REPORT on the financial statements and management of the European Foundation for the Improvement of Living and Working Conditions (Dublin-Foundation) for the financial year ended 31 December 1997, together with the reply of the European Foundation for the Improvement of Living and Working Conditions (98/C 406/02)

THE FINANCIAL STATEMENTS OF THE EUROPEAN FOUNDATION FOR THE IMPROVEMENT OF LIVING AND WORKING CONDITIONS FOR THE FINANCIAL YEAR 1997

1. This report is addressed to the Council and the European Parliament in accordance with Article 16 of Council Regulation (EEC) No 1365/75 (1), as amended by Article 1(4) of Council Regulation (EEC) No 1947/93 (2).

2. The Court has examined the financial statements of the European Foundation for the Improvement of Living and Working Conditions for the financial year ended 31 December 1997. In accordance with Article 1(16) of Council Regulation (EEC) No 1949/93 (3) amending Regulation (EEC) No 1417/76 (4), the budget was implemented under the responsibility of the Administrative Board. This responsibility included drawing up and presenting the financial statements (5) in accordance with the internal financial provisions provided for in Article 1(52), (54) and (55) of Council Regulation (EEC) No 1949/93 amending Regulation (EEC) No 1417/76. The Court of Auditors is required under Article 188c of the Treaty establishing the European Community to examine these accounts.

3. The Court undertook its audit in accordance with its audit policies and standards. These have been adapted from generally accepted international auditing standards to reflect the specific characteristics of the Community context. Accordingly, the Court carried out such tests of the accounting records and other procedures as it deemed necessary in the circumstances. Through the audit, the Court obtained sufficient basis for the opinion expressed below.

4. This examination has allowed the Court to obtain reasonable assurance that the accounts for the financial year ended 31 December 1997 are reliable and that the underlying transactions are, taken as a whole, legal and regular.

MAIN OBSERVATIONS ACCOMPANYING THE AUDIT OPINION

Introduction

Background

5. The European Foundation for the Improvement of Living and Working Conditions (Dublin-Foundation) was established by Council Regulation (EEC) No 1365/75 (6) as a satellite body of the European Community with the task of contributing 'to the planning and establishment of better living and working conditions through action designed to increase and disseminate knowledge likely to assist this development`. The Dublin-Foundation commenced operations in 1976.

Scope of the audit

6. The Court of Auditors has examined the accounts and financial management of the Dublin-Foundation for the financial year 1997 in accordance with the provisions of the relevant regulations (7).

Financial Data

7. Tables 1 and 2 summarise the Foundation's financial statements. Available appropriations for the financial year 1997 amounted to ECU 14 million. Commitments entered into gave rise to ECU 10,5 million in payments and ECU 3,4 million in carry-overs to the financial year 1998, the balance of ECU 0,1 million having been cancelled. Appropriations carried over from the previous year gave rise to ECU 2,9 million in payments and ECU 0,1 million in cancellations. Table 3 of this report gives an analysis by title of the utilisation of the appropriations for the year and of those carried over from 1996.

Follow-up of previous observations

Separation of duties

8. The introduction of SINCOM 2 at the Foundation is imminent. One of the advantages of this system is that it automatically segregates the duties of the authorising and accounting officers so that this breach of Article 1(15) of Council Regulation (EEC) No 1949/93 amending Regulation (EEC) No 1417/76 at the Foundation will be eliminated (see paragraph 16).

Imprest account

9. In 1995 and 1996 the Court recommended that use of the imprest account be limited to covering ongoing or minor expenses, where the risk of irregularities is comparatively low. Although there existed a paper at the Foundation, an official written definition of ongoing and minor expenses had not been established in consultation with the Financial Controller at the time of the audit in April 1998. It was also noted that, in many instances, payments were made through the imprest account two to three months following receipt of invoices. Delays of this length mean it would have been possible to obtain prior approval from the Financial Controller and subsequently make the payments through the main bank account (see paragraph 17).

Budgetary execution and the revenue and expenditure account

Transfer of appropriations

10. The value of transfers of appropriations made between different budget lines in 1997 was ECU 979 000 (7,0 % of appropriations entered in the budget), down from ECU 1 366 000 (9,9 %) in 1996.

Carry-overs and cancellations of appropriations

11. Table 3 shows that the payment rate is 75 % for the account as a whole, but only 47 % for Title 3 'Operating expenditure`. This is in line with previous years and is due to the fact that studies are usually paid in three instalments over the period foreseen in the related contracts.

Revenue

12. The EU subsidy set aside for the Foundation in 1997 was ECU 13,8 million. The amount actually requested and received was ECU 13 451 540. The funds were requested in accordance with the Council Regulations and were in line with a cash-flow forecast.

Mission expenditure

Procedures

13. Weaknesses were found in the management of the mission procedures. In several instances the guidelines for missions were not being adhered to, and agents had received payments for expenses that were either ineligible or unjustified (see paragraph 18).

