12. 12. 90 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), as amended by Council 
Regulation (Euratom, ECSC, EEC) No 610/90 of 13 March 1990, as well as the 
corresponding provisions relating to the European Development Funds, 
the Court of Auditors of the European Communities, at its meeting on 
8 November 1990, adopted its 
ANNUAL REPORT 
concerning the financial year 1989 
The report, together with the institutions' replies to the Court's 
observations, was transmitted to the authorities responsible for giving 
discharge and to the other institutions by 30 November 1990 
Aldo ANGIOI 
(President) 
Andre J. MIDDELHOEK 
John CAREY 
Josep SUBIRATS 
Carlos M. MORENO 
Richie RYAN 
Fernand HEBETTE 
Ole Jorgen WARBERG 
Konstantinos ANDROUTSOPOULOS 
Daniel STRASSER 
Bernard FRIEDMANN 
Maurice THOSS 
^ Ofticiailournai of the European Communities l^l^t] 
Assess report e^t^e^esrt of Asd^tor^ 
eoseerrds^ tee ^ssse^sl year 1^^ 
Pag^ 
OBSERVATIONS ON THE COMMISSION'SREVENUE AND OPERATING 
APPROPRIATIONS AND ON THE EUROPEAN DEVELOPMENT FUNDS 
Introduction ^ 
P^^tOBe 
The Commission's operating budget and the consolidated accounts 7 
Chapter 1—Financial audit of the Commission's revenue, operating expenditure 
and general accounts 7 
Chapter ^ — O^n resources ^ 
Chapter ^ — The European Agricultural Guidance and Guarantee Fund, Guaran^ 
te^ Section ^EAGGF-^Guarantee^ Management and budgetary 
control ^ 
Chapter ^ — Th^ European Agricultural Guidance and Guarantee Fund, Guaran^ 
tee Section ^EAGGF^Guarantee^ Organization and management of 
markets ^ 
Chapter ^ — Common policy on tish^ri^s and the sea ^ 
Chapter ^ — The EuropeanAgriculturalGuidanceand Guarantee Fund, Guidance 
Section ^EAGGFGuidance^ 101 
Chapter 7^The European Regional Development Fund ^ERDF^ 11^ 
Chapter ^^The European Social Fund ^ESF^ 13^ 
Chapter ^ — Expenditure on research and investment 1^ 
Chapters — Cooperation ^ith developing countries 17^ 
Chapter 11—Aid to countries in Central and Eastern Europe 1^ 
Chapter!^— Loans, borrowings and int^r^st subsidies 1^ 
^^tT^o 
The European Development Funds 1^7 
Introduction 1^7 
Chapter l^^Financial audit 1^ 
Chapter 1^ — Examination of projects in Equatorial West Africa ^ 
nlnl^ Official lournai of the European Communities ^ 
Page 
THE COMMISSION'S REPLIES TO THE OBSERVATIONS ON ITS REVENUE 
ANDOPERATING APPROPRIATIONS ANDONTHEEUROPEANDEVELOPD 
MENTFUNDS 
Introduction ^17 
P^^tOBe 
LheCommission'soperating budget and the consolidated accounts ^ 
Chapter 1—Financial audit of the Commission's revenue, operating expenditure 
and general accounts ^ 
Chapter ^ — Own resources ^o 
Chapter ^—The European agricultural Guidance and Guarantee Fund, Guaran^ 
tee Section ^EAGGFDGuarantee^n Management and budgetary 
control ^41 
Chapter ^ — The European Agricultural Guidance and Guarantee Fund, Guaran^ 
tee Section ^EA.GGF^Guarantee^ Organization and management of 
markets ^ 
Chapter eo — Common policv on lisheries and the sea ^ 
Chapter ^^I^heEuropeanAgricultural Guidance and Guarantee Fund, Guidance 
Section t^EAGGFGuidance^ ^ol 
Chapter 7^The European Regional Development Fund ^ERDF^ ^ 
Chapter ^^The European Social Fund ^ESF^ ^7^ 
Chapter ^ — Expenditure on research and investment ^7 
Chapters — Cooperation v^ith developing countries ^eo 
Chapterll—Aid to countries in Central and Eastern Europe ^ 
Chapter!^— Loans, borrowings and interest subsidies oaa3 
P^tT^o 
I^he European Development Funds ^Oeo 
Chapter l^^Financial audit ^^ 
Chapter!^ — Examination of projects in Equatorial ^Vest Africa ^14 
12. 12. 90 Official Journal of the European Communities 5 
Annual report of the Court of Auditors 
concerning the financial year 1989 
INTRODUCTION 
0.1. This thirteenth annual report (on the financial year 
1989) of the Court of Auditors of the European 
Communities is in two volumes. event that the trend of agricultural prices on the world 
market and exchange rate movements should prove less 
favourable. 
0.2. The first volume has two parts, the first of which 
contains observations on the operating budget of the 
Commission and on the consolidated accounts of the 
European Communities, whilst the second deals with the 
European Development Funds. The Commission's 
replies to the Court's observations conclude this first 
volume. 
0.3. The second volume contains all the observations 
that concern the operating budgets of the institutions. 
The first chapter, which deals with observations concern­
ing pensions paid to retired officials of the institutions of 
the Communities, is followed by the collected replies 
received from the institutions. Each of the subsequent 
chapters is devoted to one institution and is followed by 
the replies received from the institution concerned. This 
volume contains, in addition, a list of reports and 
opinions that have been adopted by the Court of Auditors 
over the last five years, together with a financial and 
statistical annex. 0.6. The system of co-responsibility levies which has 
been instituted in the cereals sector has not been properly 
implemented, with the result that it has not been possible 
to achieve the objective of bringing surplus production 
fully under control and creating a more evenly balanced 
market, notwithstanding the revenue the system gener­
ates. Likewise, the measures concerning the setting aside 
of arable land have not achieved their purpose: the total 
surface area devoted to cereals production rose slightly 
and it was the least productive land which was set aside. 
The total cost of the measure to compensate for non-
production of one tonne of cereals rose to more than 
double the mean export refund rate. Likewise, the 
Community is still producing more butter than it can 
consume at the market price. Of the measures adopted to 
finance the disposal of this production on the internal 
markets, the main one involves subsidizing the use of 
butter and concentrated butter for the manufacture of 
pastries, ice-cream and other foodstuffs. This measure 
has become so complex that the possibilities of error, 
misinterpretation and forbidden use are undermining its 
effectiveness. 
CONTROLLING AGRICULTURAL 
EXPENDITURE 
0.4. In 1989, it proved possible to keep agricultural 
expenditure within the overall limits of the new rules and 
the part corresponding to the EAGGF Guarantee Section 
in the total annual budgetary expenditure declined by 
1,8 %. However, initial intervention spending in specific 
markets was in excess of available appropriations. This 
spending overrun was made good by transfers of 
appropriations from sectors where the economic situ­
ation had been favourable. The Commission had adopted 
certain corrective measures in the dairy sector but these 
did not produce significant budgetary effects in 1989. 
0.5. In future, if spending is in excess of initial 
appropriations and there are no available appropriations 
for transfer, it will not be possible to comply with the 
overall limits laid down by budgetary discipline in the 0.7. Thus, the Court observes that, of the measures 
adopted to impose discipline on agricultural expenditure, 
those it examined have not, as yet, attained the desired 
level of effectiveness. The apparent control of agricultural 
expenditure is above all the result of a favourable 
situation on world markets. 
PROBLEMS OF SHARED MANAGEMENT 
0.8. The management of numerous important areas of 
the Community finances is shared between the adminis­
trations of the Member States and the Commission of the 
European Communities. During 1989, the first year in 
which a reform was applied aiming principally to increase 
the effectiveness of aid by means of closer partnership 
o COfticial journal of the European C^ornmunities pim^ 
withthe national and regionalauthorities,this shared 
management, more particularly in the case of the 
structural Funds, was characterized hv improved coordP 
nation and planning of measures,astrengthening of the 
monitoring of their execution and an evaluation of the 
results. 
0.^. An initial application, in advance, of several 
essentialelementsof thereformhasalreadvbeen tried out 
in recent financial vears, in the content of programmed 
based tinancing and mainlv in the management of the 
FR.I0F.The C^ourCstindings in this respect have shown 
that the commissions interventions were too often 
confined to certain aspects concerning the stage of 
programmeappraisaland granting of aid, withoutpaving 
sufticientattentiontothespeciticconditionstobemetfor 
thecorrect execution of the measures, andfor subsequent 
monitoring of the measures and of the results.Lhereisa 
risk that the difficulties alreadv encountered in the 
management of the ER.L^F will persist in the structural 
Funds asawhole. 
0.10. Thelackofspeciticob^ectivesandof selection 
criteria which take account of the realities which 
condition the success ofastructuralpolicv has resulted in 
abroad distribution ofFAC^olF guidance Section aid, in 
greatlv differing interpretations bv the national authors 
itiesofthecriteriaforFuropean^ocialFundintervention 
and in the commissions initiatives having a limited 
impact on regional development matters.Italso prevents 
anvevaluation of the results of themeasures, which, 
however,is required bv the legislation at present inforce. 
Furthermore, for the structural Funds as a whole, a 
svstem of evaluation of the effectiveness of the measures 
on an a priori and a posteriori basis has vet to be 
organized. 
0.1L Phe reform aims to strikea better balance of 
responsibilities between the administrative departments 
of the C^ommunitv and those of the member States. Lhe 
national and regional authorities arebeingassigneda 
greater margin of manoeuvre in the execution of the 
measures, while the C^ommunitv authorities are required 
to tighten up the requirements in matters concerning the 
monitoring of the execution and the evaluationof the 
results in relation to the objectives. Lhe success of this 
reform requiresahigh level of cooperation between the 
C^ommunitvandthelviember States^ italsorequires, 
apart from regulations,alarger part of the work of the 
C^ommission^administrative departments to be devoted 
toan examination oftheetfectivenessofthemeasuresand 
to turning the experience acquired to better account. 
Similar conclusions were expressed in the C^ourCsspecial 
report^Co4^0ontheintegrated ^Vlediterraneanpro 
grammes. THr^reLdRSPAC^KAClF 
0.1^. in the content of the L^elors package, the 
CAommunitv has made several amendments to the 
Financial Regulation whichareintendedtointroduce 
greater rigour into the central implementation of the 
budget, and three ofthese provisions, in particular, have 
the aim ofcodifving the exceptions to the principle of the 
annual nature of the budget. 
0.1^. Lhetirst of the provisionsentails the obligation to 
set timedimits for the implementation ofcommitments 
which are multiannual in nature. Lhe commission has, 
with some reservations, required its departments to 
provideforsuch timedimits.ButtheC^ourtwishestodraw 
attention to the tendency, which the new regulation risks 
leaving untouched, for overruns to occur on these 
deadlines without anv particular lessons being learnt 
from the experience 
0.14. Lhe second of the provisions, in this same field of 
multiannual commitments, makes it compulsorv no 
commitalmostalltheappropriationsduringthellnancial 
vear for which thev were agreed — hitherto this 
commitment could be spread over two vears — andonlv 
verve^ceptionallv authorizes carrying them over to the 
following tinancial vear. In the past, commitment 
appropriations havebeen all but entirely used up in the 
space ofone vear, and carryovers have been relatively 
limited in volume although, all too often, there were no 
grounds for them. 
0.1^. Lhe third provision lavs down thatwhen commits 
ment appropriations are decommitted as a result of 
failure tocarrv outmultiannual obligations from the 
preceding tinancial vears, the appropriations in question 
aretobecancelled.Verve^ceptionallv,intheeventofa 
scarcitvof appropriationsin the tleldconcerned, and 
when the obligations in question come under proD 
grammes whichmust be carried out, come what mav,the 
appropriations mav be madeavailable again.lnl^^,the 
commission made fairlv wide use of this provision 
without demonstrating sufficiently that it was in the 
exceptional situation provided for bv the regulation, and 
without amending itssvstemsofaccountingandbud-
getarvmonitoring in anv wav which would allow its 
correct application to be checked.Lhe^C^ourCsin^depth 
examination revealed several signillcant cases where the 
C^ommissiondid in fact make appropriations available 
again which ought to have lapsed. 
O.lo. To conclude, while these three measures are 
intendedtoensurebettermarshallingoftheapproprP 
ations intended to finance multiannual operations, 
analysis of the situation shows that there were onlvverv 
rarelv justifiable grounds for derogating from the 
regulations and thatitisimportantto give close attention 
to following up their progress. In fact, the procedure of 
resorting toasupplementarv and amending budget does, 
where necessarv, allow the volume of commitment 
appropriations to be adjusted without infringing the 
principle of annualitv. 
12. 12. 90 Official Journal of the European Communities 7 
PART ONE 
The Commission's operating budget and the consolidated 
accounts 
CHAPTER 1 
Financial audit of the Commission's revenue, operating expenditure 
and general accounts 
1.0. CONTENTS 
The implementation of the budget in 1989 
The adoption, presentation and monitoring of the budget 
Adoption of the budget 
Presentation of the budget 
Monitoring the implementation of the budget 
Implementation of the new rules on budgetary discipline 
The Delors package 
Setting time-limits 
Carry-overs of appropriations 
Appropriations made available again 
Conclusions concerning the application of the new rules of budgetary 
discipline 
Observance of the principle of the specificity of the budget 
Transfers from Chapter 100 
Transfers between appropriations of different types 
Global management of food-aid appropriations 
Utilization of appropriations for the financial year 
General figures 
Global rate of utilization of appropriations 
Rate of utilization of appropriations for compulsory and non-
compulsory expenditure 
Unutilized appropriations 
Parliamentary amendments 
Identification of low rates of budgetary utilization 
Out-turn for the year 
Observations on the legality and regularity of operations passed to the 
accounts for the year 
Traditional own resources 
Entry into force of Decision 88/376/EEC 
Entering of amounts made available by the Member States Paragraph 
reference 
1.1 
1.1 
1.1 
1.2 
1.6 
1.15 
1.15 
1.18 
1.25 
1.35 
1.49 
1.53 
1.53 
1.54 
1.55 
1.56 
1.56 
1.57 
1.58 
1.59 
1.61 
1.62 
1.63 
1.66 
1.66 
1.66 
1.67 — 1.65 
— 1.14 
— 1.5 
— 1.14 
— 1.52 
— 1.17 
— 1.24 
— 1.34 
— 1.48 
— 1.52 
— 1.55 
— 1.62 
— 1.60 
— 1.65 
— 1.98 
— 1.73 
Official Journal of the European Communities 
1.68 
1.69 
1.74 
1.74 
1.81 
1.82 
1.82 
1.83 
1.85 
1.87 
1.87 
1.89 
1.89 
1.90 
1.92 
1.93 
1.94 
1.94 
1.95 
1.96 
1.96 
1.97 
1.98 
1.99 
1.100 
1.100 
1.114 
1.118 
1.118 
1.120 
1.125 
1.126 
1.127 12. 12. 90 
— 1.73 
— 1.81 
— 1.80 
— 1.84 
— 1.84 
— 1.86 
— 1.88 
— 1.88 
— 1.93 
— 1.91 
— 1.97 
— 1.129 
— 1.117 
— 1.113 
— 1.117 
— 1.126 
— 1.119 
— 1.124 
— 1.129 Entering of amounts resulting from special agreements 
Frauds and irregularities 
VAT and GNP own resources and miscellaneous revenue 
Management of VAT own resources 
Recoveries of revenue intended to balance the general budget and of 
VAT revenue 
EAGGF Guarantee Section 
Charging payments 
Management of advances 
Fisheries 
EAGGF Guidance Section 
Refunds to Member States 
ERDF 
Supporting documents 
Management of ERDF commitments (heading B 500) 
Preparation of Community support frameworks and technical 
assistance (heading B 554) 
Entry of ERDF appropriations earmarked for the IMPs 
Social area 
Volume of operations financed by the Social Fund in priority regions 
Research and energy 
Operations under Title 9 
Food aid 
Aid to Bangladesh 
Overruling of refusals of approval by the Financial Controller 
Observations on the book-keeping and the presentation of the accounts 
The Communities' balance sheet 
The Commission's balance sheet 
The consolidated balance sheet of the European Communities 
The keeping of the accounts shown in the Commission's balance sheet 
Organization of the general accounts 
Cash accounts 
Operation of imprest accounts in the light of the Financial Regulation 
Accounting officers' guarantee accounts 
The revenue and expenditure account 
12. 12. 90 Official Journal of the European Communities 9 
THE IMPLEMENTATION OF THE BUDGET 
IN 1989 
The adoption, presentation and monitoring of 
the budget 
Adoption of the budget 
1.1. The budget for the financial year 1989 was finally 
adopted on 15 December 1988 ('), the budgetary 
procedures having been completed within the time-limits 
specified in the EEC Treaty. At that time, the amount 
fixed for appropriations for commitment was 
46 423,0 Mio ECU, whilst the amount for appropriations 
for payment was 44 837,8 Mio ECU. A supplementary 
and amending budget was adopted on 13 April 1989, as a 
result of which appropriations for commitment were 
increased to 46 425,8 Mio ECU and appropriations for 
payment to 44 840,6 Mio ECU (2). 
Presentation of the budget 
1.2. Nowhere in the published budget is it possible to 
find aggregate amounts in a summary form, such as is 
given in the preceding paragraph. Instead, the totals for 
the various institutions must be added up in order to 
obtain an aggregate. 
1.3. Nor is it possible to ascertain from the budget 
whether the expenditure authorized is compulsory or 
non-compulsory. 
1.4. The Court has consistently criticized the practice of 
entering many items of revenue (such as revenue from 
agricultural co-responsibility levies and intra-Com-
munity compensatory amounts) as negative expenditure. 
This affects the presentation of the budget, in that this 
revenue is offset directly against an equivalent volume of 
agricultural expenditure, thereby artificially reducing the 
total volume of agricultural expenditure and also, in 
consequence, that of the Community general budget. In 
1989, presentation of the budget in conventional terms 
would have resulted in an amount of 46 879,6 Mio ECU 
of appropriations for payment, rather than 44 840,6 Mio 
ECU. 
1.5. Since 1988 this situation has been aggravated by the 
fact that expenditure intended to cover the cost of 
collecting own resources has been entered as negative 
revenue. This method also has the effect of directly 
offsetting this expenditure (1 379,6 Mio ECU) against an 
(i) OJL 26, 30.1.1989. 
(2) OJL 132, 16.5.1989. equivalent volume of resources, thereby artificially 
reducing the total volume of the budget. Once again, 
presentation of the budget in terms which respected the 
principle of universality would have resulted in 1989 in an 
amount of 48 259,2 Mio ECU of appropriations for 
payment, instead of the 46 879,6 Mio ECU specified in 
paragraph 1.4. 
Monitoring the implementation of the budget 
1.6. The Commission is required to present a report on 
the Communities' financial situation to the Parliament 
and the Council four times a year (Article 29 of the 
Financial Regulation). In a session document of 3 
October 1989 (PE 135.159), the European Parliament 
pointed out that any analysis it may make on the basis of 
these documents is based on the fundamental assumption 
that the information supplied by the Commission is 
accurate. The Court studied the reports for the financial 
year 1989 and found that there were some weaknesses, 
mainly affecting the clarity of the Communities' financial 
situation at the time when the reports were presented, 
which could have given a misleading picture of that 
situation. These weaknesses were generally associated 
with the structural presentation of the accounts. The 
observations which follow concern the fourth quarterly 
report for the financial year 1989 (Doc. COM(89) 27) (3), 
but apply equally to the interim reports and, in some 
cases, to Volume I of the revenue and expenditure 
account. 
1.7. The amounts shown as being authorized under the 
final budget included revenue from services provided to 
outside bodies (29 Mio ECU at the end of 1989), as well as 
corresponding authorizations of expenditure (31 Mio 
ECU), whereas the budget, by definition, did not contain 
these amounts, which were established in the course of the 
year. 
1.8. Generally speaking, the amounts shown as author­
ized under the final budget varied according to whether 
the report consulted was an interim implementation 
report or the end-of-year report, even though the budget 
had not been amended in the meantime and there were 
not enough transfers to account for all the differences that 
were found. 
1.9. The presentation of the cash-flow statement was 
not related to the out-turn for revenue or expenditure. 
1.10. The 'carry-overs' item combined appropriations 
carried over and appropriations made available again, 
whereas the latter are, in fact, sufficiently different for 
them to be monitored separately. 
(3) The reference for document COM(89) 27 would normally be 
COM(90) 27. 
10 Official Journal of the European Communities 12. 12. 90 
1.11. The transfer tables underestimated the volume of 
transfers. The grand totals took into account only 
transfers from Chapter 100 and ignored all other transfers 
between chapters which balanced each other out. A more 
informative presentation would have shown: 
(a) for transfers between chapters in Part A of the 
budget, a grand total of 52,8 Mio ECU, instead of 
25,0 Mio ECU; 
(b) for transfers between chapters in Part B of the budget, 
a grand total of 1 904,8 Mio ECU, instead of 231 Mio 
ECU, for appropriations for commitment and 
1 818,1 Mio ECU, instead of 98,3 Mio ECU, for 
appropriations for payment. 
1.12. The section relating to the implementation of 
budget headings created or amended by the European 
Parliament showed the utilization of appropriations 
adjusted to take account of transfers, rather than the use 
of appropriations as entered or amended by the 
Parliament. In view of the stated objective of this section 
of the quarterly reports (to provide information on the 
situation regarding creations of new budget headings and 
amendments of existing ones by Parliament), this form of 
presentation may lead to misinterpretation of the true 
situation. Thus, at the end of the financial year the 
majority of these items appeared with rates of utilization 
close to 100 %, even though creations and amendments 
by Parliament had not always been 100 % implemented. 
In some cases implementation was substantially below 
the level shown in the document (e.g. item 6473 'Measures 
to combat alcohol abuse': 1 Mio ECU created by the 
Parliament, 77,7 % utilized and shown as 97,13 % 
implemented, as a negative transfer had reduced the 
appropriation voted by Parliament). In other cases it was 
substantially higher (e.g. item 9202 'Additional food aid 
in cereals': 38,4 Mio ECU (the Parliament's amendment 
accounted for 14 Mio), 184 % utilized and shown with a 
utilization rate of 100 %, as the appropriation voted by 
the Parliament had been increased by a positive transfer 
of 32,2 Mio ECU). 
1.13. It is not possible to relate column 1 of the table 
(which sets out the utilization of operating appropriations 
other than those for the Guarantee Section of the 
European Agricultural Guidance and Guarantee Fund) 
to the revenue and expenditure account for the financial 
year 1988. The amounts shown in that column as still to 
be paid at the end of 1988 were, in fact, progressively 
modified during the year as the decommitments and 
monetary revaluations were passed to the accounts. To 
this problem can be added a second problem associated 
with the many changes in the budgetary nomenclature. 
For example, Article 300 in the 1989 budget derives in 
part from the former Articles 310 to 312,330,332 and 333 
and in part from the former item 3220. In consequence, in 
the case of differentiated appropriations it is very difficult 
to monitor the execution of book commitments by means 
of the report on the implementation of the budget. In 
some cases the difference in the amounts concerned may be considerable. For example, in the 1988 report on the 
implementation of the budget the amounts still to be paid 
against items 9200, 9201 and 9202 were, respectively, 
87,4,34,4 and 30,3 Mio ECU (a total of 152,1 Mio ECU), 
whereas they were included in the 1989 reports on the 
implementation of the budget, first (position at 31 August 
1989) for the same total amounts under items 9200 and 
9202, and then (position at 31 December 1989) against the 
same items for only 72,8 and 20,3 Mio ECU (a total of 
93,1 Mio ECU). 
1.14. Two tables gave two different values for theoreti­
cally the same amount (total for differentiated payment 
appropriations utilized in 1989), because certain non-
differentiated appropriations, which became differen­
tiated appropriations the following year, had been 
assigned to one heading in one table and to another in the 
second table: 
10 710 Mio ECU in one case; 
— 10 670 Mio ECU in the other. 
Implementation of the new rules on budgetary 
discipline 
The Delors package 
1.15. In order to overcome the financial crisis which the 
Community experienced in 1987 and 1988 (increase in the 
'burden of the past', insufficient financial resources, etc.), 
the Commission laid before the Community legislature a 
series of measures, known as the 'Delors package'. These 
measures were described, with explanatory statements, in 
several documents (COM(87) 100, COM(87) 101, 
COM(87) 400 and COM(88) 148). The main features of 
the proposals were adopted by the legislature, which 
accordingly decided to increase own resources and to 
combine this with measures which would bring the budget 
management under control. 
1.16. These budgetary discipline measures included 
several amendments to the Financial Regulation which 
were introduced with the object of restoring the principle 
of the annuality of the budget by limiting the number of 
exceptions and setting time-limits for implementation. 
1.17. The Court has examined the implementation of 
the three main amendments to the Regulation which were 
introduced at that time. The results are set out in the 
paragraphs which follow. 
12. 12. 90 Official Journal of the European Communities 11 
Setting time-limits 
1.18. Until 1988 the Financial Regulation did not 
contain any rules for setting time-limits for multiannual 
operations. Nevertheless, the Commission had habitually 
set limits for the completion of such operations. The 
Court's examination of the application of these time-
limits gave rise to the following observations: 
(a) in the case of the European Regional Development 
Fund (ERDF), projects were often subject to time-
limits which were set out in standard clauses and were 
binding only to a limited extent. In the case of the files 
which were closed in 1988, 50 % were seen to have 
been subject to completion delays of between one and 
six years; 
(b) in the social sector the time-limits set were frequently 
extended or deferred by means of amending decisions 
and sometimes even, in the case of environmental 
matters, without adequate justification; 
(c) in 7 % of cases in the research sector, the set time-
limits were automatically extended beyond the initial 
term without any limit; 
(d) in many other areas the setting of time-limits was a 
very infrequent practice, and often had no practical 
effect on the time taken to carry out the operations. 
1.19. The text of Article l(3a) of the Financial 
Regulation, as amended by Council Regulation (ECSC, 
EEC, Euratom) No 2049/88 of 24 June 1988 (4), now 
provides that: 
'The legal commitments entered into for measures 
extending over more than one financial year shall 
contain a time-limit for implementation which must be 
specified to the recipient in due form when the aid is 
granted. 
This time-limit shall be determined with due regard to 
the need for multiannual implementation of the 
operations financed and the specific conditions of 
implementation in relation to the various spheres of 
intervention. 
The Commission may, in special circumstances, adjust 
the time-limit for implementation of these commit­
ments, on the basis of appropriate proof supplied by the 
recipients.' 
(4) OJL 185, 15.7.1988. 1.20. This new rule appears to relate to measures 
financed from differentiated appropriations, although in 
some cases measures financed from non-differentiated 
appropriations are also multiannual in nature. The Court 
has studied the application of the new Article 1 (3a) only in 
relation to differentiated appropriations. 
1.21. As soon as the new article entered into force, the 
Directorate-General for Budgets drew the attention of 
authorizing departments to the need to include a time-
limit for implementation in notices granting aid, con­
tractual negotiations, etc. 
1.22. Checks on a representative sample of commit­
ments dating from after 18 July 1988, the date on which 
the provision entered into force, showed that in the great 
majority of cases a time-limit had been stated. 
1.23. The main observations concerning these time-
limits are as follows: 
(a) as regards the European Regional Development 
Fund (ERDF), in the case of projects, the old 
practices persist; 
(b) in the area of development aid, only some of the 
financings include a time-limit; time-limits are, as a 
general rule, not set systematically. 
1.24. To sum up: the Commission now habitually sets 
time-limits in most cases. Nevertheless, time-limits set 
beforehand tend to be exceeded and there are grounds for 
fearing that, in the absence of any statutory provisions 
sanctioning such non-compliance, the scope of the new 
Article l(3a) of the Financial Regulation will be reduced 
substantially. 
Carry-overs of appropriations 
1.25. Article 6, point 2, of the Financial Regulation, as 
amended by Council Regulation (ECSC, EEC, Euratom) 
No 2049/88 of 24 June 1988, provides that: 
'In the case of budget headings where a distinction is 
made between commitment appropriations and pay­
ment appropriations, commitment appropriations and 
payment appropriations which have not been used at the 
end of the financial year for which they were entered 
shall, as a rule, lapse. However, they may, by decision of 
12 Official Journal of the European Communities 12. 12. 90 
the Commission taken not later than 15 February, be 
carried over to the next financial year only, in 
accordance with the following criteria: 
(a) in the case of commitment appropriations: 
— amounts which relate to operations for which 
preliminaries have been virtually completed at 
31 December but for which accounting commit­
ments have not yet been made; these amounts 
must in principle be committed by 31 March of 
the following year; 
— amounts which are necessary when the Council 
has adopted a basic instrument towards the end 
of the financial year and the Commission has 
been unable to commit the appropriations 
provided for this purpose in the budget by 31 
December; 
(b) in the case of payment appropriations: 
— amounts needed to cover existing commitments 
or relating to commitment appropriations 
carried over, when the appropriations provided 
for the headings concerned in the budget for the 
following financial year do not cover require­
ments. In exercising its powers to implement the 
budget, the Commission shall, depending on 
management requirements, endeavour to use 
first the appropriations authorized for the 
current financial year and not use the appropri­
ations carried over until the former are ex­
hausted.' 
