER 7 
Expenditure in the regional development and transport sectors 
ANALYSIS OF BUDGETARY 
IMPLEMENTATION 
Unexpended European Regional Development 
Fund (ERDF) appropriations 
7.8. As regards the failure to use up some of the 
appropriations available for specific Community meas­
ures ('non-quota' operations), the Commission would 
refer to its reply to the Court of Auditors' special report 
on this subject ('), in which it explained that the 
implementation difficulties experienced by the Member 
States were principally due to the fact that these measures 
were a new departure. 
7.9. The transfer of 130 Mio ECU from Chapter 51 to 
Article 505 (New ERDF) instead of Article 500 (Old 
ERDF), where there was a need for additional payment 
appropriations, was the result of a technical error. This 
was put right at the beginning of 1986. 
The 115 Mio ECU remaining under Article 505 was 
transferred to Article 500 in 1986 and should cover more 
than half of the requests for payment not settled in 1985. 
Transfers of ERDF appropriations 
7.10. Pursuant to Article 2(3)(b) of Regulation (EEC) 
No 214/79 (2), the 1984 payment appropriations for non­
quota operations which had not been used by the end of 
1985 were allocated to quota operations by means of a 
transfer authorized by the budgetary authority. As it has 
(!) The footnotes appear at the end of each chapter. indicated previously, the Commission considers this 
transfer operation to be legal (3). 
In any case, payment appropriations carried over can be 
used to cover commitments made in the current year (4). 
Of the 4,9 Mio ECU in commitment appropriations 
remaining from 1984 under Article 500, 4,6 Mio ECU 
appears in the 1986 accounts. 
7.11. The cancellation of a commitment appropriation 
of 9,6 Mio ECU at the end of 1985 was the result of a 
misunderstanding, and it was restored at the beginning of 
1986. Under the terms of Article 32(6) of the new ERDF 
Regulation, the appropriation in question cannot lapse. It 
will appear in the 1986 revenue and expenditure account 
as an appropriation remaining from 1985. 
The progress of ERDF payments, by Member 
State 
7.14. On the question of assistance being granted to 
projects which are 'at an advanced stage of execution', 
which in the Court of Auditors' view reduces the impact 
of the Fund, the Commission would point out that the 
ERDF Regulation explicitly provides that expenditure is 
eligible provided it is incurred from the twelfth month 
onwards preceding the date of the application for 
assistance (Article 29 of the new Regulation). 
The Commission agrees with the Court of Auditors that 
the principle of additionality of ERDF assistance should 
be underlined and it will do all it can to see that this is 
done. 
15. 12. 86 Official Journal of the European Communities 221 
Although the analysis carried out by the Court of 
Auditors covers only payments made in 1984 and 1985 in 
respect of 1984 commitments, it does indeed show some 
disparities in the rate of ERDF payments. In its financial 
management the Commission has to take account of the 
fact that the Regulation allows various methods of 
payment, which may involve normal claims or appli­
cations for advances or accelerated payments. The latter 
are made in line with the criteria laid down in Article 28(3) 
of the new Regulation. 
The situation of commitments outstanding 
7.16. As the Commission made clear in its reply to the 
same comment in the Court of Auditors' 1983 report (5), a 
discrepancy between the rate of payments and commit­
ments is inherent in the very nature of the operations and, 
by extension, in the rules governing the ERDF. The 
system of advances introduced by the new Regulation 
may help to reduce the discrepancy provided that the 
Member States avail themselves of it. However, in 1985 
(and the same will probably be true in 1986), a further 
factor tending to increase the amount of commitments 
outstanding is the inadequacy of payment appropri­
ations. 
7.18. As the Commission indicated in its reply to the 
observations made by the Court of Auditors in its 1984 
report (6), the old ERDF Regulation contained no 
binding provisions regarding the closure of files or the 
implementation period stated in the application for 
assistance. Article 32(6) of the new Regulation is stricter, 
since it provides for ERDF assistance to be decommitted 
if no payment has been made in respect of a project for 
four years, although it is somewhat weakened by the fact 
that Member States may claim exemption if they can give 
good grounds for the delay. 
Nevertheless the Commission has acted to speed up the 
closure of files (global annual review and specific 
investigations during on-the-spot inspections; these 
measures are described in the Commission's replies to the 
comments made by the Court of Auditors in its 1983 
report) (5). 
Other operations provided for in relation to 
Title 5 
7.21. The 1985 appropriations could not be committed 
for want of a Council Regulation. The Council has not considered the amendment pre­
sented by the Commission on 6 September 1984 to its 
proposal of 9 August 1983 or its communication (Doc. 
COM(84) 709) defining a medium-term action frame­
work. If the framework had been adopted, the interim 
solution contained in the amendment referred to above 
would not have been necessary. 
The Commission recently took a further initiative when it 
presented a medium-term transport infrastructure pro­
gramme to the Council in June 1986 (Doc. COM(86) 340, 
17 June 1986) together with a proposal for a Council 
regulation to enable the Commission to take the relevant 
decisions allocating financial support and to use the 
appropriations carried over from 1985. 
OBSERVATIONS ON THE MANAGEMENT 
OF THE ERDF 
Change-over from the old Regulation to the 
new Regulation 
7.22. The re-utilization of appropriations becoming 
available as a result of exchange rate fluctuations is an 
inevitable consequence of the introduction of the ECU as 
the unit of account in 1979, and there is no reason for 
formally incorporating it into the ERDF Regulation. 
The points raised by the Court of Auditors are part of a 
whole series of problems related to the fact that ERDF 
assistance is granted in national currencies. The Commis­
sion will consider whether all ERDF aid commitments 
could be expressed in ECU. 
7.24. Applications for assistance submitted by the 
Member States before the entry into force of the new 
Regulation were made under the conditions laid down in 
the old Regulation. After confirmation by the Member 
States they were accepted as such by the Commission. 
7.25. The new ERDF Regulation does not provide any 
means of forecasting the requirements for each type of 
operation and consequently it is practically impossible to 
produce a more detailed budgetary breakdown. To do so 
would, in any case, be incompatible with management 
flexibility. 
222 Official Journal of the European Communities 15. 12. 86 
However, the Commission is able to provide a breakdown 
of the figures ex post facto. 
Programme financing 
7.27. In its reply to the special report by the Court of 
Auditors on specific Community operations (7), the 
Commission stated that it was aware of a possible 
problem of transparency as regards the financial con­
sequences of the political undertakings given by the 
Community when approving the global five-year indicat­
ive financial allocation for each programme and it is 
considering the question in a broader context (see point 
IV of the reply to Chapter 1 of this report). 
7.28. As regards the operations in France, ERDF 
assistance was granted to some projects included in the 
proposed programmes as an interim solution pending 
France's revision of its proposals. This was done so as not 
to delay or compromise the execution of what were 
regarded as priority projects. 
The proportion of aid allocated to industrial 
investment 
7.29-7.31. The new Regulation is less strict in this 
respect than the old. This change reflects the reality of the 
situation, for while endeavouring to achieve the 30 % 
target recommended in the Regulation, it is important not 
to lose sight of the problems of regions suffering from a 
continuing low level of productive investment because of 
their unfavourable socio-economic situation and lack of 
basic infrastructure. And in any case, it must not be 
forgotten that the number of industrial projects is high 
only when the general economic situation is good. 
Nevertheless the Commission agrees that the proportion 
of ERDF resources devoted to investments in industry, 
crafts and the services sector should be increased. OBSERVATIONS RELATING TO THE 
SYSTEM OF MANAGEMENT AND 
CONTROL OF ERDF AID 
Regional development programmes 
7.37. As the Commission noted in its opinion of 19 June 
1984 on the regional development programmes (8), these 
second-generation programmes were produced on the 
basis of the standard plan laid down by the Regional 
Policy Committee (9) and the Comission recommend­
ation of 23 May 1979 (10). However, even with these 
common guidelines the programmes inevitably reflect the 
diversity of the problems, traditions and administrative 
structures of the Member States. The Commission 
therefore felt that no change to the standard plan for 
regional development programmes was called for at 
present (paragraph 7.40). 
7.41. In its opinion of 19 June 1984 the Commission 
stressed that the second-generation programmes are a 
substantial improvement over their predecessors and 
provide a better framework for assessing investment 
projects for which ERDF assistance is sought. Neverthe­
less it is aware of the need for continued improvement. 
In this connection, comprehensive discussions were held 
between the Commission departments and the national 
authorities on the preparation of the third-generation 
programmes covering the period 1986-90. In line with the 
Commission's opinion of 19 June 1984 (8), one of the 
main topics discussed was the need to define regional 
development priorities more clearly. 
Choice of projects 
7.44. All in all the new Regulation is an improvement 
over the old as regards the possibility for the Commission 
to assess the Community interest of projects submitted 
for ERDF assistance. 
Under the new Regulation the Member States have to 
submit assessments of the expected return together with 
socio-economic cost-benefit analyses, at least for major 
15. 12. 86 Official Journal of the European Communities 223 
industrial and infrastructure projects, to enable the 
Commission to form a clearer picture of their viability. 
When the new Regulation was adopted the Commission 
stated that since the way in which ERDF resources were 
actually allocated depended on the Community interest 
of the projects, it would set up an operational method for 
assessing that interest. The method was subsequently 
drawn up and notified to the Member States in the form 
of a practical guide. The Commission is in constant 
contact with the Member States in an effort to ensure that 
they take greater account of the Community dimension in 
preparing their applications for ERDF assistance. But the diversity of structures and administrative 
practices in the Member States makes it difficult to 
harmonize the conditions governing the execution of 
projects (paragraph 7.61); nor is this required under the 
existing legislation. 
As for investment projects where execution is behind 
schedule (paragraph 7.62), the Commission is continuing 
its monitoring efforts (paragraph 7.18) with a view to 
decommitting and reallocating the amounts in question. 
Global decisions 
7.50 - 7.53. The Commission agrees with the Court of 
Auditors that ERDF operations under global decisions 
should gradually give way to programme financing as far 
as possible. 
Execution of the projects Monitoring of the execution of projects and 
evaluation of results 
Evaluation of the results achieved in terms of regional 
development 
Monitoring of execution by the Commission 
7.61 - 7.64. Aspects of national procedure do not 
escape the Commission's notice during on-the-spot 
checks. 7.72 - 7.75. The periodic reports on the implementation 
of the programmes should allow the Commission to 
monitor more closely the achievement of the objectives 
they set out. As the Court of Auditors has noted, the 
impact of the ERDF on the socio-economic development 
of the regions is still difficult to gauge because of the 
methodological and statistical obstacles to an evaluation 
of the impact of regional policies in the Member States. 
(•) OJC 262 of 20.10.1986. 
(2) OJL 35 of 9.2.1979, p. 1. 
(3) OJ C 344 of 31.12.1981, p. 210, paragraph 1.14. 
(4) OJ C 342 of 31.12.1981, p. 277, paragraph 7.8. 
(5) OJ C 348 of 31.12.1984, p. 208, paragraphs 7.11 to 7.16. (6) OJ C 326 of 16.12.1985, p. 191. 
(7) OJC 262 of 20.10.1986. 
(8) OJL 211 of 8.8.1984. 
(9) OJ C 69 of 24.3.1976, p. 2. 
(10) OJL 143 of 12.6.1979, p. 9. 
224 Official Journal of the European Communities 15. 12. 86 
REPLIES OF THE COMMISSION TO 
CHAPTER 8 
Social sector 
SUMMARY OF GENERAL FINANCIAL 
INFORMATION 
European Social Fund 
8.4. The main reason for the 86 % utilization rate is that 
the Commission was not informed of the amount of 
unused appropriations available for re-use until the final 
payment claims in respect of 1984 commitments were 
submitted just before the deadline (31 October 1985); this 
was too late for the appropriations to be released and 
recommitted before the end of the year. 
8.5. The amount paid out in 1985 in the form of final 
payments, additional payments and second advances 
(some 380 Mio ECU) was roughly the same as in 1984, in 
both absolute and percentage terms (15 %). 
The figure of 29 % quoted for 1984 includes the 
320 Mio ECU paid at the beginning of the year by way of 
advances on commitments made at the end of the 
previous year. OBSERVATIONS ON THE MANAGEMENT 
OF THE SOCIAL FUND WHICH ENTERED 
INTO FORCE ON 23 OCTOBER 1983 
The second approval decision of 
23 December 1985 
8.12 - 8.14. The Commission takes note of the Court of 
Auditors' criticism. From 1986 onwards the Commission 
intends to commit the appropriations available for the 
Fund in a single decision. 
Individual approval decisions 
8.16. (a) Checks carried out by the Commission have 
shown that in 5 of the 8 cases cited by the Court of 
Auditors the estimates included some expenditure which 
was ineligible; the total amount was approximately 
1,4 Mio ECU (rather than 1,8 Mio ECU, as stated). The 
necessary corrections will be carried out in conjunction 
with the scrutiny of final payment claims, which have to 
be submitted by 31 October 1986 in most of the cases in 
question. 
As regards the 8 approved applications for assistance 
totalling 28,4 Mio ECU which the Court of Auditors 
found to include non-priority aspects, the Commission 
confirms that all but 2 of the decisions, involving 
0,4 Mio ECU, were justified. It should also be noted that 
almost the entire amount questioned by the Court of 
Auditors is accounted for by a single approval decision 
(27,2 Mio ECU). The application was the subject of 
discussions with the national authorities to ensure that 
15. 12. 86 Official Journal of the European Communities 225 
approval was restricted to schemes falling within the 
range of the Community's priorities. The file on the 
application contains a record of those discussions. 
(b) On the question of whether information is adequate or 
not, it is true that in some applications the project 
descriptions and particularly the indications regarding 
compliance with the guidelines are very brief and sketchy. 
These cases are scrutinized very closely by the Commis­
sion when the time comes for final payment. At all events, 
it approves such applications only where it has a 
sufficiently good knowledge of the reality of the situation 
in question. 
(c) The Court of Auditors is referred to the Commission's 
replies to point 8.17 as regards the lack of precision in 
some of the rules. As to what the term 'new technology' 
covers, this is assessed in the light of a range of factors 
such as the category of persons concerned and the project 
location. Given that such technology is, by its nature, 
constantly evolving (and not always in the same direction 
throughout the Community), it is neither possible nor 
desirable to try to draw up a list. 