Cost-effectiveness

14. One hundred and thirty missions carried out in 1997, costing approximately ECU 92 000, were reviewed. Savings of up to ECU 39 000 (43 %) could have been achieved using more cost-effective routes (see paragraph 18).

Study Contracts

15. Table 3 shows that 51 % of the 1997 appropriations available under Title 3 'Operating expenditure` were carried over to 1998. 21 % of the total appropriations, or ECU 1 313 378, related to commitments entered into in December 1997 in respect of study contracts. The earliest of these contracts was not signed until February 1998 (see paragraph 19).

Conclusion

16. SINCOM 2 must be installed at the Foundation. If this is not done before the end of 1998, an additional post will have to be created in the administration department to ensure adequate segregation of duties exists (see paragraph 8).

17. Clear written procedures for the use of the imprest account must be introduced. Outstanding amounts must either be paid promptly from the imprest account or, if the credit period is longer, from the main bank account (see paragraph 9).

18. Steps must be taken to economise in the area of mission expenditure as further excesses cannot be tolerated (see paragraphs 13 and 14).

19. It is recommended that situations where large amounts are being committed in one year in respect of contracts that are not signed until several months into the next year be avoided. This could be achieved by improving the procedures for establishing the annual budget of the Foundation (see paragraph 15).

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 26 November 1998.

For the Court of Auditors

Bernhard FRIEDMANN

President

Table 1 Balance Sheet as at 31 December 1997

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Source: 1997 Annual Accounts of the Foundation.

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(1) OJ L 139, 30.5.1975, p. 1.

(2) OJ L 181, 23.7.1993, p. 13.

(3) OJ L 181, 23.7.1993, p. 26.

(4) OJ L 164, 24.6.1976, p. 16.

(5) As required under Article 16 of Council Regulation (EEC) No 1365/75 as amended by Regulation (EEC) No 1947/93, the accounts for all the Foundation's revenue and expenditure in respect of a financial year 1997 were drawn up and approved by the Management Board on 31 March 1998 and forwarded to the Commission, the Foundation's management board and the Court of Auditors. These accounts were received by the Court on 31 March 1998, a summarised version of these financial statements is presented in the tables attached to this report.

(6) Council Regulation (EEC) No 1365/75 of 26 May 1975, (OJ L 139, 30.5.1975).

(7) Council Regulation (EEC) No 1365/75 of 26 May 1975, (OJ L 139, 30.5.1975), on the creation of the Foundation, as amended by Regulation (EEC) No 1947/93 of 30 June 1993 (OJ L 181, 23,7.1993). Council Regulation (EEC) No 1417/76 of 1 June 1976 (OJ L 164, 24.6.1976), on the financial provisions applying to the Foundation, as amended by Council Regulation (EEC) No 1949/93 of 30 June 1993, (OJ L 181, 23.7.1993).

REPLY OF THE EUROPEAN FOUNDATION

The Foundation welcomes the observations of the Court and would ask it to take account of the following comments:

Imprest Account

9. The Court should be informed that a written definition of on-going and minor expenses in relation to the Imprest Account had already been established with Financial Control by the time of the audit on 27 June 1997. This definition limits usage of the Imprest Account to on-going (recurrent and non capital) or small expenses and payments of an urgent nature.

The Financial Regulation of the Foundation does not place a time restriction on usage of the Imprest Account. It merely states 'for the payment of certain categories of expenditure imprest accounts may be set up`.

The Court notes delays in relation to payment of invoices. These reflect the time taken to fully process invoices for payment in accordance with the Financial Regulations, which can take up to two months. If the invoices had been submitted for prior visa to Financial Control in Brussels these delays could have been longer.

Mission expenditure procedures

13. The Foundation's procedures are designed to ensure (a) strict adherence to the Mission Rules, (b) the minimisation of costs incurred commensurate with the needs of each mission. The Foundation has examined those instances drawn to its attention by the Court where it is suggested that incorrect application of the rules may have occurred and, where required, has taken corrective action.

Cost-effectiveness of missions

14. The Foundation is evaluating the cost effectiveness of arrangements for missions and the practicalities of achieving the projected savings, in the light of new routes and fare structures which have come into operation over the past year.

Study contracts

15. The level of appropriations carried over under Title 3 is a natural consequence of the relation of the Foundation's annual budgeting cycle to its operational cycle (which involves programme design, programme initiation, outline project design, tender, detailed project design and implementation). Appropriations are fully committed by the end of the financial year with the relevant project being completed and fully paid for by the end of the subsequent financial year.

A number of end of year contracts did not have a final signature until February because of the time taken for visad contracts to be returned from Brussels to the Foundation by the Financial Controller, despatched to the relevant contractor and then returned to the Foundation signed by the contractor.

Conclusion

16. The Court's comment is noted.

17. See reply to paragraph 9.

18. See reply to paragraphs 13 and 14.

19. The Foundation would welcome discussion on the procedures for establishing the annual budget of the Foundation with regard to the Foundation's programme planning cycle (see paragraph 15).