1.26. The following paragraphs detail the results of the 
Court's audit of the initial application of this new 
provision which, as part of the Delors package, is 
intended to reinforce the principle of annuality where the 
management of differentiated appropriations is con­
cerned (i.e. those which make a distinction between 
commitment appropriations and payment appropri­
ations). (Previously the Commission automatically had 
two years within which to commit these appropriations.) 
Carry-overs of appropriations from 1988 to 1989 
1.27. 15,9 Mio ECU of commitment appropriations 
and 48,1 Mio ECU of payment appropriations were 
carried over from 1988 to 1989. 
Commitment appropriations 
1.28. Some Title 5 appropriations (Article 552, 'IMPs 
— technical assistance', and Article 560, 'Preparation of 
Community support frameworks and technical as­
sistance') which were carried over pursuant to Article 
6.2(a), first indent, were not committed by 31 March as 
required (2,1 Mio ECU), and the amounts which were 
committed (0,3 Mio ECU) were less than the amount of the carry-overs. In addition, the appropriations carried 
over did not relate to operations for which the pre­
liminaries had been virtually completed at the end of 
1988. 
1.29. The Commission also decided to carry over 
139 000 ECU from item 7345, 'Advanced technologies in 
the field of bio-informatics and medical data-processing 
(AIM)', under Article 6.2(a), second indent. In fact, only 
69 000 ECU were still available against this item at the 
close of 1988. The actual carry-over, therefore, was only 
for the latter amount. 
Payment appropriations 
1.30. 21,6 Mio ECU of the Title 5 appropriations 
(Article 560, 'Preparation of Community support pro­
grammes', and Article 580, 'Transport infrastructure') 
were not utilized the following year, as the appropriations 
for that year were sufficient to meet outstanding 
commitments. The validity of the initial carry-over 
therefore appears highly dubious in the light of the 
criteria set out in Article 6.2(b). 
1.31. Payment appropriations were also used to cover 
commitments for the following year, without the former's 
being related to commitment appropriations carried over 
(items 7301 to 7308 and 7313 for some 2 Mio ECU in 
total). Article 6.2(b) was thus not observed here either. 
Carry-overs of appropriations from 1989 to 1990 
1.32. 84,6 Mio ECU of commitment appropriations 
and 50 Mio ECU of payment appropriations were carried 
over from 1989 to 1990. 
Commitment appropriations 
1.33. 29,4 Mio ECU of the 79,9 Mio ECU carried over 
under Article 6.2(a), first indent, were not committed 
before 31 March 1990, the term fixed in principle by the 
Regulation. These 29,4 Mio ECU relate to the following 
areas: 
(a) 2 Mio ECU against Article 554, 'Preparation of 
Community support frameworks and technical 
assistance'; 
(b) 26 Mio ECU against Article 600, 'European Social 
Fund'; 
12. 12. 90 Official Journal of the European Communities 13 
(c) 0,5 Mio ECU against Article 667, 'Monitoring 
operations in relation to the safety of consumer 
products'; 
(d) 0,921 Mio ECU against Article 990, 'Operations 
under Commercial and Economic Cooperation 
Agreements with third countries'. 
Payment appropriations 
1.34. In the case of food aid, a total of 50 Mio ECU was 
carried over in Chapter 92, without regard to Article 
6.2(b), which authorizes carry-overs only at the level of 
budget headings, i.e. articles or items. In addition to this 
disregard for the specificity of the budget, the Commis­
sion files show that the appropriations carried over were 
intended to be used in 1990 against budget headings on 
which the balances as of 31 December 1989 were too low 
for the carry-overs to be made. Following the Court's 
audits, however, the Commission finally utilized the 
various appropriations that had been carried over against 
the original headings, thus avoiding any abuse of 
procedures. Furthermore, some of the appropriations 
carried over correspond to appropriations which were 
transferred in 1989 from non-differentiated appropri­
ations. Had they retained their initial status as non-
differentiated appropriations, they could not have been 
carried over without the approval of the budgetary 
authority. 
Appropriations made available again 
1.35. Article 6, point 6, of the Financial Regulation as 
amended by Council Regulation (ECSC, EEC, Euratom) 
No 2049/88 of 24 June 1988, states: 
'When commitments in budget headings where there is a 
distinction between commitment appropriations and 
payment appropriations are cancelled — as a result of 
total or partial non-implementation of the projects for 
which they were earmarked — in any financial year after 
that in which the commitment appropriations were 
entered in the budget, the appropriations concerned 
shall, as a rule, lapse. 
However, the commitment appropriation correspond­
ing to the amount of the commitment cancelled may, 
exceptionally, be made available again when it is 
essential to carry out the programme originally planned, 
unless the budget for the current financial year contains 
funds available for this purpose. 
At the beginning of each financial year the Commission 
shall therefore examine the cancellations which have 
taken place in the previous financial year and assess, in the light of requirements, the need for making the 
appropriations available again. 
The Commission shall take this decision by 15 February 
of each financial year. 
The Commission shall inform the budgetary authority 
by 15 March of the decision taken and state, for each 
budget item, the reasons for making these appropri­
ations available again.' 
1.36. Before this amendment was made to the Regu­
lation, the practice of making appropriations available 
again was partly responsible for the build-up of the 
'burden of the past'. In its explanatory memorandum to 
the initial draft of the amendments to the Regulation, the 
Commission pointed out that it wanted to tighten up the 
implementation of the budget by restoring the principle of 
annuality and, as part of the Delors package, proposed a 
text for this new Article whereby cancelled appropri­
ations could be made available again and the Commission 
would assess, in the light of requirements, the need to 
make the appropriations available again. This wording 
allowed the Commission considerable latitude. The 
European Council of 11 to 13 February 1988 insisted that 
annuality must be reinforced by a revision of the terms on 
which certain appropriations were made available again 
and the Commission subsequently tightened up its initial 
proposal by laying down the principle that cancelled 
appropriations were to lapse and could only be made 
available again 'exceptionally' on the basis of strict 
technical criteria. 
1.37. Despite the existence of these technical criteria, 
this provision nevertheless diverges from normally 
accepted budgetary practice by giving the Commission 
power to create new budgetary authorizations through 
the use of its power to make appropriations available 
again. In view of the legal circumstances described above, 
it is clear that, of all financial provisions, this self-
regulatory financial procedure is the one which must be 
implemented especially strictly. The Court examined the 
first two cases in which appropriations had been made 
available again: 400 Mio ECU cancelled in 1988 and 
made available again for 1989 and 228,6 Mio ECU 
cancelled in 1989 and made available again for 1990. 
General observations 
1.38. The Commission is required to state 'for each 
budget item the reasons for making these appropriations 
available again'. The decisions adopted by the Commis­
sion generally do not specify the programmes to which the 
cancellations relate and which are to result in the 
appropriations being made available again. They do not 
provide any evidence as to the inadequacy of the 
appropriations for the next financial year. This lack of 
justification makes it difficult to carry out any ex post 
appraisal of the terms on which the appropriations were 
made available again. 
14 Official Journal of the European Communities 12. 12. 90 
1.39. Furthermore, most of the appropriations were 
made available again in parts of the budget where the 
budgetary nomenclature is not very detailed (one heading 
for each of the following: EAGGF-Guidance, the Social 
Fund and the ERDF). The budgetary nomenclature, and 
therefore the system of accounting classification, do not 
allow immediate identification of the specific operations 
and programmes for which the appropriations have been 
made available again. Since the Commission has not 
introduced specific monitoring of the appropriations 
made available again, it is impossible to verify simply by 
reading the accounts whether, as specified in Article 6, 
paragraph 6, the appropriations have been used to carry 
out the programmes against which they were originally 
cancelled, and whether, in fact, there were not sufficient 
appropriations available in the current year for the 
programmes concerned to be completed. Moreover, given 
that, as stated in the remarks concerning the main 
headings against which appropriations have been made 
available again (and contrary to what the Commission's 
reply to paragraph 1.39 implies), the appropriations for 
current financial years are also intended to provide 
financing for 'measures instituted in the period 1975 to 
1988 (or 1989) and still to be instituted under Regulations 
then in force', there are definite grounds for suspecting 
that the appropriations to complete these old program­
mes will not, in fact, be available. 
Appropriations cancelled in 1988 and made available 
again in the 1989 budget 
1.40. In the case of the Guidance Section of the 
European Agricultural Guidance and Guarantee Fund, 
the total of 36,9 Mio ECU made available again in 1989 
can be subdivided into an amount relating to Regulation 
(EEC) No 355/77 (5) (33,3 Mio ECU) and another 
relating to Regulations (EEC) No 1760/78 (6) and No 
269/79 (7) (3,6 Mio ECU). These appropriations were 
91 % utilized in 1989 and an amount of 2,0 Mio ECU 
(5,5 % of the total) was carried over to 1990. By making 
these appropriations available again, the Commission 
essentially increased the appropriations which the 
budgetary authority had earmarked for the policies to be 
carried out in 1989 and so, in the case of EAGGF 
Guidance Section, continued with the practice whereby 
appropriations originally earmarked for projects which 
were not implemented were recommitted virtually 
automatically: this practice is one which the new financial 
rules were supposed to have put a stop to. 
1.41. In the case of the ERDF, 215,4 Mio ECU were 
made available again on the basis of 1988 cancellations 
(206,3 Mio ECU cancelled against projects not im­
plemented; 9,1 Mio ECU cancelled against monetary 
adjustments). The 9,1 Mio ECU cancelled against 
monetary adjustments did not relate to projects which 
had not been implemented and therefore could not under 
any circumstances result in appropriations being made 
(5) OJ L 51, 23.2.1977. 
(6) OJ L 205, 28.7.1978. 
(7) OJL38, 14.2.1979. available again. As for the remaining 206,3 Mio ECU, 
examination of the commitments made in 1989 revealed 
that they had been allocated to regional development 
programmes which were mainly of the indicative type. It 
is questionable whether the latter can be equated with 
'programmes' in the sense in which the term is used in 
Article 6 of the Financial Regulation. Furthermore, it is 
difficult to establish a link with the programmes (or 
projects) against which they were originally cancelled. In 
fact, the Court's examination of authorizing officers' files 
showed that the appropriations had been re-used in the 
same countries, but often in different regions and almost 
always for projects of a type other than those against 
which they had been cancelled. 
1.42. In the case of the European Social Fund (ESF), 
147,7 Mio ECU were made available again in 1989 on the 
basis of 1988 cancellations, even though, in principle, 
there was no programme from previous years to be 
completed, since, strictly speaking, the programme 
concept was foreign to the Social Fund at that time. 
Moreover, at authorizing officer level, the appropriations 
made available again were managed indiscriminately as 
part of the total volume of appropriations for the 1989 
financial year, which made it impossible to verify whether 
they had been used to complete any earlier programmes. 
Finally, it must be noted that a substantial amount of 
appropriations (3 387 Mio ECU) was shown against the 
same heading in the 1989 budget. 
Appropriations cancelled in 1989 and made available 
again in the 1990 budget 
1.43. 9,2 Mio ECU and 52,3 Mio ECU were made 
available again against items 3000 and 3010 (the 
Guidance Section of the EAGGF) on the basis of all the 
1989 cancellations, even though 251 Mio ECU and 
806 Mio ECU respectively had been allocated to these 
items in 1990. 
1.44. 10,9 Mio ECU were made available again against 
Article 500 (ERDF), not on the basis of the criteria set out 
in Article 6, paragraph 6, of the Financial Regulation (the 
article cited in the Decision), but by reference to 
paragraph 11 of the Interinstitutional Agreement of 29 
June 1988 (Parliament, Commission and Council). The 
Agreement is, however, only a political undertaking by 
the signatory institutions to restore to the budget in 
subsequent years the appropriations that lapse because 
they have not been utilized: as a statutory base it is not 
sufficient to enable the Commission to enter new 
budgetary authorizations by itself, simply by making 
appropriations available again. The Commission ought 
to have ensured that it was abiding by the Financial 
Regulation. Since the appropriations had been made 
available again from sums cancelled against individual 
projects, the explanations given by the Commission failed 
to establish any link with any operational programmes 
approved by it which had to be carried out as a matter of 
necessity. Nor did it give any evidence to show that the 
appropriations available against Article 500, to which 
5 408 Mio ECU had been allocated in 1990, were 
inadequate. 
12. 12. 90 Official Journal of the European Communities 15 
1.45. In order to justify its making 91 Mio ECU 
available again against Article 600 (ESF), the Commis­
sion similarly invoked the undertaking contained in the 
Interinstitutional Agreement, without explaining 
whether, in substance, the appropriations that had been 
cancelled and made available again related to program­
mes which needed to be carried out and without 
demonstrating that the substantial amount of appropri­
ations available under the 1990 budget (4 075 Mio ECU) 
was insufficient. 
1.46. An amount of 730 000 ECU was made available 
again against item 7351 'Fission — Management and 
storage of radioactive waste', for the purpose of carrying 
out the programme initially envisaged, without any 
consideration as to whether there was a shortage of 
available appropriations in 1990 and even though 30 Mio 
ECU was available for that purpose in the 1990 budget. 
The real reason for making the appropriations available 
again was that an accounting error had resulted in the 
cancellation of an amount relating to an earlier pro­
gramme and the Commission wanted to preserve the 
funding fixed by the Council. 
1.47. In the area of food aid, 47,8 Mio ECU were made 
available again in Chapter 92 on a global basis, in 
disregard of the principle of specificity. When the 
Commission's files were examined, it became apparent 
that appropriations against certain headings in Chapter 
92 had been cancelled and were to be made available 
again against other headings in order to finance earlier 
operations (transport costs in particular), the amount of 
which exceeded the appropriations originally committed. 
Thus the new rules were not applied correctly. 
1.48. In the area of the Mediterranean proto­
cols, 3,9 Mio ECU and 1,0 Mio ECU respectively were 
made available again against items 9650 and 9651, even 
though 9 Mio ECU and 200 Mio ECU had been allocated 
to these items in 1990. The appropriations which were 
made available again were cancellations against a large 
number of projects financed under the first, second and 
third protocols in several of the countries receiving 
Community aid. The Commission stated that the whole 
amount would be supplementary to the amounts 
allocated in the 1990 budget. It was clearly a matter of 
recovering the maximum number of small amounts in 
order to convert them into supplementary global 
allocations. That is not the intention of Article 6, 
paragraph 6. 
Conclusions concerning the application of the new rules 
of budgetary discipline 
1.49. It appears that the rules concerning the inclusion 
of time-limits are generally respected, but it would be 
better if they were more precise, particularly as regards 
the setting of time-limits and the consequences of 
exceeding them. Furthermore, in view of the old 
tendencies to exceed the time-limits set, the Court must 
warn against a lax approach towards application of 
this provision, which would immediately reduce the 
impact of it. 1.50. In the first year in which they were applied, the 
rules on carry-overs appear to have been much less well 
respected and here, too, the Court wishes to draw 
attention to the risk of a lax approach towards the 
application of this new provision. 
1.51. Finally, the rule under which appropriations are 
made available again has not been at all rigorously 
implemented. The explanations required by the regu­
lations are given in a rather summary way and are 
sometimes wrong. The Commission has not set up a 
system for monitoring appropriations that have been 
made available again, although this would be a good way 
of ensuring and checking that the new rules are being 
applied correctly. 
1.52. The Court considers that the first cases of 
implementation of the new rules on budgetary discipline 
are still a long way from management with 'due and 
proper care' and from the 'spirit of rigour' described when 
the Delors package was introduced in document 
COM(87) 100 final of 15 February 1987, page 8. 
Observance of the principle of the specificity 
of the budget 
Transfers from Chapter 100 
1.53. By comparison with the previous year, there was a 
rise in the number of transfers from Chapter 100 to 
headings which did not correspond to those laid down in 
the budget. These changes were endorsed de facto by the 
budgetary authority as part of the transfer procedure. 
Nevertheless, in document COM(87) 101 final, in which it 
presented the Delors package, the Commission stated 
that where appropriations were reserved for a specific 
purpose and could not be transferred to the headings 
proposed it would take the line of not proposing any 
alternative application. These appropriations would then 
lapse automatically at the end of the year. 
Transfers between appropriations of different types 
1.54. There were several instances in which non-
differentiated appropriations were transferred to dif­
ferentiated appropriations, whereas the regulations do 
not expressly authorize this type of transfer. The 
appropriations for payment which were automatically 
transferred to the relevant headings with the appropri­
ations for commitment were not utilized, because they 
were not needed, particularly in the area of food aid. In 
16 Official Journal of the European Communities 12. 12. 90 
practice, this kind of transfer between different types of 
appropriation almost always ends like this. In certain 
cases the Commission, on its own responsibility, carried 
over to the following year the payment appropriations 
thus transferred (Article 6.2(b)). By acting 'in two stages' 
in this way, the Commission makes carry-overs of non-
differentiated appropriations which the Financial Regu­
lation does not allow it to make 'in a single stage'. It 
should be noted, however, that this type of transfer, for 
which there was no provision in the Financial Regulation 
applicable in 1989, will be authorized under the new 
Financial Regulation. That will not, however, prevent the 
abnormal effects mentioned above. 
Global management of food aid-appropriations 
1.55. The arguments set out in paragraphs 1.34 (carry­
over of appropriations), 1.47 (making appropriations 
available again) and 1.96 (food aid) show that, in its 
management of appropriations in this area, the Commis­
sion rises above the normal constraints applying to the 
classification of appropriations. Even though the author­
ized food-aid budget clearly distinguishes the amounts 
allocated to particular elements of food aid policy (there 
are 13 different appropriation headings within Chapter 
92, some with differentiated appropriations, and others 
with non-differentiated appropriations), the Commission 
often manages Chapter 92 as though it constituted a 
global ceiling. The appropriations were carried over en 
bloc and made available again en bloc. Not only are these 
methods not in accordance with current regulations, they 
also reduce considerably the impact of the choices made 
initially by the budgetary authority. Moreover, it is 
interesting to note that the adjustments which accompany 
this form of management (appropriations lapsing, being 
cancelled, carried over or made available again) result in far-reaching changes in the true figures relating to 
implementation in previous financial years. Thus, the true 
rate of commitment of appropriations for the financial 
year 1986 is reduced from 96,4 % to 71,5 % and that for 
1987 from 94,7 % to 76,9 % (see Table 1.1). This must be 
borne in mind when studying the apparently satisfactory 
rates of utilization for 1989 — 99 % in the case of 
commitments and 85 % for payments. In general terms it 
must be pointed out that the problem of the 'purely 
formal reasons' mentioned by the Commission in its reply 
(these concern the distinction between differentiated and 
non-differentiated appropriations and between com­
pulsory and non-compulsory expenditure) could have 
been resolved legitimately by instituting the necessary 
transfer procedures at the proper time in consultation 
with the budgetary authority. 
Utilization of appropriations for the 
financial year 
General figures 
1.56. Using the information on which the Commission's 
revenue and expenditure account is based, the Court 
compiled several tables setting out in detail the changes in 
and utilization of appropriations for the year. These 
figures are published in Tables 1.2 and 1.3. A detailed 
analysis of the main areas of activity is given in the 
introduction to the various specialized chapters. The 
remarks which follow are concerned with the more 
general aspects of the implementation of the budget. 
Table 1.1 — Appropriations for commitment in Chapter B 92 'Food aid' 
(non-differentiated appropriations and commitment appropriations) 
Operations 
In year (n) : 
(a) initial appropriations 
(b) final appropriations (•) 
(c) commitments entered into 
(d) rate = % c/b 
In subsequent years: 
(e) cancellations of commitments against nor 
appropriations 
(f) cancellations of commitments against 
appropriations (2) 
(g) final commitments (c-e-f) 
(h) rate = % g/b at 31 December 1989 Financial year 
i-differentiated 
differentiated 1985 
635,6 
689,1 
689,1 
100 % 
0,1 
9,3 
679,7 
98,6 % 1986 
693,6 
693,6 
668,6 
96,4 % 
21,0 
152,0 
495,6 
71,5 % 1987 
511,5 
604,1 
572,0 
94,7 % 
36,2 
94,8 
440,0 
76,9 % 1988 
421,8 
567,3 
567,0 
100 % 
0,5 
0,7 
565,8 
99,7 % (Mio ECU) 
1989 
473,4 
679,7 
677,3 
99,6 % 
(!) Includes all appropriations remaining (initial, new and automatic) and transfers. 
(2) Of the total of 256,8 Mio ECU cancelled, 203,1 Mio ECU were made available again (new appropriations remaining) and 53,7 Mio ECU lapsed. 
12. 12. 90 Official Journal of the European Communities 17 
Table 1.2 — Appropriations for commitment available in 1989 and their utilization, 
by sector and by institution 
(Mio ECU) 
Sector and institution 
(the Sections (S), Titles (T) and Chapters (Ch) 
corresponding to the 1989 budgetary nomen­
clature are shown in brackets) 
1. Administration (all institutions) 
1.1. Commission (S 3, Part A) 
1.2. Other institutions (S 1,2, 4, 5) 
^ 
eu 
r-o 
1 
r) 
c 
D. 
t. a. 
_c 
a 
O 2. EAGGF-Guarantee (T 1 and 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. Various 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) 
3.2. Specific measures (Ch 38, 39) 
4. Fisheries (T 4) 
(of which: non-differentiated appropriations) 
4.1. Common organization of the market (Ch 40) 
4.2. Other measures (Ch 41-42, 46-47) 
5. Regional policy and transport (T 5) 
(of which: non-differentiated appropriations) 
5.1. Regional Fund (Ch 50) 
5.2. Transport (Ch 58) 
5.3. Other measures (Ch 54, 55) 
6. Social policy (T 6) 
(of which: non-differentiated appropriations) 
6.1. Social Fund (Ch 60) 
6.2. Other measures (Ch 62-67, 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 and internal market (Ch 77) 
7.4. Other measures (Ch 71, 75-76, 78-79) 
8. Repayments to Member States (T 8) 
8.1. Depreciation of agricultural stocks (Ch 81) 
8.2. Other repayments (Ch 80, 83-87) 
9. Cooperation with developing countries (T 9) 
(of which: non-differentiated appropriations) 
9.1. Food aid (Ch 92) 
9.2. Financial aid (Ch 90-91, 93-99) 
10. Prov. approp. and contingency res. (Ch 100-102) 
(of which: non-differentiated appropriations) 
Total operating appropriations and reserve (S 3, B) 
(of which: non-differentiated appropriations) 
Grand total 
ations: 
ed 
NDA); 
propria-
a.2)jjf =« 
2 g.2 c 
g.jB.2 |< 
w c ag g 
Hi I """ 
(a) 
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) 
NDA+CA 
(NDA) 
NDA+CA 
NDA 
CA Evolution of 
appropriations 
o 
So 
3 
l 
(b) 
2 150,0 
1 416,4 
733,6 
26 741,0 
4 086,0 
2 051,0 
5 415,0 
1 221,0 
1 466,0 
975,0 
4 720,0 
4 501,0 
1 347,0 
415,0 
544,0 
1599,4 
169,7 
1 413,0 
86,4 
353,2 
192,8 
37,3 
315,9 
4 896,2 
25,4 
4 495,0 
7,4 
393,8 
3 695,4 
245,5 
3 387,0 
308,4 
1602,3 
40,9 
132,4 
1 288,1 
121,9 
59,9 
2 879,0 
1 449,0 
1 430,0 
1 240,5 
95,9 
473,4 
767,1 
1266,1 
1 049,3 
44 273,0 
31 439,5 
46 423,0 
33 589,5 
12 833,5 & 
Os § 
Z 6 g>~ 
aoliTj o 
3 a «j Z 
X> 5 g *j 
(c) 
2 152,7 
1 416,4 
736,3 
26 741,0 
4 086,0 
2 051,0 
5 415,0 
1 221,0 
1 466,0 
975,0 
4 720,0 
4 501,0 
1 347,0 
415,0 
544,0 
1 599,4 
169,7 
1 413,0 
86,4 
353,2 
192,8 
37,3 
315,9 
4 896,2 
25,4 
4 495,0 
7,4 
393,8 
3 695,4 
245,5 
3 387,0 
308,4 
1 602,3 
40,9 
132,4 
1 288,1 
121,9 
59,9 
2 879,1 
1449,0 
1 430,1 
1 240,5 
95,9 
473,4 
767,1 
1 266,1 
1 049,3 
44 273,1 
31 439,6 
46 425,8 
33 592,3 
12 833,5 o 
G 
•2 
•S 
a 
(d) 
2 152,7 
1 416,4 
736,3 
25 651,2 
3 462,0 
2 051,0 
5 103,0 
1 101,0 
1 307,9 
1 140,0 
5 020,0 
4 486,0 
1 354,0 
415,0 
211,3 
1640,5 
159,0 
1 464,9 
75,7 
348,2 
190,8 
27,3 
320,9 
5 176,5 
25,4 
4 710,4 
69,9 
396,2 
3 831,0 
244,8 
3 519,7 
311,3 
1 801,1 
42,0 
132,4 
1 481,9 
122,5 
64,3 
2 967,2 
1 449,0 
1 518,2 
1 459,8 
97,3 
679,7 
780,1 
1854,1 
1 852,1 
44 729,6 
31 229,8 
46 882,4 
33 382,5 
13 499,9 Utilization of i 
Commitments 
entered into 
in 1989 
Amount 
(e) 
2 088,7 
1 388,6 
700,0 
24 403,1 
3 261,4 
1 979,9 
4 781,0 
1 018,6 
1 147,7 
1 138,8 
4 987,0 
4 376,5 
1 236,6 
364,3 
111,4 
1 543,0 
64,8 
1 461,6 
75,5 
341,4 
187,3 
24,0 
317,4 
4 985,3 
25,1 
4 666,2 
69,7 
249,3 
3 788,1 
244,0 
3 478,4 
309,7 
1 778,2 
40,8 
131,7 
1 462,1 
93,6 
91,0 
2 961,1 
1 442,9 
1 518,2 
1 453,8 
96,5 
677,3 
776,5 
— 
— 
41 254,0 
28 022,6 
43 342,7 
30 111,3 
13 231,5 Rate 
(%) 
(e)/(d) 
97,0 
98,0 
95,1 
95,1 
94,2 
96,5 
93,7 
92,5 
87,8 
99,9 
99,3 
97,6 
91,3 
87,8 
52,7 
94,1 
40,8 
99,8 
99,7 
98,0 
98,1 
87,9 
98,9 
96,3 
99,0 
99,1 
99,8 
62,9 
98,9 
99,7 
98,8 
99,5 
98,7 
97,0 
99,5 
98,7 
76,4 
141,5 
99,8 
99,6 
100,0 
99,6 
99,1 
99,6 
99,5 
— 
— 
92,2 
89,7 
92,5 
90,2 
98,0 ippropriations 
•o 
S fi 
§?g 
c &2 
Z 32 
(0 
3,1 
2,2 
1,0 
— — — — — — — — — — — 
2,0 
— 2,0 
— 
-0,4 
— — -0,4 
46,2 
— 44,2 
— 2,0 
26,5 
— 26,0 
0,5 
13,9 
— — 13,9 
— — 
— 
— — 
4,0 
0,7 
2,4 
1,6 
— 
— 
92,2 
0,7 
96,0 
3,8 
92,3 c 
_o 
i2 
o 
§ V 
(g) = 
(d-e-0 
60,9 
25,6 
35,3 
1248,1 
200,6 
71,1 
322,0 
82,4 
160,1 
1,2 
33,0 
109,5 
117,4 
50,7 
99,9 
95,5 
94,2 
1,2 
0,2 
7,2 
3,5 
3,3 
3,9 
145,0 
0,3 
0,0 
0,1 
144,9 
16,4 
0,8 
15,3 
1,1 
9,0 
1,3 
0,6 
6,0 
28,9 
-26,7 
6,1 
6,1 
0,0 
2,0 
0,2 
0,0 
2,0 
1854,1 
1 852,1 
3 383,4 
3 206,6 
3 443,6 
3 267,4 
176,1 
c 
•~ 
3 
In 
Jb Parliament (S 1) 
Council (S 2) 
(of which: Economic and Social Committee) 
Commission (S 3) 
(of which: non-differentiated appropriations) 
Court of Justice (S 4) 
Court of Auditors (S 5) 
Grand total NDA 
NDA 
(NDA) 
NDA+CA 
(NDA) 
NDA 
NDA 
NDA+CA 405,5 
240,5 
42,9 
45 689,4 
32 855,9 
57,0 
30,6 
46 423,0 405,5 
240,5 
42,9 
45 689,5 
32 856,0 
59,7 
30,6 
46 425,8 405,5 
240,5 
42,9 
46 146,0 
32 646,2 
59,7 
30,6 
46 882,4 381,1 
233,3 
41,2 
42 642,7 
29 411,2 
57,9 
27,7 
43 342,7 94,0 
97,0 
95,9 
92,4 
90,1 
97,0 
90,4 
92,5 1,0 
— — 95,1 
2,8 
— — 
96,0 23,4 
7,2 
1,8 
3 408,3 
3 232,2 
1,8 
2,9 
3 443,6 
(') Budget appropriations amended after taking account of commitment appropriations carried over from 1988 or made available again in 1989, appropriations corresponding to receipts for 
services performed on behalf of outside bodies and transfers between budget headings; not including non-automatic carry-overs from 1988 in respect of non-differentiated appropriations. 