(d) Some Member States sent additional information 
supplementing, modifying or correcting some of the 
original applications. Where this information was 
received before 21 October 1984 (the prescribed deadline 
for the submission of applications), it was taken into 
account at the scrutiny stage. Similarly, where the object 
of the information supplied was to reduce the amount 
requested, it was accepted. 
Although some gaps were revealed in the course of 
scrutiny, they did not appear serious enough to warrant 
total rejection of the application or set of applications in 
question. In a few specific cases of this kind, bearing in 
mind their individual merits but with the strictest regard 
for the principle of equal treatment, the Fund's adminis­
tration prompted applicants to supply additional inform­
ation. 
The remaining differences between the Court of Auditors 
and the Commission on these dossiers are principally due 
to the fact that the Court of Auditors' report is based 
solely on the information contained in the files, whereas 
the Commission's departments also rely on the practical 
knowledge of the dossiers and bodies involved which they 
have gained over the years and on oral information 
obtained in discussions with representatives from the 
Member States. The Commission has issued a reminder to 
its departments on the need to compile a full file for every application, containing a record of all the information 
used as the basis for decisions at any stage whatsoever. 
Initial conclusions 
8.17. In its management of the Fund, the Commission 
pursues the objectives laid down by the existing legis­
lation. Within this framework, it unhesitatingly seeks to 
act on constructive comments by the Court of Auditors to 
the best of its ability. In 1985, for instance, it improved the 
preparatory procedures for approval decisions, using a 
more systematic and comprehensive checklist for asses­
sing the admissibility, eligibility and priority of appli­
cations. In addition the management guidelines were 
more strictly applied for the selection of applications. 
The Commission will continue its efforts in 1986 along the 
lines suggested by the Court. 
OBSERVATIONS ON THE WINDING-UP OF 
THE OLD EUROPEAN SOCIAL FUND 
Files still to be closed 
Files previous to 1980 which had not been closed by 
1 January 1985 
8.19-8.21. The Commission agrees with the Court of 
Auditors on the need to close dossiers involving 
commitments made prior to 1980 as rapidly as possible. 
The special effort undertaken in 1985 has therefore been 
continued in 1986. By September 1986 only 7 cases 
remained where the payment procedure had not yet been 
started. 
The Commission will continue its endeavour to remedy 
the shortcomings referred to by the Court. 
8.22-8.24. The delays in processing payment claims 
were mainly due to the shortage of staff and the time 
needed by the Member States to provide additional 
226 Official Journal of the European Communities 15. 12. 86 
information, as well as to the somewhat cumbersome 
process of recovery by offsetting. 
Since then the Commission has taken the necessary steps 
for this to be remedied as regards both its own 
administration and the national authorities concerned. In 
particular a reminder was issued that a system has been 
set up designed to ensure the recovery of undue payments 
as rapidly as possible and to avoid delays in cancelling 
unused commitments. 
Moreover, the starting point for determining the average 
time lapse before unused commitments are cancelled 
should, in the Commission's view, be the date on which 
the final payment claim (or, failing that, the final 
statement of expenditure or the advice of non-com­
pletion) is received rather than the date of the initial 
commitment. 
Applications for final payment outstanding at 
1 January 1985 and relating to commitments 
subsequent to 1 January 1980 
8.25 - 8.26. The Commission is aware of the problem of 
delays in the settlement of final payments. It is working to 
discover where the procedural obstacles lie in order to 
eliminate them and prevent a recurrence of hold-ups in 
the future. It feels confident that the situation is well on 
the way to normalization (autumn 1986). 
The problem has to be seen in the light of the considerable 
increase in the workload in recent years. Moreover the 
complexity of some cases, particularly where several 
dossiers are interlinked, not only hinders their closure but 
also inevitably tends to slow down the whole adminis­
trative process of settlement. 
The 3 cases singled out in the Court of Auditors' report as 
showing the longest delays were part of a combined 
application (see 8.26(a)). Their treatment, then, was 
dependent on a solution to the problems concerning the 
application as a whole. Projects audited on the spot by the Court 
8.27. The Commission has claimed repayment in this 
case. 
8.28. The Court of Auditors' observations reflect less on 
the eligibility of certain projects which received assistance 
than on their priority and thus, by implication, on the way 
in which the Commission used the discretion which it 
enjoys as the Fund's administrator. The priority of a 
project to promote the employment of women is assessed 
on the basis of a variety of factors. There seems little sense 
at the moment in drawing up a list to apply throughout 
the Community regardless of the region in question and 
the category and qualifications of the women concerned. 
8.29. The Commission takes note of the Court of 
Auditors' comments and will carry out checks rapidly. 
8.30 - 8.31. The Commission is aware of the problem 
regarding the reliability of certification systems. Its 
departments are collaborating with the national author­
ities in an effort to find a satisfactory solution to ensure 
sound management of Community resources. 
The overpayment of 113 110,81 ECU cited by the Court 
of Auditors was repaid by the Italian authorities before 
the end of 1985. 
8.32. The Commission has taken note of the Court of 
Auditors' comment and keeps an eye open to ensure that 
Member States interpret the conditions for eligibility in 
line with Regulation No 3039/78, and Article 1(a) in 
particular. In the two cases referred to, the Commission 
reserves the right to call for further information from the 
Member State concerned and will pass this on to the 
Court of Auditors direct. 
8.33. The Commission acknowledges that the large 
differences in hourly training costs noted by the Court of 
Auditors pose a problem but it cannot refuse to accept 
them in the face of incontestable supporting documents. 
As in other areas, there is no Community reference scale 
of charges for such services. 
8.34. The Commission would refer to its replies to 
points 8.30 and 8.31. 
15. 12. 86 Official Journal of the European Communities 227 
8.35-8.36. The use of computers should make it 
possible to monitor cases more effectively and in 
particular to issue systematic requests for justification in 
the case of advances where no final payment claim is 
received by the deadline. European Social Fund. A number of the suggestions 
contained in this part of the report have already been put 
into practice in the Fund's administration: for example, 
the time limit for replies is now clearly specified, as are the 
implications of any failure to meet it. 
IMPROVEMENTS IN MANAGEMENT 
8.37-8.41. The Commission is as concerned as the 
Court of Auditors to improve the management of the For the rest, the Commission will consider the advantages 
of an overall examination of each application for 
assistance or final payment claim, as recommended by the 
Court of Auditors. It agrees that precise conclusions 
should be drawn from checks, especially at a financial 
level. 
228 Official Journal of the European Communities 15. 12. 86 
REPLIES OF THE COMMISSION TO 
CHAPTER 9 
Research, energy, etc. 
GENERAL REMARKS 
1. The approach taken by the Court of Auditors in 
devoting a chapter to expenditure on energy, research and 
various related activities, for which appropriations are 
contained in Chapters 70-77 of part B of the Commission 
section of the budget, means that Chapter 9 includes a 
number of blanket observations applying to all these 
areas. The Commission considers that Title 7 of the 
budget covers activities which are actually very different 
and must therefore be appraised with due regard for their 
specific features. This limits the possibility for the 
Commission to act on all the Court of Auditors' 
suggestions. 
Title 7 of the budget covers the extensive field of research, 
development and technology (RDT), as well as the energy 
sector and industrial policy. There can be no denying that 
the Title 7 appropriations serve to finance a wide variety 
of operations, such as: 
— standards-setting activities (through implementation 
of RDT programmes or via standards institutes); 
— studies (energy, industry); 
— horizontal research activities; 
— sectoral research programmes (in very varied areas — 
industrial, environmental, medical, etc.); 
— demonstration projects (energy); 
innovation promotion projects; — back-up activities (data banks, Systran ...). 
On top of this, activities within any one chapter — such as 
Chapter 73 (Research), which in 1985 accounts for 70 % 
of Title 7 appropriations available for commitment—are 
anything but homogeneous. Commission activity in the 
field of research and technology (R&D) can take the form 
of: 
— operations conducted in the Community research 
centres; 
— shared-cost projects under research contracts with 
industry, universities, research centres, etc. 
— concerted action. 
2. Although the Court of Auditors finds neither errors 
nor irregularities in the handling of shared-cost contracts 
by authorizing departments, it nevertheless observes that 
there are several areas where inadequate coordination has 
led to divergent practice, which, in its opinion, has 
financial consequences. 
Efficient management of the activities in question 
depends on three factors: 
— In implementing shared-cost projects the Commis­
sion must respect the relevant legislation. For 
instance, the problems involved in the decision­
making process and consequently in the methodology 
of commitments for energy demonstration projects 
are altogether different from those of R&D program­
mes. 
15. 12. 86 Official Journal of the European Communities 229 
— Depending on its particular needs, each authorizing 
department must enjoy some autonomy. As the Court 
of Auditors itself states in paragraph 9.11, there is 
therefore clearly nothing to be gained by harmoniz­
ation at any price of programme management and 
hence by harmonization of contracts in sectors with 
their own specific objectives and resources. The 
Commission has, for that very reason and on the 
strength of more than twenty-five years' experience, 
developed standard contracts and framework con­
tracts. 
— The Commission has indeed endeavoured to coordi­
nate contract management with due allowance for the 
specific situations involved. But this approach has so 
far been encountering a problem of resources in terms 
of both data-processing capacity and manpower, and 
this has caused the introduction of computerized 
contract management to be postponed. 
3. The Commission would remind the Court of 
Auditors that since 1984 it has been making a great effort 
to promote a good many research and technological 
development programmes in the Community geared to 
boosting industrial competitiveness (Esprit, Brite, Bio­
technology, etc.) and gradually establishing a European 
research network Stimulation (stimulation of European 
potential by stepping up exchanges of research workers). 
As far as programme management is concerned, this 
effort has been accompanied by application of a contracts 
policy based on the criteria of the 1984-87 framework 
programme (critical mass, transnationality) and a 
systematic R&D programme evaluation policy on the 
basis of the Council resolution of July 1983. 
4. The Commission nevertheless believes that, as the 
Court emphasizes, a central register of all potential 
contractors should be compiled and the computerized 
management systems should be integrated. 
This should finally be part of the overall effort to be made 
concerning management of activities under the frame­
work programme (1987-91). A working party (see reply to 
paragraphs 9.3 - 9.18 below) has been assigned to study 
this question and to determine what action is appropriate 
in response to the Court of Auditors' observations. BUDGETARY EXECUTION 
9.2. A general point to note is that the volume of non-
utilized appropriations includes those to be carried over 
to 1986. The automatic carryovers were made and the 
appropriations were subsequently used in conformity 
with the provisions of the Financial Regulation. 
9.2. (a) The Commission would point out that it had 
drawn the budgetary authority's attention in good time to 
the problems it would encounter in executing the 1985 
research appropriations; full allowance was made for this 
in the calculation of the 1986 appropriations. 
On top of this the launching of some of the operations on 
which the Council took decisions on 12 March 1985 was 
held up as a result of the application of the provisional 
twelfths arrangements. 
Finally, R&D projects cannot be likened to subsidies, the 
Commission being required to complete a strict pro­
cedure (calls for proposals, opinions of CGCs, selection) 
before reaching the stage of awarding the actual 
contracts. 
9.2. (b) The volume of appropriations used under the 
Esprit programme improved appreciably in 1985: the 
223 Mio ECU in commitment appropriations and the 
100 Mio ECU in payment appropriations compare with 
the 134 Mio ECU and the 2 Mio ECU respectively 
utilized in 1984, when this major programme was first 
launched by a team still being developed. 
In other words, in 1984 and 1985, commitments under the 
programme total 357 Mio ECU out of the 430 Mio ECU 
granted. 
This positive trend continued in 1986. 
9.2. (c) The Commission would confirm the answer it has 
given in previous years. It would, however, add that the 
innovatory nature and highly technological character of 
the work subsidized from Chapter 70 make it hard to 
forecast exactly the expenditure during any given year. 
9.2. (d) There were a number of reasons for the low 
utilization rate of payment appropriations for industrial 
policy, including notably the late reception of invoices for 
steel monitoring (Article 775). 
Other operations in Chapter 77 were also responsible for 
the carryover of payment appropriations, notably the 
230 Official Journal of the European Communities 15. 12. 86 
microelectronics programme, which could not be com­
pleted according to the planned schedule. 
COORDINATION OF THE MANAGEMENT 
OF COST-SHARING CONTRACTS 
9.3-9.18. As already stated in the introduction, the 
Commission, while preparing the new framework pro­
gramme of RDT activities (1987-91), is at the same time 
carefully considering how to manage those activities in 
order to equip itself with a tool for implementing them. 
The Commission feels that the Harmonization Group has 
helped in cataloguing the problems relating to contracts. 
The Group's efforts and other more recent preparatory 
work, which have had an immediate positive impact on 
the management of existing programmes, prompted the 
Commission to set up a Group on 24 July 1986 whose 
terms of reference are to come up very quickly with 
concrete proposals, particularly with regard to better use 
of the possibilities offered by data processing and more 
direct and efficient methods of work organization. 
Although a process lasting several years will be necessary 
to produce solutions for some of the problems involved, 
others might be resolved sooner: these concern mainly 
. execution of the budget, at the stages of both commitment 
and payment, the arrangements for dealing with VAT and 
control operations. 
9.13. The general rule applying throughout the Com­
mission is that a commitment proposal must be ac­
companied by a draft contract or order form ready for 
signing. 
The only exceptions are Commission decisions that count 
as commitments pursuant to Article 32(2) of the Finan­
cial Regulation. 
In the case of energy policy (DG XVII), the Commission 
is financially and legally bound by its decisions, since they 
specify amounts and recipients, who are notified by a 
letter constituting a framework contract. The commitment is established at this stage in order to 
ensure that funds are available. The Commission's 
approach reflects the application of the rules in force. 
MANAGEMENT OF STUDY CONTRACTS 
9.20. (a) It is true that two groups of studies were 
submitted for Commission approval in 1985; it must be 
emphasized, however, that the first group usually 
comprises the bulk of study programmes in order to allow 
as much time as possible for the studies to be carried out, 
given the lifetime of the appropriations; as an example, 
56,7 % of the appropriations in Chapter 26 were author­
ized in this way. 
Moreover, the provisional twelfths arrangements and the 
uncertainties surrounding the financing of the budget 
explain why the Commission adopted only two groups of 
studies during 1985, with the second decision not being 
possible until December 1985. 