18 Official Journal of the European Communities 12. 12. 90 
Table 1.3 — Appropriations for payment available in 1989 and their utilization, 
by sector and by institution 
(Mio ECU) 
Sector and institution 
(for the corresponding 
terms and budget 
headings see $ 6) 
1. Administration 
1.1. Commission 
1.2. Other institutions 
ffl 
<2 
6 S o U 
o 
a o 
a a 
a O 2. EAGGF-Guarantee 
2.1. Cereals and rice 
2.2. Sugar 
2.3. Fats... 
2.4. Fruit and vegetab. 
2.5. Wine 
2.6. Tobacco 
2.7. Milk products 
2.8. Meat... 
2.9. Various markets 
2.10. Agri-monetary... 
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. Com. organ... 
4.2. Other measures 
5. Regional policy... 
(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, etc. 
(of which: NDA) 
7.1. Energy 
7.2. Research... 
7.3. Industry... 
7.4. Other measures 
8. Repayments... 
8.1. Depreciat. stocks... 
8.2. Other repayments 
9. Cooperation... 
(of which: NDA) 
9.1. Food aid 
9.2. Financial aid 
lO.Prov. approps... 
(of which: NDA) 
Total operating approps. 
(of which: NDA) 
Grand total 
Type of appropriations: 
- non-differentiated 
appropriations (NDA); 
- payment appropriations (PA) 
(a) 
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) 
NDA+PA 
(NDA) 
NDA+PA 
NDA 
PA A — Appropriations for the financial year 1989 
Evolution of 
appropriations 
-a 
3 
(b) 13 §<§z 
"3 u eS ftp 
(c) or 
-.1 
•!•§ E a 
(d) 
2 150,0 2 152,7 2 152,7 
1 416,4 1 416,4 1 416,4 
733,6 736,3 736,3 
26 741,0 26 741,0 25 651,2 
4 086,0 4 086,0 3 462,0 
2 051,0 2 051,0 2 051,0 
5 415,0 5 415,0 5 103,0 
1 221,0 1 221,0 1 101,0 
1 466,0 1 466,0 1 307,9 
975,0 975,0 1 140,0 
4 720,0 4 720,0 5 020,0 
4 501,0 4 501,0 4 486,0 
1 347,0 1 347,0 1 354,0 
415,0 415,0 415,0 
544,0 544,0 211,3 
1 552,4 1 552,4 1 541,7 
169,7 169,7 159,0 
1 369,0 1 369,0 1 369,0 
83,4 83,4 72,7 
381,2 381,2 379,2 
192.8 192,8 190,8 
37,3 37,3 27,3 
343.9 343,9 351,9 
4 300,9 4 300,9 4 333,4 
25,4 25,4 25,4 
3 920,0 3 920,0 3 920,0 
7,4 7,4 39,9 
373,6 373,6 373,6 
3 259,9 3 259,9 3 229,2 
245,5 245,5 244,8 
2 950,0 2 950,0 2 918,5 
309,9 309,9 310,7 
1 409,6 1 409,6 1 523,3 
40,9 40,9 42,0 
116,9 116,9 116,9 
1 145,1 1 145,1 1 247,9 
101,1 101,1 100,2 
46,5 46,5 58,4 
2 879,0 2 879,1 2 967,2 
1 449,0 1 449,0 1 449,0 
1 430,0 1 430,1 1 518,2 
1 031,6 1 031,6 1 239,5 
95,9 95,9 97,3 
460,4 460,4 666,7 
571,2 571,2 572,8 
1 132,2 1 132,2 1 852,9 
1 049,3 1 049,3 1 852,1 
42 687,8 42 687,8 42 717,5 
31 439,5 31 439,6 31 229,8 
44 837,8 44 840,6 44 870,3 
33 589,5 33 592,3 33 382,5 
11 248,3 11 248,3 11 487,8 Utilization 
of appropriations 
U ON 
c£s.s 
(e) frON 
U2 
(0 c 
c 
U 
(g) = 
(d-e-Q 
1 925,5 166,4 60,9 
1 284,4 106,3 25,6 
641,0 60,0 35,3 
24 454,3 -51,2 1248,1 
3 261,4 — 200,6 
1 979,9 — 71,1 
4 776,4 4,6 322,0 
1 018,6 — 82,4 
1 147,7 — 160,1 
1 138,8 — 1,2 
5 044,4 -57,4 33,0 
4 376,5 — 109,5 
1 234,9 1,6 117,4 
364.3 — 50,7 
111.4 — 99,9 
1 397,4 26,0 118,3 
38,8 26,0 94,2 
1 349,0 — 20,0 
42,4 26,0 4,2 
241.7 37,5 100,0 
149.8 37,5 3,5 
24,0 -0,0 3,3 
217,7 37,5 96,7 
4 134,2 11,3 187,9 
13,8 11,3 0,3 
3 920,0 — 0,0 
25,7 5,5 8,6 
188,6 5,8 179,2 
2 895,1 70,1 264,0 
173,9 70,1 0,8 
2 676,1 — 242,4 
219,0 70,1 21,7 
1 467,5 22,7 33,1 
22,7 18,0 1,3 
113,8 1,4 1,7 
1 225,8 4,7 17,5 
87,3 8,4 4,5 
40,7 8,2 9,4 
2 886,4 74,6 6,1 
1 442,9 — 6,1 
1 443,5 74,6 0,0 
1 009,1 81,4 148,9 
65,7 31,4 0,2 
564,3 54,0 48,4 
444,9 27,4 100,5 
— — 1 852,9 
— — 1 852,1 
38 485,8 272,4 3 959,4 
27 805,5 217,8 3 206,6 
40 411,2 438,8 4 020,2 
29 730,9 384,1 3 267,4 
10 680,3 54,7 752,8 B — Carry-overs from 1988 
a .2 u. 
Is-
a£ o 
(h) 
157,2 
94,8 
62,4 
11,2 
5,7 
5,4 
0,1 
23,0 
23,0 
23,0 
20,4 
20,4 
20,4 
32,8 
7,5 
21,9 
11,0 
80,3 
77,7 
80,3 
43,6 
18,6 
1,3 
25,0 
4,3 
13,0 
382,0 
382,0 
70,4 
69,9 
22,5 
47,8 
— 
663,8 
610,4 
821,0 
767,6 
53,4 Utilization 
of appropriations 
1 s 
<£ s.e 
(i) c — 
U2 
G) c o 
1 
c 
6 (k)= 
(h-i-j) 
126,2 — 31,0 
77,8 — 17,0 
48,4 — 14,0 
6,1 — 5,2 
3,9 — 1,7 
2,0 — 3,4 
0,1 — 0,0 
21,7 — 1,3 
21,7 — 1,3 
21,7 — 1,3 
20,3 — 0,2 
20,3 — 0,2 
20,3 — 0,2 
10,1 — 22,8 
6,7 — 0,8 
4,9 — 17,0 
5,2 — 5,8 
69,0 — 11,3 
68,9 — 8,7 
69,0 — 11,3 
29,8 3,1 10,7 
15,8 — 2,8 
1.2 — 0,1 
14,0 3,1 7,9 
3.3 — 1,0 
11,3 — 1,8 
382,0 — 0,0 
382,0 — 0,0 
54,6 — 15,7 
54,2 — 15,7 
22,0 — 0,5 
32,6 — 15,2 
— — — 
593.5 3,1 67,2 
575.6 — 34,8 
719,8 3,1 98,2 
701,8 — 65,8 
18,0 3,1 32,3 C — Total appropriations 
available and payments 
in 1989 
"ON 
•S'i 
cue 
(0 = (d + h) 
2 309,9 
1 511,2 
798,7 
25 662,4 
3 462,0 
2 051,0 
5 108,7 
1 101,0 
1 307,9 
1 140,0 
5 025,4 
4 486,0 
1 354,1 
415,0 
211,3 
1564,7 
182,0 
1 369,0 
95,7 
399,7 
211,3 
27,3 
372,4 
4 366,3 
32,9 
3 920,0 
61,7 
384,5 
3 309,5 
322,4 
2 918,5 
391,0 
1566,9 
60,6 
118,2 
1 272,9 
104,5 
71,4 
3 349,2 
1 449,0 
1 900,2 
1309,8 
167,2 
689,2 
620,6 
1 852,9 
1 852,1 
43 381,4 
31 840,2 
45 691,3 
34 150,1 
11 541,2 Total 
payments 
made in 1989 
Amount 
(m) = 
(e + i) Rate 
(%) 
(n) = 
(m/1) 
2 051,7 88,8 
1 362,3 90,1 
689,4 86,3 
24 460,4 95,3 
3 261,4 94,2 
1 979,9 96,5 
4 780,4 93,6 
1 018,6 92,5 
1 147,7 87,8 
1 138,8 99,9 
5 046,4 100,4 
4 376,5 97,6 
1 235,0 91,2 
364.3 87,8 
111.4 52,7 
1 419,1 90,7 
60,5 33,2 
1 349,0 98,5 
64,1 67,0 
261,9 65,5 
170,0 80,5 
24,0 87,9 
237,9 63,9 
4 144,3 94,9 
20.5 62,2 
3 920,0 100,0 
30.6 49,6 
193,7 50,4 
2 964,1 89,6 
242,8 75,3 
2 676,1 91,7 
288,0 73,7 
1 497,3 95,6 
38.5 63,5 
115,0 97,3 
1 239,8 97,4 
90.6 86,7 
52,0 72,8 
3 268,5 97,6 
1 442,9 99,6 
1 825,6 96,1 
1 063,8 81,2 
119,9 71,7 
586,3 85,1 
477,5 76,9 
— — 
39 079,3 90,1 
28 381,0 89,1 
41 131,0 90,0 
30 432,7 89,1 
10 698,3 92,7 
c Parliament 
Council 
(of which: ESC) 
Commission 
(of which: NDA) 
Court of Justice 
Court of Auditors 
Grand total NDA 
NDA 
(NDA) 
NDA + PA 
(NDA) 
NDA 
NDA 
NDA+PA 405,5 405,5 405,5 
240,5 240,5 240,5 
42,9 42,9 42,9 
44 104,2 44 104,2 44 133,9 
32 855,9 32 856,0 32 646,2 
57,0 59,7 59,7 
30,6 30,6 30,6 
44 837,8 44 840,6 44 870,3 347,0 35,1 23,4 
216,8 16,5 7,2 
39,4 1,8 1,8 
39 770,2 378,8 3 985,0 
29 089,9 324,1 3 232,2 
50,9 7,0 1,8 
26,2 1,4 2,9 
40 411,2 438,8 4020,2 43,0 
12,8 
1,3 
758,6 
705,2 
4,2 
2,4 
821,0 31,2 — 11,9 
11,1 — 1,7 
1.1 — 0,2 
671,4 3,1 84,2 
653,4 — 51,8 
3,9 — 0,3 
2.2 — 0,2 
719,8 3,1 98,2 448,6 
253,3 
44,2 
44 892,6 
33 351,4 
63,9 
33,0 
45 691,3 378,2 84,3 
227,9 90,0 
40,5 91,6 
40 441,6 90,1 
29 743,3 89,2 
54,8 85,8 
28,4 86,3 
41 131,0 90,0 
(') Budget appropriations amended after taking account of transfers between budget headings and receipts for services performed on behalf of outside bodies. 
12. 12. 90 Official Journal of the European Communities 19 
Global rate of utilization of appropriations 
1.57. Taking into account appropriations carried over 
from 1988 (and appropriations made available again), the 
final amount for appropriations available for commit­
ment and payment in 1989 was 46 882,4 Mio ECU and 
44 870,3 Mio ECU respectively. The global rate of 
utilization of these appropriations was 92,5 % in the case 
of appropriations available for commitment (compared 
with 96,7 % in 1987 and 94,0 % in 1988) and 90,0 % in 
the case of appropriations available for payment (against 
94,0 % in 1987 and 91,3 % in 1988). In response to the 
Court's requests, the Commission has included in Volume 
I of the revenue and expenditure account for this year a 
fairly detailed — and even, in some cases, rather critical 
— analysis of the conditions on which the available 
appropriations were used. The Court will be interested to 
watch the implementation of the solutions put forward in 
the document for improving the utilization of appropri­
ations, and in particular the monitoring of amounts still 
to be paid against commitments. 
Rate of utilization of appropriations for compulsory 
and non-compulsory expenditure 
1.58. In the case of compulsory expenditure (CE), the 
global rate of utilization of appropriations available for 
payment was 89,3 % as against 92,3 % in 1988 (see Table 
1.4). For non-compulsory expenditure (NCE), the rate 
reached 91,7 %, compared with 88,2 % in 1988. Leaving 
aside the budget headings for EAGGF-Guarantee 
spending and the unused agricultural monetary reserve, 
the rate of utilization of appropriations for payment was 
91,8 % for compulsory expenditure, against 89,3 % in 
1988. These percentages lead to the conclusion that, 
generally speaking, there was no substantial difference 
between the level of implementation for compulsory 
expenditure, on the one hand, and non-compulsory 
expenditure, on the other. 
Unutilized appropriations 
1.59. Appropriations available for commitment in 1989 
and unutilized at 31 December 1989 amounted to 
3 543,6 Mio ECU (2 745,3 Mio ECU in 1988), of which 
3 447,5 Mio ECU lapsed and 96,1 Mio ECU (3,8 Mio 
ECU of non-differentiated appropriations and 92,3 Mio 
ECU of differentiated appropriations) were carried over 
to 1990 under Article 6, paragraphs 1(b) and 2 of the 
Financial Regulation. The total for lapsed appropriations 
includes 3 271,4 Mio ECU of non-differentiated ap­
propriations, which are excluded from being carried over 
by the provisions of the Financial Regulation, whilst 
differentiated appropriations that are carried over must 
be related to the amount of differentiated appropriations 
(268,4 Mio ECU) still available at the year-end (see also 
paragraph 1.33). 1.60. Appropriations available for payment in 1989 and 
still unutilized at 31 December 1989 amounted to 
4 560,3 Mio ECU (compared with 3 926,5 Mio ECU in 
1988), of which 4 118,3 Mio ECU (i.e. 3 333,2 Mio ECU 
of non-differentiated appropriations and 785,1 Mio ECU 
of differentiated appropriations) lapsed and 442,0 Mio 
ECU (i.e. 384,2 Mio ECU of non-differentiated ap­
propriations and 57,8 Mio ECU of differentiated ap­
propriations) were carried over to 1990 (see also 
paragraph 1.34). 
Parliamentary amendments 
1.61. The amendments made by the European Parlia­
ment amounted to 373,4 Mio ECU of appropriations for 
commitment against 180 budget headings and 307,1 Mio 
ECU of appropriations for payment against 207 budget 
headings. The Court must stress that for some of these the 
amount of appropriations still unutilized at the end of the 
year was higher than the amount of the amendment. 
Table 1.5 shows that, taking the headings against which 
the amount of the amendment was 1 Mio ECU or more, 
this concerned one budget heading for an amount of 
1,8 Mio ECU of appropriations for commitment and 26 
budget headings for an amount of 82,2 Mio ECU of 
appropriations for payment. These figures show that the 
Commission is generally able to commit the amended 
appropriations, but that it is far more difficult for it to 
follow up the commitments with actual implementation 
in the form of payments. 
Identification of low rates of budgetary utilization 
1.62. The Court drew up a list (see Tables 1.6 and 1.7) of 
budget headings relating to the main areas of operational 
expenditure, other than the EAGGF-Guarantee spend­
ing, which had received an allocation of more than 5 Mio 
ECU in appropriations for payment and/or commitment 
made available for the first time in 1989 and for which the 
rate of utilization was below 75 %. The Court's list 
shows, where appropriate, the Parliament's amendments 
and the reasons for the low rate of utilization. It is 
apparent that in relation to 1988 there has been an overall 
reduction in the number of cases where appropriations 
were severely underutilized. This reduction is, however, 
less marked in the case of appropriations for commit­
ment, where the volume of appropriations which 
remained unutilized was actually higher (321,4 Mio ECU 
as against 249,2 Mio ECU in 1988). The areas in which 
underutilization of appropriations was most marked were 
the integrated Mediterranean programmes (172,3 Mio 
ECU of appropriations for payment and 139,0 Mio ECU 
of appropriations for commitment remained unused) and 
the measures for the reform of the common agricultural 
policy (CAP) (set-aside of farmland; income aids; 
restructuring, conversion, adaptation and modernization 
of the fishing industry; agricultural controls). 
20 Official Journal of the European Communities 12. 12. 90 
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12. 12. 90 Official Journal of the European Communities 21 
Table 1.5 — Appropriations entered following a parliamentary amendment against budget headings for which the amount of appropriations 
unutilized at the end of the year exceeded the amount of the amendment 
(Mio ECU) 
Sector 
Part A 
Administrative 
Part B 
Agricultural structures 
Fisheries 
Regional policy 
and transport 
Social policy 
Research, energy 
Cooperation 
and development Budget 
heading 
1100 
138 
203 
205 
2204 
241 
387 
4702 
5490 
551 
587 
630 
631 
6331 
634 
640 
643 
7385 
773 
7760 
7761 
9202 
9211 
9300 
9310 
966 Heading 
Basic salaries 
Mission expenses 
Cleaning and maintenance 
Security and surveillance of buildings 
Electronic office equipment 
Telephone, telegraph, telex, television 
Forestry 
Adaptation and modernization 
Studies and common measures for transfrontier regions 
Integrated Mediterranean programmes 
Operations in the field of tourism 
Measures relating to education 
Cooperation between universities and industry: training in new 
technologies (Comett) 
Programme of youth exchanges (YES) 
Vocational training and guidance activities 
Measures and studies in the fields of employment and the 
Community social dimension 
Measures concerning living and working conditions and social 
protection 
Monitor: strategic analysis, forecasting and evaluation in 
matters of research and technology 
Operations relating to industry 
Promotion of Community exports to Japan 
Specific measures concerning markets of third countries 
Additional food aid in cereals 
Food aid in butteroil 
Financial and technical cooperation with Asian developing 
countries 
Financial and technical cooperation with Latin American 
developing countries 
Financial assistance to the West Bank and Gaza 
Total Commitments 
Un­
utilized 
4,7 
4,7 Amend­
ment 
1,8 
1,8 Payments 
Un­
utilized 
4,7 
4,9 
3,4 
2,8 
4,6 
10,3 
4,0 
46,4 
2,0 
172,3 
2,2 
3,8 
8,0 
2,2 
8,1 
8,6 
2,5 
2,4 
3,1 
1,7 
1,9 
19,4 
9,9 
8,6 
5,0 
2,3 
345,1 Amend­
ment 
1,8 
1,7 
1,0 
1,1 
1,7 
3,8 
1,7 
8,3 
2,0 
12,0 
1,3 
1,3 
1,0 
1,0 
1,7 
7,9 
1,8 
1,0 
3,1 
1,2 
1,0 
7,7 
9,2 
4,3 
2,0 
1,6 
82,2 
22 Official Journal of the European Communities 12. 12. 90 
Table 1.6 — Budget headings with allocations of more than 5 Mio ECU where the rate of utilization for appropriations 
for payments (AFP) and/or appropriations for commitment (AFC) initially made available for the financial year 1989 
(initial appropriations and appropriations made available again or carried over from 1988) was lower than 75 % 
(Mio ECU) 
w 
Agricultural 
structures 
Fisheries 
Regional 
policy 
and transport 
Social 
policy 
Research, 
energy, etc. Budget 
heading 
(') 
380 
(NDA) 
381 
(NDA) 
382 
(NDA) 
385 
(NDA) 
387 
3900 
(NDA) 
3901 
(NDA) 
401 
(NDA) 
411 
460 
4701 
4702 
551 
554 
630 
(NDA) 
631 
(NDA) 
6330 
(NDA) 
6331 
(NDA) 
634 
(NDA) 
640 
(NDA) 
643 
(NDA) 
6480 
(NDA) 
649 
6610 
670 
(NDA) 
6750 
(NDA) 
6751 
(NDA) 
6752 
(NDA) 
7305 
7307 
7314 
7331 Heading 
Specific veterinary measures 
Disease eradication programmes in the Community 
Inspection in agriculture 
Restructuring of agricultural survey systems 
Forestry 
Set-aside of farmland 
Income aids 
Intervention for fishery products 
Financial participation in inspection and surveillance operations in 
the maritime waters of certain Member States 
Common measures to restructure, modernize and develop the fishing 
industry and to develop aquaculture 
Reorientation of fishing activities 
Adaptation and modernization 
Integrated Mediterranean programmes — Additional contribution 
Preparation of Community support frameworks and technical 
assistance 
Measures relating to education 
Cooperation between universities and industry: training in new 
technologies (Comett) 
Young workers exchange programmes 
Programme for youth exchanges (YES) 
Vocational training and guidance activities 
Measures and studies in the fields of employment and the Community 
social dimension including specific job-creation projects in connec­
tion with completion of the internal market 
Measures concerning living and working conditions and 
social protection 
Measures for health protection, hygiene and safety at work, including 
specific measures in connection with completion of the internal 
market 
Special financial assistance for the social sector in Greece 
Protection and management of the natural environment and natural 
resources and direct action in regions under threat 
Measures in the cultural sector 
Information — Centralized activities 
Information — Decentralized activities 
Information — Specific activities 
Completion of the former joint programmes 
Services provided at the request of outside bodies and individuals 
Environment 
Brite: Basic technological research and application of new tech­
nologies Type 
of appro­
priation 
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 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC priations 
initially 
made avail­
able (2) 
6,7 
6,7 
25,0 
25,0 
49,7 
30,0 
8,8 
5,5 
7,6 
10,0 
40,0 
40,0 
60,0 
60,0 
37,3 
37,3 
9,0 
45,0 
25,0 
15,0 
105,0 
145,0 
252,0 
250,0 
11,7 
11,6 
13,4 
8,7 
33,9 
24,0 
5,8 
5,0 
7,0 
6,0 
20,9 
13,7 
19,0 
12,9 
6,1 
4,5 
6,9 
4,9 
21,0 
12,0 
5,0 
6,2 
9,1 
6,3 
8,2 
6,0 
17,2 
12,5 
5,3 
3,6 
19,1 
7,2 
11,1 
16,6 
13,5 
56,0 
2,8 of which: 
approps. 
entered 
following 
a parliamen­
tary amend-
0,3 
0,3 
1,7 
3,0 
1,5 
8,3 
12,0 
1,3 
1,3 
1,0 
1,0 
0,4 
0,4 
1,0 
1,0 
1,7 
1,7 
7,9 
7,9 
1,8 
1,8 
4,9 
4,9 
0,7 
0,2 
0,8 
0,8 
0,1 
0,1 
0,8 
0,8 
1,6 
1,6 Rate of 
approps. 
1 
40 
73 
73 
56 
100 
59 
70 
46 
100 
15 
15 
0 
0 
64 
64 
1 ,7 
54 
23 
62 
56 
100 
32 
44 
42 
62 
67 
100 
71 
100 
74 
100 
68 
100 
^~ 58 
100 
52 
100 
56 
100 
50 
99 
21 
99 
71 
100 
72 
100 
72 
100 
69 
100 
73 
93 
41 
45 
41 
99 
72 
70 
0 Principal 
causes of 
underutiliza-
tion (3) 
(b) 
(b) 
(0 
(0 
(e) 
(0 
(0 
(0 
(d) 
(d) 
(d) 
(d) 
(e) 
(e) 
(a) 
(a) 
(a) 
(a) 
(a) 
(b) 
(b) 
(d) 
(d) 
(a) 
(a) 
(b) 
(b) 
(d) 
(d) 
(e) 
(d) 
(a) 
(b) 
(b) 
(b) 
(0 
(0 
(d) 
(0) (0 
(c) 
(a) 
12. 12. 90 Official Journal of the European Communities 23 
(Cont.) (Mio ECU) 
^ 
Cooperation with 
developing countries Budget 
heading 
7335 
7342 
7520 
7702 
773 
(NDA) 
774 
7760 
9211 
923 
9281 
929 
(NDA) 
946 
950 
951 
954 
(NDA) 
958 
(NDA) 
9601 
9602 
9632 
9650 
9651 
990 Heading 
CBR — Applied metrology and reference materials 
Eclair: European collaborative linkage of agriculture and industry 
through research 
Community projects in the field of innovation and technology 
transfer 
Standardization in information technologies 
Operations relating to industry 
Monitoring the application of certain steel industry measures 
Promotion of Community exports to Japan 
Food aid in butteroil 
Food aid in vegetable oil/olive oil 
Community participation in storage programmes and early warning 
systems 
Food projects in place of food aid 
Ecology in the developing countries 
Aid to disaster victims in developing and other third countries 
Contribution to financing the purchase of food products and seed by 
non-governmental international organizations 
AIDS control in developing countries 
Special programme to combat hunger in the world 
Aid to prepare for the accession of Portugal 
Specific aid to improve agricultural structures in Portugal 
Special aid for Turkey 
First and Second Financial Protocols with the southern Mediter­
ranean countries 
Third Financial Protocols with the southern Mediterranean countries 
Operations under commercial and economic cooperation agreements 
with third countries Type 
of appro­
priation 
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 priations 
initially 
made avail­
able 
(2) 
11,9 
13,5 
13,0 
24,2 
5,0 
5,1 
7,0 
8,0 
7,6 
5,9 
4,9 
5,9 
5,1 
5,9 
48,7 
45,2 
22,8 
24,0 
4,0 
10,0 
10,8 
10,0 
6,0 
6,0 
44,9 
18,5 
4,8 
10,0 
8,6 
5,0 
5,8 
16,0 
12,0 
8,0 
2,0 
65,0 
10,0 
25,0 
170,0 
13,8 
12,0 of which: 
approps. 
entered 
following 
a parliamen­
tary amend-
0,2 
0,2 
3,1 
3,1 
0,2 
1,2 
1,2 
9,2 
16,3 
0,8 
4,0 
10,0 
5,0 
5,0 
1,9 
1,8 
0,2 
4,6 
7,0 Rate of 
utiliza-
approps. 
69 
100 
39 
97 
94 
41 
67 
100 
58 
100 
50 
52 
66 
100 
67 
65 
71 
100 
28 
36 
27 
49 
67 
100 
59 
71 
70 
69 
24 
79 
58 
44 
33 
1 
0 
68 
78 
21 
100 
58 
98 Principal 
causes of 
underutili-
zation Q) 
(0 
(b) 
(0 
(a) 
(a) 
(e) 
(e) 
(0 (0 
(0 
(d) 
(0 (a) 
(d) 
(0 (0 
(0 
(d) 
(a) 
(a) 
(a) 
' (d) 
(d) 
(d) 
(d) 
(') NDA = non-differentiated appropriations. 
(2) Initial budget appropriations and appropriations made available again or carried over from 1988. 
(3) Indicates the nature of the cause (see Table 1.7) which provides the main explanation for the underutilization of the appropriations for the budget heading 
concerned. 
24 Official Journal of the European Communities 12. 12. 90 
Table 1.7 — Analysis of main causes of underutilization 
of appropriations for commitment and payment in 1989 
(Mio ECU) 
Cause of 
underutilization 
(a) Structural delays related to the unrealistic 
nature of certain programmes and the 
slowness with which they have been im­
plemented 
(b) Unwieldiness and, in some cases, complexity 
of the procedures and systems which give 
recipients access to Community funds 
(c) Absence of legal basis 
(d) Problems associated with the winding-up of 
completed operations, the launch of new 
programmes or the implementation of new 
regulations 
(e) In some cases, the unsatisfactory nature of 
the management provided by the Com­
mission 
(f) Miscellaneous or unidentified 
Total Type of 
appropriation 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC 
AFP 
AFC Number of 
budget 
headings 
14 
1 
8 
2 
1 
13 
4 
4 
2 
10 
8 
49 
18 Appropriations 
made available 
initially 
356,7 
25,0 
306,8 
256,7 
13,5 
304,0 
121,6 
98,2 
43,2 
210,2 
120,4 
1 275,9 
580,4 Unutilized 
appropriations 
166,5 
10,9 
195,4 
140,9 
3,8 
194,4 
105,2 
39,5 
16,2 
79,5 
44,4 
675,3 
321,4 
Out-turn for the year 
1.63. Table 1.8 shows how the Commission calculated 
the balance for the year, which came to 5 080 Mio ECU. October 1989. Another portion of the balance (1 701 Mio 
ECU) was also passed to the budget at the beginning of 
1990 by means of supplementary and amending budget 
No 2, which was adopted on 11 July 1990. In this way, the 
Community's own-resources requirements for 1990 were 
reduced by 4 300 Mio ECU. Under the current position 
these adjustments leave unutilized 780 Mio ECU, which 
could have been put to good use in 1990 as a way of 
reducing still further the calls on Community own 
resources. 