(b) As regards assessment of the choice of contractor the 
Commission feels it should remind the Court of Auditors 
of its decision of 19 December 1984, whereby for 
contracts with an estimated cost of more than 
50 000 ECU but less than 100 000 ECU, the departments 
administering the study appropriations are required to 
justify their choice by reference to the list compiled from 
the CERES data base (data base for documentation and 
the management of studies and surveys commissioned 
outside). 
For study contracts with an estimated cost of over 
100 000 ECU an invitation to tender is usually issued, 
possibly on a restricted basis; the contractor is then 
selected by the department concerned on the basis of the 
quality/price relationship. 
The fact that the files examined did not contain appraisals 
of contractors or the studies they proposed does not mean 
that no appraisal was made (see also the reply to 
paragraph 9.21(c)). The selections made are the result of 
the appraisal. 
9.21. (a) and (b) Four groups of studies were programmed 
in 1986; three groups have already been approved; the 
last one will be submitted to the Commission in the final 
quarter. 
(c) In 1985 and for the first three batches of studies in 
1986, the interdepartmental coordinating groups en­
deavoured to obtain from departments their justifications 
of choice of contractor for studies between 50 000 and 
100 000 ECU as well as for studies costing more than 
100 000 ECU. In order to satisfy the Court of Auditors, 
the Commission will arrange to have an item added to 
financial statements — in cases where it still does not 
appear — so that the choice of contractor will be justified 
systematically. 
15. 12. 86 Official Journal of the European Communities 231 
REPLIES OF THE COMMISSION TO 
CHAPTER 10 
Cooperation with developing countries and other non-member States 
OBSERVATIONS ON FOOD AID 
(CHAPTER 92) 
Statistics on the implementation of food aid 
10.8 -10.10. It is time, as the Court of Auditors rightly 
points out, that the Directorate-General for Develop­
ment and the Directorate-General for Agriculture have 
different statistical requirements. 
However, a way of harmonizing the two systems has been 
found. This should be operational for the 1986 pro­
gramme. 
Statistics will come under one of four headings: 
(1) allocations: figures common to both Directorates-
General representing tonnages which have been the 
subject of an allocation decision; 
(2) invitations to tender: figures common to both 
Directorates-General representing tonnages which 
have been approved by the Management Committee, 
but have not yet been shipped within the meaning of 
paragraph 3 below; 
(3) deliveries: figures common to both Directorates-
General representing tonnages deemed to have been 
shipped at the end of the delivery period; 
(4) mobilization: additional figures produced by the 
Directorate-General for Development representing 
tonnages for which a tendering procedure is in 
progress, i.e. for which a mobilization request has 
been made to the Directorate-General for Agricul­
ture. It is not possible to include a separate heading identifying 
tonnages being unloaded at their destination. 
In the case of allocations at the fob stage, it is almost 
impossible to pinpoint the date of arrival. In the case of 
indirect aid, definition of the date of arrival can depend 
on scattered information which may not be available for 
several months. 
OBSERVATIONS ON COOPERATION WITH 
NON-ASSOCIATED DEVELOPING 
COUNTRIES (CHAPTER 93) — 
ADMINISTRATION OF APPROPRIATIONS 
UNDER ARTICLE 930 
Volume of commitments and payments 
10.13. It is true that the delivery of commodities does 
enable payment to be effected promptly. However, this is 
not the main object of this type of aid, which is invariably 
designed to remedy a specific situation in the recipient 
country. 
The Commission's constant aim is to provide effective 
aid. If this can be achieved with the help of an 
organization with experience in a particular sector or 
region (e.g. Unicef for water purification projects in 
Laos) the Commission does not hesitate to have recourse 
to its services. In such cases, however, its departments 
must conclude an administrative agreement with the 
organization in question and monitor progress of the 
project. 
232 Official Journal of the European Communities 15. 12. 86 
It is quite true that the resources of the departments 
responsible for the administration of aid to the develop­
ing countries of Latin America and Asia are inadequate 
and that the situation cannot be remedied for lack of 
funds. A number of mechanisms have been introduced to 
help alleviate the problem. 
10.14. It is true that staff shortages can delay the start 
up of a project for a lack of practical support. But 
frequently the main cause of delays is administrative 
problems in the recipient countries. This is the case with 
virtually all of the projects referred to by the Court of 
Auditors. 
10.15. The Commission did submit a request for a 
transfer of the necessary payment appropriations in good 
time, but it was turned down by the budgetary authority. 
Comparison between the accounting 
commitments and the guidelines laid down by 
the Council 
10.17. It would be much easier to make a comparison 
between the initial wish of the budgetary authority, the 
Council's guidelines and the year's results if the Council 
were to adopt its guidelines at the beginning of the year. 
10.18. The Council's guidelines appear to express the 
political will of the Member States quite clearly, but it 
should be possible to improve presentation in future. In 
any event, the guidelines must retain a degree of flexibility 
if advantage is to be taken of opportunities to launch 
worthwhile, well thought-out projects in a number of 
countries. 
10.19. The practice of fixing two scales of allocation 
(geographical and functional) as a basis for the Council's 
decision has been followed for many years. The audit can 
be carried out either on the basis of the annual reports 
(cf. paragraph 10.17), or each time a commitment 
proposal is referred to the Committee for Aid to Non-
associated Developing Countries. 
Budgetary nomenclature 
10.21. (a) The Court of Auditors' suggestion that the 
appropriations for Article 930 should be broken down by 
sub-item would not make it possible to identify commit­
ments for the various annual programmes since, broadly speaking, annual programmes run from mid-year to mid­
year, while the budget covers a calendar year. In any case, 
the budgetary authority would then have to fix amounts 
for each region, although this aspect is best assessed in 
light of political and practical considerations linked to 
actual development potential. 
(b) There is no obvious advantage to be gained from 
consolidating the appropriations earmarked for indus­
trial, commercial and technical cooperation in a single 
article, broken down into as many items as necessary. 
10.22. It is often difficult to define operations and 
hence, to put them into a particular category. Even the 
concept of 'rural development' is open to interpretation. 
The Commission feels that the Court of Auditors' 
suggestion that overall budgets should be fixed well in 
advance of the discussion of each annual programme is 
too restrictive, and would complicate management of the 
programmes to no purpose. 
Monitoring of the administration of 
Article 930 
10.23. The statistics on implementation would un­
doubtedly lend themselves to computerization. However, 
additional staff would be required, initially at least, to 
perfect a system and then transfer data from the manual 
to the computerized system. 
10.24. The administrative departments recognize the 
value of a uniform filing system which would make it 
possible to establish quickly how financial and technical 
cooperation measures are progressing. They intend to 
introduce such a system as soon as staff resources allow. 
OBSERVATIONS ON THE SPECIFIC 
MEASURES FOR COOPERATION WITH 
DEVELOPING COUNTRIES (CHAPTER 94) 
— ADMINISTRATION OF ARTICLE 941 
10.25. The General Conditions on cofinancing stipulate 
that in order to qualify for financial assistance a non­
governmental organization (NGO) must satisfy a number 
of criteria, concerning: 
15.12.86 Official Journal of the European Communities 233 
— the extent to which it is able to mobilize private 
support from within the Community for its overseas 
development activities; 
— the importance which it gives to overseas develop­
ment assistance; 
— its previous experience in overseas assistance and, in 
particular, in cofinancing with the Commission or in 
similar schemes administered by the Member States; 
— its efficiency as an organization and its capacity to 
ensure the competent formulation and viable im­
plementation of the projects it undertakes or sup­
ports, on the initiative of the populations concerned; 
— the nature and extent of its links with local 
counterpart organizations in the developing coun­
tries; 
— the nature and extent of its links with other NGOs 
both inside and outside the Community. 
The General Conditions also expressly state that 
organizations which act as agents for other organizations 
not qualified to submit applications and who have no say 
in the implementation and funding decisions related to 
the projects do not qualify for Community assistance. 
10.27. The Commission confirms that the department 
responsible for administering Article 941 is short-staffed. 
Nonetheless, it does all it can, with the means at its 
disposal to monitor the progress of projects as closely as 
possible and to manage operations correctly, despite their 
growing number. 
10.28. The Court of Auditors refers to two projects 
approved for cofinancing, which were 'not eligible 
because they had virtually been completed'. 
The Commission would point out that the first of these 
projects was governed by the old General Conditions, 
which contained no specific provision on the retroactive 
cofinancing of projects. 
The second project, filed in July 1981 and started in 1982, 
is still in progress. Furthermore, under the terms of the 
revised General Conditions (in force since 
1 January 1982), only applications for cofinancing of projects which are already at a very advanced stage are 
inadmissible; this was not true of this case. 
10.29. The NGOs are non-profit making bodies, and 
frequently have recourse to voluntary agencies. They 
carry out projects at a cost far below that of projects 
implemented by commercial firms. It is understandable 
therefore that the technical design and financial planning 
of the projects should be less sophisticated than in the case 
of commercial firms which are structured quite differently 
and have greater financial and human resources at their 
disposal. For this reason an NGO may occasionally have 
to revise its initial plans or indeed abandon a project 
because of local conditions. As to the cost of raw 
materials, NGOs frequently operate in very remote 
regions and in countries with galloping inflation, making 
estimates difficult. 
10.30. During an inspection visit to the head office of 
the first NGO referred to by the Court of Auditors, the 
Commission reminded the latter of its obligations in the 
matter of accounting, and drew its attention to the need to 
improve the exchange of information with its local 
branches. The fact that the European NGO operates on 
the basis of substantiating documents for its expenditure 
in Europe and on the basis of a summary statement for 
expenditure effected locally does not contravene the 
General Conditions on cofinancing. 
The Commission acknowledges that the submission of 
some implementation reports was delayed. However, it 
has noticed a distinct improvement since the inspection 
visit to the head office of the NGO. 
10.31. The Commission suspended payment of funds 
and refused to conclude a new contract with the NGO in 
question as soon as it became aware that funds had been 
embezzled. Cooperation was not resumed until the 
Commission was satisfied that Community funds had 
been used for the purpose intended. 
Since then the NGO has been transferring Community 
funds to projects on a separate basis. 
10.32. The General Conditions on cofinancing state 
that the total cost of a project may include 5 % for project 
planning, 6 % for administrative costs and 7,5 % for 
associated educational measures irrespective of whether 
or not the NGO operates on the spot. An NGO which 
does not do so has no local representatives, which means 
that costly missions have to be organized to the site. The 
Commission therefore feels that the inclusion of 6 % for 
administrative costs is justified: it is not the result of 
234 Official Journal of the European Communities 15. 12. 86 
inadequate examination of the applications for finance 
submitted by the NGO, which at no point applied for a 
Commission contribution to the (not inconsiderable) 
project planning costs. 
The Commission's departments, aware that the wording 
of the General Conditions was open to interpretation, 
agreed at the end of 1985 on the following rule for the 
calculation of administrative costs: 
'It is agreed that these costs should be predetermined and 
represent a maximum of 6 % of the actual cost of the 
project, to be divided among the various parties providing 
the capital on a proportional basis. The Commission's 
contribution may not therefore exceed 6 % of its 
contribution to the project'. 
10.33. With the exception of one operation im­
plemented under the overall donation, for which the 
Commission requested repayment, the NGO provided 
proof that the funds had in fact been received by its local 
partner. 
10.34. The very nature of the programmes supported by 
the NGO means that they must be constantly adapted to 
changing, sometimes unforeseen, circumstances. In many 
cases, this explains the discrepancy between the estimated 
and actual cost of the project. It is true that the NGO did 
not always inform the Commission of these changes in 
time. However, the NGO was reminded of its obligations 
during the inspection visit and is making a considerable 
effort to regularize and update the files on projects 
already financed and to apply the General Conditions 
more strictly to current projects and new applications. 
It should be added that the NGO in question recruited a 
member of staff in 1985 to deal with all aspects of 
cofinancing with the Commission. This has made 
cooperation with the NGO considerably easier, and has 
helped to improve its 'administrative performance'. 
10.35. Under the General Conditions in force at the 
time the enhancing of the value of existing premises by the 
NGO could be regarded as a contribution. The General 
Conditions have been revised since then. 
10.36. Under the revised General Conditions in force 
since 1982, the Commission grants priority in principle to 
projects where the own non-public NGO contribution is 
at least 15 % of the total cost. The Commission can also 
accept inclusion in the total cost of the project of the cash 
value of contributions in kind such as land, labour, etc., as 
well as the estimated cash value of existing infrastructures 
or related projects already carried out, as long as these are 
less than two years old. Nonetheless, the Commission has repeatedly drawn the 
NGO's attention to the obligation to forward reports 
(letter sent to the NGO systematically after each 
payment) and to keep separate accounts for each project 
(reminder sent with each contract). 
The Commission makes no further payments unless 
adequate interim progress reports and financial docu­
ments are submitted. 
The various on-site inspection visits revealed that the 
NGOs are in close contact with their local partners and do 
in fact carry out inspection and assessment visits 
themselves. 
The Commission therefore considers that it is neither 
necessary nor useful to introduce penalties in addition to 
those provided for in the General Conditions. 
On the question of administrative costs, the Commission 
would point out that the 6% figure is a maximum; 
between 1982 and 1985 the average subsidy granted was 
3,5 % of the funds allocated. 
OBSERVATIONS ON THE EXCEPTIONAL 
MEASURES TO ASSIST DEVELOPING AND 
OTHER NON-MEMBER COUNTRIES 
(CHAPTER 95) 
Special programme to combat hunger in the 
world 
10.38. The Court of Auditors' comments relate to two 
measures approved in December 1983 for two ACP 
countries, one involving a sum of 3 Mio ECU (revolving 
funds) and the other a sum of 2 Mio ECU (also revolving 
funds): 
— With regard to the first measure, the purchase of 
approximately 3 000 tonnes of maize from a neigh­
bouring country was justified given the severe 
shortage faced by the country at the end of 1984 
(1984/85 marketing year). The state agency, with the 
agreement of the Commission, used the funds to 
stabilize the market, in order to cope with an 
emergency which could not be remedied by ordinary 
food aid, given the time factor. This explains why 
maize was purchased outside the country (local 
shortage) and why it was distributed free of* charge 
15. 12. 86 Official Journal of the European Communities 235 
(available food aid was inadequate). However, this 
was a temporary situation. Once normal supply 
conditions are restored the agency concerned is to 
reconstitute the initial allocation so that the funds can 
be used for the purpose intended. 