1.64. The calculation shows that for the financial year 
1989 21,6 Mio ECU were booked as the surplus available 
from the previous year. In actual fact, this amount 
derived from the balance for 1987. It was not entered in 
the budget for 1988, contrary to the provisions of Article 
27 of the Financial Regulation. OBSERVATIONS ON THE LEGALITY AND 
REGULARITY OF OPERATIONS PASSED 
TO THE ACCOUNTS FOR THE YEAR 
1.65. This substantial balance of 5 080 Mio ECU was 
essentially due to the advances made in accordance with 
the intergovernmental agreement which were due in 1988 
but paid at the beginning of 1989 (1 642 Mio ECU) and 
the cancellation of appropriations for the financial year 
1989 (2 067 Mio ECU for the agricultural sector alone, 
including 819 Mio ECU by way of the monetary reserve). 
Part of this balance (2 598 Mio ECU) was restored to the 
budget as revenue, ahead of the final accounts, when the 
1990 budget was drawn up, as the budgetary authority 
had been advised of the existence of part of the substantial 
surplus for the year by means of a letter of amendment in Traditional own resources 
Entry into force of Decision 88/376/EEC 
1.66. Decision 88/376/EEC (8) on own resources, which 
entered into force on 1 February 1989, with retroactive 
effect from 1 January 1988, was implemented by the 
Member States on different dates, both as regards the 
(8) OJL 185, 15.7.1988, p. 24. 
12. 12. 90 Official Journal of the European Communities 25 
Table 1.8 — Calculation of the balance for financial years 1988 and 1989 
(Mio ECU) 
Total revenue 
Adjustments: 
— Lapse of balance of appropriations for payments carried over from previous year 
— Exchange gains 
Total revenue after adjustment 
Expenditure charged to the financial year 
Adjustments: 
— Exchange losses 
Balance for the year 1988 
(a) 
41 843,4 
381,3 
36,1 
42 260,8 
41 120,9 
1 139,9 1989 
(b) 
45 899,8(0 
98,1 
45 997,9 
40 850,0 
67,8 
5 080,1 
(') Includes surplus of 1140,1 Mio ECU for financial year 1988 and surplus of 21,6 Mio ECU for financial year 1987 not taken into account in 1988. 
retention of 10 % by way of collection costs and as 
regards the inclusion of ECSC customs duties in the own 
resources (July 1988 in the case of the 10 %, 20 April 1989 
for ECSC customs duties). Implementing the decision on 
different dates was inconsistent and had negative effects 
on the Community's cash resources: there was a two-
month delay in payment of the 62 Mio ECU for ECSC 
customs duties for 1988 and anticipation of around one 
month for the period July 1988 to January 1989 in the 
making available to the Member States of the 10 % for 
the costs of collection (equivalent to 100 Mio ECU per 
month on average). 
Entering of amounts made available by the 
Member States 
1.67. In the case of the 12 738 Mio ECU made available 
by the Member States by way of traditional own 
resources, the recovery orders were made out on average 
two or three weeks after the amounts had actually been 
made available. In three cases there were delays in making 
the amounts available, or they were adjusted, and there 
was no provision for interest to be paid (three days in the 
case of Portugal in January 1989 for an amount of 
5,7 Mio ESC; more than a month in the case of the 
United Kingdom for an amount of 16,3 Mio UKL which 
was finally made available in January 1989; between one 
and two years in the case of Greece for errors totalling 
4,3 Mio DR). Entering of amounts resulting from special agreements 
1.68. Accounting procedures for entering deductions 
resulting from agreements concluded with third countries 
prior to the entry into force of the Treaty (Article 234 of 
the EEC Treaty) vary from one country to another. Three 
Member States (FR of Germany, France and the United 
Kingdom) deduct the amounts themselves and the 
Commission takes them into account when it is informed 
of them (8,2 Mio FF deducted by France in March for the 
year 1988; 0,5 Mio DM deducted by the FR of Germany 
in August for 1988; every month in the case of the 
amounts deducted by the United Kingdom, with no 
indication of the reference periods and no way of 
identifying the amounts concerned). Italy asked for 
14 000 Mio LIT to be deducted for 1979, 1980, 1981, 
1985, 1986 and 1987 and stated that it had deducted 
5 000 Mio LIT in 1988 for 1982, 1983 and 1984. As a 
general principle, the Commission should ascertain 
whether these deductions are valid, ensure that they can 
be implemented in a comparable manner (similar entry 
times and reference periods) and pursue a coherent policy 
of accepting explicitly, clearly and verifiably those 
deductions that are justified, and only those. 
Frauds and irregularities 
1.69. The statutory framework governing frauds and 
irregularities involving traditional own resources has two 
26 Official Journal of the European Communities 12. 12. 90 
aspects. On the one hand, Council Regulation (EEC) No 
1468/81 of 19 May 1981 (9) on mutual assistance, and 
Article 14 in particular, provides that the competent 
authorities in each Member State shall communicate to 
the Commission any information they consider useful 
concerning goods, methods or processes involved in 
transactions contrary to the legislation on customs or 
agricultural matters. On the other hand, Council 
Regulation (EEC, Euratom, ECSC) No 2891/77 of 19 
December 1977 (10) provides that the Member States are 
to send the Commission an annual report concerning the 
establishment and control of own resources, and certain 
Member States reported established cases of fraud in their 
reports. This Regulation was repealed by Council 
Regulation (EEC, Euratom) No 1552/89 of 29 May 
1989 (H) implementing Decision 88/376/EEC, Euratom. 
Article 6(3) states that from 1 January 1990 each Member 
State shall send the Commission a half-yearly statement 
giving a brief description of cases of fraud and irregula­
rities involving entitlements of more than 10 000 ECU. 
1.70. Analysis of the cases of fraud notified by the 
Member States in 1989 under these two regulations gave 
rise to the observations set out below. 
1.71. Within the framework of Regulation (EEC) No 
1468/81, the Member States (principally Belgium, 
Denmark, France and the United Kingdom) notified 45 
cases of fraud. The Commission, for its part, drew 
attention to a further 14 cases. Only 21 of these related to 
1989, the others being earlier, and in some cases going 
back to 1985, so that there was a danger that the necessary 
investigation of the files might be jeopardized by the limit 
of three years which applies to the keeping of customs 
declarations in the Member States. It should be noted that 
30 % of the cases notified concerned the origin of goods 
and that there were no notifications concerning Com­
munity transit or inward processing arrangements. 
1.72. Similar information sent under Regulation (EEC, 
Euratom) No 2891/77 comprised 17 336 cases declared by 
five Member States (Belgium, Denmark, France, Por­
tugal and the United Kingdom). 
1.73. There is no systematic linkage of information 
concerning frauds to the entering of own resources in the 
accounts. Such information could, however, have an 
effect on the recording of the entitlements established. In 
particular, the Commission does not make out any 
recovery orders, even in the case of amounts that have 
been properly identified, and in any case the principle of 
separate entries for unrecovered entitlements is not yet 
operational. Apart from the fact that the situation as such 
(9) OJL 144, 2.6.1981, p. 1. 
(10) OJ L 336, 27.12.1977, p. 1. 
(ii) OJL 155, 7.6.1989, p. 1. is open to criticism, it prevents any plausible evaluation of 
the financial effects of the frauds discovered. 
VAT and GNP own resources and 
miscellaneous revenue 
Management of VAT own resources 
1.74. In its report concerning the financial year 1988, 
the Court criticized the Commission's pragmatic ap­
proach in dealing with situations where it does not agree 
with the Member States regarding corrections to the 
statements compiled by the latter for the purpose of 
determining the VAT own resources base. An examin­
ation of operations effected in 1989 revealed certain 
similarities. 
1.75. At the end of 1989, out of a total of 46 'reserves' 
noted by the Court, there were only 13 cases where a claim 
had been established and entered. Although the remain­
ing 33 were measures which were likely to give rise to or 
modify Community claims, the Commission had not, as 
of that date, set any time-limit for establishing and 
recording them. One of these 'reserves' related to 1979, 
two to 1982, two to 1983, one to 1984, four to 1985, five to 
1986, 13 to 1987 and five to 1988. 
1.76. Following the amendments to the national 
legislation in Italy, VAT collection was speeded up with 
the result that in 1988 the Italian Government received 13 
monthly payments; according to Council Regulation 
(EEC, Euratom, ECSC) No 2892/77 of 19 December 
1977, these 13 payments should have appeared in the 
statement of VAT resources for the year in question. The 
statement did not, however, include the payment received 
in December 1988. As a result, VAT resources were 
carried over from 1989 to 1990, leading to an estimated 
reduction of 175 Mio ECU in the own resources made 
available to the Community for 1989. Although the 
Commission knew when it received the statement that this 
was the position, the figures were not corrected in 1989 
and steps to establish and recover the claim were not 
taken at the proper time. 
1.77. An amount of 19,2 Mio ECU in VAT resources 
was made available to the Community in 1989 as a result 
of positive adjustments of the 1979-86 statements agreed 
between the Member States and the Commission in 1989. 
No interest was paid on these overdue payments. 
1.78. For the purpose of the clearance of a case 
involving a dispute with France, the latter paid an amount 
12. 12. 90 Official Journal of the European Communities 27 
of 10 000 ECU plus 3 506,25 ECU in interest on the 
delayed payment in 1986. In 1989 the amount was 
corrected and amounted to 722 801 ECU. The difference, 
namely 712 801 ECU, was paid in December 1989 
without any interest being paid on the portion overdue. 
This correction was for the years 1979 to 1986. 
1.79. In the case of Italy, interest which had been owing 
since 31 July 1987, as a result of the delay in making 
available the VAT resources relating to an adjustment for 
the 1981 and 1982 financial years, was not paid until 
March 1989. 
1.80. In view of this the Court can only reiterate the 
recommendation it made to the Commission in the 
annual report for 1988, that the latter should review its 
procedures for recovering VAT resources. This method of 
calculating revenue was selected, at the Commission's 
suggestion, as the sole definitive method for determining 
the base for VAT own resources, on the grounds that it 
would be more reliable. Difficulties cannot be taken as 
justification for conduct which is contrary to the 
Financial Regulation and may also affect the soundness 
of the financial management, particularly where they are 
the result of disagreement over the determination of the 
VAT resources base. 
Recoveries of revenue intended to balance the general 
budget and of VAT revenue 
1.81. For Spain the amount due in national currency on 
the basis of the amounts established in 1988 was 
equivalent to 440,4 Mio ECU (58 649 648 202 PTA). On 
13 January 1989 Spain paid over an amount of 430,8 Mio 
ECU (57 364 293 586 PTA), the equivalent of its 
contribution in ECUs at the exchange rate for 16 
December 1988. In a telex dated 20 January 1989, the 
Commission requested payment of the remainder and this 
sum was paid on 30 January. The Commission did not, 
however, ask for the interest on arrears which was due 
under Article 28(3) of the Financial Regulation. Simil­
arly, the VAT twelfth made available by the United 
Kingdom for January 1989 was 84 Mio ECU less than it 
should have been according to Article 10(3), fourth 
subparagraph, of Council Regulation (EEC, Euratom, 
ECSC) No 2891/77 of 19 December 1977, as amended. 
The error was corrected in February, but the Commission 
omitted to ask the United Kingdom for the related 
interest, arguing that the Council Decision of 24 June 
1988 concerning the system of own resources did not 
come into force until 1 February 1989. However, this 
decision did not in any way amend the previous rules as 
regards the timetable for entry and the sums that were to 
be taken into consideration. EAGGF Guarantee Section 
Charging payments 
1.82. Payments made by the Member States are entered 
in the Commission's revenue and expenditure account on 
the basis of the Member States' monthly declarations. In 
1989 the Court carried out detailed examinations of the 
systems of accounting and financial management used in 
two Member States, which revealed that the quality of the 
figures entered in the accounts is very variable (3.27-3.44). 
Management of advances 
1.83. The measures adopted by the Commission in 
response to the abnormal way in which four Member 
States (Belgium, the FR of Germany, Italy and Luxem­
bourg) applied the rules on 'non-collection of the 
additional milk levy' reduced by 57,4 Mio ECU the 
'advances' (which were in fact repayments) made 
available to these Member States, and had the effect of 
reducing the volume of appropriations committed for 
EAGGF-Guarantee spending by an equivalent amount. 
The advances must in fact correspond to the volume of 
appropriations committed. Since the Commission also 
entered as payments all the expenditure declared by these 
Member States, it found itself with a volume of payments 
in excess of the appropriations committed. The cor­
responding charge was, in fact, transferred to 1990. 
1.84. This irregular accounting situation illustrates yet 
again the drawbacks of treating revenue as negative 
expenditure (see the request from the Parliament 
contained in the 1988 discharge resolution, paragraph 
33(b)) (12). 
Fisheries 
1.85. Most of the international fisheries agreements 
financed against item 4200 are concluded for periods of 
two to four years, with a timetable setting out the annual 
rate at which financial compensation is to be paid. The 
appropriations available against this item are not, 
however, differentiated. Commitments made by the 
Commission against this item correspond to the in­
dividual annual tranches and in structural terms cannot, 
therefore, meet the conditions set out in Articles 1 and 32 
to 34 (correspondence between the accounting commit-
('2) Minutes of the proceedings of the sitting of 3 April 1990 (PE 
139.831). 
28 Official Journal of the European Communities 12. 12. 90 
ment and the commitment to third parties) of the 
Financial Regulation. Moreover, the multiannual cost of 
these agreements is to be found neither in the notes to the 
budget nor in the working document which contains the 
justification for the budget estimates. 
1.86. Finally, in 1989, the Commission utilized 
31,7 Mio ECU of the non-differentiated appropriations 
for 1989 to commit a substantial part of the 1990 financial 
compensation for Morocco, and all the compensation 
due to the Comoros in 1990. These commitments did not 
respect the budgetary principle of annuality. Without 
them, the transfer of 8 Mio ECU from Chapter 100 
(reserve) to Article 420 would not have been necessary. 
EAGGF Guidance Section 
Refunds to Member States 
1.87. The provisional reimbursement of 37,9 Mio ECU 
to Italy in 1989 (Council Regulation (EEC) No 797/85 of 
12 March 1985) (13) can be regarded as regular only if 
there is a correction to be made in 1990. The amount is in 
fact based on data supplied by Italy which have proved to 
be somewhat unreliable. Similarly, there is no legal basis 
for the reimbursement of 0,9 Mio ECU for the Val 
d'Aosta and 0,1 Mio ECU for Bolzano, as the Commis­
sion made the refund before it had approved the national 
provisions adopted in implementation of the Community 
legislation. 
1.88. Refunds to Spain which were justified by reference 
to Regulation (EEC) No 797/85 are in violation of the 
conditions of application of this regulation (26,2 Mio 
ECU for the reasons stated in paragraphs 6.56-6.63 
below; 1,1 Mio ECU for forestry aid, because the 
Commission has not reached a decision on the national 
provisions applied). 
ERDF 
Supporting documents 
1.89. External auditing of this part of the budget is 
hampered by the fact that the Court has not received all 
(13) OJ L93, 30.3.1985, p. 1. the main supporting documents for commitments, most 
of the supporting documents for cancellations and the 
end-of-year accounting documents regarding commit­
ments. 
Management of ERDF commitments (heading B 500) 
1.90. The appropriations allocated to the ERDF 
multiannual programmes are committed in annual 
tranches and are made available in the form of advances 
on the basis of financing plans and the utilization of 
earlier tranches. The Court has criticized this technique 
on many occasions, as it is not in accordance with the 
provisions of Article 32 of the Financial Regulation, 
which states that all measures which may give rise to 
expenditure chargeable to the budget must be preceded by 
a proposal for a commitment of expenditure (see 
paragraphs 7.20-7.29). In addition, control of this system, 
under which it is possible for every additional commit­
ment to result in adjustment of earlier commitments 
according to the progress of financial implementation, 
requires documentary evidence which, as things stand, is 
provided neither by the supporting documents (see 
paragraph 1.89 above) nor by the accounting entries in 
the single accounts centre. Finally, when the initial 
financial plans are modified, the adjustments made 
sometimes have the effect of speeding up the rate at which 
supplementary funds are made available, even though, on 
the ground, financial implementation is slowing relative 
to the initial forecasts, which ought to have delayed the 
payment of these supplements (as, for example, with the 
Nord-Pas de Calais national programme of Community 
interest in 1989). 
1.91. The cases of three national programmes of 
Community interest on which decisions were given in 
1989, but for which appropriations were committed in 
1988 and, conversely, cases of appropriations cancelled in 
December 1989 so that they could be recommitted in 
1990, even though the financing decisions had actually 
been taken in 1989, show that the Commission has not yet 
succeeded in achieving full control of the actual 
implementation of commitment appropriations within 
the limits of the budgetary authorizations. 
Preparation of Community support frameworks and 
technical assistance (heading B 554) 
1.92. In 1989 a number of commitments against Article 
554 corresponded to recommitments effected in order to 
make final payments on studies decided in 1987 and 
financed with the help of non-differentiated appropri­
ations which had clearly expired at the end of 1988. These 
recommitments were effected on an ad hoc basis without 
any decision, sometimes after invoices had been presented 
for payment. 
12. 12. 90 Official Journal of the European Communities 29 
Entry of ERDF appropriations earmarked for the IMPs 
1.93. The ERDF contributions to the integrated 
Mediterranean programmes (IMPs), which should norm­
ally be entered against Article 501, which carries a token 
entry (p.m.) for that purpose, are entered against Article 
500, which relates to the overall management of the 
ERDF. 
Social area 
Volume of operations financed by the Social Fund in 
priority regions 
1.94. According to Article 9 of Council Regulation 
(EEC) No 4255/88 of 19 December 1988 (14), operations 
financed by the Social Fund in priority regions must not 
exceed 44,5 % of the total available appropriations. 
Whatever the volume of available appropriations taken 
into consideration for 1989 (whether available before or 
after the appropriations had been made available again), 
the volume of operations financed in the priority regions 
exceeds the 44,5 % level and varies between 47,5 % and 
48 %, i.e. about 100 Mio ECU of expenditure outside the 
applicable regulatory framework. 
Research and energy 
1.95. In the research sector, the Court noted that there 
were some areas in which there were still major cases of 
dormant commitments. This was particularly so in the 
case of the Esprit programme (European strategic 
programme for research and development in information 
technologies), where it appeared that, in a sample of 
operations where there had been no payments for 11 
months, 10 appropriations totalling 5,8 Mio ECU should 
have been cancelled. Similarly with the energy pro­
grammes, where a minimum of 4,1 Mio ECU should also 
have been cancelled. The Court also examined the 
management of commitments still outstanding at the 
Joint Research Centre, and the situation was found to be 
satisfactory. 
(14) OJL 374, 31.12.1988, p. 21. Operations under Title 9 
Food aid 
1.96. Examination of a sample of food-aid payments 
confirmed the confusion in the accounts which had been 
found to exist in the past (see Annual report concerning 
the financial year 1988, paragraphs 2.30-2.33), whereby 
certain transactions were charged more in terms of the 
immediate availability of appropriations than in terms of 
their purpose. For example, one appropriation com­
mitted under the residue of the 1987 cereals programme 
had been increased for another purpose and in part gave 
rise to payments that related to a different purpose. 
Aid to Bangladesh 
1.97. During its audit of aid to Bangladesh, the Court 
noted several cases of operations which were not in 
accordance with Community regulations: 
(a) one financial and technical assistance decision had 
been amended substantially without the requisite 
consultation of the Committee for Aid to Developing 
Countries in Latin America and Asia (see paragraph 
10.43); 
(b) corresponding service had not been performed, so 
that the payment was an infringement of Article 37 of 
the Financial Regulation; 
(c) payment for an amount of 3,2 Mio ECU had been 
held up for eight months because of an error in the 
execution of an unnecessary double currency conver­
sion (Taka/USD/ECU); 
(d) 5,2 Mio ECU had been transferred under the system 
of compensation for loss of export earnings 
(Compex), even though the Commission had not 
agreed that this amount should be utilized (see 
paragraph 10.51); 
(e) four financings in favour of NGOs did not keep 
strictly to the Community rules applicable to the case 
in point (see paragraph 10.54). 
Overruling of refusals of approval by the 
Financial Controller 
1.98. Articles 24 and 35 of the Financial Regulation 
provide that should the Financial Controller withhold his 
approval, an institution may, by a decision stating the full 
reasons therefor, overrule such a refusal. In 1989 the 
Commission did not take any decision to overrule refusals 
of approval by the Financial Controller. It has been 
30 Official Journal of the European Communities 12. 12. 90 
impossible for the Court to compare this figure of zero 
decisions with the number of cases in which the Financial 
Controller withheld his approval, because in 1989, 
although requested to do so by the Court and despite the 
recommendations of the discharge authorities, the 
Commission continued to refuse to forward any inform­
ation, whether individual or statistical, on cases where 
approval had been withheld. Because of this, the Court 
was unable to evaluate an important element of internal 
control at the Commission. 
OBSERVATIONS ON THE BOOK-KEEPING 
AND THE PRESENTATION OF THE 
ACCOUNTS 
1.99 The Commission drew up the revenue and 
expenditure account with an analysis of the financial 
management and the balance sheet of the Communities 
by 1 June 1990. These accounts gave rise to the following 
observations. 
The Communities' balance sheet 
The Commission's balance sheet 
Leased assets 
1.100. These items do not normally appear in the 
balance sheet. It would nevertheless be of interest if a 
complete schedule of all leased assets, including premises, 
at the year-end could be annexed to the balance sheet, in 
view of their importance and the potential future charges 
which they represent. A detailed, centralized inventory 
would have to be compiled for this purpose. 
Advances for 'working capital' 
1.101. 'Other fixed assets' includes three items which 
represent working funds, which give rise to the following 
observations: 
(a) the 'Publications Office' working fund was increased 
on two occasions by a total amount of 13,6 Mio ECU 
in order to pay suppliers. This expenditure was 
effected for a period of almost six months without any 
budgetary authorization. The corresponding allo­
cations were increased at a very late stage (15 
December 1989) by means of a transfer of 13,6 Mio 
ECU; (b) the 'transport' working fund (235 538,78 ECU) 
represents a permanent advance of funds to a firm 
which is responsible for transporting the Official 
Journal. This advance stems from an agreement 
supplementary to the transport agreement signed 
with the Publications Office, which provides for an 
amount to be made available to the transport firm 
equivalent to the amount of the bank guarantees 
which the firm had to put up as a performance bond. 
This provision in the contract means that, without 
any budgetary authorization (non-budget transac­
tion), the Commission was financing guarantees for 
which the haulier was solely responsible; 
(c) the 'travel agency' working fund item represents a 
permanent advance to an approved travel agency 
(2 Mio ECU) to take account of the delays in 
refunding the amounts invoiced for mission expenses. 
None of the Commission's accounting departments is 
in a position to monitor the cash balances held by this 
company as far as working funds are concerned. 
Accounting for operations effected by the 
external Delegations 
1.102. The European Association for Cooperation 
(EAC) was to have given up the management of its 
overseas Delegations on 1 January 1988. As of that date, 
the Commission was to take over this responsibility, but it 
was unable to make the organizational arrangements for 
managing them and maintaining the relevant accounts. 
Thus there was no clear separation of the two manage­
ments throughout the financial years 1988 and 1989. In 
the former EAC Delegations, bank accounts were only 
gradually opened in the Commission's name. 
1.103. At the accounting level, the Commission's 
takeover of the EAC Delegations has taken the form of a 
partial inflow of assets. There is, however, a total absence 
of enumeration of assets, figures and formal taking-over 
of the assets and liabilities absorbed at the date the 
operation was effected. The Commission's balance sheet 
does not reflect the true situation. 
1.104. Not until April 1990 were three agreements 
signed between the EAC and the Commission on 
transferring ownership of movable and immovable assets. 
1.105. The Court noted that at 1 January 1988 no 
inventory had been taken to record all the movable and 
immovable property held by the Delegations. However, if 
a retrospective inventory were to be compiled now it 
would not be possible to guarantee that the results would 
be reliable. 
1.106. The amount of the net contribution could have 
been calculated by eliminating reciprocal debtor and 
creditor items, but this was not done. 
12. 12. 90 Official Journal of the European Communities 31 
1.107. The fact that this operation was spread over two 
years, that expenditure was not allocated to the two 
bodies at a specified date and that the bank accounts 
opened in the EAC's name were not closed immediately 
bank accounts were opened in the Commission's 
name (15) makes direct identification of the expenditure 
chargeable to the EAC for the financial years 1988 and 
1989 impossible. The EAC 'special' entry for an amount 
of 1,4 Mio ECU on the assets side results from the 
balance of the link account with the EAC at 31 December 
1988. The exact nature and amount of this Commission 
claim on the EAC was not really determined. The account 
was not cleared in 1989. The corresponding creditor item 
in the EAC balance sheet at 31 December 1988 amounted 
to only 756 485,64 ECU. 
1.108. In the Commission accounts at 31 December 
1988, the amount of funds paid to the EAC for the 
external Delegations in 1988 is 1,2 Mio ECU, or 1,5 Mio 
ECU higher than the figures shown in the EAC accounts 
which were compiled at the same date, depending on the 
financial statement referred to. No reconciliation of these 
differences was carried out in 1989. 
1.109. The entering of the expenditure of the external 
offices and Delegations in the budgetary accounts is 
unsatisfactory. There were found to be substantial delays 
in the unsettled budget items. For example, the 1989 
monthly expenditure accounts for the Washington 
Delegation were not charged to the 1989 budget until 
March 1990. The Delegations' unsettled expenditure, 
which appears on the debit side of the 470 extra-
budgetary accounts, amounts to 2,8 Mio ECU. 
Morevoer, there are credit balances against some of the 
accounts totalling 1,4 Mio ECU. The existence of these 
balances would be justified if there were corresponding 
items of unallocated revenue, but sampling showed that 
this was not the case (e.g. the Mauritanian Delegation). 
1.110. Rapid implementation of corrective measures, 
both as regards operations already carried out and the 
future treatment of them in the accounts, is imperative. 
Non-budget accounts 
1.111. Some of the debtor accounts show credit 
balances and some of the creditor accounts show debtor 
balances. This indicates the existence of operations which 
have not been concluded or which have been the subject 
of errors. For example, there are a large number of credit 
balances against the 'Advances — mission expenses — 
(15) At the Burundi Delegation the bank account in the name of 
the EAC was not closed, even though bank accounts had 
been opened in the Commission's name at the same bank. 
The EAC account continues to be replenished by the 
Commission cash department, whereas it is the new 
accounts that should receive all the funds. Brussels' accounts. The Commission has, it is true, 
reduced the number of these credit balances; all the same, 
it should continue to endeavour to verify the validity of 
these balances and to clear them. Furthermore, it should 
be noted that, in the other staff accounts, as in those 
mentioned above, there are a large number of operations 
relating to 1987 and 1988 which have not been cleared. 
The existence of these uncleared operations is an 
infringement of Article 65 of the Financial Regulation, 
which states that advances shall be settled at the latest 
during the financial year following payment. 
Uncleared or 'unregularized' operations at budget level 
1.112. The non-budgetary accounts in the balance sheet 
include a number of revenue or expenditure operations 
which have not been cleared at budget level. Some of them 
pre-date the 1988 financial year. Although in most cases 
the accounting departments remind authorizing officers 
of the need to take out regularizing payment or recovery 
orders, they do not always do so. The existence of 
expenditure or revenue that is not settled at budgetary 
level within the normal time-limits can be seen as 
tantamount to a device permitting the Commission to go 
outside the framework defined by the budgetary author­
ization. 
1.113. The three cases described below are given by way 
of example : 
(a) the balance on account 453051, 'Euratom Supply 
Agency', includes the amount of the subsidy granted 
by the Commission for 1989 for the Agency's 
administrative expenditure (1,6 Mio ECU). There 
was no proposal for a commitment or regularizing 
payment order for the purpose of charging this 
subsidy to the budget. Furthermore, a total of 
68 929,8 ECU was paid by way of advances without 
any request for approval by the Financial Controller. 
This practice infringes Article 42 of the Financial 
Regulation, which states that, except in specified 
cases, 'no advance may be paid unless it has been 
approved beforehand by the Financial Controller'; 
(b) account 475001, 'Provisional advances on charges on 
buildings', includes amounts still unsettled dating 
from 1987 and 1988 and amounting to 577 514,8 
ECU; 
(c) account 475109, 'Sundry revenue still to be entered', 
in some cases records revenue for which it is extremely 
difficult to provide a budget breakdown. Revenue 
received by one Directorate-General for the account 
of another Directorate-General is not always broken 
down clearly. It is extremely difficult to check what 
has actually been paid in a particular area. This 
32 Official Journal of the European Communities 12. 12. 90 
situation gives rise to errors or failure to charge items 
to the budget. In addition, it must be pointed out that 
what has been received is not always checked against 
what should have been received, so that recovery 
orders are made out using the figure for the revenue 
received. 
The consolidated balance sheet of the European 
Communities 
Reciprocal accounts between the Community institutions 
1.114. The institutions' accounts are drawn up at 31 
December, but the timetable for the work of closing them 
varies very much between the institutions. This situation 
makes it difficult to adjust the reciprocal accounts. A 
common period should be adopted for the systematic 
reconciliation of these interinstitutional accounts. 
Entering of expenditure of the European Communities' 
external offices and Delegations 
1.115. The considerable delays (see paragraph 1.109) 
noted in the regularizing operations relating to expendi­
ture by the external offices and Delegations on behalf of 
other institutions has sometimes prevented the former 
from including them in full. This situation distorts the 
view shown by the consolidated figures. 
Debtors and creditors of the Office for Official 
Publications of the European Communities 
1.116. A certain number of debtor amounts (3,6 Mio 
ECU owed by the Commission) and creditor amounts 
(11,1 Mio ECU owed to the Commission) appear in the 
Publications Office's balance sheet, although there is no 
corresponding entry in the other institutions' accounts. 
These figures are thus included in the consolidated 
balance sheet, whereas they should have been eliminated. 
The other institutions should record these reciprocal 
operations, so that they can be eliminated on consolid­
ation. Other interinstitutional debtors and creditors 
1.117. A number of these debtor (1,8 Mio ECU) and 
creditor amounts (0,2 Mio ECU) could not be eliminated 
at the time of consolidation. The time needed to charge 
expenditure (authorization, approval by the Financial 
Controller) does not sufficiently explain why these 
amounts have not been cleared, especially in view of the 
target dates for authorization (31 December) and 
payment (15 January). In fact, the time which elapses 
between these dates and the end of the closure operations 
should make it possible for all these reciprocal operations 
to be entered. It must be emphasized that not all these 
operations had been recorded at 31 December. Some of 
them were prior to 1 December 1989. 
The keeping of the accounts shown in the 
Commission's balance sheet 
Organization of the general accounts 
1.118. At the moment, there is no internal documen­
tation describing accounting organization and pro­
cedures. A document of this type is necessary, however, 
for the understanding and coherence of the processing 
system and the carrying-out of both internal and external 
audit tasks. Thus, there is no precise definition of 
responsibilities, whether internally (e.g. monitoring 
accounts) or externally (e.g. role of the general accounts 
in relation to the subsidiary accounts). Furthermore, 
there is no description of the conditions of use of each of 
the accounts in the general accounts. Similarly, there are 
no rules setting out the procedures for opening new 
accounts. Finally, the general accounts department is not 
in full control of the processing of the information shown 
in the non-budget accounts. Although in recent years the 
main effort has been devoted to the organization of 
computer systems, it will in future be necessary to start to 
consider the handling, presentation and type of infor­
mation which is to appear in the Commission's balance 
sheet and in the consolidated accounts. 
1.119. To a large extent, the organization of the general 
accounts relies on the individual memories of the officials 
working in this department. The documents which serve 
as the basis for entries are frequently characterized by 
considerable lack of detail, both for documents from 
external departments and those originating internally. 
For example, the name of the person responsible for 
making out the document is not given. Similarly, there is 
often no heading to indicate the reasons for the operation. 
Some corrections resulting from errors or new entries in 
the accounts are effected without any document being 
made out. Finally, the counterpart entry for the 
transaction does not always appear in the document and 
12. 12. 90 Official Journal of the European Communities 33 
in some cases it is not possible to determine ex post from 
the books of prime entry the extent to which the entries 
have been recorded in full in the accounts. It is then 
necessary to consult all the supporting documents for the 
accounts which have been posted to the book of prime 
entry in order to establish the counterpart entry. These 
weaknesses in the present system will have to be 
corrected. The origin, content, charging, and counterpart 
of each item of data and the explanation for each entry 
must be indicated clearly. Furthermore, each item must 
be based on a supporting document written in a readily 
intelligible manner. 
Cash accounts 
The banking terms offered to the Commission : 
remuneration of accounts 
1.120. On several occasions in the past the Court of 
Auditors has emphasized that the substantial increase in 
the number of bank accounts used by the Commission has 
not led to a concomitant improvement in the monitoring 
of banking terms. As of end-1989, the number of bank 
accounts and sub-accounts had increased and amounted 
to 147, compared with only 119 at the end of 1987. No 
notable progress was recorded during 1989 as regards 
treasury management. 
1.121. There are no special procedures and no formal 
rules for studying and monitoring the terms offered by the 
banks to the Commission. There is no detailed systematic 
analysis of these terms; it is possible for cases of banks 
offering lower rates than those offered by competitors to 
remain undetected. For example, the Commission was 
able to obtain better terms from one bank after the 
Financial Controller had pointed out that the 5 % rate of 
return offered was below the market rate. The bank then 
increased its rate retrospectively for the whole of 1989 
and, by way of example, the rate for the third quarter rose 
to 9,125 %. 
1.122. The files on banking terms are not updated 
systematically and regularly. In some cases there was no 
update between 1987 and the end of 1989, the date on 
which the Court of Auditors asked for the banks to be 
circularized. This can be illustrated by the case of one 
Italian bank, where the file for this bank makes no 
mention of the terms offered to the Commission by way of 
remuneration of its accounts. Transfers of funds 
1.123. Instructions to the banks to transfer funds 
between the Commission's accounts are often sent by 
telex. Such telexes must be signed by two duly authorized 
signatories. Each of the two officials must be on one of the 
two lists of authorized signatories for the bank accounts. 
The person with most responsibility for movements of 
funds between the Commission's various bank accounts 
is also authorized to sign the telexes and a second 
signature from the other list is then appended to the telex. 
This practice is contrary to the principle of segregation of 
duties: in this case separating the person responsible for 
preparing the bank transaction from the person re­
sponsible for executing it. Internal control would be 
strengthened if there was total separation of these two 
independent functions. 
Conclusion regarding cash management 
1.124. In recent years, and particularly following 
observations by the Court of Auditors, the Commission 
has paid particular attention to the day-to-day conduct of 
operations and has achieved some positive results. 
However, substantial shortcomings remain as far as the 
management is concerned. Furthermore, in view of the 
increase in the volume of cash operations and the 
requirements of efficient management, the organization 
and facilities, and particularly the computer system 
available in this department, must be reviewed. It is, for 
example, impossible to call up specific information 
quickly in order to ascertain the amount of funds granted 
to any one body in a given period or to monitor the 
banking terms offered to the Commission. 
Operation of imprest accounts in the light of the 
Financial Regulation 
1.125. Numerous irregularities, which compromise the 
purpose of the provisions of the Financial Regulation, 
have been noted : 
(a) the accounting departments did not carry out any on-
the-spot checks on the existence of the funds held by 
imprest officers or on the book-keeping during 1989; 
(b) in some cases the time-limits for sending supporting 
documents to replenish the imprest accounts were not 
respected. The amounts held by imprest officers were 
substantially higher than the amounts disbursed 
within each statutory replenishment period; 
34 C^fticial journal of the European communities mm^ 
^ according to the tinancial regulations^ every imprest 
account must have two limits^ 
— the maximum amount for an advanced 
^ the maximum amount for each item of expenditure 
that may be paid by imprest without authorization. 
In fact in most cases there was only one limit on the 
decision establishing an imprest accounts 
^any changes in the conditions for operating an 
imprestaccountmustbemadeinaccordancewiththe 
same procedures as those followed when the account 
was opened. By introducingaprocedure which does 
not require the opinion of the Financial C^ontrollen 
the commissions internal rules contravene the 
Financial regulations 
^ betweenlianuaryl^ and the dates on which the 
imprest accounts tor the European communities^ 
external L^elegations were set up and bank accounts 
were opened in the C^ommission^sname^ funds were 
advanced to the Delegations without there being any 
legalbasis for the type of imprest account or the 
system of grantingadvances^Articles4^and4^ofthe 
Financial regulations Titles VIII and ^ of the 
Implementing R.egulation^^ and without any 
normal payment order authorized by the Financial 
controller being issued^The amount of funds thus 
advancedamountedto^^ioFC^l]forthe financial 
yearl^^.This system for advancing funds^which 
was already in existence in 1^^ is an evasion of the 
Financial regulations as within these L^elegations 
there was no one who wasdirectlyresponsiblefor the 
funds advanced with regard to the provisions of the 
Financial regulation. 
AccoBB^e^o^lce^ ^^^Btee^cco^^ 
Ll^o. According to Articles ^ and ^ of the ^oegu 
lation laying down rules for the implementation of the 
Financial regulations the guarantee accounts are to be 
credited periodically with a monthly allowance and 
interest calculated on the basis of the interest which the 
institutionreceivesonits bank deposits. TheC^ommission 
calculates a single rate for the whole yean which 
represents the average ofthebestmonthly rates received. 
I^he basis for this calculation is not stablemn as far as it 
may lead to the banks which ofter the best rates on credit 
tO^c^L^r t^^ t^yi^ cto^n Lt^it^Lt r^it^ t^or 1^ irr^^ 
n^i^^^l^tioootc^A^^Tovi^o^o^tli^F^iici^^^^ 
t^io^ol^U^c^r^^r^77B balances being selected^ so that the banks used as a 
reterenceditler from year to yean with the result that the 
averageisasomewhat artiticialone. This calculation 
device in fact makes it possible to apply the best rate of 
return without taking account of the average for all the 
interest received by the commissions which is very much 
lowersincethereis no return on some balances andavery 
low one on others. 
^^^^^^^^^^e^^^^^^^co^^ 
11^7. The l^^tinancial year is the last one for which 
therevenueande^penditureaccountwasprodncedbythe 
single accounts centre on the basis of accounting 
documents which had gone through the cycle of 
authorizing officer — Financial controller — accounting 
officer. As from 1^^ the revenue and expenditure 
account will be produced by means of an integrated 
computerizedsystem using dataas soon as itis entered by 
the authorizing departments — theSincombudgetary 
accounting system. 
Ll^D. For severalyears^and especially in 1^^ the 
C^ourt has therefore paved the way for the transition to 
thenewsystembyaskingtheC^ommissiontotakeaccount 
of the scurfs auditrequirementsindevelopingpro 
cedures for accessing the Sincom system. In its opinion 
l^on the amendment of the Financial regulations the 
C^ourt also emphasized ^paragraph eo.^that^tinancial 
information recorded on computer should ...be stored 
andsentto theC^ourt. I^hispartof theopinion was 
followed up when the legislature introduced provisions to 
theetfectthathenceforwardtheinstitutions should ^place 
at the disposal of the C^ourt of Auditors ...all documents 
and data created or stored on a magnetic mediums 
^Article ^7 tirst paragraph ofthe Financial Kegulation as 
amended by the regulation of 13 Iviarchl^tl^^ 
1.1^. respite this new statutory frameworkmheC^ourt 
found that even though it had made its wishes known in 
good time the commission was not immediately able to 
otfer the full cooperation that had been e^opected.The 
C^ommissionwasnotsufticientlywell organized to be able 
to provide access to the Community's main linancial 
management and accounting applications ^theSincom 
budgetary accounting systems As a result of the 
arrangements made by the commission in ^uly 1^0 i^ 
has^ since September 1^^gradually becomepossiblefor 
the C^ourt to access the Sincomaccountingdata.lt must 
be hoped that inpractice this openness will make it 
possible tocomplywith the legislature^sclearly expressed 
wish that the C^ommunity^sadministration should be ^as 
transparentasagreenhouse^ — the onlywayin which the 
e^ternalauditcanacquireanyrealsigniticance^ especially 
inacomputeri^ed environment. 
C^O^L7^tD3t^0 
12. 12. 90 Official Journal of the European Communities 35 
CHAPTER 2 
Own resources 
2.0. TABLE OF CONTENTS 
Introduction 
Budgetary implementation 
Certificates of origin 
General comments 
Legal context 
Legal framework 
The Community procedure 
Observations 
Provision of information to the supervisory authorities 
Customs controls in the Member States 
Subsequent verification 
Extent of the procedure 
Beneficiary countries' replies: deadlines and contents 
Follow-up by the Member States when there is no reply by the 
deadline 
Monitoring of implementation 
Refusal to grant preferential treatment 
Irregularities 
The Commission's management 
Conclusions Paragraph 
reference 
2.1 
2.2 
2.4 
2.4 
2.10 
2.10 
2.12 
2.17 
2.19 
2.23 
2.31 
2.32 
2.39 
2.43 
2.45 
2.47 
2.49 
2.50 
2.60 2.3 
2.62 
2.9 
2.16 
2.11 
2.16 
2.59 
2.22 
2.30 
2.46 
2.38 
2.42 
2.44 
2.46 
2.48 
2.59 
2.62 
INTRODUCTION BUDGETARY IMPLEMENTATION 
2.1. This chapter deals mainly with the examination of 
certificates of origin. Chapter 1 contains the Court's 
observations concerning the collection and entry into the 
accounts of revenue. As far as traditional own resources 
are concerned, the subjects dealt with concern the 
collection costs retained by the Member States, the 
bringing to account by the Commission of the sums 
placed at its disposal and notification by the Member 
States of cases of fraud and irregularity that have been 
discovered. The section dealing with VAT own resources 
deals with the Commission's management of such 
revenue and its collection. 2.2. Table 2.1 shows the development of revenue for the 
financial years 1986 to 1989. The following technical 
comments are required. 
As regards traditional resources, as from 1988 collection 
costs no longer appear as expenditure but are deducted 
from revenue. As regards VAT resources, the uniform 
rate was fixed at 1,2505 % in 1986 and 1,2726 % in 1987, 
and Greece and Portugal each paid a 'financial con­
tribution' in place of this until 1986 and 1988 respectively. 
Because VAT resources are subject to a ceiling of 1,4 % of 
the uniform VAT assessment base, other revenue has had 
36 Official Journal of the European Communities 12. 12. 90 
to be used since 1988 to balance the budget. Pending the 
introduction in 1989 of GNP resources, the Member 
States were asked to make non-refundable advances as 
balancing revenue for the financial year 1988. A 
substantial part of this was not collected until 1989. (e) since the revenue to balance the general budget was 
not collected in full in 1988, the surplus for that 
financial year was not achieved, contrary to what was 
anticipated in the 1989 budget. 
2.3. Table 2.2 shows the budgetary implementation of 
revenue in 1989. Taking own resources as a whole, the 
overall rate of implementation amounts to 102,4 % 
compared with budget forecasts: CERTIFICATES OF ORIGIN 
(a) the difference of 3,6 % for customs duties is due to an 
increase in imports of industrial products with 
significant impact on tariffs; General comments 
(b) the negative difference of 9,6 % for agricultural levies 
is due to an overestimate of imports of durum wheat, 
rice and maize; 
(c) the discrepancies concerning VAT and GNP re­
sources are explained by the exchange-rate dif­
ferences during the financial year; 
(d) changes in the exchange rate of the dollar prevented 
the threshold being reached at which the EAGGF-
Guarantee monetary reserve is called upon; 2.4. Preferential tariff arrangements connected with the 
origin of goods are set up by agreements with non-
member countries and by Community regulations (see 
paragraph 2.10).The objectives of these arrangements 
differ, but they all allow access to the Community market 
for goods originating in countries which enjoy preferen­
tial customs tariffs. 
2.5. Total imports from countries covered by preferen­
tial arrangements account for around 40 % of Com­
munity imports in terms of value. They mainly concern 
trade with developing countries which are parties to the 
Generalized System of Preferences (GSP), the European 
Table 2.1 — Revenue for the financial years 1986 to 1989 
(Mio ECU) 
Type of revenue 
1. Traditional resources 
Customs duties 
Agricultural levies 
Sugar, isoglucose 
Collection costs 
Total 
2. VAT + GNP resources 
VAT resources 
Financial contrib. 
GNP resources 
Balancing revenue 
VAT adjustments 
GNP adjustments 
Total 
3. Revenue 
Monetary reserve 
4. Miscellaneous revenue 
5. Surplus from previous financial year 
Grand total 1986 
8 172,9 
1 175,5 
1 111,5 
— 
10 459,9 
22 223,4 
210,1 
__ 
— 
377,3 
— 
22 810,8 
— 
342,6 
53,9 
33 667,2 Actual 
1987 
8 936,5 
1 626,1 
1 471,7 
— 
12 034,3 
23 463,5 
210,6 
— 
— 
-359,3 
— 
23 314,8 
— 
434,2 
— 
35 783,3 revenue 
1988 
10 344,7 
1 504,6 
1 390,7 
-1 325,0 
11 915,0 
23 927,6 
211,4 
— 
4 445,8 
383,6 
— 
28 968,4 
— 
460,0 
500,0 
41 843,4 1989 
11 458,8 
1 282,7 
1 381,6 
-1 412,3 
12 710,8 
26 293,4 
— 
2 877,1 
1 641,8 
634,6 
171,6 
31 618,5 
— 
408,9 
1 161,6 
45 899,8 Budget 
1989 
11 060,0 
1 419,2 
1 316,9 
-1 379,6 
12 416,5 
26 219,1 
— 
2 873,0 
— 
— 
— 
29 092,1 
1 033,1 
274,4 
2 024,5 
44 840,6 
12. 12. 90 Official Journal of the European Communities 37 
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38 Official Journal of the European Communities 12. 12. 90 
Free Trade Association (EFTA) countries and, to a lesser 
extent, African, Caribbean and Pacific (ACP) States. 
2.6. All the arrangements are based on the concept of 
origin, since only goods originating in beneficiary 
countries are entitled to preferential treatment. Proof of 
origin is provided by certificates of origin, which are 
drawn up by the beneficiary countries in accordance with 
the provisions in force, and the granting of the 
preferential tariff is dependent on the submission of these 
certificates at the time of import. 
2.7. Given the importance of these documents in the 
performance of the transactions concerned, the Court 
examined the Community procedures and the inspections 
carried out by the Commission and the Member States in 
this area. Each Member State was asked to reply to a 
questionnaire and four of them, namely Denmark, the 
FR of Germany, France and Portugal, received on-the-
spot inspections. 
2.8. The observations set out in this chapter are based 
on the specific findings of the audits carried out in the 
countries visited and at the Commission and on the 
information contained in the replies to the questionnaire. 
While the Court does not maintain that its on-the-spot 
findings apply to the Member States it did not visit, it 
considers that they are representative of the system as a 
whole. 
2.9. The Court also visited certain beneficiary ACP 
States, developing countries covered by the GSP and 
EFTA countries, in order to obtain a more precise idea of 
the implementation in these countries of the procedures 
for issuing and inspecting certificates of origin. The Court 
would like to record its appreciation for the excellent 
cooperation of the countries it visited. 
Legal context 
Legal framework 
2.10. Tariff preferences are based on the following legal 
instruments, in force at the time of the audit: 
(a) regulations and decisions under which, on certain 
conditions, the Community unilaterally grants tariff 
concessions to: (i) 151 developing countries or dependent territories 
under the GSP (l). These concessions are ac­
companied in some cases by quantitative restric­
tions and concern textile products and certain 
agricultural and industrial products; 
(ii) 20 overseas countries and territories (OCTs) 
associated with the Community (2) which are 
included in the 151 under (i); 
(iii) the occupied territories (3); 
(b) the Lome Conventions (4) concluded between the 
Community and 66 ACP States which are also 
included in the 151 countries described above; 
(c) bilateral agreements concluded between the Com­
munity and certain States, in particular those 
belonging to EFTA (5), which provide for free trade 
in goods. 
2.11. The tariff preferences apply to the products listed 
in the trade agreements and the regulations; they involve, 
in particular: 
(!) Council Regulation (EEC) No 3782/87 of 3 December 1987 
applying generalized tariff preferences for 1988 to textile 
products originating in developing countries (OJ L 367, 
28.12.1987, p. 1); Council Regulation (EEC) No 3635/87 of 
17 November 1987 applying generalized tariff preferences 
for 1988 in respect of certain industrial products originating 
in developing countries (OJL 350,12.12.1987,p. l);Council 
Regulation (EEC) No 3636/87 of 17 November 1987 
applying generalized tariff preferences for 1988 in respect of 
certain agricultural products originating in developing 
countries (OJ L 350, 12.12.1987, p. 67); Commission 
Regulation (EEC) No 693/88 of 4 March 1988 on the 
definition of the concept of originating products for 
purposes of the application of tariff preferences granted by 
the European Economic Community in respect of certain 
products from developing countries (OJ L 77, 22.3.1988, p. 
1). 
(2) Council Decision 86/263/EEC of 30 June 1986 on the 
association of the overseas countries and territories with the 
European Economic Community (OJ L 175, 1.7.1986, p. 1). 
(3) Council Decision (EEC) No 3363/86 of 27 October 1986 on 
the tariff arrangements applicable to imports into the 
Community of products originating in the occupied 
territories (OJ L 306, 1.11.1986, p. 103). 
(4) Decision 86/125/EEC, ECSC of the Council and the 
Commission of 24 March 1986 on the conclusion of the third 
ACP-EEC Convention, (OJ L 86, 31.3.1986, p. 1), which 
was in force at the time of the audit. 
(5) Regulation (EEC) No 2838/72 of the Council of 19 
December 1972 concluding an Agreement between the 
European Economic Community and the Kingdom of 
Sweden and adopting provisions for its implementation 
(Special English edition of the OJ, 31.12.1972, p. 98, original 
reference OJ L 300, 31.12.1972, p. 96), and identical 
regulations for the other EFTA countries. 
nlnl^ Official lournal of the European Communities ^ 
^forPFTAmndustrial products and certain processed 
agricultural products^ 
^ for the CrSP^finished and semi^finished industrial 
products and processed agricultural products^ 
^ virtually all products originating in ACP countries 
and overseas countries and territories. 
TBeConuBUB^tve^oced^e 
^.1^. Thetotalorpartiale^emptionofcustomsdutiesin 
connection ^ith preferential arrangements is contingent 
on the fulfilment of t^o conditions^ 
^ the compliance of the products in question with the 
rules on origins 
^direct transport to the Community of the originating 
products. 
^.Pl In each preferential arrangements originating 
products are defined as fbllo^s^ 
^products wholly obtained in the beneficiary country^ 
^products obtained in that country ^hichcontain 
materials ^hich^ere not obtained in that country 
but ^hich ha^e been sufficiently forked or proD 
cessed^ 
^ ^hereappropriate^productsobtainedinthatcountry 
^hich contain materials which ha^e not been 
obtained there and which have not been sufficiently 
^orkedor processed^ hut whichhaveeither been 
obtained^ forked or processedin other countries 
specifledintheagreementorarrangementin question 
^cumulation rules^. 
^.1^. L^efinition as originating goods is also contingent 
on thegoodsha^ingbeen transporteddirectly to the 
Community^ thus^ ^a)goodswhichhave not passedin transit through other 
countriesautomaticallymeetthisrequirementmnthis 
respects ACP States and overseas countries and 
territories are considered asasingle territory^ 
^ goods ^hich have passed in transit through another 
country aredeemed to ha^e been transported directly 
ifthe route takenis justified on geographical grounds 
orfortransportreasons^ and provided thatproofthat 
certain conditions ha^e been observed is duhB 
submitted to the Community customs authorities. 
^leo. The issuing of certificates of origin is the 
responsibility of the customs authorities or other 
government authorities of the exporting country.These 
authorities are^inparticulanresponsiblefor checking 
thatthe certificates are properlyfilled in andfor carrying 
out the necessary controls concerning the origin of the 
products andthe other entriesonthe certificate. The 
certificates are made available to the exporter ^hen the 
export actually takes place or when it is certain that the 
export ^ill actually take place. 
^.1^. The certificates are submitted to the customs 
authorities of the place where the goods are importedmn 
accordance^ithCouncilf0irecti^e7^^^Cof^]uly 
1^7^^ on the harmonization of procedures for the 
releaseofgoodsforfreecirculation and with Commission 
!Oirective^eo7^Cofl7IOecemberl^limplementing 
that foirecti^e^. The certificate and the goods to ^hich 
they refer are subject to traditional customs controls 
when the goods are released for free circulation and to 
two possible supplementary controls^ 
^ the names and addresses of the government authors 
ities responsible for issuing certificates of origin and 
specimens of the stamps used must be sentby the 
beneficiary States to the Commission.TheCommis^ 
sion circulates this information to the ^emberStates 
in the form of amanual^ to enable the customs 
authorities to carry out checks on the authenticity of 
certificates^ 
^certificates of origin may be returned to the relevant 
governmentauthoritiesofthee^portingcountriesfor 
subsequent verification. 
C^^^^eo^ 
^.17. The beneficiary countries^ the member States and 
the Commission are involved in applying the procedures 
concerning the granting of tariff preferences. The 
Commission has been notified of the shortcomings 
C^ u^L^^t^n^ 
40 Official Journal of the European Communities 12. 12. 90 
revealed by on-the-spot audits in the beneficiary coun­
tries. They mainly concern: 
(a) inadequate knowledge of the rules on the part of the 
authorities involved in issuing certificates; 
(b) the inadequacy of the checks carried out into the 
origin of exported goods, particularly in the case of 
fishery products; 
(c) the incomplete nature of the certificates and failure to 
respect the procedures for issuing them to exporters; 
(d) the inadequacy of checks on goods in transit. 
2.18. Apart from the findings concerning the Commis­
sion and the Member States, the following observations 
concern shortcomings that can be ascribed to the 
beneficiary countries, and which were discovered during 
the examination of documents consulted during inquiries 
at the Commission and in the Member States. 
Provision of information to the supervisory authorities 
2.19. In spite of requests by the Commission, the 
provision of the necessary information by the beneficiary 
countries leaves much to be desired. For instance: 
(a) 87 GSP countries, 5 ACP countries and 5 OCTs did 
not provide the information in question in the 
appropriate legal framework; 
(b) 29 GSP countries and 16 ACP countries waited until 
1987 or later before providing the Commission with 
information, although they had been beneficiaries for 
several years; 
(c) in addition, information is sometimes incomplete and 
the stamp specimens are of poor quality. 
2.20. Some beneficiary countries send only one speci­
men per stamp, whereas others send several specimens, 
without indicating whether the sample is exhaustive. 
Some countries send specimens of departmental stamps 
and, in addition, specimens of the personal stamps of 
officials authorized to sign the certificates, even though 
the latter are not required. This is a source of confusion. 
Finally, the specimens of stamps submitted are not 
systematically updated. 
2.21. Such inadequacies considerably reduce the scope 
of the checks made by the Member States concerning the 
authenticity of certificates of origin. 2.22. As far as the GSP is concerned, enjoyment of 
preferential tariffs may be considered to have been 
granted irregularly, in so far as the granting of such tariffs 
is explicitly contingent on this information being notified 
to the Commission. In 1987, the total value of preferential 
imports into the European Community from countries 
which had not provided the required information 
amounted to 73 Mio ECU. However, 67 % of these 
imports, that is, imports amounting to 49 Mio ECU, were 
from beneficiary countries which had submitted the 
information in question in accordance with the system 
provided for under the Lome Convention or other trade 
agreements. 
Customs controls in the Member States 
2.23. The customs are responsible for checking whether 
goods qualify for tariff preferences. They must inspect the 
documents submitted to them at the time of import, 
paying particular attention to the authenticity and 
accuracy of the certificates of origin. It is also their 
responsibility to check that the goods meet the require­
ment of having been directly transported to the Com­
munity. Nevertheless, no control parameter has been 
established specifically for the importation of goods 
subject to tariff preferences. The physical inspection rules 
are identical to those which apply for goods excluded 
from any preferential treatment. 
2.24. In order to simplify the task of verifying the 
authenticity of certificates of origin submitted when 
goods are cleared through customs, the Commission sent 
a manual to the Member State authorities containing the 
names and addresses of the authorities which are 
competent to issue certificates and specimens of the 
stamps used. 
2.25. The Court found that, in some Member States, 
this information was not sent to the local customs offices, 
or that only part of the information was sent, which 
compromised the verification of authenticity. For 
instance: 
(a) the manual was available only at the central customs 
office (Portugal and the United Kingdom); 
(b) only parts of the manual were made available to the 
local customs offices, and stamp specimens, in 
particular, were not provided (Federal Republic of 
Germany); 
(c) only stamp specimens and the addresses of the 
authorities competent to issue certificates of origin 
under the Generalized System of Preferences were 
made available to customs offices and some stamp 
specimens that appeared in the national instructions 
12. 12. 90 Official Journal of the European Communities 41 
were different from those included in the Commission 
manual (Denmark). 
2.26. Examples of inadequate verification of documents 
were also discovered: 
(a) certificates of origin with illegible stamps or drawn up 
on paper that was not guilloched, or which contained 
uncertified deletions were accepted (Denmark and 
France); 
(b) certificates of origin containing information different 
from that shown on the invoice or without a stamp in 
the appropriate place were accepted (Portugal); 
(c) tariff preferences were granted when no certificates 
had been submitted or they were granted on the basis 
of a photocopy of the certificate of origin, or without 
proof of direct transportation; many import declar­
ations were accepted without documentary control, 
with the result that the preferential EFTA tariff was 
granted where it should have been refused, or with no 
indication that the control had been carried out 
(Denmark); 
(d) in Denmark, some importers are authorized to 
submit their import declarations on electronic data 
carriers. At the time of the Court's visit, none of these 
importers had been visited to check that the data 
submitted using data-processing techniques matched 
that contained on the certificates of origin in their 
files; 
(e) where long-term certificates are issued, whose validity 
may be for up to one year, the invoices submitted to 
customs must contain a reference to the certificates 
and a detailed description of the goods, so that they 
can be identified. In Denmark, the customs offices 
visited had not checked whether the invoices and the 
long-term certificates tallied. 
2.27. At the free port of Hamburg, the Court considered 
that the level of documentary checks and physical 
inspections of the goods stored there, for which a 
replacement certificate is issued for their subsequent 
release for free circulation in the Member States, was 
inadequate. It also considers that the supervision by the 
regional finance office is unsatisfactory. The German 
authorities have since ordered the port authorities to 
intensify their inspections and the regional finance office 
has been ordered to improve its supervision of them. 