— The second measure enabled a state agency to 
purchase 6 800 tonnes of local cereals, which have not 
yet been resold owing to the relatively satisfactory 
food supply situation in the country in 1985, and the 
availability of food aid from various sources which 
could be distributed free of charge. As a result the 
counterpart fund had not been replenished at the time 
of the Court of Auditors' inspection, but there is every 
reason to believe that this was a one-off occurrence. 
The Commission will continue to monitor compliance 
with obligations concerning counterpart funds. 
10.39. Accounts have been opened for the recipient 
countries to facilitate on-the-spot administration of this 
aid and to make optimum use of the non-differentiated 
appropriations allocated by the budgetary authority. All 
transactions require the signature of the national 
authorizing officer of the recipient country and the 
Commission delegate. 
Introduction of this procedure was the inevitable 
consequence of the type of appropriations entered in the 
1983 budget, and the level of payment appropriations 
entered in the 1984 budget. As the Court of Auditors 
points out in paragraph 10.38, the objective of the special 
programme was to increase the degree of self-sufficiency 
in food of the recipient countries with the aid of structural 
measures, i.e. measures which, of necessity, are im­
plemented over a period of several years. In 1983, the 
appropriations entered in the budget (50 Mio ECU) were 
non-differentiated, added to which they did not become 
available until after the basic Regulation was adopted on 
11 July 1983. It was impossible, therefore, to complete all 
measures and make payments before 31 December 1984. 
Although the 1984 appropriations were differentiated 
(commitment appropriations: 58 Mio ECU, payment 
appropriations: 42 Mio ECU), the same reasoning 
applies to their utilization. There is little point in 
differentiating appropriations if the ratio of payment to 
commitment appropriations fixed by the budgetary 
authority is too high. In normal circumstances, the 
implementation of structural projects would not have 
required more than 10 Mio ECU in payment appropri­
ations, given commitments of 58 Mio ECU. 10.40. The proposal for a Regulation was forwarded to 
the Council and the European Parliament on 
6 August 1985 because the Commission considered it 
advisable to await final adoption of the 1985 budget. 
Since this did not happen until 16 June 1985, there was no 
question of a delay. In any event, non-utilization of the 
1985 appropriations is not attributable to this six-week 
interval but rather to the Council's refusal to act on the 
proposal. 
10.41. The under-utilization of the payment appropri­
ations for 1984 merely proves that the 42:58 ratio 
between payment and commitment appropriations was 
unrealistic for structural projects. 
It is hardly surprising, therefore, that the appropriations 
for the 1985 financial year (14 Mio ECU) were not 
utilized at all. Indeed the Commission refrained from 
requesting any payment appropriations for that year 
during the budgetary procedure. 
OBSERVATIONS ON THE OPERATION OF 
COMMISSION DELEGATIONS IN 
DEVELOPING COUNTRIES (CHAPTER 98) 
Supervision of the delegations by the EAC 
10.44 -10.45. Control of imprest accounts by EAC 
staff is based on a number of clearly-defined criteria 
which determine how detailed the control should be. 
The criteria include the following: 
— failure to produce bank statements, 
suspicious bank statements, 
bank reconciliation statements relating to long-
drawn-out transactions, 
— quality of supporting documents, 
236 Official Journal of the European Communities 15. 12. 86 
— abnormal utilization of appropriations (over-utiliz­
ation or under-utilization). 
It should be added that, while there is no handbook, there 
are a number of working documents which provide 
guidelines for EAC staff, including a computer print-out 
detailing expenditure under approximately 50 headings 
over a 12-month period. 
Central administration of the EAC 
10.46. The procedure for administering delegation 
budgets introduced in 1984 has proved satisfactory for 
the delegations and the EAC head office alike. Before 
each delegation's budget is approved, a detailed analysis 
notably of average staff costs in each delegation is carried 
out, highlighting any variations from a normal statistical 
distribution. 
10.47. The Court of Auditors questions the wisdom of 
one of the EAC's internal administrative rules. The EAC 
has taken steps, in the context of the annual meeting of 
Delegates, to amend this rule, and arrangements for its 
application have been discussed by the Working Party on the budget and modern management. New procedures 
will be applied to implementation of the 1987 budget. 
10.48. It is true that the practice of adhering to the 
official exchange rate represents a considerable cost to the 
Community budget. For this reason, instructions were 
issued some time ago, in relation to management of the 
EDF and the EAC, to the effect that delegates in countries 
with a dual exchange rate should negotiate with the 
governments to secure the most favourable official 
exchange rate for Community transactions. It is clear that 
in other countries the EAC and EDF must use the going 
official rate. 
10.49. As with the budgetary nomenclature of the 
Community institutions, the EAC has a breakdown of 
expenditure by type, and monitors local missions through 
the imprest accounts. Particular care is taken to check the 
rate of utilization of appropriations. 
It is therefore an easy matter for the EAC head office to 
monitor the presence of staff members in the field and 
their supervisory activities in relation to project im­
plementation. 
10.51. Staff in the head office monitor all transactions 
month by month so that they can be regularized as 
quickly as possible. 
15. 12. 86 Official Journal of the European Communities 237 
REPLIES OF THE INSTITUTIONS TO 
CHAPTER 11 
Management of the Community institutions and the external bodies 
REPLIES OF THE PARLIAMENT 
STAFF EXPENDITURE 
Observations on the computerized systems for 
calculating salaries and for managing staff 
numbers 
11.7-11.8. The 'PAIE' and 'Sysper' systems are 
managed by the Commission. Parliament manages the 
'RAPE' system. 
Parliament shares the Court's view that the arrangements 
for reconciliation between staff numbers and salaries 
could be improved. This problem could be resolved by 
means of a computerized system covering both staff 
management and the calculation of remunerations. 
To this end, a project team was set up in 1985 with 
instructions to introduce a new computerized staff 
management system which takes account of this problem 
of reconciliation (staff numbers/salaries). 
The lists of names generated by the 'RAPE' staff 
management system do not give figures for the total 
number of staff. However, when requesting the list, the 
user does have the option of using a special facility to 
obtain a figure for the total number of staff included in the 
list. Observations on the institutions' management 
of the education allowances system 
11.11. Parliament eliminated the anomaly mentioned 
under point (a) by a decision of its President on 
24 January 1984. The anomalies mentioned in points (b) 
and (c) are the result of the joint interpretation placed on 
the general implementing provisions for the granting of 
the education allowance by the Community institutions. 
11.12. Since the appropriations concerned are entered 
in the Commission's budget against Item 2898 (other 
educational establishments) and are managed by the 
Commission, the points raised apply more specifically to 
that institution. 
11.13. The European Parliament intends to take action 
at interinstitutional level with a view to making the basic 
texts more simple and more coherent. 
OPERATIONAL EXPENDITURE 
Observations on the transmission of 
supporting documents 
11.29. It is agreed that the timetable imposed by the 
Financial Regulation has not been respected to the letter, 
but the late submissions have permitted the liquidation of 
238 Official Journal of the European Communities 15. 12. 86 
amounts on suspense accounts without the necessity of 
expensive photocopying of all vouchers or the time-
consuming, and sometimes difficult, task of sending 
members of the staff to the Court of Auditors' building to 
search for vouchers. 
STAFF EXPENDITURE 
Observations on the institutions' management 
of the education allowances system 
11.11 and 11.13. The Council feels that the problems 
raised by the Court of Auditors should be taken into 
consideration by the relevant authorities with a view to 
simplifying the texts in question. 
11.12. The Council has not to date had any officials 
concerned by this provision. 
Observations on the budgetary management of 
the Council 
11.14-11.15. The Council accepts the remarks made 
by the Court of Auditors regarding the management of 
the appropriations under Item 1110 (Auxiliary staff), but 
wishes to emphasize the major difficulties which arose in 
the 1985 situation as regards management of this heading. 
These difficulties stemmed primarily from the imposs­
ibility of transferring a large number of Spanish and 
Portuguese auxiliary staff to the status of temporary staff 
before the (belated) adoption of the 1985 budget and also 
from having insufficient appropriations in Item 1110 in 
the 1985 budget. 
Other exceptional factors which, because of their sudden 
and unforeseen nature, brought about the difficulties 
referred to by the Court of Auditors, were the following: 
the impossibility of recovering contributions paid to the 
ONSS, major difficulties which occurred suddenly as 
regards the translation of secondary legislation, making it 
essential for additional staff to be recruited, and the In the event of any modification of the Financial 
Regulation, the vouchers should be retained in the 
institutions and held at the disposal of the Court rather 
than sending them to the Court's building, which must 
require extensive storage space and personnel to control 
the documents. This would permit the institutions easy 
access to their vouchers for the purpose of clearing 
suspense items and other queries. 
decision which had to be taken quickly to keep on 
auxiliary secretaries beyond the envisaged period. 
The Council feels that the situation to which the Court 
refers is unlikely to recur in future, and has drawn the 
attention of those responsible for managing the budget to 
the need to comply strictly with the Financial Regulation. 
OPERATIONAL EXPENDITURE 
Observations on the transmission of 
supporting documents 
11.29. The Council accepts the Court's criticism. In 
future supporting documents will follow within the time-
limits laid down. 
Observations on expenditure on the fitting-out 
of Council premises 
11.31. (a) 
(i) As is noted by the Court, the outline contract does not 
include all the details necessary for checking and 
monitoring the cost of works carried out by the 
contractor. Nevertheless, the following procedures 
applied by the Council General Secretariat ensure the 
necessary controls in this area. These procedures 
make it possible to verify: REPLIES OF THE COUNCIL 
15. 12. 86 Official Journal of the European Communities 239 
— the level of hourly salary costs at the time of 
submission of tenders on the basis of the official 
scales for invoicing salaries under the control of 
the Ministry of Economic Affairs; 
the average hourly rate obtained by all the 
workers, taking into account their qualifications; 
this examination is carried out when the invoices 
drawn up according to the 'open book' system are 
submitted. 
Control of the quality of the work done, materials 
used and equipment installed is the responsibility of 
the Council architect and the relevant officials from 
the Council General Secretariat. 
(ii) The Court rightly notes that the invitation to tender 
did not cover all the various aspects of the outline 
contract. The Council takes the view that because of 
its general nature that invitation could not include an 
exhaustive list of the work to be done. A non-
exhaustive list of 13 projects was drawn up to enable 
any tenderers to form an idea of the scope of the work 
to be done during the period of the outline contract. 
STAFF EXPENDITURE 
Summary of financial information and list of 
posts at the institutions 
11.6. Table 11.2 shows that fewer posts were left 
unfilled at the end of 1985 than in the previous year. 
However, there has been an increase in the Publications 
Office as a result of specific problems there, particularly 
with regard to proofreading, and in research, where staff 
levels have been increased temporarily so that voluntary 
retirement measures can be implemented. 11.31. (b) Due note has been taken of the remark 
concerning the deposit. Although it is felt that the 
General Secretariat had enough means of pressure to be 
assured that the work was properly performed, the 
practice of requiring a deposit in the form of a bank 
guarantee has been followed since this remark was made. 
11.32. Owing to the nature of the works carried out in 
1985, the Council was unable to secure a contribution 
from the owner. The owner of the Charlemagne building 
has, however, on several occasions in the past, shared in 
the cost of certain major works which represented capital 
appreciation of his building, viz.: 
— 4 Mio BFR for execution of energy-saving measures; 
— 4,5 Mio BFR to improving the emergency electricity 
supply; 
— 3,5 Mio BFR for extending the lift system. 
Observations on the computerized systems for 
calculating salaries and managing staff 
numbers 
11.7- 11.8. The systems used by the Commission for 
the calculation and payment of remuneration are as 
follows: 
— 'Sysper': a computerized system which calculates the 
remuneration of all members of staff covered by the 
Staff Regulations and can be used to provide totals by 
category; 
— 'PAIE': a computer program for the payment of the 
remuneration calculated by 'Sysper', which does 
however operate independently; 'PAIE' also includes 
a 'Budcol' list, which gives a breakdown of the staff 
paid during the month in question by grade and step 
and can calculate the total number of staff paid. REPLIES OF THE COMMISSION 
240 Official Journal of the European Communities 15. 12. 86 
The Commission agrees with the Court of Auditors that 
the pay program and the 'Sysper' system should be 
compared periodically. 
With regard to the discrepancy observed by the Court of 
Auditors between the number of staff in the 'PAIE' and 
'Sysper' systems, it should be noted that staff numbers are 
constantly changing and that the two systems use 
separate data bases. 
Furthermore, the lists do not cover the same staff 
complement: 'PAIE' includes the JET staff in Culham, 
the Foundation for the Improvement of Living and 
Working Conditions in Dublin and the head office of the 
EAC; JET and the Foundation are not covered by 
'Sysper' and EAC staff are entered under the adminis­
trative position A 20 (secondment in the interests of the 
service). 
A further check by Commission departments found no 
anomalies between the 'PAIE' and 'Sysper' systems. 
Observations on the institutions' management 
of the education allowances system 
11.11 -11.13. With reference to points 11.11(a), (b) and 
(c), Commission practice is based on the Staff Regu­
lations and relevant implementing provisions, which in 
their present form do not cover all the situations 
encountered. Article 3 of Annex VII to the Staff Regu­
lations governing education allowances is in the process 
of being amended. Item A 2898 of the budget will be 
abolished as a result. 
11.12. Item A 2898 was created by the budgetary 
authority to cover very specific cases not provided for by 
the Staff Regulations. 
Eligibility for an allowance under this Item is subject to 
the following criteria: 
— firstly, overriding pedagogical reasons, duly certified 
by the headmaster of a European School, for 
attending another establishment or the absence of a European School or suitable national establishment 
within a 50 km radius; 
— secondly, a shortfall between the education allowance 
received and the annual school fees equivalent to at 
least 30% of the official's basic monthly salary (this 
30% threshold was set in order to assess the impact of 
the shortfall on the official's financial position). 
In view of the time taken by the joint working party to 
examine the applications (26 applications were ap­
proved), the officials had already paid the fees by the time 
the decision was taken. 
For this reason the allowance was paid direct to the 
parents concerned in partial reimbursement of the 
payment already made. 