2.28. Verification that transport had been direct is 
usually carried out by customs using the transport 
documents submitted at the time of import. Goods transported from one beneficiary country to the Com­
munity via the territory of another State are deemed to 
have been transported directly, provided that they have 
not been placed on the market in that country and have 
not entered into its home use. Proof that this condition 
has been observed must be supplied to the Community 
customs authorities, which, as the Court discovered, is 
not always the case. 
2.29. For example, tariff preferences were granted for 
goods that had been imported under the Generalized 
System of Preferences and were presented to customs with 
a Community Tl transit document, after being dis­
charged in large ports, where a summary declaration had 
been made for them. Neither the Tl document nor any 
other document attached to the declaration contained 
proof that the principle of direct transport had been 
verified by the customs authorities of the port of 
discharge, on the basis, for instance, of the ship's bill of 
lading. There is, therefore, a significant loophole in the 
customs checks which would warrant the checking 
procedures for direct transport being revised. 
2.30. Trade with Hong Kong gives rise to a special 
problem. Goods originating in neighbouring countries, in 
particular the People's Republic of China, are frequently 
transhipped at Hong Kong, from where they are exported 
to the Community. In Hong Kong, goods in transit are 
not placed under customs surveillance and the authorities 
are not* therefore, able to draw up a certificate giving, in 
particular, a description of the products and the dates of 
unloading and reloading. The Chinese authorities do not 
issue a through bill of lading, so proof of direct transport 
has to be provided by means of other documentary 
evidence. The question was raised in the Committee on 
Origin and, at the end of 1985, the Commission began 
negotiations on this subject with the Chinese and Hong 
Kong authorities. However, at the time of the Court's 
enquiry, no satisfactory solution had been found. 
Although a variety of practices are followed in the 
granting of preferences, they all have in common the fact 
that they grant the preferential tariff unless there is proof 
that the goods do not originate in the country in which the 
certificate was issued. 
Subsequent verification 
2.31. The provisions on the subsequent verification of 
certificates provide for the Community customs author­
ities to carry out checks either on a random basis or in 
cases of reasonable doubt as to the authenticity of a 
document. To check the authenticity, they send the 
certificates of origin to the government authorities of the 
exporting beneficiary country, when necessary together 
with the reasons for their enquiry. 
42 Official Journal of the European Communities 12. 12. 90 
Extent of the procedure 
2.32. The total number of subsequent verifications may 
be considered relatively small. In 1987, in the Community 
as a whole (excluding Italy, for which the figures are not 
available), some 4 000 queries concerning around 8 000 
certificates of origin were sent to the exporting countries. 
The number varies from over 1 000 in the Federal 
Republic of Germany and France to less than 10 in 
Greece and Portugal. On the basis of information 
supplied by certain Member States, the Court calculated 
the following ratios for the number of subsequent 
verifications against the number of import declarations 
accompanied by certificates. For Denmark, the ratio is 
0,005 %, for the Federal Republic of Germany 0,06 % 
and for the customs offices visited in France 0,38 %. 
These percentages are not high and, as regards Denmark 
and the Federal Republic of Germany, they are, for 
example, lower than the ratios for the subsequent 
verification of Community transit documents (0,1 %). 
2.33. It should also be pointed out that in none of the 
Member States visited were there any parameters for the 
performance of subsequent verifications on a random 
basis and that this procedure is applied neither in 
Denmark nor in Portugal. 
2.34. It was only in France that the Court found any 
criteria concerning the notion of 'reasonable doubt' as to 
the authenticity of documents or the accuracy of the 
information concerning true origin. In Denmark and 
Portugal, several cases were noted where the certificates 
of origin had not been subject to any subsequent 
verification, despite the existence of reasonable doubt as 
to their authenticity or the accuracy of the information 
they contained. 
2.35. A special situation has developed in the free port 
of Hamburg. Under an agreement with the Federal 
Ministry of Finance, the port authorities are empowered 
to issue new certificates of origin to replace the certificates 
issued by the exporting beneficiary countries which 
accompany the goods imported into the port. This option 
is provided for in Community law and the German 
authorities are of the opinion that the controls should be 
carried out by the customs authorities at the place where 
the goods enter free circulation. The port officials 
estimate the annual number of replacement certificates at 
around 48 000, which corresponds to about 10 000 
certificates of origin issued by the beneficiary countries. 
The situation concerning the subsequent verification of 
these certificates is unsatisfactory. The replacement 
certificates are rarely subjected to subsequent verification 
and, moreover, the original certificates drawn up by the 
authorities of the beneficiary countries are virtually never 
inspected. 2.36. During its visits to certain exporting beneficiary 
countries, the Court found that the procedure for 
subsequent verifications played a major role in the local 
system for checking origin and tended, to varying degrees, 
to replace other forms of control when certificates were 
issued. 
2.37. The replies to a questionnaire sent to the Member 
States showed that for three (France, the FR of Germany 
and the United Kingdom) of the five which draw up 
statistics on this matter, for a considerable proportion 
(20 % to 30 %) of the certificates that had been verified 
subsequently, the goods proved to be totally or partly 
ineligible for the preferential tariff arrangement. 
2.38. The general functioning of the subsequent verifi­
cation procedure calls for improvements, primarily by the 
definition of common criteria concerning the notion of 
'reasonable doubt', in order to ensure uniform appli­
cation of the procedure. Parameters should also be 
established for the performance of random checks, in 
order to achieve a satisfactory rate, that is, a ratio between 
the number of subsequent verifications and the number of 
import declarations under the preferential arrangement 
which affords adequate assurance of the regularity of 
checks. 
Beneficiary countries' replies: deadlines and contents 
2.39. Community provisions lay down deadlines of 
three months (ACP), six months (GSP) and 'at the earliest 
opportunity' (EFTA) for the notification of the results of 
the subsequent verifications carried out by the beneficiary 
countries. The Court noted that these deadlines were not 
observed in a large number of cases. There were delays in 
connection with all the trade agreements examined, but 
they were particularly frequent in trade with ACP 
countries, GSP countries and associated overseas coun­
tries and territories. 
2.40. The average length of time taken for the notifi­
cation of results was around one year. However, 
notification regularly took two years or more, as the 
information provided by the Member States reveals: 
(a) for respectively 40 % and 30 % of the subsequent 
verifications requested in France and the Netherlands 
in 1987, the results had not been communicated by the 
end of September 1988; 
(b) in the United Kingdom, where 445 requests for 
subsequent verification were issued in 1987 and 1988, 
the average number of requests for which the reply 
was provided after six months or more amounted to 
60 (on a quarterly basis); 
12. 12. 90 Official Journal of the European Communities 43 
(c) in the Federal Republic of Germany, replies had not 
been obtained by 1 July 1988 for 2 %, 3,5 % and 
15 % of the requests for subsequent verification made 
in 1985, 1986 and 1987 respectively; 
(d) in Belgium, in November 1988, 75 requests for 
subsequent verification submitted to the Commission 
in 1987 and 1988 but which had previously been 
addressed to the beneficiary countries remained 
unanswered. The level of duties concerned amounted 
to l,9MioECU; 
(e) the following countries are among those which are 
repeatedly slow in providing the results of subsequent 
verifications — Mexico, Indonesia, India, Pakistan, 
Malta, Brazil, Malaysia, Yugoslavia, Austria, the 
Ivory Coast and Senegal. 
2.41. It was also noted that the replies to requests for 
subsequent verification were frequently incomplete and 
did not always deal with the specific questions. This 
applies to the majority of ACP countries, GSP countries 
and associated overseas countries and territories. 
2.42. Yugoslavia is a beneficiary country of the GSP 
and has concluded a separate cooperation agreement with 
the EEC, accompanied by a protocol on the definition of 
the concept of originating products and methods of 
administrative cooperation (8). The Commission in­
formed the Court that many requests for subsequent 
verification remained unanswered and that the authen­
ticity of certificates was confirmed by the Yugoslav 
authorities, even though it had been established that the 
goods in question did not originate in Yugoslavia. This 
point was also confirmed by the Belgian customs 
authorities. 
Follow-up by the Member States when there is no reply 
by the deadline 
2.43. In all the Member States visited, it was found that, 
in the absence of a reply, after one or more reminders, the 
files were closed without any follow-up: the granting of 
tariff preferences was not affected. This is despite the fact 
that Article 27(2) of Commission Regulation (EEC) No 
693/88 of 4 March 1988 concerning the Generalized 
System of Preferences (9) lays down that if in cases of 
'reasonable doubt' the results of the verification are not 
communicated at the latest within four months after a 
(8) Council Regulation (EEC) No 314/83 of 24 January 1983 on 
the conclusion of the Cooperation Agreement between the 
European Economic Community and the Socialist Federal 
Republic of Yugoslavia (OJ L 41, 14.2.1983, p. 1). 
(9) OJL77, 22.3.1988, p. 9. reminder has been sent, the requesting authorities shall 
refuse, except in the case of force majeure or in exceptional 
circumstances, any benefit from the generalized pre­
ferences. 
2.44. In cases other than those referred to in Article 
27(2), unanswered requests can be shelved without any 
follow-up after a certain time. However, when a negative 
reply is received after the period of three years laid down 
for the subsequent recovery of duties has expired, this 
practice compromises the recovery of the own resources 
at stake. The importance of this is illustrated in the cases 
communicated by Belgium; in 1987 and 1988, Belgium 
submitted to the Commission respectively 13 and 9 
requests, among those referred to in paragraph 2.40, 
which dealt with respectively 60 and 11 certificates for 
which replies had been pending for two years or more. 
The duties concerned amounted to 1,5 Mio ECU and 
0,4 Mio ECU respectively. 
Monitoring of implementation 
2.45. The Court found certain shortcomings in the 
Member States' implementation of the subsequent 
verification procedure: 
(a) in Denmark and France, requests for subsequent 
verification which had not been answered after the 
prescribed deadlines had expired were not notified to 
the general customs directorate, contrary to national 
instructions; 
(b) in France, the grounds for some requests for 
subsequent verification were inadequate or no details 
were given on whether the verification was based on 
'reasonable doubt' or whether it was a random 
verification. In other cases, the requests were 
addressed to the wrong authorities in the beneficiary 
countries; 
(c) in France, although, in some regional departments 
specializing in research and documentation (Cerdoc), 
some certificates of origin were not believed to be 
authentic following a subsequent verification, the 
Court's auditors saw no sign that a more thorough 
examination had been carried out in order to trace 
further imports of the same kind; 
(d) in Portugal, subsequent verification operations are 
recorded in such a way that unanswered requests 
cannot be easily identified. 
2.46. The Member States may request the Com­
mission's help to obtain a reply from a beneficiary 
44 Official Journal of the European Communities 12. 12. 90 
country to any request for subsequent verification. They 
can also ask it any question concerning the acceptance of 
certificates which do not appear to have been drawn up in 
accordance with the rules in force. Only since 1 January 
1988 has the Commission administered the correspon­
dence sent to it by the Member States in such a way that 
the action it has taken to solve a problem can be 
monitored. The files concerning the period prior to that 
date contain many cases for which the replies to the 
Member States' questions and even the beneficiary States' 
replies are still pending. 
Refusal to grant preferential treatment 
2.47. The Court noted that preferential treatment of 
imported goods is rarely refused on the grounds that 
certain rules on origin or the formalities involved have not 
been observed. The practice most frequently observed in 
the Member States is either to accept the import 
declaration as it stands or to send the certificate of origin 
for subsequent verification. However, there are cases in 
Italy where the preferential treatment of goods has been 
refused because the certificate of origin had not been 
stamped or because the stamp was not listed in the 
Commission's manual. 
2.48. The Court is inclined to believe that the lax 
attitude of the Member States in this respect is partly due 
to the limitations of the overall control system, which is 
based solely on the certificate of origin itself, but that the 
inadequacies of the control procedures involved are also 
to blame. In particular, there are no common criteria for 
the application of these procedures and no clear sanctions 
if the beneficiary countries fail to comply with the 
provisions for administrative cooperation. Consequently, 
the Member States tend not to refuse the benefit of tariff 
preferences unless they manage to obtain by their own 
efforts incontestable proof that a certificate of origin is 
not authentic or that it contains inaccurate information. 
Irregularities 
2.49. In this context, and to illustrate how the 
Community's own resources are put in jeopardy, it is 
possible to refer to certain specific cases of fraud 
discovered by the Member States and to statistical data 
concerning irregularities on certificates of origin for the 
years 1987 and 1988: 
(a) steel products originating in East Germany were 
imported into the Community under EUR-1 certifi­
cates of origin issued by the Swedish customs 
authorities on the basis of false invoices or false certificates of origin drawn up by a private firm. 
These irregularities, which were discovered by the 
German investigation departments, occurred be­
tween January 1985 and December 1986 and their 
value was determined at around 6 Mio ECU; 
(b) fishery products (1 500 tonnes) originating in coun­
tries such as Korea, Panama and Honduras were 
imported into the Community under false EUR-1 
certificates, which stated that they originated in 
Gambia and Sierra Leone. The irregularities were 
discovered by Commission departments in cooper­
ation with the Member States and the local author­
ities in Gambia and Sierra Leone. The import duties 
evaded were estimated at 2 Mio ECU; 
(c) steel products originating in Brazil were imported 
into the Community under EUR-1 certificates issued 
by the Yugoslav authorities. The imports took place 
in 1985 and the import duties evaded are estimated at 
0,3 Mio ECU; 
(d) there was a similar case concerning steel products 
originating in East Germany: the investigations 
carried out by the Belgian and German customs 
authorities revealed that import duties amounting to 
22 960 ECU and anti-dumping duties amounting to 
0,1 Mio ECU had been evaded; 
(e) a consignment of 522 tonnes of coffee originating in 
Indonesia was imported into the Community with 
Nigeria as its declared origin1. The true origin was 
detected by the analysis of a sample of the product by 
the Dutch customs authorities. Apart from the failure 
to observe the provisions of the international 
agreement on coffee, the own resources due were 
evaded; 
(f) fishery products originating in the Soviet Union, 
Romania, Cuba, Iraq, Korea and Algeria were 
imported into the Community under EUR-1 certifi­
cates issued by the Mauritanian authorities, without 
appropriate verification of the rules on origin specific 
to fishery products. The Commission departments 
stated that the irregularities on the EUR-1 certificates 
were partly due to the inadequacies of the customs 
verification of the information contained on the 
EUR-1 certificates (origin, destination and authenti­
cation by the issuing authority) and to the failure to 
observe the direct transport rule. The corresponding 
duties evaded are estimated at 0,6 Mio ECU; 
(g) information on irregularities concerning the rules on 
origin were communicated by certain Member States 
in their annual and half-yearly reports, which are 
drawn up in accordance with Articles 7 and 17(3) of 
12. 12. 90 Official Journal of the European Communities 45 
Council Regulation (EEC, Euratom) No 1552/89 of 
29 May 1989 (10). The following data concerning the 
duties evaded as a result of false declarations of origin 
were taken from these reports: 
(i) in the United Kingdom, 57 cases, involving 
332 285 ECU, for 1987, and 85 cases, involving 
83 277 ECU, for 1988; 
(ii) in Belgium, 39 cases, involving 21 515 ECU, for 
1987, and 49 cases, involving 13 197 ECU, for 
1988; 
(iii) in France, 106 cases, involving 117 118 ECU, for 
1987, and 135 cases involving 151 115 ECU, for 
1988; 
(iv)in Denmark, 83 cases, in 1987, involving 18 444 
ECU. 
The Commission's management 
2.50. The Commission's role is one of supervision and 
coordination as far as the Community's management of 
preferential arrangements is concerned. One essential 
aspect of this is monitoring to ensure that the rules on the 
definition of originating products and the methods of 
administrative cooperation with beneficiary countries are 
correctly applied. One of the ways this is carried out is 
through the work of the Committee on Origin and that of 
the various customs cooperation committees provided for 
in the various preferential trade agreements to which the 
Community is party. The Commission has to solve the 
problems of implementation at Community level which it 
itself has discovered or which have been brought to its 
attention by the Member States, and has to carry out any 
necessary remedial action. The Court has, however, noted 
several cases where, in its opinion, the Commission has 
not been able to take the measures needed to ensure that 
the arrangements operate properly and to guarantee 
recovery of the own resources at stake. 
2.51. For example, the Commission, having been 
informed that there were serious problems relating to the 
authenticity of certificates of origin in use in some third 
countries (Zaire, Liberia and Swaziland, for example), 
reacted mainly within the framework of the procedures 
for mutual assistance between Member States. However, 
it has taken no general measure in the financial and 
administrative fields, such as an order to make systematic 
subsequent checks on all certificates and to guarantee the 
amount of the customs duties at stake. 
(10) OJ L 155, 7.6.1989, p. 1; this regulation repeals and replaces 
Council Regulation (EEC, Euratom, ECSC) No 2891/77 of 
19 December 1977 (OJ L 336, 27.12.1977, p. 1). 2.52. Similarly, after being informed that several 
Member States accepted certificates of origin which bore 
a stamp that did not appear in its manual, the 
Commission failed to take the appropriate steps vis-a-vis 
those Member States, namely: 
(a) in the context of the GSP, where the granting of 
preferential treatment is explicitly contingent upon 
the information in question being supplied, a request 
to make the corresponding own resources available; 
(b) in the context of the ACP States, for which, according 
to a Commission legal service interpretation of 1987, 
the same condition exists, albeit not explicitly, a 
circular with the purpose of instructing the Member 
States to refuse preferential treatment, as decided at a 
meeting of the Advisory Committee on the Com­
munities' Own Resources on 25 November 1987, and 
a request to make the corresponding own resources 
available. 
2.53. In the Court's opinion, cooperation with bene­
ficiary third countries has been inadequate, in terms both 
of bilateral talks and discussions in customs cooperation 
committees. Although the Commission has made a 
number of attempts to encourage the countries concerned 
to send the information required, these steps have had 
little effect and have involved only ACP countries. 
Furthermore, in the case of a significant number of 
beneficiary countries which belong both to the General­
ized System of Preferences and to the Third Lome 
Convention, the Commission failed to insist that the 
requisite information be notified separately for each of 
the systems. 
2.54. The decisions taken by certain departments of the 
Directorate-General for the Customs Union and Indirect 
Taxation (DG XXI) as regards the origin of imported 
goods may affect the calculation of import duties. 
Supervision of the collection of own resources by the 
Member State is the responsibility of the Directorate-
General for Budgets (DG XIX). The Court noted the 
inadequacy of the communication procedures between 
these departments of decisions taken by, inter alia, the 
Committee on Origin. For instance: 
(a) in accordance with a decision taken at the meeting of 
the Committee on Origin on 18 April 1988, a telex was 
sent to the Member States by the Origin of Goods 
division of DG XXI, following the receipt of 
information sent by the Greek authorities concerning 
photocopying equipment produced in Hong Kong, 
parts of which had been imported from Japan. The 
equipment could be considered as originating in 
Japan and anti-dumping duties should have been 
levied. No information has been sent to DG XIX and 
DG XX departments as regards the own resources to 
be collected (ex post); 
4^ Official iournai of the European Communities mp^o 
^according to Commission regulation ^C^ ^lo 
^71^oflliulyl^^^^,certainprocessescarried 
out on photocopiersdonotconfer on the product the 
origin of thecountry^hereassembly took place^ The 
regulation ^as adopted regardingequipment as­
sembled in the United States using parts originating 
iniapan^hich^erelikely to be liablefor anti­
dumping duties, l^o decision was taken on the 
retroactive collection of the anti-dumping duties in 
question, nor ^as any decision communicated to the 
L^C^l^ and fool ^^departments 
^.^. in ^ie^ofits economic impact and the budgetary 
consequences for the Community, the granting of tariff 
preterencesundertheLomeCon^ention may be con­
sidered a special type of development aid, which is 
otherwise granted ^ia the European L^e^elopment Funds 
orasfoodaid.^lo^e^er,thereisasignificantdifterencein 
this respect inthe Commissions management of these 
t^otypesofaid. VVhile^uropeanL^e^elopmentFund 
subsidies and food-aid expenditure are managed and 
inspected by the Commission, the implementation of 
preferential arrangements by the beneficiary countries is 
monitored relatively little by it. The Commission 
delegations in the countries concerned are at present not 
^ery familiar ^ith the question. 
^Bo^. TheCourtnotedacertain difficulty on thepart of 
the authorities issuing certificates of origin as regards the 
application of the cumulation rules, under ^hich goods 
originating inagi^en country can acquire the origin of 
another country in ^hich they are used.These rules are, 
^ith good reason,considered complex and difficult to 
applyandsuper^ise. Furthermore, there isasignificant 
difference between the Lome Contention, ^hich author-
izesthecumulationofprocessing without reservation, 
irrespective of the ACP State of origin and the Creneral-
izedSystemofPreterences,underwhich cumulation and, 
therefore, the acquisition ofanew origin, is authorized 
only if there has been sufficient processing. 
^.eo7. An unsatisfactory situation ^as discovered as far 
as mineral oilsand their distillateswereconcerned. These 
products are temporarily excluded from the various 
Community protocols and regulations on the definition 
of origin. Consequently, the member States apply 
different rules on origin. Some of them grant prelerential 
treatmentlftheproductinquestionisconsideredtobean 
originating product by the exporting country,that is, on 
the basis ofaduly established certificate of origin. Cother 
countries,ho^e^er,apply their own national rules on 
origin. Consequently,thesameproductscan be imported 
duty free in one member State ^hile in another they are 
ta^ed. 
C^O^Lt^m^Bn^,^^ ^Bo^. Undercertainpreterentialagreements,theadmin-
istrati^e cooperation rules do not apply to oil products, 
^ith the result that there are no rules on the adminis­
tration oftheproof of theoriginoftheproductsor on the 
procedure tor subsequent verification. 
^Bo^. The absence of^oint rules on origin compromises 
the collectionofown resources, in particular ^hen oil 
products exported by non-beneficiary countries pass 
through beneficiary countries. The Court therefore 
recommends the s^ift adoption of^oint rules on origin 
applicable to oil products. 
CE^o^^^ 
^t^. The risk that it ^111 be inefiective is inherent ina 
system ofcontrol that is based principally on procedures 
which the beneficiary of the arrangement has to 
implement itself The Court considers this to be the case 
^ith preferential tariff arrangements that are based on 
origin. 
^.ol. Thecontrolmechanismsinforceare^eak,bothas 
regards the principle behind them and their implemen­
tations 
^ the principle is weak because the mechanism is based 
entirely on the submission of one document ^the 
certificate of origins ^hlch is dra^n up by the 
authorities of the beneficiary country, ^hose admin­
istrative organization is not always transparent. 
Somel7eodifierent countries throughout the ^orld 
are in^ol^ed, without any account being taken of the 
differences in their administrative and economic 
developments 
^ the implementation of thecontrolmechanismsisalso 
^eakbecause of the inadequacies described inthe 
previous paragraphs and the lack of clear, standard 
procedures for the Iviember States to follow in cases 
^here the rules ha^e not been observed. 
^.o^. IntheCourCsopinion,the system of verifying 
certificates of origin could be improved if the following 
measures ^eretaken^ 
^inclusionintheadministrativepro^isionsofpreferen-
tialagreementsoftheobligationtorefusetograntthe 
preterentialarrangementincaseswheretherulesha^e 
not been observed in the beneficiary countries^ 
^ adoptionbytheCommission,incooperation^iththe 
member States, of^oint criteria and general rulesfor 
12. 12. 90 Official Journal of the European Communities 47 
the implementation of the subsequent verification 
procedure, administrative cooperation with the 
beneficiary countries and the granting or refusal of 
preferential treatment for imported goods; 
(c) conferment on the Commission of additional inspec­
tion powers, including on-the-spot inspections, as regards the application of the rules on origin and the 
issuing of certificates in the beneficiary countries; 
(d) strengthening of the Commission's coordination and 
supervision rules on the practical management of 
preferential arrangements and their effects on the 
collection of own resources, both as regards the 
Member States and beneficiary third countries. 
48 Official Journal of the European Communities 12. 12. 90 
CHAPTER 3 
The European Agricultural Guidance and Guarantee Fund, 
Guarantee Section (EAGGF-Guarantee) 
Management and budgetary control 
3.0. TABLE OF CONTENTS 
Introduction 
Budgetary discipline 
Out-turn 
Reporting of quantities 
Intervention stocks 
Depreciation of intervention stocks 
Free distribution of intervention stocks 
Accounting treatment 
Deprived persons 
Eastern European countries 
Developing countries 
Recommendation 
Implementation of programmes in favour of deprived persons 
Financial audits conducted in the Member States 
Introduction 
Controls over expenditure in Spain 
Controls over expenditure in Belgium 
Collection of levies 
Financial audit in the Commission 
Advances to Member States Paragraph 
reference 
3.1 3.2 
3.3 —3.10 
3.3 —3.4 
3.5 —3.10 
3.11 
3.11 
3.13 
3.13 
3.15 
3.18 
3.20 
3.22 
3.23 
3.26 
3.26 
3.29 
3.40 
3.42 3.25 
3.15 
3.22 
3.22 
3.17 
3.19 
3.21 
3.25 
3.42 
3.28 
3.39 
3.41 
3.43 — 3.44 
3.43 — 3.44 
INTRODUCTION 
3.1. Financial information on the implementation of 
the guarantee fund in 1989 is presented in Tables 3.1 to 
3.4. 
3.2. The financial implementation of agricultural 
guarantee funds in 1989 was marked by: on budgetary discipline (!), expenditure under Titles 1 
and 2 of the operating budget having totalled 
24 402,7 Mio ECU when the limit under the guideline 
was 27 700 Mio ECU at 1988 prices; 
(b) the transfer of 819 Mio ECU of appropriations from 
guarantee funds to the monetary reserve in Chapter 
102 of the general budget, following favourable 
movements in the value of the US dollar; 
(a) the respect of the agricultural guideline laid down in (i) Council Decision 88/377/EEC of 24 June 1988 (OJ L 185, 
the Council's Decision 88/377/EEC of 24 June 1988 15.7.1988). 
12. 12. 90 Official Journal of the European Communities 49 
(c) the depreciation for the first time of intervention 
stocks on the date of purchase, which together with a 
further depreciation at the end of the EAGGF year, 
amounted to 1 176,6 Mio ECU; the initial appropriations), tobacco (163,9 Mio ECU, 
17%), pigmeat (24,0 Mio ECU, 10%) and eggs and 
poultry (13,1 Mio ECU, 6 %). The total overrun of Titles 
1 and 2 was 474,8 Mio ECU (see Table 3.2). 
(d) in addition to expenditure charged to the agricultural 
guarantee budget, 650,2 Mio ECU in depreciation of 
intervention stocks held at the beginning of the 
EAGGF year was charged to Article 810, and 
792,7 Mio ECU was charged to Article 811 for 
refunds to Member States to cover part of the cost of 
disposal of butter from public stocks in 1987 and 
1988. 
BUDGETARY DISCIPLINE 3.4. The Commission states that the major causes of the 
overruns were the higher than expected volumes of 
production and exports and the failure of some Member 
States to collect milk levies by the last permitted date. The 
other cause, particularly for tobacco, is the nature of the 
guarantee payment system, whereby increased quantities 
of production are paid for at rates of aids previously 
decided, and in addition the budget has to accommodate 
any increase in expenditure due to reduced payment 
delays in Member States. The cost overruns were covered 
by transfers of appropriations from underspent markets. 
Out-turn 
3.3. Whilst the total guarantee expenditure did not 
exceed the agricultural guideline, the initial appropri­
ations for certain chapters of the budget were exceeded, 
whereas Article 6 of the Council's decision on budgetary 
discipline sets the objective of limiting expenditure in each 
chapter to the initial appropriations. The markets 
concerned were milk (267,0 Mio ECU or 6 % overrun of Reporting of quantities 
3.5. When analysing the causes of cost overruns in its 
monthly and other reports on the implementation of 
Table 3.1 — EAGGF-Guarantee 1989: summary of accounts 
(Mio ECU) 
Appropriations 
for payment available 
Titles 1 and 2 
Chapter 39 
Chapter 40 
Chapter 81 
Total available 
Cancellations of 
appropriations: 
Titles 1 and 2 
Chapter 39 
Chapter 40 
Chapter 81 
Total cancellation 
of appropriations 
Total appropriations used 25 651,2 
100,0 
27,3 
1 449,0 
27 227,5 
1 248,1 
94,0 
3,3 
6,1 
1 351,5 
25 876,0 Commitments 
Carry-over from 1988 
(Titles 1 and 2) 
Titles 1 and 2 
Chapter 
Chapter 
Chapter 39 
40 
81 
Total commitments 11,2 
24 403,1 
6,0 
24,0 
1 442,9 
25 876,0 Payments 
Payments against 
carry-over from 1988 
Cancellations 
Titles 1 and 2 
Chapter 39 
Chapter 40 
Chapter 81 
Total advances to 
Member States 
Sums paid directly by 
the Commission 
(Titles 1 and 2) 
Total payments 
Amounts retained from 
advances to Member States 
(Titles 1 and 2) 
Appropriations carried over 
Total commitments 6,1 
5,1 
24 390,5 
6,0 
24,0 
1 442,9 
25 863,4 
6,4 
25 869,8 
57,4 
(51,2) 
25 876,0 
Source: Revenue and expenditure account for the budget year 1989 and 19th financial report on the 1989 EAGGF year — Guarantee Section. 