The Commission can confirm that it will propose the 
abolition of Item A 2898 of the budget with the introduc­
tion of the new arrangements for education allowances. 
Observations specific to the Commission's 
management of staff appropriations 
Remuneration of staff posted outside the Communities 
11.18 -11.21. As the Staff Regulations in their present 
form make no provision for staff posted outside the 
Communities, the Commission was obliged to adopt a 
number of special arrangements. A proposal for a 
Regulation designed to eliminate the loopholes pointed 
out by the Court of Auditors and create a specific status 
for such staff was forwarded to the Council on 
6 March 1986. 
The proposal, which has been endorsed by the European 
Parliament, is currently under discussion in the Council. 
11.19. With regard to rent allowance, the Commission 
examines each individual case thoroughly to ensure that 
15. 12. 86 Official Journal of the European Communities 241 
the accommodation in question is compatible with the 
duties being performed by the official and with the 
requirements of his or her family. If necessary, further 
information is requested. 
11.20. In the Commission's view the measures criticized 
by the Court of Auditors were necessary to ensure that 
one of the basic principles of the Staff Regulations was 
upheld, namely equivalence of purchasing power for 
Community officials in the various places of employment. 
On 27 July 1983, following currency fluctuations in 
certain places of employment, combined in some cases 
with exchange restrictions, the Commission decided to 
offset the resulting reduction in purchasing power by 
allowing part of the salary paid in local currency to be 
converted in four places of employment (•) using a fixed 
rate of exchange. This decision was extended on 
8 November 1983 and on 29 February 1984, using the 
August 1983 exchange rates. On 12 December 1984 the 
Commission extended these provisions to a further three 
countries (2). 
Following the revision of salary scales with effect from 
1 July 1985, it became apparent that maintaining the 
August 1983 exchange rates would have led to over­
compensation for the loss of purchasing power in some 
places of employment and it was decided to apply new 
rates in these cases. 
At the same time, in connection with its work on the 
proposal for a Regulation forwarded to the Council on 
6 March 1986 and referred to in its reply to para­
graph 11.18, the Commission looked into the possibility 
of amending the Staff Regulations to avoid such 
problems in the future. This proposal takes into account 
the practical experience acquired in managing not only 
the staff covered by the Staff Regulations but also the 
staff of the European Association for Cooperation. Once 
adopted, it will ensure greater parity of remuneration for 
officials posted outside the Community, particularly in 
places of employment with fluctuating economic and 
monetary situations. 
Staff appropriations of the Joint Research Centre (JRC) 
11.22. Commission practice is based on the financial 
rules in force, which allow commitment appropriations to 
(•) The footnotes appear at the end of each chapter. be kept over several financial years. However, as the 
Court of Auditors notes in paragraph 11.27, the 
Commission proposal to amend the Financial Regulation 
is designed to counter some of its criticisms. 
The Commission would however, recall that the special 
arrangements currently provided for by the Financial 
Regulation are geared to the specific needs of the JRC. 
11.23 -11.24. With regard to research appropriations, 
the established practice is to estimate the appropriations 
required for salaries on the basis of the total number of 
authorized posts in the list of posts, which in turn is based 
on the requirements of the programme as decided by the 
Council. A small part of the staff complement may be 
made up at a given moment of outside staff on contract. 
The level of the JRC's social welfare appropriations 
reflects its specific situation, as the Court of Auditors 
partly recognizes. 
The proposal to amend the Financial Regulation (see 
reply to paragraph 11.27) lays down new rules for the 
special category 19. 
11.25-11.26. When they were set up, the four JRC 
establishments: 
— either replaced national centres; or 
— were located in or near national centres. 
They consequently took over a number of existing 
practices, notably the provision of free transport for staff, 
a concession justified by the distance from urban centres 
and the lack of public transport. 
As for the allowance per kilometre the Commission holds 
the view that, in the case of shiftwork, journeys between 
place of residence and place of work should be deemed 
part of official duties. The Commission is aware of the 
problem raised by the Court of Auditors. 
11.27. The Commission intends to take advantage of 
the revision of the Financial Regulation to resolve some 
of the issues raised by the Court of Auditors. In this 
connection it has proposed that 'staff appropriations 
242 Official Journal of the European Communities 15. 12. 86 
which are available because the actual number of staff is 
temporarily lower than the number authorized remain 
valid and may be used only for expenditure to make up 
the staff shortage'. 
OPERATIONAL EXPENDITURE 
Observations on expenditure on the fitting-out 
of premises occupied by the Council and the 
Commission 
11.31 -11.32. Renewal of the telephone network in the 
JECL building was the subject of an invitation to tender 
in accordance with Article 51(2) of the Financial 
Regulation. 
Pursuant to Article 54 the tenders received were submit­
ted to the Advisory Committee on Procurements and 
Contracts for an opinion. 
The contract was then awarded to the lowest bidder. The 
tender complied with a detailed specification. As it was a 
fixed-price contract, there was no need to check the 
individual items. 
An outline contract was used because of the need to 
spread the work over several financial years, with the 
Commission committing itself to subsequent instalments 
only as and when funds became available. 
The provisions of the outline contract were subsequently 
extended to all buildings where a periodic overhaul of the 
telephone network is required. 
The cost of the work, for which an all-in-price could not 
be set in advance, was determined for each phase on the 
basis of an estimate presented to the Commission 
following a survey carried out by qualified representatives 
of the contractor and the Commission. 
The contractor, a firm recognized by the Belgian and 
Luxembourg authorities, also applied its official hourly 
pay rates; thus, the Commission could and did monitor 
costs. It should be noted that a further invitation to tender has 
been issued since the report was produced. As the 
specification was not for a well-defined operation as in the 
case of the renovation of the JECL network, most of 
which was paid for by the proprietor, a list of standard 
telecommunications operations was drawn up and 
tenderers submitted prices on this basis. 
This enabled the Commission to choose between the 
tenderers and the previous contractor, who was once 
again the lowest bidder, had his outline contract renewed. 
As in the past, future orders will be subject to prior 
approval following estimates from other sources. 
Observations specific to the Commission's 
management of operational appropriations 
Overruling of a refusal of approval by the Financial 
Controller 
11.33 —11.35. Implementation of the 1985 adminis­
trative appropriations was particularly difficult owing to 
the use of provisional twelfths over a long period. In view 
of the difficulties encountered the Commission was 
obliged to use the contingency reserve in Chapter B 101 to 
cover unavoidable administrative expenditure (totalling 
3,2 Mio ECU, including the costs referred to above). 
In the case of expenditure under Item A 2353 (removals 
and handling costs), on the basis of implementation in the 
first few months it was expected that appropriations 
would run out in the last quarter of 1985. However, there 
was considerable activity in this sector during the 
summer - when work is usually suspended - in prepar­
ation for the accession of Spain and Portugal. This meant 
that the appropriations were exhausted much sooner than 
originally expected and there was no way to supplement 
them in time. In the circumstances the authorizing officers 
temporarily exceeded the limit of appropriations avail­
able. 
In deciding to overrule the refusal of approval the 
Commission requested its departments to improve the 
procedures for programming and monitoring appropri­
ations, particularly in the implementation of its decision 
of 17 October 1984 on concrete measures to create or 
15. 12. 86 Official Journal of the European Communities 243 
strengthen the finance sections within the Directorates-
General. 
Implementation of a European television pilot-project provided for in Article 82 of the Financial Regulation, 
which required the recipient to submit financial accounts 
three months after utilization of the grant. The final 
payment of 35 294 ECU (78 000 DM) was made after 
acceptance of a study on the possibility of screening a 
television series aimed at a wide audience ('TV family 
project'), and the final report, as stipulated in Article 7 of 
the contract of 24 February 1984. 
11.37. (a) The Commission's financial contribution to 
this project was based on a budget submitted by the 
private broadcasting company mentioned by the Court of 
Auditors. 
The budget totalled 1,6 Mio ECU (3 607 156 DM) and 
was financed as follows: 
Commission: 
Private broadcasting 
company: 1031 674 ECU: 63,2% 
600 523 ECU: 36,8% The final accounts were submitted by the broadcasting 
company within the three-month time-limit but the 
Commission felt that, in view of the scale of the project, a 
check should be carried out on expenditure at the 
company's offices. This is due to take place in Hamburg 
in the autumn. 
Total: 1 632 197 ECU 
It had been agreed that the broadcasting company, a 
commercial firm under German law, would cover its 
investment with revenue from coproduction agreements 
or from the sale of productions to other television 
stations, and from the proceeds of an event organized in 
Brussels (Euroshow at Forest-National). The Commission intends to make inquiries with this 
company about costs for consultancy services and some 
major items, such as royalties and general and enter­
tainment expenses. 
According to the financial accounts, the actual costs 
amounted to 1 884 168 ECU and were covered as follows: 
Commission: 
Broadcasting com­
pany: 
revenue from 
Zweites Deutsches 
Fernsehen (ZDF) 
and sales: 
deficit: 1031 679 ECU = 55% 
852 489 ECU = 45 % 
436 639 ECU = 23 % 
415 850 ECU = 22% 
1 884 168 ECU 
As this was a pilot project with costs spread over two 
years, it was difficult to produce an accurate estimate at 
the outset, with the result that the initial budget was 
exceeded by 0,3 Mio ECU. As the financial commitment 
was on a lump-sum basis, the Commission did not have to 
bear the extra costs. The Commission is satisfied with the overall outcome of 
this experimental project; it would recall in particular 
that the Euroshow had an audience of about 30 million 
and enabled the Commission to heighten awareness 
among sections of the public not usually reached through 
the conventional Community channels. 
11.38. As this was a totally experimental pilot project 
and the first of its type, the outcome was difficult to 
predict; final checks will therefore be carried out (see 
point 11.37(b)). Be that as it may, the Commission is 
satisfied that the project achieved its aim of heightening 
awareness among European public opinion. 
(b) Payments were made in accordance with Article 7 of 
the contract following signature of the declaration The Commission will make use of the experience acquired 
in this sector in the future and will act on the observations 
of the Court of Auditors wherever possible. 
244 Official Journal of the European Communities 15. 12. 86 
EXTERNAL BODIES 
Observations on the legal structure of the 
recipient bodies 
European Schools 
11.42. The legal framework for the European Schools 
makes no provision for the Commission to play a direct 
management role. However, the Commission is examin­
ing this matter and will make appropriate proposals to the 
competent authorities if necessary. 
Euratom Supply Agency 
11.44 The Commission holds the view that, until such 
time as certain problems involving Chapter VI of the 
Euratom Treaty are resolved, no changes should be made 
to the Agency's statutes in respect of capital or the 
financing or financial management of its budget, as these 
depend on the Agency's function, which could be 
changed. 
JET Joint Undertaking 
11.45. The Commission would confirm that the provi­
sions of the JET Joint Undertaking statutes and of the 
Financial Regulation drawn up pursuant to Article 11 
thereof are complied with in their entirety. The Executive 
Committee of the Joint Undertaking exercises its duties 
strictly within the confines of the powers attributed to it. Observations on the use made by some 
external bodies of the Communities' subsidies 
European Schools 
11.46. (a) At an extraordinary meeting held on 
15 September 1986, the Board of Governors instructed its 
representative to conclude the financing negotiations 
with national and international bodies (NATO, Namsa, 
etc.) by November 1986. The resulting agreements should 
therefore be implemented in time for the 1987/88 school 
year. 
(b) It was also agreed that the Board of Governors would 
adopt a decision at its meeting in April 1987 on a draft 
updated Financial Regulation to be produced by the 
Administrative and Financial Committee, made up of 
members of the Board of Governors, in cooperation with 
the Commission. 
11.47. An analysis of the problems arising from the 
system of remuneration of seconded teachers is to be 
presented to the Board of Governors in November 1986. 
The latter will then decide how these problems can best be 
studied and whether or not an external consultant should 
be called in, as has been proposed on several occasions. 
Finally, a detailed schedule will be adopted for this study 
so that at the very least an interim report can be submitted 
by November 1987. 
11.48. The Commission is aware of the possibilities for 
making savings and increasing revenue to enable the 
Community subsidy to be reduced. 
The Commission would emphasize that a study is being 
undertaken at its request with a view to increasing school 
fees for certain pupils. It will of course raise the other 
matters referred to by the Court of Auditors with the 
school authorities. 
11.50. The Commission agrees with the Court of 
Auditors that it is very important for it to be able to play a 
more active role in the decision-making process in the 
European Schools. This should be possible in the context 
of the proposals referred to in paragraphs 11.42 and 11.48 
above. 
(1) Chile, India, Venezuela and Yugoslavia. (2) Brazil, Israel and Lebanon. 
15. 12. 86 Official Journal of the European Communities 245 
REPLY OF THE COURT OF JUSTICE 
STAFF EXPENDITURE 
Observations on the institutions' management of the education allowances system 
11.9-11.13. The Court of Justice will endeavour, by consultation with the other institutions, to follow the 
recommendation that the system of education allowances be simplified by the adoption of a flat-rate allowance to cover 
each of the three levels of education. 
REPLY OF THE COURT OF AUDITORS 
OPERATIONAL EXPENDITURE 
Observations on the payment of invoices by the Court of Auditors 
11.39. As soon as it was informed of the results of these checks, the Court of Auditors asked for and was retrospectively 
granted the discount in question. There was not therefore any loss to Community finances. 
246 Official Journal of the European Communities 15. 12. 86 
REPLIES OF THE COMMISSION TO 
CHAPTER 12 
Loans, borrowings and interest-rate subsidies 
SUMMARY OF FINANCIAL OBSERVATIONS ON LEGALITY AND 
INFORMATION SOUND FINANCIAL MANAGEMENT 
12.7. The Commission departments have confirmed the 
existing practice. The Commission will provide the Court 
of Auditors with a reasoned account of its position. 
OBSERVATIONS ON THE BALANCE 
SHEETS AND REVENUE AND 
EXPENDITURE ACCOUNTS OF THE NEW 
COMMUNITY INSTRUMENT AND 
EURATOM MECHANISMS 
12.9. (a) The Commission would point out that issuing 
costs for Euratom operations exceeding 200 000 ECU 
were always spread over the lifetime of the loan raised 
whereas lower issuing costs were charged to the financial 
year. 
The change in the charging procedure in the balance sheet 
at 31 December 1985, which the Court itself regards as an 
improvement in the Commission's accounting pro­
cedures, was not made for the sake of convenience but to 
provide a more accurate picture of the results for the year. European Investment Bank management 
commissions 
12.12-12.14. Following the Court of Auditors' com­
ment on the EIB's management commissions in its 1984 
report, the Commission sought further explanations from 
the Bank and produced a preliminary analysis of the 
issue C1). It has also held discussions with the Bank in an 
attempt to find a satisfactory solution in response to the 
European Parliament's request and the Court of Audi­
tors' observations. 
The Commission would point out that as a result of 
calculations made, management commissions on NCI 
and Euratom loans were reduced from 1 April 1984. 
NCI Treasury 
12.15. The Commission notes with satisfaction the 
Court of Auditors' remarks concerning its NCI Treasury 
management policy. 
12.10 - 12.11. The Commission has noted the Court of 
Auditors' suggestion and will consider it. {}) The footnotes appear at the end of each chapter. 
15. 12. 86 Official Journal of the European Communities 247 
NCI loans and interest-rate subsidies for 
areas devastated by earthquakes 
Introduction 
12.17 -12.18. The Commission would draw attention 
to the tripartite agreement between the Court of 
Auditors, the Commission and the EIB in March 1985 
establishing for 1984 an enhanced control system based 
on documents. 
The Court of Auditors' President stated that during that 
period the Court of Auditors would not make use of its 
right to carry out on-the-spot inspections provided that 
the three parties undertook to resume negotiations in 
good time to prepare for the audit of NCI-financed 
operations in subsequent years. 
The Court of Auditors conducted on-the-spot inspections 
eight months later. 
The Court of Auditors has not supplied the Commission 
with details of any shortcomings it has found in the 
documentation supplied, which contains a great deal of 
information on the implementation of the projects and 
progress made. The Commission is willing to do all it can 
to provide the Court of Auditors with any further 
information it requires. 
The Commission will also do its best to assist the Court of 
Auditors and the EIB to find the most satisfactory 
solution which accommodates their respective rights and 
powers. 
Earthquake loans and interest-rate subsidies to Italy 
Implementation of the Council Decision 
12.20 -12.22. Except for two operations (Pugliese 
Aqueduct and Persano), all projects actually consist of a 
large number of single schemes (e.g. 1 179 operations for 
schools). 
The EIB's regular reports (on which the Court of 
Auditors can always ask further questions if necessary) 
illustrate the situation regarding physical progress, giving 
reasons for any delays which have occurred. For most of 
the projects, only a limited number of operations or 
operations of a particular type remain to be completed (e.g. station reconstruction in the case of the railways, the 
plans for these having often been questioned by local 
authorities after contracts have been let; and waste water 
treatment plants for industrial estates). 
For this kind of composite project, completion dates 
which are related to the last items involved can scarcely be 
indicative of the physical progress of the project as a 
whole. 
Furthermore, the possibility of slippage of pre-
established timetables is endemic in the field of infrastruc­
ture development; experience clearly shows that com­
pletion dates here have only an indicative value. 
Reconstruction projects were specially difficult for many 
reasons. In particular during 1981 and part of 1982 many 
minor earthquakes occurred, aggravating damage al­
ready done and creating new problems. Moreover, 
technical standards for construction in seismic zones were 
tightened up. Plans consequently had to be revised. 
Delays inevitably ensued in relation to date forecasts in 
loan contracts. But no project has been, as a consequence, 
drastically modified in its aim and scope. 
For these reasons, the main causes for delay quoted by the 
Court of Auditors in paragraph 12.21 merely reflect the 
difficulties usually encountered in carrying out and 
financing infrastructure projects, particularly composite 
ones, not to mention the difficulties added by the 
earthquakes. 
Disbursement of loans and interest-rate subsidies 
12.24 -12.26. The Commission would reply to the 
Court of Auditors' observations as follows: 
The interest subsidies are paid out by the Commission, 
and transmitted by the Bank in the form of a reduced 
interest rate, in 12 annual instalments on the 12 interest 
dates of the loan, regardless of whether the loan funds are 
actually used slightly earlier or slightly later than 
expected. Furthermore, it should be remembered that the 
Italian State, through its Treasury, is the borrower for the 
earthquake loans, for which it also assumes the debt 
service. The final beneficiaries (themselves part of the 
248 Official Journal of the European Communities 15. 12. 86 
State administration) are not responsible for servicing the 
debt and are therefore isolated from such timing effects. 
Apart from the interpretation of the data, the actual 
information used by the Court of Auditors in Table 12.4 
differs from the information flows between the Italian 
authorities and the Bank provided for under the loan 
contracts between them (see the Commission's reply to 
paragraphs 12.17 — 12.18). Nor does the table cor­
respond with the Bank's information on payments made 
by final beneficiaries. The latter are all much higher than 
those cited by the Court of Auditors. This may be due to 
the definitions used which — in this field — can vary 
substantially, in particular with reference to relevant 
phases of procedures (works completed but not yet 
invoiced; invoiced but not yet paid; invoiced and paid); 
not to mention forecasts of expenditure over the coming 
six months, which are always subject to modification. 
Furthermore, in view of the urgency of the reconstruction 
projects, the EIB has, at the request of the State or as a 
consequence of its own project monitoring, disbursed in 
advance in those cases where the amounts involved were 
not immediately available under the relevant budgets but 
were necessary to ensure the launching of works. This was 
precisely to help to avoid delays in project implemen­
tation as, according to national accounting laws, no 
public body can let contracts unless liquid funds are 
available for an amount not inferior to the works cost. 
The Bank's decision to disburse early in the case cited in 
paragraph 12.25 was taken after careful study of the 
circumstances and was particularly helpful in preventing 
total blockage of the implementation of a project. 
12.27. In view of the above points and, in particular of 
the general context in which these operations are carried 
out the Commission does not consider that the Court of 
Auditors' conclusions, the principle of which it supports, 
really apply in this instance. 
Eligibility of projects financed from NCI resources 
12.29 -12.30. The Court of Auditors' doubts about the 
eligibility of certain NCI earthquake loans and interest 
rebates stem from an excessively restrictive interpretation 
of Council Decision 81/19/EEC. 
In point of fact this decision was the subject of 
interpretation, when the 'Convention' between the 
Commission, the Bank and the Italian Republic of 
16 March 1981, was finalized. On that occasion it was agreed to interpret 'the reconstitution of the means of 
production ' and 'the reconstruction of the economic 
and social infrastructure' along the following lines: 
— The usual distinctions between economic and social 
infrastructure having been blurred by the exceptional 
situation existing after the earthquake, what had to be 
rebuilt was the totality of items of every kind needed 
to re-establish normal conditions of life and produc­
tion, without which no return to a proper level of 
'economic productivity in general' (Article 20(1 )(b) of 
the Bank's statute) would be attainable. 
— This involved not simply economic infrastructure as 
generally understood, but public buildings of every 
type, and possibly the rebuilding of complete villages, 
together with all necessary public facilities. 
— In the process, appropriate improvements were to be 
incorporated, in so far as they were justified by 
technical progress, by changing economic and social 
conditions, or by readaptation to present-day re­
quirements. Thus road projects could incorporate 
improvements of line, adaptation to present-day 
traffic loads, rationalization of civil engineering 
works and easier maintenance features. 
The possibility of financing new buildings (see also the 
Italian Reconstruction Law 219/81) is implicit in this 
definition and was subsequently accepted by the Bank's 
decision-making bodies, as was the case for the Industrial 
Estate Project, aiming at the setting up of infrastructure 
which previously did not exist. In any case, it would 
appear inappropriate if pre-earthquake buildings, in 
frequent cases old, unadapted to modern requirements 
and located in congested or unsuitable areas, were simply 
rebuilt, even if modernized. Relocations and additions, as 
in the Persano case where civil defence facilities were 
constructed within the military compound, or the new 
Faculty of Pharmacy building in Naples, were considered 
necessary following natural disasters to provide adequate 
infrastructures for the proper economic life of the affected 
regions. 
Earthquake loans and interest-rate subsidies to Greece 
12.33. See the Commission's reply to paragraphs 12.24 
— 12.26 of this report. 
15. 12. 86 Official Journal of the European Communities 249 
12.34. By the end of 1985 completed projects had cost 
6 648 Mio DRA, as the Court of Auditors itself states in 
paragraph 12.36. This compares with the estimate of 
6 666 Mio DRA at the time the programme was amen­
ded. 
12.35. Because of the temporary hiatus in written 
reports from the borrower, the EIB thought it better to 
monitor the project through its Athens office and by 
sending out teams of inspectors. 
12.37. The Commission can confirm that no changes 
have been made to the amount of the loan. Despite a 
slight reduction, the programme has remained suf­
ficiently large to absorb the whole loan, which has 
covered 85% of the investment. 
Both the aims and the technical characteristics of these 
changes to the programme are in line with the aim of the 
project and so are covered by the Commission's decision 
on eligibility. 
Control by the Commission 
12.38. The progress and completion reports prepared 
by the EIB relate to projects and are therefore normally 
received by the Commission for those projects which are 
financed partly by EIB funds and partly by NCI funds 
(about half of those in which EIB finance is involved in 
the case of Italian reconstruction operations). In the 
remaining cases, where the loan capital comes entirely 
from the EIB's own resources, it would be inappropriate 
for the Commission to request this type of loan control 
information. 
12.40. The annual reports prepared by the Commission 
are based on the terms of reference quoted by the Court in 
paragraph 12.39. As such, they are neither accounting 
documents nor inspection reports. Nevertheless, it is the 
established practice to include a general appreciation of 
each type of activity once it is fully operational. 
Conclusion 
12.41. When it makes its general appreciation, the 
Commission will endeavour to draw appropriate conclu­
sions for future emergency aid programmes. NCI global loans 
12.44. The Commission considers that its main job is to 
designate the projects eligible for funding. Once this is 
done, the provision of whatever loans are granted is the 
responsibility of the EIB, itself a Community body. If any 
funds lent are not used in accordance with the eligibility 
decision, the Bank is required to inform the Commission 
immediately. The complete documentation which the 
Bank supplies to the Commission represents a second line 
of control, additional to the checks which the Bank 
carries out as a matter of course. 
The Commission has already pointed out, in its replies to 
the Court of Auditors' observations in its 1984 report, 
that the direct effects on employment of an investment 
project, one of many factors taken into account when a 
decision on eligibility is taken, are much less important 
than the indirect and multiplier effects, which it is 
impossible to assess precisely. 
The objectives of the NCI as set out in the Council 
decisions are wide-ranging and varied. The Bank 
implements them in accordance with guidelines laid down 
by the Commission and endeavours to keep procedures as 
simple as possible, an objective which the Commission 
endorses. The Commission regrets that the Court of 
Auditors is not satisfied with the documentation made 
available and is willing to consider any further request 
from the Court for extra documents it requires to be able 
to carry out its duties. It will also provide the Court with 
any assistance it needs in fully understanding the 
documents. 
12.45. Although the Court of Auditors has the right 
under the Financial Regulation to carry out on-the-spot 
audits on global loans, the Commission hopes that the 
Court of Auditors will agree that this should not be done, 
since it would in practice entail subjecting the beneficiary 
to a third possible check. 
It should also be borne in mind that, in the case of global 
loans, the entire risk is borne by the financial inter­
mediary. 
The Commission would therefore invite the Court of 
Auditors to find other ways of exercising its prerogatives. 
In general, the Commission would point out that the 
250 Official Journal of the European Communities 1^.12 ^ 
problems of on-the-spot audits by the Court of Auditors Commission's reply to paragraphs 12.17 — 12.18onthe 
areunderconsiderationatthe^eryhighestle^ given the general question of on-the-spot audits.^ 
problems posed by their implementation. (See also the 
(!) See the Interim Report by the Commission on measures 
taken in response to the 1984 discharge decision (Doc. 
COM(86) 423 final). 
15. 12. 86 Official Journal of the European Communities 251 
PART II 
REPLIES OF THE COMMISSION 
European Development Funds 
OBSERVATIONS ON THE FINANCIAL Fifth EDF 
MANAGEMENT 
Third and fourth EDF 
3. In 1985 the Commission took two further financing 
decisions under the third EDF. For both operations, 
payment was expected to be rapid and one has in fact 
since been completed. 
On 10 September 1986 the Commission decided to 
transfer to the fifth EDF the 15,95 Mio ECU which will 
definitely remain from the third EDF. 
By definition, the part committed but not yet paid 
(13,6 Mio ECU at 31 August 1986) relates to projects 
which are still in progress. When all such projects have 
been completed, that is when the third EDF is closed, the 
funds remaining from those projects will similarly be 
transferred to the fifth EDF by a further Commission 
decision. 
The bulk of the sundry receipts under the fourth EDF 
have been used to assist and rehabilitate certain countries 
in the Sahel. Those parts of the indicative programmes 
which remain available will be committed as and when the 
corresponding projects get under way. 4. The percentages for certain countries quoted by the 
Court of Auditors are those for payments of program­
mable aid under the fifth EDF at the end of 1985. The 
corresponding figures for commitments were 55%, 65%, 
31%, 45% and 62%, which are much closer to the 77% 
previously quoted by the Court of Auditors. 
As regards the Court of Auditors' comments on the 
excessive time taken to conclude loan contracts, the 
timetable for their preparation is designed to ensure that 
signature takes place at a time which will permit 
disbursements from special loans to be made normally 
while preserving as far as possible the 10-year grace 
period on repayments which starts to run from the date of 
signature. 
This means that account is taken of: 
— any subsidy available, since this is usually used first, 
so delaying signature of the loan contract. It is quite 
normal in such cases for subsidies to be disbursed at a 
faster rate than special loans; 
— progress in awarding contracts, and hence the 
estimated date of the first payment. 
It is only in exceptional cases that disbursement has been 
delayed simply because the loan contract has not been 
signed. 
252 Official Journal of the European Communities 15. 12. 86 
OBSERVATIONS ON THE ACCOUNTING It is true that officially there was a certain gap in the 
SYSTEMS AND PROCEDURES continuity of the accounts. However, until the 
accounts for the previous year have been closed, those 
for the new year are kept separately even though no 
cumulative accounts can be produced. 