50 Official Journal of the European Communities 12. 12. 90 
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eo4 Official iournal of the European Communities 12 12 9u 
budgetary disciplinemeasures,theCommissionmentions 
the^ariations^hichha^eoccurred between thequantities 
^hich formed the basis of the budgetary estimates, and 
the quantities ^hichunderly the expenditure declared by 
the Member States. 
16. Lhese analyses are ho^e^er based on no more than 
estimates of the quantities concerned. Phere is at present 
no requirementfor the Member States to gi^equantitat^ 
i^einformation,otherthanon intervention stoclos,in 
their monthly declarations.C^uantitati^einformationm 
the annual declarations is received some si^ to nine 
months after the end of the EAololE year and first 
categorye^penditure is not consolidatedor systematic 
callyanalysedbytheCommission(seeparagraphsl9and 
310) 
3.7. Lhe Court considers that quantitative information 
underlying all expenditure should be gi^en monthly by 
each Member State, and summarized in L^ Vis 
computersystems.Lhe Commission ^ould then ha^e the 
means to^ 
(a) appraise the accuracy of the budget preparation 
system by comparing quantities forecast to the out^ 
tunn 
(b) provide soundly based analyses of the causes of cost 
overruns in its reports on budgetary disciplined 
(c) identifyanomaliesin the MemberStates^ declarations 
atanearlydate^ 
(d) improve market management by means of more 
timely and complete information concerning quan^ 
titles. 
3.8. Lhis improvement to the reporting system should 
provefeasible^ithoutonerouspaper^ork,gi^enthat 
most Member States already accumulate quantitative 
information in their computer systems forthe purpose of 
completing their annual declarations, and that the 
Commission has de^elopedasystem for the communis 
cation ofthe monthly declarations throughacomputer 
network. 
3.9. in the absence of any quantitative analyses by the 
Commission, theCourtattemptedacomparison between 
the quantities declared by Member States under t^o 
chapters (cereals and oli^e oil) of the general budget in 
1988, the most recent year for ^hich data are available, 
and the corresponding quantities estimated by the 
Commission in its budgetary proposals forl988. 3.10. Phis comparison proved inconclusive due to 
deficienciesinthedeclarations.Accordingto the Member 
States^ annual declarations of guarantee expenditure, 
production aid ^aspaidforoli^e oil on 8,2 Mio tonnes, 
equivalent to lifetimes the quantity of olive oil budgeted 
(l,6Mio tonnes)at half the expense (297 Mio ECU 
against 664 Mio ECU in the budget).This error in the 
quantity declared didnotaftecttheamount paid and ^as 
notrepeatedbytheMemberStateconcerned(Italy)inthe 
following year. In addition, the quantities of cereals 
exported by the EP of Crermany could not be determined 
fromits annual declaration, and the declarations ofltaly 
andthel^etherlands^ere not clear.The Commission 
should require that the quantitative information be 
complete and accurate. 
I^P^RVE^PIC^^ SPECKS 
^^^^^c^^^^^^^^^ 
3.11. The book ^alueofinter^ention stocks held at the 
end of the EAolCrE year has fallen from^662,8Mio 
ECUattheendofl988tol699,2MioECUattheendof 
1989.This substantial fall reflects firstly the reduction 
o^er the year in the quantities of many products 
held in stock, in particular durum ^heat (D-^7^), 
feed^heat(^8^^),oli^eoil(^^3^)andbeefmeat 
(^79^)(see^^^).Secondlythisfallin^alueresults 
from significant depreciation applied in 1989 (see 
paragraph3.2(c)).Consequentlythepotentiallossonsale 
at theendofl989 had been reduced to ^67 Mio ECU as 
compared ^ith23^0Mio ECU at the end of 1988. 
3.12. whereas the remarks in the general budget 
indicate that the appropriationsfordepreciationin Pities 
land2of the operating budget are intended to cover the 
depreciation of recently constituted stocks, and in 
particularthose purchased during the year, the Commis 
sion has used some 90 Mio ECU of appropriations 
remaining availableattheyearend to depreciate old 
stocks of alcohol. Phe Court considers that the CommisD 
sionshouldmaintainclarityinitsaccountsbyadheringto 
aconsistent principle of charging all depreciation on old 
stocks at the beginning of the year to Chapter 81 (see 
paragraph 3.2(d)). In the present case, this ^ould have 
involved charging the depreciation to the 1990 appropri^ 
ations for Chapter 81. 
12. 12. 90 Official Journal of the European Communities 55 
Free distribution of intervention stocks 
Accounting treatment 
3.13. Intervention stocks are distributed free under 
programmes in favour of deprived persons in the 
Community, and of Eastern European countries. Inter­
vention stocks may also be exported as part of food aid 
programmes in favour of developing countries. 
3.14. There are differing accounting treatments for each 
programme, with a resulting lack of clarity in the 
Commission's accounts. 
Deprived persons 
3.15. The free distribution of intervention stocks to 
deprived persons in the Community is recorded as a sale 
at intervention prices, as required by Council Regulation 
(EEC) No 3730/87 of 10 December 1987 (2), and an equal 
amount is charged to Article 297, for which appropri­
ations amounting to 150 Mio ECU were authorized in the 
1989 budget. 
3.16. All intervention stocks are now depreciated to well 
below the intervention prices which are taken as the value 
of such 'sales', so this accounting treatment results in a 
profit being shown under the items 'other public storage 
costs' and in the appropriations for the distribution 
programme being charged with amounts greater than the 
depreciated value of the stocks distributed. 
3.17. If the value of the stocks distributed had been 
taken as the depreciated book value, instead of the 
buying-in price, in theory the quantity of food distributed 
within the appropriations available could have been some 
40 % greater. For what happened in practice, see 
paragraph 3.25. 
(2) Council Regulation (EEC) No 3730/87 of 10 December 1987 
(OJ L 352, 15.12.1987). Eastern European countries 
3.18. Food aid to Poland, decided by the Council on 24 
July 1989 (Regulation (EEC) No 2247/89) (3), is expected 
to cost approximately 100 Mio ECU over 1989 and 1990, 
of which 6,4 Mio ECU was charged to the 1989 budget. 
All products are delivered from intervention stocks or, in 
the case of fruits and vegetables, from products 
withdrawn from the market. 
3.19. In this case, the stocks exported are recorded as 
sales at nil value, and their depreciated book value 
appears in the Commission's accounts as part of 'other 
public storage costs'. In its internal accounting system, 
the Commission keeps a record of the costs relating to 
food aid for Poland, but, unlike the aid for deprived 
persons, the cost is not shown in the revenue and 
expenditure account, nor is a specific appropriation 
shown in the general budget. 
Developing countries 
3.20. Intervention stocks exported under food aid 
programmes to developing countries are recorded as sales 
at intervention prices, and this sale value is charged in 
part to Article 292 (the value of the export refund) and the 
remainder to Title 9 (the world market value). 
3.21. Consequently, 'other public storage costs' include 
the 'profit' which is made on the stocks by crediting the 
intervention cost rather than the depreciated book value. 
The argument in the Commission's reply, reflecting the 
regulations currently in force, would only make sense 
from an accounting point of view if it was reasonable to 
expect that disposals of stocks via outlets other than food 
aid programmes would yield a price equivalent to the 
intervention price (i.e. higher than the world market 
value). 
Recommendation 
3.22. The Commission should propose a consistent 
treatment for the valuation and accounting of all 
programmes of free distribution of intervention stocks, 
and should ensure that the cost of these measures, which 
will become particularly significant for Eastern European 
countries in 1990, may be clearly identified in the budget 
and in the revenue and expenditure account. 
(3) Council Regulation (EEC) No 2247/89 of 24 July 1989 (OJ L 
216, 27.7.1989). 
56 Official Journal of the European Communities 12. 12. 90 
Implementation of programmes in favour of 
deprived persons 
3.23. The programmes in favour of deprived persons in 
the EEC are not being implemented sufficiently rapidly 
for the cost of each annual programme to be charged to 
the general budget of the year in question: 
(a) of the 100 Mio ECU voted for 1988, 65,8 Mio ECU 
was spent within that year, and 34,2 Mio ECU of 
appropriations were cancelled; 
(b) of the 150 Mio ECU voted for 1989, 27,1 Mio ECU 
was used to cover expenditure of the 1988 programme 
and 105,8 Mio ECU for that of 1989, and 17,1 Mio 
ECU of appropriations were cancelled. 
3.24. By its Decision 89/19/EEC of 23 December 
1988 (4), the Commission allocated all except 3 Mio ECU 
of the appropriations for the 1989 programme between 
the Member States. 
3.25. Only Belgium, France and Spain disbursed their 
1989 allocations within the EAGGF year. Of the 
remaining Member States, the percentage utilization of 
their allocations was Denmark 16 %, FR of Germany 
29 %, Greece 36 %, Ireland 43 %, Italy 61 %, Luxem­
bourg 93 %, Netherlands 79 %, Portugal 1 % and United 
Kingdom 54 %. 
FINANCIAL AUDITS CONDUCTED IN 
THE MEMBER STATES 
Introduction 
3.26. In 1989, the Court embarked on a programme of 
financial audits of the main paying agencies in each 
Member State. These financial audits aim to determine 
and evaluate the controls and checks exercised by the 
Member States' paying agencies and audit bodies over 
guarantee transactions, and include detailed tests on 
transactions selected from the whole of the expenditure 
declared in the period examined. The principal objective 
was that of determining the degree of reliance which can 
be placed on the accuracy of the declarations which form 
(4) Commission Decision 89/19/EEC of 23 December 1988 (OJ 
L8, 11.1.1989). the basis for the reimbursement of guarantee expenditure 
by the EEC. These audits complement the Court's other 
enquiries in Member States which are conducted within 
the context of the examination of specific markets, or of 
measures such as intervention storage. 
3.27. The Court has completed financial audits in 
Belgium and in Spain, which disbursed respectively 2,3 % 
and 7,4 % of guarantee expenditure, during which it 
evaluated controls over guarantee expenditure and tested 
all accounting records of all significant paying agencies, 
together with those of other bodies on whose request the 
paying agencies disburse funds. 
3.28. When planning the extent of its audits, the Court 
takes account of the information made available by both 
the national audit authorities and the Commission's 
clearance of accounts department. In Spain, the Court 
was for example able to take account of the earlier 
enquiries by the Commission's departments into pay­
ments of premiums for sheep and goats. 
Controls over expenditure in Spain 
3.29. Under Article 4 of the Council's Regulation 
(EEC) No 729/70 (5), the Member States are required to 
designate the authorities and bodies which they empower 
to effect guarantee expenditure, and are required to 
ensure that the credits are used solely for the purposes laid 
down. Spain has designated four paying agencies, of 
which the main one, Senpa (Servicio Nacional de 
Productos Agrarios), disburses 95 % of guarantee 
expenditure in Spain. 
3.30. Within the context of the transfer of power to the 
autonomous communities, the responsibility for the 
implementation of certain measures (which represent 
30 % of total EAGGF-Guarantee expenditure in Spain) 
has been entrusted to the regional governments (16 
autonomous communities). The responsible departments 
of the regional governments authorize the payment of 
claims for aid under these measures, and request Senpa to 
execute the payments to the beneficiaries, and make any 
recoveries requested. 
3.31. The Court found weaknesses in the controls over 
these guarantee payments. In practice, no body external 
to the department which authorized the payments 
(neither the national authorities, nor those of the 
autonomous communities, nor the paying agency) had 
verified the use of those funds, which amounted to 
512 Mio ECU, in 1989. 
(5) Council Regulation (EEC) No 729/70 (OJ L 94, 28.4.1970). 
12. 12. 90 Official Journal of the European Communities 57 
3.32. The importance of controls in the autonomous 
communities is illustrated by the results of the Court's 
audit. The Court's initial intention was to include in its 
audit work a visit to two autonomous communities 
(Extremadura and Andalucia) with a view to conducting 
a systems based audit of the three principal EEC aids 
(suckler cows, sheep and goats, olive oil) paid in 1989. The 
discovery of certain differences in application of the rules 
for olive oil production aid prompted a subsequent visit 
to a third autonomous community (Castilla-la Mancha) 
where all three aids were also subjected to audit. The basis 
for audit was the 1987/88 marketing year, since payments 
in respect of this year were made in 1989. 
3.33. For Extremadura and Andalucia a computer tape 
of all payments made in 1988 and 1989 on the suckler 
cow, sheep and goat and olive oil budget lines was 
requested from and supplied by Senpa. The Court used 
this tape to select a sample of payments using financial 
materiality and geographical distribution as the principal 
criteria. The same criteria were used to select a sample 
from the manual records on the spot in Castilla-la 
Mancha. 
3.34. A significantly high rate of errors (23 %) was 
found in the claims which had been selected for 
verification. The payments of incorrect amounts were 
caused: 
(a) by failure to detect errors in the claimants' declar­
ations ; 
(b) by incorrect or duplicate input into computer 
systems; 
(c) by incorrect application of EEC Regulations. 
Many errors had been detected by the authorizing 
departments before the Court's audit took place, and 
recovery orders had been issued, but the value of 
recoveries still to be made remained significant. 
3.35. By extrapolation from the results of the audit 
work performed in the autonomous communities, and 
from the control reports examined, the regularity of 
6,5 % (equal to 7,8 Mio ECU in 1989) of olive oil 
production aid payments, and 20 % (equal to 70,0 Mio 
ECU in 1989) of ewe premium payments is subject to 
considerable doubt. The total of 77,8 Mio ECU re­presents 4,3 % of Spain's expenditure in 1989. Moreover, 
some 0,9 Mio ECU was overpaid on the suckler cow 
scheme due to the use of an incorrect green rate. 
3.36. The reliability of Spain's declarations cannot be 
established until the Spanish authorities can provide 
confirmation that the payment requests have been 
rechecked, and that recoveries of incorrect payments have 
been effected. 
3.37. The Court noted that each of the three autonom­
ous communities visited applied different methods for the 
selection of claims for physical verification of the 
beneficiaries' rights to aid, and that none had selected for 
inspection the high value claims chosen by the Court for 
its audit. The value of claims should be one of the 
principal selection parameters. In the case of olive oil 
production aid, the responsibility for the verification of 
claims is shared between the producer organizations, the 
departments of the autonomous communities, and the 
recently created olive oil control agency. The Spanish 
authorities visited could not demonstrate that all the 
controls over olive oil production aid required by the 
EEC regulations had been carried out on the claims paid 
during the period examined. 
3.38. The Court recommends the Spanish authorities to 
ensure that the work of all national and autonomous 
community bodies involved in the supervision and 
control of guarantee expenditure be coordinated so that 
no gaps remain in the controls, that the systems designed 
to protect against clerical and computer errors be 
improved, and that physical inspection procedures be 
harmonized. Regulation (EEC) No 295/88 of 1 February 
1988 (6) requires the Member States to report in 
considerable detail the nature and the results of all the 
controls imposed by Member States over guarantee 
expenditure. The Court recommends that the Spanish 
authorities include in the ambit of these reports the 
control measures taken by the autonomous communities. 
3.39. The measure for which the Court found the 
highest rate of errors and omissions in Spain was that of 
aid for olive oil production, which is characterized by 
unclear EEC regulations, a complex system of payments 
to individual growers, and Spain's transfer of authority to 
the autonomous communities. This measure has not yet 
been subject to a clearance audit by the Commission in 
Spain. 
(6) Commission Regulation (EEC) No 295/88 of 1 February 
1988 (OJ L 30, 2.2.1988). 
58 Official Journal of the European Communities 12. 12. 90 
Controls over expenditure in Belgium 
3.40. In Belgium, agricultural expenditure is adminis­
tered by three paying agencies, the most important of 
which is 'Office beige de l'economie et de ragriculture' 
(OBEA) which accounts for 50 % of all payments. It is 
responsible for all payments except those relating to 
export refunds and a substantial part of the milk sector. 
3.41. The Court notes that OBEA paid premiums for 
beef cattle, totalling 7,0 Mio ECU in 1989, on the simple 
instructions of a government department, with no means 
of verifying the soundness of the claims paid, and no 
knowledge of any verification conducted by the depart­
ment, although required to ensure that the guarantee 
credits are used solely for the purposes laid down (see 
paragraph 3.29). It also authorized payments totalling 
2,3 Mio ECU for the multiplication of seeds on the basis 
of certificates issued by a body which attested the quality 
but not the quantity which formed the basis of claims. 
Collection of levies 
3.42. Both Member States audited experienced signifi­
cant delays in the collection of levies receivable in the milk 
and cereals markets. In Belgium, 25 % of the milk 
superlevies for 1987/88 had not been collected by the end 
of 1989, and in Spain, the non-collection of cereals levies had resulted in the Commission disallowing 9,0 Mio ECU 
within the 1987 clearance procedure. 
FINANCIAL AUDIT IN THE COMMISSION 
Advances to Member States 
3.43. The Commission reimburses monthly to each 
Member State the expenditure declared. The Court noted 
that the Commission withheld during 1989 a total of 
57,4 Mio ECU from its reimbursements to four Member 
States (Belgium, FR of Germany, Italy and Luxembourg) 
on the grounds that they had failed to collect the 1988/89 
superlevies due in the milk sector. This 'receipt' remained 
in a suspense account at the year end, and is shown in the 
revenue and expenditure account as an uncollected 
revenue entitlement. 
3.44. The even later collection of the superlevies for the 
1987/88 year should also have been penalized in this way, 
for example the 25 % of milk superlevies still to be 
collected at the beginning of 1990 by Belgium (5,1 Mio 
ECU) and the 9 % (2,4 Mio ECU) to be collected by the 
Netherlands. 
12. 12. 90 Official Journal of the European Communities 59 
CHAPTER 4 
The European Agricultural Guidance and Guarantee Fund, 
Guarantee Section (EAGGF-Guarantee) 
Organization and management of markets 
4.1. Subsidies for butter for use in the manufacture of pastry 
products, ice-cream and other foodstuffs 
4.2. Premium for maintaining suckler cows 
4.3. The co-responsibility system in the common market 
organization for cereals 
4.4. Observations concerning the application of the set-aside 
policy in the Community 
* 
4.1. Subsidies for butter for use in the manufacture of pastry 
products, ice-cream and other foodstuffs 
4.1.0. TABLE OF CONTENTS 
Introduction 
Budgetary expenditure 
The Court's enquiry 
Design of the measure 
Complexity 
Control provisions 
Management by the Commission 
Fixing the rate of subsidy: the standing tender system 
Number of rates 
Switching formulas 
Controls by EAGGF on butter used in a Member State 
other than that where the subsidy is paid 
Implementation in the Member States 
Minimum frequency of control visits 
Central monitoring of control work 
Division of control responsibilities, France 
Conclusions Page 
59 
67 
75 
89 
Paragraph 
reference 
4.1.1 -
4.1.4 -
4.1.6 
4.1.7 -
4.1.7 -
4.1.10-
4.1.12-
4.1.12-
4.1.14-
4.1.16 -4.1.3 
-4.1.5 
-4.1.11 
-4.1.9 
-4.1.11 
-4.1.19 
-4.1.13 
-4.1.15 
4.1.17 — 4.1.20 
4.1.21 — 4.1.25 
4.1.22 
4.1.23 
4.1.24—4.1.25 
4.1.26—4.1.28 
60 Official Journal of the European Communities 12. 12. 90 
INTRODUCTION 
4.1.1. The Community produces more butter than it can 
consume at market prices. This is despite: products, ice-cream and other foodstuffs ('butter for 
bakeries') (3). On average between 1987 and 1989 
subsidies for butter for bakeries accounted for 7,4 % of 
total gross expenditure in the milk sector, which 
amounted to 5 979,0 Mio ECU. 
(a) the reduction in supplies of milk, and thus of butter, 
following the introduction in 1984 of milk quotas; 
and 
(b) the virtual elimination of public stocks by the end of 
1989, due mainly to the disposal of 1,0 million tonnes 
under special financing arrangements to the Soviet 
Union and North Africa, animal feed and concen­
trated butter for domestic use. 
On a long term basis, 1,6 million tonnes of butter are 
produced annually, of which 1 million are consumed 
without subsidy. Some 200 000 tonnes net are exported 
(including food aid), leaving 400 000 tonnes of butter to 
be disposed of by means of subsidy on the internal 
market. Non-subsidized consumption of butter in the 
Community has been declining in recent years at some 
5 % (approximately 50 000 tonnes) per annum, increas­
ing the structural surplus in the market. Of the range of 
measures available to the Commission for subsidizing 
disposal on the internal market (l), as Table 4.1.1 shows, 
by far the most important one, accounting for some 
250 000 tonnes per annum, subsidizes the use of butter 
and concentrated butter (2) in the manufacture of bakery 
(') Excluding exceptional disposal measures operated for a 
limited time to dispose of old butter stocks. 
(2) Concentrated butter (also known as butteroil) contains a 
minimum of 99,8 % fat, as against 82 % for ordinary butter. 
It does not need to be stored under refrigeration, and is well 
suited to certains forms of food processing. 4.1.2. This measure seeks to encourage the disposal of 
substantial quantities of butterfat in products which 
otherwise would use vegetable fats, the prices of which are 
determined by the preferential terms for imports under 
the General Agreement on Tariffs and Trade (GATT). To 
enable butter to compete successfully, the level of subsidy 
needs to be fixed at a relatively high level: in 1988 and 
1989 the rate of subsidy amounted to between 35 and 
50 % of the butter intervention price in respect of the 
products subsidized. Between 1980 and 1989, as Table 
4.1.2 shows, the measure has enabled the tonnages 
disposed of to be doubled. 
4.1.3. The Community has subsidized butter for 
bakeries since 1969. In 1988 separate regulations 
governing the subsidies in the form of reduced prices for 
butter from public storage, and aid payments in respect of 
butter from the market (4) were consolidated and 
considerably adapted into Commission Regulation 
(EEC) No 570/88. The main elements of the measure are 
that: 
(a) subsidies are granted by a standing tender for the use 
of butter, either direct or after concentration into 
(3) Commission Regulation (EEC) No 570/88 of 16 February 
1988(OJL55, 1.3.1988). 
(4) Commission Regulation (EEC) No 262/79 of 12 February 
1979 (OJ L 41, 16.2.1979); Commission Regulation (EEC) 
No 1932/81 of 13 July 1981 (OJ L 191, 14.7.1981). 
Table 4.1.1 — Subsidized disposal of butter on the internal market, 
1987 to 1989, by type of measure (])(2) 
(1 000 t) 
Measure 
Butter for bakery products, ice-cream, etc. 
Non-profit making organizations 
Armed forces 
Deprived persons 
Concentrated butter for direct consumption (3) 
Direct consumption (3) (4) 
Social assistance 
Total 1987 
255,0 
36,9 
6,7 
— 
34,1 
2,5 
5,5 
340,7 1988 
328,8 
36,7 
6,8 
7,1 
43,2 
2,5 
6,2 
431,3 1989 
274,1 
37,9 
6,3 
10,5 
16,0 
2,3 
6,4 
353,5 
(') Excluding exceptional disposal measures (butter for animal feed; Commission Regulation (EEC) No 2409/86). 
(2) Includes both disposals of butter from market and from intervention store. 
(3) 'Direct consumption' means butter purchased by individuals at the retail stage for their own use, including butter purchased by hotels, restaurants and 
other undertakings for consumption by persons in those undertakings. 
(4) Since 1987 this measure has been used only by Luxembourg. 
Source: Commission intervention reports 1987, 1988 and 1989. 
12. 12. 90 Official Journal of the European Communities 61 
Table 4.1.2 — Disposals of butter for incorporation in pastry products, 
ice-cream and other foodstuffs, 1980 to 1989, by source and use 
(1 000 tonnes) 
1980 
1981 
1982 
1983 
1984 
1985 
1986 
1987 
1988 
1989 ACD(2) 
5,0 
68,1 
106,4 
109,2 
88,4 
100,4 
80,6 
87,4 
105,4 
199,0 Market (') 
B(2) 
5,4 
17,7 
37,6 
41,7 
26,7 
31,9 
24,3 
15,5 
43,7 
48,2 Total 
10,4 
85,8 
144,0 
150,9 
115,1 
132,3 
104,9 
102,9 
149,1 
247,2 ACD(2) 
103,1 
35,7 
— 
30,0 
64,0 
88,9 
134,4 
129,4 
157,5 
22,1 Intervention 
Bp) 
— 
— 
— 
— 
7,4 
7,8 
27,3 
13,1 
21,6 
4,8 Total 
103,1 
35,7 
— 
30,0 
71,4 
96,7 
161,7 
142,5 
179,1 
26,9 ACD(2) 
108,1 
103,8 
106,4 
139,2 
152,4 
189,3 
215,0 
216,8 
262,9 
221,1 Total 
B(2) 
5,4 
17,7 
37,6 
41,7 
34,1 
39,7 
51,6 
41,2 
65,3 
53,0 Total 
113,5 
121,5 
144,0 
180,9 
186,5 
229,0 
266,6 
258,0 
328,8 
274,1 
(') Includes butter from private storage. 
(2) Formula ACD: pastry products, confectionery, chocolate fillings, uncooked dough and powder preparations, certain prepared meat, seafood, soups. 
Formula B: ice-cream. 
butteroil and/or the addition of tracers (5), in­
corporated into specified foodstuffs; (ii) the requirement for beneficiaries to maintain 
specified accounts and records; 
(b) the eligible products in which the subsidized butter 
may be used are subdivided into formula A (pastry 
products, confectionery and chocolate fillings); 
formula B (ice-cream); formula C (uncooked dough 
and powder preparations); and formula D (certain 
prepared meat, seafood and soups); (iii) verification of use of the subsidized butter by 
Member State authorities; 
(iv) limitations on the direct use of unprocessed and 
untraced butter to establishments which it is 
easier to control. 
(c) the rates of subsidy may be differentiated according 
to formula, process, type of butter, etc. Currently the 
Commission pays the same subsidy to formula A, C 
and D products, and a lower one for formula B 
products. Variations for process and type of butter 
are applied; 
(d) a strict system of controls is provided for, including: 
(i) the need for undertakings wishing to benefit from 
the measure to satisfy certain criteria for approval 
by Member State authorities (6); 
(5) Tracers are products incorporated into the butter or 
concentrated butter so that the butter can be identified, 
rendering unauthorized use more difficult without detec­
tion. 
(6) Undertakings using traced butter do not require approval. Generally the regulation provides for different control 
requirements depending on the quantities used and 
whether or not the butter is traced. 
BUDGETARY EXPENDITURE 
4.1.4. Table 4.1.3 summarizes budgetary expenditure 
for 1987 to 1989 on the subsidies, both from intervention 
and from the market. This shows that: 
(a) expenditure is concentrated in France, the FR of 
Germany, and the Netherlands. This does not, 
however, entirely reflect where butter is processed 
and incorporated. For example a tender may be 
awarded in France in respect of butter from French 
intervention, with the subsidy (in the form of reduced 
price out of intervention) accounted for in France, the 
62 Official Journal of the European Communities 12. 12. 90 
Table 4.1.3 — Budgetary expenditure (') on subsidies for the use of butter in pastry products, 
ice-cream and other foodstuffs, 
1987 to 1989, by Member State 
(Mio ECU) 
Member State 
Belgium 
Denmark 
FR of Germany 
France 
Greece 
Ireland 
Italy 
Luxembourg 
Netherlands 
Portugal 
Spain 
United Kingdom 
Total 1987 
36,4 
17,3 
128,5 
106,3 
0,3 
1,8 
5,0 
— 
109,2 
— 
0,0 
21,2 
426,0 1988 
17,3 
23,9 
108,9 
251,7 
0,6 
7,0 
18,1 
— 
75,2 
— 
3,8 
61,1 
567,6 1989 
35,8 
3,5 
52,2 
102,3 
0,6 
19,9 
8,8 
— 
49,0 
— 
20,1 
44,1 
336,3 
(') The amounts in the table are close estimates based on Member State declarations. The Member State in which the expenditure is incurred is not 
necessarily the one in which the butter is finally used [see 4.1.4.(a)]. 
butter then passing to Belgium for concentration 
after which it is exported to Italy for incorporation; 
(b) there was a considerable increase in expenditure from 
426 Mio ECU in 1987 to 567,6 Mio ECU in 1988, 
notably in France. In mid-1988 the rapid reduction in 
public intervention stocks, a fall in butter production 
and an increase in butter prices led the Commission to 
reduce successively the level of subsidy at the tender 
stage. This did not lead to a reduction in demand for 
butter. Rather than reducing their demand for butter, 
tenderers increased purchases, anticipating reduc­
tions in the subsidy and guaranteeing their supplies. 