5. As a result of the efforts of Commission departments 
to make the Member States respect their commitments, 
the total length of time for which contributions were 
overdue was reduced by almost one third in 1985 
compared with 1984. It is hoped that with the adoption of 
the Financial Regulation for the sixth EDF, which 
provides for penalty interest on late payments, this 
problem will be eliminated. 
The Court of Auditors refers to the existing practice 
whereby payments are not posted to the accounts until the 
debit advices are received from the bank concerned. 
The present system was developed in order to remove the 
need for cumbersome accounting entries to adjust for 
exchange differences arising from payments being 
effected in a currency other than the ECU. Proposals 
currently under consideration relating to direct access to 
banks via a computer link are expected to lead to more 
rapid posting of payments in future. 
6. Examination of the cases quoted by the Court reveals 
the following: 
— supporting documents: 2 cases of correction of 
punching errors, admittedly without any special 
procedure; the documents existed but had been placed 
in files held by different departments; 2 cases where 
commitments were made on the basis of a contract 
without attached documents which were not regarded 
as indispensable; payment made on the basis of a 
certificate of supervision of works and a certificate 
from the administration responsible but without a 
statement of costs from the contractor; a statement 
amended by hand by a delegation, which alone is 
capable of assessing what had actually been done; 
— delays in payment: of the 11 cases cited by the Court of 
Auditors, the fault lay with the Commission in only 3. 
The other delays were due to the ACP State (3 cases), 
disputes which had to be resolved or agreements which 
had to be reached before the payment could be made (3 
cases) and the creditor himself (late production of a 
bank guarantee). In one case there was no delay since 
the date on the invoice was incorrect. 
With regard to delays in entry in the accounts, 
particularly in the first quarter of the year, it should 
be noted that the 1985 accounts were closed and the 
accounts reopened on 21 February 1986. 7. The departments concerned are in complete agree­
ment with the Court of Auditors. Some progress has 
recently been achieved in that punched cards have been 
replaced by the direct entry from a computer-linked 
terminal of data intended for project and tender charts. 
The Commission is, however, well aware that there is still 
a long way to go and it is doing what it can with the staff 
and funds available. 
8. Although there is no manual of procedures as such, 
there has existed for a long time a compendium of 
instructions for the use of delegates which includes 
detailed instructions on the award and execution of EDF 
contracts. 
This compendium, of which a completely revised and 
updated version was recently distributed to delegations, 
helps considerably 'to define and harmonize the work of 
officials in the Commission's finance departments and 
delegations'. 
In the case of exceptional aid (e.g. the Dublin Plan), the 
need for rapid action means that the delegation must play 
the leading role. It alone can certify to departments in 
Brussels that the services have actually been carried out, 
mainly on the basis of supporting documents which it 
naturally makes available to both internal and external 
audit bodies when they carry out on-the-spot checks. 
OBSERVATIONS ON THE ACP STATES' 
ROLE IN DEFINING THE AID 
Aid programming 
Identification of the beneficiary Member States' priority 
needs 
10. (0 The concept of programming has been const­
antly refined in succeeding Conventions, so reflecting the 
(*) The footnotes appear at the end of Part II. 
15. 12. 86 Official Journal of the European Communities 253 
desire of both the ACP States and the Community to 
make financing more efficient. 
Between Lome I and Lome II, the move was from what 
was little more than the determination of a list of projects 
to an approach based on the definition of priority 
objectives so that Community financing would be better 
adapted to the development priorities determined by each 
ACP State. 
The priority areas for intervention were thus determined 
in the light of each State's objectives and priorities. The 
indicative total of Community aid was then divided 
among these areas, wherever possible in percentage terms. 
The indicative programme should contain only projects 
or action programmes which are clearly identified. 
This meant that the most delicate phase of programming 
was the definition of the priority objectives, since it 
involved going beyond the identification of general 
objectives representing macroeconomic targets to set 
more operational and concrete goals (e.g. at sectoral 
level). 
It was not always possible to see this exercise through to 
its conclusion. The concept of objective was replaced by 
that of sector, and discussions at the programming stage 
turned upon the percentage breakdown of the indicative 
programme among the priority sectors. Most of the 
indicative programmes under Lome II contain three or 
four target sectors, together with the percentages of the 
indicative programme resources which should be allo­
cated to each and the general objectives which each is 
expected to achieve. These sectors soon turned out to be 
the projects presented in the indicative programme as 
clearly identified, which was not always the case. 
The programming exercise under Lome II thus marked an 
initial step away from the listing of projects as practised 
under Lome I towards greater complementarity between 
actions financed by the Community and the efforts of the 
ACP State itself. In practice, this approach had to be 
introduced gradually, since it depended on the social, 
economic and administrative situation in each ACP State. 
On the basis of the lessons learned from this exercise, the 
Lome III negotiators gave a new impetus to programming 
by defining even more precisely its content and stressing 
the importance of preparatory work. 
In order to bring Community measures into closer 
harmony with the priority sectoral objectives of each ACP State, Article 215 of the Lome III Convention made 
support for sectoral policies central to the programming 
process by laying down two basic principles: 
— the concentration of aid on a limited number of 
sectors, or even just one, so that it can make a greater 
impact; 
— pre-programming discussions between representatives 
of the ACP State and the Commission to identify the 
measures and means within each sector selected which 
both parties can use to achieve the sectoral objectives 
set. 
The Lome III approach is designed to make good the 
deficiencies of Lome II programming by concentrating 
support on one or two sectoral priorities selected on the 
basis of the major constraints on the development of the 
State concerned. 
11. The accession of Guinea to the Lome I Convention 
was accepted by the Community Member States and the 
Commission despite the very difficult circumstances 
created by an inward-looking dictatorship which had 
been in power for 15 years. In consequence, the choice of 
projects for the fourth EDF, which were designed mainly 
to revive two national industries (textiles and plastics) and 
finance large purchases of machinery for use in the 
countryside in conjunction with the proliferation of 
district agri-pastoral farms (FAPA), proved to be riddled 
with uncertainties and risks. 
Eventually, under Lome II, the government in power 
proved more amenable and it may fairly be claimed that 
the number of difficulties has been reduced and the thrust 
of projects improved (agricultural development in Upper 
Guinea, revision and concentration of rural improvement 
programmes, micro-projects and village water supplies). 
Taking account of national constraints resulting from 
the state of public finances and foreign-exchange 
reserves 
12 -13. In the Lome II programming exercise, the 
Commission endeavoured to take account of the prob­
lems of public finance and foreign exchange experienced 
by the ACP States. 
A number of indicative programmes make explicit 
mention of the need to rehabilitate existing investments 
and works or to consolidate what has already been 
^4 COfficiallournal of the European communities loel2.^ 
achieved ^g.mnthecaseofinfrastructure, the indicative 
programmes tbr^auritania^^ali and Burkina^Faso^ 
Some programmes provide tor the use of food aid 
counterpart funds tofinancenationalparticipation in 
PlOPfinanced projects ^gDTogo^ 
respite the tact that these problems were foreseen at the 
programming stage, it has happened that in certain 
countries inadequate account was taken of national 
budgetary capacity ortheshortageofforeignexchangeat 
the project appraisal stageD 
Programming under Lome III was even more concerned 
with accommodating all these factors in keeping with the 
stress which the convention lays on rehabilitation, 
maintenance and support lor countries with foreign 
exchange problemsD 
Phis can be seen at three levels in the texts of indicative 
programmes already signed^ 
^Inthesectionoftheindicativeprogrammeconcemed 
with measures for which the recipient State is 
responsible, that State undertakes to maintain at its 
present level or increase the part of its budget 
allocated to the sector receiving community support 
^e.g^ agricultures and to ^stablishaprogramme for 
the rehabilitation of economic infrastructure and to 
establish or expandafund for its maintenance. 
^In the section concerned with the criteria for 
examiningprojects and programmes many indicative 
programmes echo the wording of the convention in 
phrases such as^ 
— recurrent charges in relation to the budgetary 
resources of the Stat^ andAor groupings con­
cerned^ 
— priority to the rehabilitation and maintenance of 
existing investments. 
^) At the level of Community support,which makes 
explicit provision ^Article 1^ for the financing of 
sectoral import programmes for countries suffering 
fromashortage of foreign exchange^ 
^. COne of the two health centres in ^enya whose 
construction was interrupted in 1^2 has now been 
completed and has been in operation since l^Du 
Following approval of complementary financing by the 
C^ommissionin^tarchl^^,theprojectasawholeisnow 
being completedD Whenthefinancingplanforthetwopalm-oilprojectswas 
drawnupinl^,Chanawasinapositiontomakeits 
contribution,which was essentially to meet local costs. 
Ilnfortunatelyth^ serious deterioration in the country^ 
public finances in the early l^t^s meant that Chana was 
no longer able to meet the commitments it had entered 
into when the project was implemented. 
^. The commission attempted to avoid excessive 
dispersal of funds on this project by deliberately limiting 
the number of operations, despite pressure from the 
Cuineanauthorities, which wantedmore hospital centres 
to be built. 
.Phis measure was, infact, designed asanintegrated 
project involvings 
— theprovisionoftechnicalassistancefbrmaintenance^ 
— the supply of small generating sets, mainly to power 
dental surgeries^ 
— the provisionof spare parts andaconsignment of 
medicines and essential minor equipment 
Itisdifficulttoseewhatmorecouldbedoneinviewofthe 
situation in Cuinea. 
^^^. ThetemporaryutilizationofElOPfundsforthe 
maintenance or repair of earlier projects was authorized 
underLomeII,butonlyinexceptionalcircumstances 
^Article leo^. This restriction did not appearin Lome III 
^Article 1^^ 
20. In order to take better account of the shortage of 
foreign exchange fromwhichalarge number of ACP 
States do in fact sutler, Lome III provides tor the 
financing of inputs into the productive system, such as 
rawmaterials,spareparts,tertilizers,etc.^Articlel^l^. 
Co^e^eet^tyof^oBUB^ty^Bde^oB^e^o^ 
22. l^he commission is aware of the problems reterred 
toby the Court of Auditors afiecting the agricultural 
development project on ^odrigues Island, Mauritius. It 
has made concrete proposals to the national authorities 
butwithlittleetlect, since the main cattle breeders on the 
island clearly formapowerful lobby. 
15. 12. 86 Official Journal of the European Communities 255 
23. Guinea originally requested finance for supplies of 
equipment to 33 polytechnic colleges and agronomy 
faculties. 
Although Commission representatives are unable to 
carry out any meaningful investigations outside Conakry, 
they restricted aid to supplies for five colleges and nine 
agronomy faculties on which they had some information. 
It should also be noted that: 
— the equipment supplied to both the colleges and the 
agronomy faculties was basic, comprising manually-
operated equipment rather than machine tools or 
sophisticated scientific apparatus which cannot 
operate without electricity; 
— a certain amount of working material and spare parts 
was supplied so that the equipment would not stand 
idle; 
— attempts were made, not without difficulty at a time 
when the arrival of European technical assistants was 
viewed with suspicion, to train national staff for both 
teaching and maintenance duties. 
Appraisal of projects 
Analysis of the commercial aspects 
24. The Commission too is concerned by the problem 
raised by the Court of Auditors. In this connection it 
should be noted that the measures for the development of 
trade and services provided for by Articles 95 to 100 of the 
Third Lome Convention take greater account of aspects 
relating to trade strategies and the adaptation of products 
to market requirements, both factors which are bound to 
affect production projects. 
26. At the time the project was carried out, everything 
was in the hands of the all-powerful State, which 
controlled selling prices, marketing policy, the distri­
bution network, etc. Since the State had no competitors, 
these factors were of only marginal importance. The real problem arose with the opening of Guinea's 
frontiers and the liberalization of its economy, which 
exposed Soguiplast to competition from imported goods. 
It was with the aim of making Soguiplast competititive, 
both in terms of quality —to adjust to changes in 
customers' tastes — and of costs (production and sales), 
that the Commission issued a call for tenders to find a 
European technical partner who would work with 
Soguiplast on the restructuring and rational operation of 
its factory. 
Technical studies 
28. Saakow experimental station project 
It was by no means clear in 1979 that the difficulties 
alluded to would jeopardize realization of the project. 
This became evident later, in the course of experience (this 
was the first attempt to set up an agricultural or indeed 
any development project in the area). 
The chronology of the abortive works contract is 
somewhat vague. The Saakow works tender was issued in 
March 1981 and a contract signed on 1 November that 
year. Delays attributable to the administration and the 
contractor led to work not beginning until October 1982. 
It stopped in November 1983 when it became evident that 
the contractor was having grave difficulties. 
Reconsideration of the siting of the project started in 
February 1984. The decision to move the project to 
Baardhere was taken in July 1984. 
29. The sale to small farmers of some 60 000 seedlings 
and seed nuts between 1980 and 1985 clearly reflects the 
development of village plantations alongside large-scale 
plantations. 
30. As regards the remarks on the Goluen grapefruit 
project, the three large generators were originally 
intended to cover peak power requirements to pump 
groundwater from 13 wells for dry-season irrigation. In 
the event only nine wells were completed because of 
subsequent changes made during implementation. How­
ever, use of their capacity will rise as the irrigation system 
becomes operational and the full 185 ha plantation is 
completed. The 100 kW generator supplies power to the 
farm centre. 
256 Official Journal of the European Communities 15. 12. 86 
31. See the reply to paragraph 14. 
33. The problem of supply of inputs and consumable 
materials was not ignored, either in Guinea or elsewhere. 
The low yields of rice are not due solely to the shortage of 
fertilizers but also to the agricultural policy followed 
under the government in power: 
— the imposition by the State of a tithe on production; 
— the lack of essential goods on rural markets; 
— agricultural price levels which provide no incentive to 
production. 
If yields of rice have fallen short of what might have been 
expected, this was due principally to the lack of 
motivation on the part of small farmers who tended to 
provide only for their own needs. 
Examination of the projects' administrative and financial 
context 
35. The Sanoyah textile plant in Guinea is coming on 
stream satisfactorily and a protocol of agreement has 
recently been signed between an international group and 
Guinea for the establishment of a mixed economy 
company to run the complex. The difficulty has therefore 
been overcome. 
36. The project is situated in an area of the most 
developed region of the country where environmental and 
metereological conditions are particularly favourable. 
The problem of inadequate salaries stems from the 
serious deterioration in Ghana's economic situation 
between the appraisal and implementation stages of the 
project and will be resolved only by the economic 
recovery which is now in progress. There is no prospect of 
a general salary increase at present. The Commission is 
aware of this situation, which should improve with the 
revival of Ghana's economy, to which the Twifo project 
should contribute. 37. Water supply to Praia, Cape Verde. The Court of 
Auditors raises the important problem of the manage­
ment of the drinking water supply to Praia, which will 
have to be thoroughly overhauled if full advantage is to be 
gained from the investments financed from the EDF and 
other sources. 
It is true that, as a matter of urgency, the Commission 
financed from the fourth EDF a section of the works 
designed to renovate existing equipment in the most 
densely populated areas. Appraisal of the project revealed 
the need to overhaul the existing management system 
since it is true that three ministries were involved. This 
organization, a legacy of the colonial period, was 
perfectly adequate for the policy followed in the past 
when investment and operation were the responsibility of 
the town. 
The Commission decided that the recommendations for 
improving water management in Praia which emerged 
from the study financed from the resources of the fourth 
EDF should be sent to the Cape Verde authorities. The 
study proposed a financially autonomous structure and a 
plan for increasing charges to achieve financial balance. 
40. The line of credit for assistance to small businesses 
in Guinea has been transferred to the Bicigui, a new 
banking institution, part of whose capital is held by the 
EIB and which is now operational. 
41 - 42. The Court of Auditors' comments in these two 
paragraphs are similar to the general remarks at 
paragraphs 10 — 13. The Commission's replies are to be 
found there. 
15. 12. 86 Official Journal of the European Communities 257 
OBSERVATIONS ON THE COMMUNITY'S 
RESPONSIBILITIES IN THE 
MANAGEMENT OF THE AID 
Implementation of projects 
The general conditions of the public works contracts 
financed by the EDF 
43 - 44. Conditions governing works and supplies for 
all countries associated with the Community under the 
Yaounde Conventions were negotiated at length and 
finally adopted and published in the Official Journal in 
1972 (2). This text was subsequently incorporated into the 
legislation or rules of all the Member States and signatory 
countries associated under the Yaounde Conventions. 
At the time of the first enlargement, it was felt that, in 
view of the different systems of law prevailing in the 
English-speaking ACP countries and some of the new 
Member States, these conditions could not be adopted as 
they stood by all the ACP States and that the text should 
be thoroughly revised. This was done and led to the 
production of three documents in 1979 and 1980 (VIII/ 
1213/79, VIII/347/79 and VIII/510/80). These went 
through the normal procedure in the Community Council 
of Ministers, where they were subjected to considerable 
revision. They were then submitted to the ACP States, 
which made counter-proposals, some of which were 
accepted by the Community. This obviously long and 
complex procedure led to the production of two 
documents, one for works (6421/83) and one for supplies 
(6422/83). Any real negotiations between the Community 
and the ACP States on this subject were overtaken by the 
opening of negotiations on renewal of the Convention 
itself. 
Services were treated separately because counter-pro­
posals by the ACP States complicated matters and in the 
meantime the Third Lome Convention changed the 
principles on which these contracts are awarded. The 
question therefore needed to be thoroughly re-examined. 
Commission staff are just completing this process, and in 
October 1985 they began informal negotiations on the 
texts on works and supplies. The ACP States have 
recently pointed out that the negotiations are likely to be 
protracted because they have no suitable experts to assist 
them in this complex field. The token reference in the programmes of the ACP/FIN 
working party means that this matter will be formally 
entered for discussion as soon as the informal negoti­
ations referred to above have enabled positions to be 
clarified and some preliminary problems to be resolved. 
Only important difficulties which cannot be settled by the 
negotiators and on which the Community is forced to 
revise its initial position will be referred to the working 
party. 
45. The Commission has some of the national legis­
lation to which the Court of Auditors refers and can 
consult its delegations to obtain any further information 
it requires. The delegations, however, do not have the 
resources to keep a permanent and regularly updated 
register. 
It is wrong to imagine that there is a multiplicity of 
different legislation. The laws in force on this subject have 
a number of points in common and the States which were 
not party to the Yaounde Convention very often and to 
an increasing extent make use either of the Fidic 
conditions or those from 1972-73 already mentioned or 
apply voluntarily the drafts referred to above. 
The arbitration procedure for disputes arising in 
connection with the performance of public works 
contracts 
46-48. Work began in the Commission without delay 
on drafting the arbitration rules provided for in Article 23 
of Protocol No 2 to the First Lome Convention. In 1977 
draft rules were produced on arbitration for public 
contracts financed by the European Development Fund. 
This document was, however, criticized by certain 
Member States which felt that, since there already existed 
a large number of texts in this field, most of which had 
been adopted by international organizations and had 
proved their worth, further legislation was unnecessary. 
The two Yaounde Conventions and the three Lome 
Conventions provided for arbitration by the Inter­
national Chamber of Commerce (ICC) as a transitional 
measure. Little use has been made of this provision; of the 
18 cases referred to the ICC, judgment has been given in 
only three. In addition, a feeling of hostility towards the 
ICC's Court of Arbitration has developed in the ACP 
States for both legal, procedural and political reasons and 
the three judgments given have not been enforced. 
258 Official Journal of the European Communities 15. 12. 86 
Accordingly, at the end of 1979, the Directorate-General 
for Development and the Legal Service of the Commis­
sion agreed that the ICC's arbitration procedure could be 
replaced by the system provided by the United Nations 
Commission on International Trade Law (UNCITRAL) 
which, since it was adopted at world level, ought not to 
provoke any opposition from either the Member States or 
the ACP States. 
During the Lome III negotiations the Commission 
proposed a text making express reference to the 
UNCITRAL rules, but the ACP States thought that the 
question was so technical that it required more thorough 
consideration than was possible during the negotiations 
and so carried over the relevant provision of Lome II, 
while asking the Commission to consider the matter. It is 
now doing so. It has begun work on adapting the 
UNCITRAL's arbitration rules to the special require­
ments of the EDF, and a document should be available in 
February 1987. 
49-50. The Commission has no legal standing to 
intervene in the settlement of disputes between a firm and 
a national administration and can do so only at the 
request of the parties. Some conditions, such as those 
concerning supplies and works to which reference was 
made above, provide that no dispute may be referred to 
arbitration unless all the channels provided for by 
national legislation have been exhausted. This means that 
an amicable settlement is often found. 
The Commission does not therefore have the means of 
producing an exhaustive register of disputes referred to 
the various national administrative and judicial author­
ities. References for arbitration to the ICC are a matter 
for the parties alone and the Commission, which has no 
part to play in the procedure, is not always informed. 
Since it is unable to keep a register, the Commission has 
developed a computerized system which will record the 
main disputes which have arisen since 1983 and provide a 
breakdown by country, sector and legal question in 
accordance with the wishes of the Court of Auditors. This 
system should be operational in October 1986. Evaluation of projects 
Evaluation during implementation 
51. The Commission agrees with the Court of Auditors 
that more frequent use should be made of Article 118(1) 
of the Second Lome Convention. 
It intends to include in future financing agreements 
provision and finance for the monitoring and evaluation 
of programmes and projects. 
This does not mean that no attempt was made to do this in 
the past. In many cases delegations carried out monitor­
ing and evaluations between the various phases of 
projects, and this made it possible to improve implemen­
tation, aims and results. 
55. As soon as the contract for the 3,04 Mio ECU 
special loan was signed in 1981 the authorities in 
Mauritius set up a revolving fund to finance the 
construction of simple housing through loans carrying a 
2,5% interest rate. 
For its part, the Commission paid 1 485 846 ECU in three 
instalments to the Mauritius Housing Corporation. 
However, the remaining sums have not yet been paid 
because, despite numerous reminders, the Commission 
has so far received no information on the use made of the 
funds allocated. In May 1986 it again requested this 
information in what it termed a final reminder before 
termination of the project. 
Ex-post facto evaluation of projects 
57.. While it is the Commission's firm intention to 
introduce systematic evaluations during implementation, 
ex-post evaluations are a much bigger problem and have 
less justification. Obviously they cannot be financed 
within projects and a representative selection is sufficient 
to provide lessons which may be of use in the preparation 
of other projects in the same category. 
However, the Commission can understand the Court of 
Auditors' concern, as illustrated by the example which it 
quotes. It will endeavour gradually to step up ex-post 
evaluations, particularly in the context of the so-called 
'global' evaluations for each country. 
15. 12. 86 Official Journal of the 
Use made of the Court of Auditors' earlier observations 
60 - 61. The Court of Auditors appears to believe that 
the Commission by itself should be able to remedy the 
defects or shortcomings which it has detected during its 
audits. 
It should scarcely be necessary to point out that 
cooperation under the Lome Conventions is based on 
equality between the Community and the ACP States. 
This means that it is not within the Commission's power 
to remedy problems or inaction in the ACP States 
themselves, these often being the reason for the defects or 
shortcomings. 
The Commission endeavours to take the fullest possible 
account of the lessons it has learned by experience. 
STABEX 
Use of Stabex transfers 
62. A study of local causes is required not only to 
investigate whether losses arise from a trading policy 
hostile to the Community but also, and more import­
antly, as part of the consultations to see whether the 
transfer basis should be reduced because the ACP State 
concerned is responsible for losses (Article 164). 
Before the Third Lome Convention came into force, the 
decision of an ACP State on the use of the resources it 
received had only to respect the objectives of Article 23(2) 
of the Second Convention and there was no provision for 
this decision to reflect the origin of the loss incurred. 
Article 170(3) of the Third Convention changed this 
situation by requiring an ACP State to justify use of 
resources outside the sector in which the loss arose. 
63. Before the Third Convention came into force the 
Commission could do no more than draw the ACP State's 
attention to its obligation to submit a utilization report 
and no penalty could be imposed if it failed to comply. 
The Third Convention, however, does contain provisions 
permitting a subsequent transfer to be suspended under 
certain conditions. European Communities 259 
Refund by beneficiary States of Stabex 
transfers 
65. The criteria on which the Commission's proposals 
are based are those mentioned in the relevant provisions 
and so cannot be more precise than the texts on which 
they are based. 
66. The Commission is aware of the problems which 
may arise from strict application of the rules in the 
circumstances described by the Court of Auditors. 
SYSMIN 
68. It should be added that an ACP/EEC decision set 31 
October 1985 as the last date for applications for Sysmin 
applications under the Second Lome Convention. This 
explains the three late applications. 
Delays in implementation 
69. In the case of the two projects concerned the 
following points should be noted: 
Zaire: — two-year gap between the date of the request 
and signature of the loan contract (and 
hence making available of Sysmin funds); 
— a further 3 1/2 years for the project to be 
implemented, following which all the funds 
in question were paid. 
Zambia: — gap of 20 months between the request and 
signature of the loan contract; 
— a further 3 years, 2 months for the project to 
be implemented, following which all the 
funds in question were paid. 
70. This delay is due mainly to the preparation and 
implementation by the beneficiary ACP State or mine 
operator of the programme or project. 
260 Official Journal of the European Communities 15. 12. 86 
71. The stages in the procedure are as follows: the 
Commission decides on the eligibility of the request and 
then determines the amount of its contribution. Then, 
after evaluating a particular project or programme and 
again consulting the EDF Committee, it decides on 
financing. 
CONTROL OVER FUNDS MANAGED BY 
THE EUROPEAN INVESTMENT BANK 
(EIB) 
73-74. As acknowledged by the Court of Auditors, the 
situation concerning information supplied by the Bank 
on EDF-fmanced projects managed by the European 
Investment Bank has improved since 1984 following an 
agreement between the Commission and the Bank on the 
information to be provided by the latter. This improve­
ment has been considerable in respect of projects decided 
on since 1 January 1984 and the range of information 
provided corresponds, mutatis mutandis, to that agreed 
on in 1984 between the Commission, the Bank and the 
Court of Auditors in respect of Bank-managed projects 
financed from the New Community Instrument. The 
starting date of 1 January 1984 was considered necessary 
because of the practical problems of bringing together 
information relating to projects which in many cases were 
decided on several years earlier. The Commission and the 
Bank have already indicated to the Court of Auditors 
their willingness to negotiate jointly an agreement on 
information to be supplied by the Bank in respect of 
projects managed by the Bank which receive Community 
development aid, including, if necessary, any changes to 
the information currently supplied. A first meeting was 
held with the Court of Auditors in March 1986 when the 
Commission representative agreed that it would ensure 
that information on development projects was consistent 
with what the Bank might agree in future to supply to the 
Court of Auditors on NCI-aided investment. Further 
meetings may be held. At all events the Commission is prepared to consider any 
new request from the Court of Auditors in order to 
provide it with any document it requires for audit 
purposes. 
Projects financed from the Bank's own resources which 
receive interest subsidies are managed by the Bank totally 
in accordance with the rules, conditions and procedures 
provided for in the Bank's statute and in the Lome 
Conventions. As such, the auditing of those projects falls 
with the provisions of the Bank's statute. The grant of 
interest subsidies on loans to finance projects is automatic 
under the Convention. The purpose of an interest subsidy 
is not to provide finance for an investment as such but to 
lighten the burden of future debt obligations incurred by 
the ACP borrower. The Commission feels that the 
information provided by the Bank on all interest subsidies 
is sufficient to enable the Court of Auditors to check that 
that purpose has been achieved. 
Community legislation has allocated responsibilities for 
on-the-spot checks of Bank-managed projects. Specif­
ically, Article 29(4) of the Internal Agreement concerning 
the Lome II Convention states that EDF operations 
managed by the EIB are subject to the discharge 
procedures laid down by the Bank's statute. 
Notwithstanding these provisions, the accepted practice 
of the Commission and the Bank is that the Court of 
Auditors may carry out on-the-spot checks of EDF 
financed projects managed by the Bank where such 
projects are cofinanced by the Bank and the Commission. 
On a more general level, the Commission would point out 
that the problems of on-the-spot checks by the Court of 
Auditors are being examined. In view of the difficulties 
involved in determining the practical arrangements for 
such checks, this examination is taking place at the 
highest levels. 
C1) See also the comments made by the Court of Auditors at 
paragraphs 41 and 42. (2) OJ L 39 of 14.2.1972 and corrigendum in OJ L 214 of 
2.8.1973.