To discourage speculative activity the Commission 
reduced the period allowed for incorporating the 
butter from 12 to 6 months. As a result, expenditure 
fell back in 1989 to 336,3 Mio ECU. average 12,0 % across the Community, as part of the 
process of writing down the book value of stocks to 
their real value (7). This depreciation is recorded 
globally in Chapter 81 of the accounts. The impact in 
1989 on expenditure in respect of the butter for 
bakeries measure of this extraordinary depreciation 
was limited, because of the small proportion of 
disposal from intervention under this measure in 1989 
(see Table 4.1.2). However, in 1990 a fall in market 
prices resulting from weak demand, combined with 
increased production, led to a renewal of public 
intervention purchases of butter in several Member 
States, with public stocks increasing from 20 300 
tonnes at the end of 1989 to 100 000 tonnes at the end 
of May 1990. Increased sales of intervention butter 
will, therefore, be more likely under the butter for 
bakeries measure in the future. In such circumstances 
the impact of depreciation on the loss on sales will be 
more significant (8); 
4.1.5. When examining budgetary expenditure for this 
measure, the following points should be noted: 
(a) the losses recorded in the 1989 accounts on sales of 
intervention butter under this measure are not 
directly comparable with those of previous years. 
This is because in 1989, for the first time extraordi­
nary depreciation at the beginning of the budgetary 
year was used to anticipate part of the loss by 
reducing the book value of butter stocks by an (b) in addition to the question of comparability of the 
accounting information from one year to the next, the 
(7) Article 8(3) and (5) of Council Regulation (EEC) No 
1883/78 of 2 August 1978 introduced by Council Regulation 
(EEC) No 2050/88 of 24 June 1988 (OJ L 185, 15.7.1988). 
(8) See also paragraph 3.12 of this report for consideration of 
the impact of depreciation on the value of public stocks. 
12. 12. 90 Official Journal of the European Communities 63 
full value of the subsidy to the beneficiary in the form 
of sales at a reduced price is not reflected in the loss on 
sales figures. To the beneficiary the subsidy is the 
difference between the market price for butter and the 
sales price paid to buy the butter from intervention: 
this is greater — in 1989 it was more than 20 % 
greater in some Member States at certain times — 
than the difference between the book value of 
intervention stocks (after depreciation) and the sales 
price; 
(c) following changes to the reporting format, the 
information provided by the Member States in 
respect of intervention sales in the tables annexed to 
the monthly declarations of expenditure in 1989 is in 
many cases insufficiently detailed to identify expendi­
ture by formula of use. The Commission should 
ensure that Member States' monthly declarations 
contain sufficient information to enable expenditure 
by formula of use to be identified. 
THE COURT'S ENQUIRY 
4.1.6. The objectives of the Court's audit were: 
(a) to determine whether the systems and procedures 
functioning under Commission Regulation (EEC) 
No 570/88 enable surplus butter to be disposed of in a 
manner that is financially sound; 
(b) to check whether expenditure in 1989 in respect of 
disposals under this regulation was incurred legally 
and regularly. 
Audit work was carried out at the Commission and in 
Belgium, France, the FR of Germany and Italy. 
Professional organizations representing the industries 
using butter under the measure were consulted. DESIGN OF THE MEASURE 
Complexity 
4.1.7. The scheme set out in Commission Regulation 
(EEC) No 570/88 provides an illustration of the 
extraordinary complexity into which the Community can 
be drawn when trying to dispose of basic products in 
surplus. It reflects the dilemma facing the Community of 
combining provisions which are adapted to the require­
ments and realities of industry with those which can be 
controlled at reasonable cost and with a sufficient 
guarantee that the Community's budgetary resources are 
not misused. 
4.1.8. The objective of the Commission with this 
measure is, as far as possible, only to subsidize butter in 
products where it competes with vegetable fats, and not to 
subsidize it where it is used at its full market value. To 
achieve this, the regulation provides for a complex variety 
of end-use formulas with differentiated subsidy rates, 
different processes, different scales of use from large 
industrial users to small corner bakeries, and procedures 
to ensure that such a highly subsidized, high-value 
product is not diverted to unauthorized uses. During its 
audit the Court noted that there were different interpre­
tations of its provisions, and that beneficiaries have 
difficulty in understanding precisely what their oblig­
ations are. 
4.1.9. The Court considers that, although a major re­
examination of the regulatory provisions for the measure 
was carried out as recently as 1988, there is a need for a 
fundamental review of the measure to reduce significantly 
the complexity of the regulation. 
Control provisions 
4.1.10. Commission Regulation (EEC) No 570/88 is 
notable for having a title devoted to control requirements 
in addition to the provisions in the regulation formulated 
with control issues in mind. Such detailed specification of 
control requirements is necessary if a measure of such 
complexity is to be controlled adequately. There are, 
however, certain weaknesses in these provisions: 
64 Official Journal of the European Communities 12. 12. 90 
(a) the control philosophy underlying the provisions in 
the Regulation is for the checks to be carried out on 
flows of butter: there is no mention of stock checks. 
The Court considers that periodic reconciliations of 
physical and book stocks are essential to ensure that 
the book records reflect reality; 
(b) the Regulation does not provide that, where the 
records and accounts to be maintained by the 
firms (9) are separate from the normal production 
and commercial accounts of the firms, the controllers 
should check that the two sets of accounts are 
consistent with each other. 
4.1.11. In addition to the detailed checks on the 
utilization of specific quantities of butter the controls 
could be improved by periodic (e.g. quarterly) checks on 
total quantities used by comparing the theoretical 
quantities of butter used by a firm according to declared 
production and the butterfat content of the products with 
the actual quantities shown in the records. The Court 
noted that control authorities are beginning to experi­
ment with this kind of analytical check, and consider that 
this should be encouraged. 
MANAGEMENT BY THE COMMISSION 
Fixing the rate of subsidy: the standing 
tender system 
4.1.12. In its last annual report (10), when reporting on 
the measure for the disposal of skimmed-milk powder for 
calves, the Court argued in favour of a tendering 
procedure as a more effective means of ensuring that the 
subsidy is fixed at the optimum level than the adminis­
trative fixed rate system actually used. Its examination of 
the fortnightly tender procedure used for the butter for 
the bakeries measure confirms this opinion. 
4.1.13. During 1988 and 1989, as the market for butter 
tightened (see paragraph 4.1.1.), the Commission was 
able to respond quickly by reducing the level of subsidy. 
(9) Commission Regulation (EEC) No 570/88, Articles 10 and 
12. 
(10) Annual report concerning the financial year 1988, para­
graphs 6.66 et seq. Tenderers, anxious to ensure that they secured supplies, 
submitted bids at a range of subsidy levels, enabling the 
Commission to fix the maximum subsidy at the level that 
cleared the quantities it wished to dispose of. For the 
tenderers this was a time of unwelcome uncertainty, but 
the system coped, and now there is greater stability. This 
shows that a tendering system can operate successfully 
and optimize subsidy levels. 
Number of rates 
4.1.14. Currently the Commission fixes for each tender 
12 maximum aid rates (for market butter) and 16 
minimum selling prices from intervention for the different 
combinations of formulas, types of butter and processes. 
The regulation does not impose any relationships which 
must apply between the different rates (e.g. on the basis of 
fat contents), and indeed the Commission is free to alter 
the relative subsidies according to its market strategy. 
Thus when intervention stocks are high the Commission 
is able to encourage tenderers to bid for butter from 
intervention, and if for control reasons it wishes to favour 
traced butter rather than untraced, it can do so by means 
of the aid level it fixes. 
4.1.15. The Court considers that the system would be 
simpler and would gain in efficiency if there were a 
reduced number of basic subsidy rates with differentials 
for such things as adding tracers, concentration, and fat 
contents of butter. Tenderers would all be placed on an 
equal footing, and there would be more flexibility in the 
system. 
Switching formulas 
4.1.16. In 1988, at a time when intervention butter 
stocks were low, the Commission, applying the regu­
lation, awarded intervention butter on the basis of offers 
for formula B exclusively and rejected those for formulas 
A, C and D, on which more aid is payable. Drawing on a 
provision of Regulation (EEC) No 570/88, which 
authorizes changing formula for imperative commercial 
reasons which have been duly substantiated, certain 
tenderers asked to change the destination of their offers 
once these were accepted, so as to use the butter as 
formulas A, C, D. The Member States concerned acceded 
to this request and the Commission was informed. There 
were, however, absolutely no grounds for such a change; 
the tenderers were informed of the lack of intervention 
butter and ought to have obtained the missing quantities 
12. 12. 90 Official Journal of the European Communities 65 
on the market. After this incident, the Commission in an 
explanatory note of June 1989, explained that a change of 
destination had to be refused in cases in which it would 
entail rejection of the principle of the invitation to tender 
and that it was to be informed of the type of case. The 
Court considers that this clarification is useful, but that it 
ought to be included in the Regulation. 
Controls by EAGGF on butter used in a 
Member State other than that where the 
subsidy is paid 
4.1.17. As noted in paragraph 4.1.4.(a), it is a charac­
teristic of this measure that a considerable amount of the 
butter that is subsidized is traded across Member States 
borders. Although there is no precise data on the 
quantities involved, the Court has estimated that some 
40 000 tonnes of the 250 000 tonnes subsidized each year 
is traded in this way. In certain circumstances, the tender 
bid is awarded, the subsidy is paid, and the processing 
security lodged in the originating Member State. This 
security is released when the control authorities in the 
importing Member State return a control document (e.g. 
T5) in accordance with the provisions of Commission 
Regulation (EEC) No 569/88 of 16 February 1988 (n) 
certifying that the butter/butteroil has been used 
correctly. If some or all of the butter in a consignment is 
not used correctly, the tenderer in the originating 
Member State forfeits part of the security, whether or not 
he is directly responsible for the incorrect use. 
4.1.18. When subsidized butter is traded in this way, the 
EAGGF expenditure is recorded in the originating 
Member State, but the key controls on end-use occur in 
the importing Member State. This causes problems both 
within the context of the clearance of accounts and within 
that of scrutiny controls (Council Directive 77/43 5/EEC 
of 27 June 1977, replaced by Council Regulation (EEC) 
No 4045/89 of 21 December 1989 (12). If weaknesses are 
identified in the importing Member State's procedures for 
checking end-use (e.g. insufficient frequency of control 
visits), formally the related expenditure in the originating 
Member State should be disallowed, under the provision 
of Council Regulation (EEC) No 729/70 of 21 April 
1970 (13). This is not a satisfactory situation as the 
originating Member State is not able to influence directly 
the controls on end-use carried out in the other Member 
(H) Commission Regulation (EEC) No 569/88 of 16 February 
1988 (OJ L 55, 1.3.1988). 
(12) Directive 77/43 5/EEC replaced by Council Regulation 
(EEC) No 4045/89 of 21 December 1989 (OJ L 388, 
30.12.1989). 
(") Council Regulation (EEC) No 729/70 of 21 April 1970 (OJ L 
94, 28.4.1970). State. Furthermore, the importing Member State does 
not keep records of the quantities of butter involved. It is, 
therefore, not possible to identify the quantities and the 
amounts involved without contacting all the other 
Member States and conducting detailed file searches. 
4.1.19. The Court found that the work carried out by 
clearance of accounts staff, when the butter is processed 
in a Member State other than that in which the subsidy is 
paid, concentrates on the expenditure in the Member 
State in which it is booked, and does not extend to 
checking on-the-spot the control work carried out by the 
authorities in the importing Member State. Further, the 
Court found that the Member State authorities re­
sponsible for the scrutiny checks referred to in paragraph 
4.1.18 do not include butter imported under end-use 
control as there is no expenditure incurred in the Member 
State. 
4.1.20. The provisions of Commission Regulation 
(EEC) No 569/88 concerning securities create, therefore, 
a situation which does not fit readily with the EAGGF 
control arrangements. 
IMPLEMENTATION IN THE MEMBER 
STATES 
4.1.21. In response to the complex and onerous 
provisions of Commission Regulation (EEC) No 570/88, 
the Member States visited (Belgium, FR of Germany, 
France, Italy) have devoted considerable resources to 
controlling the measure. None the less, the following 
observations identify areas where action is required. 
Minimum frequency of control visits 
4.1.22. In two of the Member States visited, the 
minimum required frequency of one control visit per 
month to firms using more than five tonnes of butter 
equivalent per month was not always being maintained: 
in Italy a strike of public service officials in 1989 disrupted 
the frequency, and in the FR of Germany the local 
customs offices responsible for the controls (Hauptzoll-
amter) visited by the Court were not aware of the 
importance of formally respecting the minimum 
frequency laid down in the regulation. Following the 
Court's post-mission audit letter the German authorities 
o^ Official journal of the European Communities 12.12.^ 
havesentacirculartoall^auptzollamterremindingthem 
of the need to observe the regulatory frequency of visits. 
CE^^^^^^^^o^^^^^^^^ 
^.1.21 ^Vhere decentralized services carry out the on^ 
the^spot control work, as in PR. of Crermany and Italy, 
and in Prance in so far as customs is involved, the Court 
found that thecentraloftlcesarenotable to monitorsuch 
matters as the frequency ofcontrol visits, nor ensure that 
the controls are actually carried out consistently across 
the Member State. In the absence of such information, 
neither the Courfs auditors nor the Commissions 
clearance ofaccountsoftlcials are able to evaluate the 
adequacy of national controls. 
^n^^^c^^^^^^^ 
4.L2^. InPrance,controlsaredividedbetweenInterlait 
and Customs. Customsareresponsibleforcontrolling all 
butter or butteroilimportedfrom another Member State 
accompanied by a control document, while Interlait 
checks all other butter used. Some beneficiaries are 
subject to control both by Interlait and customs. Because 
ofcoordinationdiftlcultiesin thepast, andcriticisms 
from the Commission, otllcial instructions were issued in 
1^^, following the introduction of Commission R^egu^ 
lation^C^o 570^, designed to ensure better co 
ordination and consistency of control methodology 
between Interlait and Customs. PheCourtfound that in 
practice,however,considerableproblemsremain, and 
doubts whetherasatisfactory degree of coordination is 
achievable, gi^enthedifterentgeneral responsibilities, 
traditions, and powers of the two bodies. 4.125. The Court considers that it would be preferable 
if all control work for this measure were carried out by 
one administration only, preferably Interlait whose 
controllers, where appropriate, wouldpro^ide certify 
cationto customs to enable the latter to complete the 
control document 15. 
CCP^CLHSIC^S 
^,1.2^. It is a matter of concern that the principal 
measurefor subsidizing the disposalofbutteronthe 
internalmarkethasbecomesocomplexandrequiressnch 
asubstantial input of control resources.Phis complexity 
risks to undermine the obiecti^e of eftlcientand economic 
disposal of butter surpluses. Lhe potential for mis­
understanding, misinterpretation and unauthorized uses, 
togetherwiththeburdenofcompliance,arepre^udicialto 
the satisfactory functioning of the measure. Ihe Court 
considers, therefore, that there is a need for the 
Commission and the Member states to seek to de^elopa 
simplitled scheme which can becontrolledmoreeconomi-
cally. 
^.1.27. ^Vith regard to controls on butter traded 
betweenMemberStateswhere the budgetary expenditure 
is incurred in one State and the end-use of the butter in 
another,thereisaneedfortheCommissiontoensurethat 
the relevant regulations enable it to take etfecti^e action 
where the subsidized butter is misused tp^u^pbs 
^.1.21-4.1.2^. 
4.12^. The Court has noted the considerable resources 
that Member States ha^e applied in order to control the 
measure.l^otwithstandingthis,thereare still areas where 
improvements are needed inorder to ensurethat they 
satisfy the requirements of the regulation in its present 
form. Ihese include the frequency of on-the-spot control 
visits, central monitoring of control work, and the 
management of control documents 
12. 12. 90 Official Journal of the European Communities 67 
4.2. Premium for maintaining suckler cows 
4.2.0. TABLE OF CONTENTS 
Introduction 
The premium in the context of the common organization of the market in 
beef and veal 
Scope of the enquiry 
Budgetary expenditure 
Expenditure trends 
Distribution of expenditure by Member State 
Main regulatory aspects 
Analysis of the impact of the premium 
Impact of the premium on income 
Effect of the premium on cattle numbers 
The Commission's role in management and supervision 
Inadequacies in the implementing rules 
The problem of identification 
Force majeure 
Supervision by the Commision of the Member States' management 
Management and control of the system at the level of the Member States 
Instructions for management 
Role of central administration in the management of the system 
Herd inspections 
Check on non-delivery of milk 
Natural circumstances 
Method of payment of the premium Paragraph 
reference 
4.2.1 —4.2.2 
4.2.1 
4.2.2 
4.2.3 
4.2.3 
4.2.4 4.2.4 
4.2.5 —4.2.6 
4.2.7 —4.2.14 
4.2.7 —4.2.11 
4.2.12—4.2.14 
4.2.15 — 4.2.20 
4.2.15 — 4.2.17 
4.2.15 
4.2.16 — 4.2.17 
4.2.18 — 4.2.20 
4.2.21 — 4.2.29 
4.2.22 
4.2.23 — 4.2.24 
4.2.25 
4.2.26 
4.2.27 
4.2.28 — 4.2.29 
Conclusion 4.2.30—4.2.32 
68 Official Journal of the European Communities 12. 12. 90 
INTRODUCTION 
The premium in the context of the common 
organization of the market in beef and veal 
4.2.1. Cattle breeding is divided into two main types of 
activity: the breeding of cows which produce milk for 
human consumption (dairy cows), which provides the 
farmer with a regular income, and the breeding of cattle 
for slaughter, which provides an intermittent income. For 
several years, the European Community has been 
providing income support in various forms for farmers 
specializing in the production of beef and veal. In this 
context, the suckler cow premium was introduced in 1980, 
to support the income of farmers specializing in the 
breeding of cows which suckle their calves. The term 
'suckler cows' is taken to cover all cows which do not 
belong to the pure dairy breeds, which are listed in the 
annex to Council Regulation (EEC) 1357/80 of 5 June 
1980 (*), and dairy cows crossed with bulls from meat-
producing breeds. 
Scope of the enquiry 
4.2.2. In 1989, the Court carried out an investigation 
into the impact of the suckler cow premium and into its 
management, at both Commission and Member State 
level. The investigation therefore involved audits which 
were carried out in the Commission departments 
concerned and in some of the main recipient states, i.e. 
Greece, Spain, France, Ireland and Italy. 
BUDGETARY EXPENDITURE 
Expenditure trends 
4.2.3. Budgetary expenditure generated by the premium 
has risen considerably since it was first introduced, 
amounting to 174,8 Mio ECU for the 1988/89 marketing 
year. This increase was mainly due to the fact that the 
premium rose from 20 ECU per cow for the 1980/81 
marketing year to 25 ECU per cow for the 1987/88 marketing year and 40 ECU for the 1989/90 marketing 
year. The successive enlargements of the Community also 
account for a large part of the increase in expenditure: in 
the 1988/89 marketing year, 21,8 Mio ECU were paid to 
Spain and 4,8 Mio ECU to Greece. On the other hand, 
the number of cows for which the premium was paid, after 
a gradual increase in the first four marketing years, did 
not undergo any significant changes until 1984, following 
the introduction of milk quotas {Table 4.2.1). 
Distribution of expenditure by Member State 
4.2.4. The suckler cow premium accounts for 7,5 % of 
all expenditure in the beef and veal sector, for which the 
main item of expenditure is still export refunds, which 
absorb almost half of the sector's budget. Table 4.2.2 
gives a breakdown of expenditure on the premium by 
Member State and shows how it has changed over the last 
three marketing years for which payment is complete. 
MAIN REGULATORY ASPECTS 
4.2.5. The application of the premium is governed 
mainly by Council Regulation (EEC) No 1357/80 of 5 
June 1980, which introduced the premium, and by 
Commission Regulation (EEC) No 1244/82 of 19 May 
1982 (2), which lays down the detailed rules implementing 
the system. The premium is granted on the basis of an 
application submitted by each producer for the number of 
suckler cows he declares to be in his possession at the time 
the application is lodged. 
The producer must undertake to: 
(a) have on his farm, for a period of six months, a number 
of cows or replacement heifers in calf at least equal to 
that declared in the application; 
(b) not to deliver milk or dairy products for 12 months 
from the date the application is lodged. 
4.2.6. Over the years, the two regulations have under­
gone a number of amendments, which have affected the 
level of the premium, the conditions of eligibility and the 
implementing procedures. The following points are of 
particular importance: 
(i) OJL 140, 5.6.1980, p. 1. (2) OJ L 143, 20.5.1982, p. 20. 
12. 12. 90 Official Journal of the European Communities 69 
& 1 ^ 
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70 Official Journal of the European Communities 12. 12. 90 
Table 4.2.2 — Budgetary expenditure concerning the stickler 
Member State 
Belgium 
Denmark 
FR of Germany 
Greece 
Spain 
France 
Ireland 
Italy 
Luxembourg 
Netherlands 
Portugal 
United Kingdom 
EUR 12 
Source: Commission. 
(a) in 1987, the regulation took into consideration the 
possibility of a reduction in the herd due to natural 
circumstances: as from then, the premium was no 
longer totally withdrawn if the breeder gave notifi­
cation of the occurrence of these circumstances as 
soon as possible (3); 
(b) since the 1989/90 marketing year, the regulation no 
longer requires the producer to have farming as his 
main occupation. In practice, this restriction was only 
of any real importance in Germany. Consequently, it 
is mainly there that a significant increase in the 
number of beneficiaries is to be expected, while the 
effects in the other Member States will be very 
limited (4); 
(c) again as from 1989, reductions in the herd of less than 
5 % are penalized only by a reduction of 20 % in the 
premium due for the number of qualifying animals; in 
the case of a false declaration, the producer is still 
excluded from the system, a penalty which is now 
extended to the following marketing year; 
(d) in 1989, for the first time, a minimum inspection rate 
was set up officially for all the Member States. 
(3) Commission Regulation (EEC) No 1662/89 of 13 June 1989 
(OJ L 163, 14.6.1989, p. 11), laid down that this deadline 
must not exceed 10 days. 
(4) According to the Commission's financial statement, the 
increase in expenditure following this amendment to the 
regulation was estimated at 9 Mio ECU. premium, broken down by marketing year and Member State 
(Mio ECU) 
1986/87 
2,0 
0,3 
0,1 
1,7 
0,6 
45,9 
15,2 
13,7 
0,1 
0,1 
15,8 
95,5 1987/88 
3,7 
0,6 
0,8 
5,0 
15,8 
77,0 
20,2 
21,1 
0,2 
0,2 
31,3 
175,9 1988/89 
4,1 
0,8 
1,0 
4,8 
21,8 
72,2 
23,6 
11,6 
0,2 
0,3 
34,4 
174,8 
ANALYSIS OF THE IMPACT OF 
THE PREMIUM 
Impact of the premium on income 
4.2.7. The objective of the system, as declared in the 
preamble to Council Regulation (EEC) No 1357/80, is to 
support the income of producers of quality beef. In this 
sector, intervention measures alone are not enough to 
enable producers to achieve an adequate income. It must 
be noted that the absence of any sort of ceiling results in a 
dispersion of the aid in relative terms, which considerably 
reduces the effectiveness of the measure. Since the 
accession of Spain, in particular, there has been a 
relatively large number of farms with herds consisting of 
hundreds or even thousands of suckler cows. These are 
farms belonging to producers who clearly do not justify 
the same level of income support. 
4.2.8. The Commission does not carry out any studies 
into the effect of the premium on the producers' net 
incomes, nor does it require the Member States to do so. 
Only the United Kingdom systematically sends in 
statistics on the incomes that can be earned from this type 
of farming. To assess the effect of the premium, the 
Commission has to resort to examining piecemeal studies 
from a variety of sources. According to these studies, and 
12. 12. 90 Official Journal of the European Communities 71 
on the basis of information supplied by a few Member 
States which the Court visited, it emerges that the suckler 
cow premium, together with the supplementary national 
premium, where there is one, enables the breeder to 
increase his net margin per cow (5) by 20 % to 60 %. 
4.2.9. Thus, according to a recent study (6), for a farm 
with 20 ha of pasture-land, the net margin per suckler 
cow, including the premium, is around a quarter of the net 
margin provided by a dairy cow. Even taking into 
account the fact that a herd of suckler cows involves only 
a third of the working time required for a herd of dairy 
cows, the net income per hour worked in the breeding of 
dairy cows is still 10 % higher. 
4.2.10. It follows that, even with the premium, the 
production of meat is still less profitable than that of milk. 
In all the Member States visited, it was found that the only 
factor that had provoked any significant change-over 
from the production of milk to the production of meat 
had been the introduction of milk quotas. 
4.2.11. The Court is of the opinion that, for a given 
budget, the system of premiums would be able to meet its 
objectives more effectively if it were restricted to a specific 
number of animals per farmer. It is only by improved 
targeting that the effectiveness of the measure can be 
increased with respect to the objectives of fairness which 
the measure aims to achieve. 
Effect of the premium on cattle numbers 
4.2.12. Although the reversal of the downward trend in 
the number of suckler cows is not explicitly stated as an 
objective of the basic regulation, the system indirectly 
aims to promote the production of quality meat by 
providing the producers with income support. However, 
it is extremely dangerous to draw conclusions as to this 
measure's ability to influence the number of suckler cows 
on the basis of the number of premiums paid. 
4.2.13. Furthermore, the agricultural statistics pro­
duced by the Community's Statistics Office do not 
provide a reliable picture of the number of suckler cows 
either, because the classification of the various categories 
which make up the cow population is not sufficiently 
precise. 
(5) Net income after deducting feeding costs and fixed costs. 
(6) By Dr Theo Gobbel of the Rheinland Chamber of 
Agriculture. 4.2.14. The Commission's responsibilities in the area of 
budgetary decisions and forecasts require it to be better 
informed on the development of suckler cow herds. 
THE COMMISSION'S ROLE IN 
MANAGEMENT AND SUPERVISION 
Inadequacies in the implementing rules 
The problem of cow identification 
4.2.15. Community rules do not provide for any 
compulsory system of cattle identification in connection 
with the common agricultural policy and veterinary 
measures. Furthermore, as yet, the implementing regu­
lation had not contained any specific provisions on this. A 
system of this kind, however, is necessary to ensure a 
consistently efficient audit. It was in fact found that audits 
were often impossible unless the breeder was warned in 
advance. This was the case, in particular, in the 
Mediterranean regions where extensive agriculture is 
practised. Here the cows are usually kept in enormous 
grazing grounds and the breeder needs a certain amount 
of time to gather the animals together for a control. In 
other cases, the herds for which the premium was 
requested were kept in public grazing grounds together 
with other breeders' cows or were scattered over various 
areas of land. In all these cases, the absence of a system of 
identification of cows, based on the marking of the 
animals and the keeping of a herd register with 
information sheets for each animal, means that auditors 
cannot be sure that all the animals belong to a particular 
farmer. The Court is therefore of the opinion that the 
granting of the premium could be made contingent on the 
existence of a systematic identification system for 
livestock. 
Force majeure 
4.2.16. Article 5 of Council Regulation (EEC) No 
1244/82 authorizes the competent authorities to accept 
certain cases of force majeure as justification for the 
maintenance of the right to the premium. An epidemic is 
listed as a case of force majeure. Since there is no 
agreement in veterinary circles on what bovine diseases 
can be described as epidemics, and in the absence of a list 
drawn up by the Commission, each Member State has 
72 Official Journal of the European Communities 12. 12. 90 
adopted its own criteria for the application of the force 
majeure clause in the case of epidemics. 
4.2.17. Given that the obligation to inform the Commis­
sion (Article 5(2) of Regulation (EEC) No 1244/82) of 
cases of force majeure has not been observed by most of 
the Member States, the Commission has not been able to 
ensure that the various Member States apply the 
Regulation correctly and uniformly. Furthermore, since 
Article 5 does not specify the content of the reports to the 
Commission, the Member States have confined themsel­
ves to providing statistics on cases of force majeure, thus 
reducing the usefulness of these reports. Finally, it is 
unacceptable for the Commission not to be informed even 
of cases of force majeure other than those explicitly 
discussed in Article 5, for which there is a higher risk of 
misuse of this Article. 
Supervision by the Commission of the 
Member States' management 
4.2.18. Article 6 of Regulation (EEC) No 1244/82 lays 
down that, not later than 10 days following their 
implementation, the Member States shall communicate 
to the Commission the measures taken for the purpose of 
introducing the system. It was observed that the 
managing department (the Markets division of DG VI at 
the Commission) does not have full, up-to-date inform­
ation on the national instructions. In fact, most of the 
Member States provide only partial information on this 
subject or, indeed, have refrained for several years from 
providing any updates. For its part, the Commission has 
not systematically reminded the national administrations 
of their obligations in this respect, either. The department 
responsible for clearing the accounts at the Commission, 
for its part, must specifically ask the Member State for 
these instructions whenever it plans to carry out a control 
on this measure in the context of a mission. 
4.2.19. In the absence of any regulation setting a 
minimum rate of on-farm inspections, the Commission 
was not systematically informed, either, of the control 
rate, whether at the level of the Member State or at 
regional level. It was only during an in-depth control in 
France, in the process of the clearance of the accounts for 
the financial year 1986, which led to a large financial 
adjustment, that the Commission realized that the 
percentage of inspections was extremely low in several 
regions and on occasion practically zero. It was not until 
the 1989/90 marketing year that the Commission, for the 
first time, fixed a minimum rate (10 %) for on-the-spot 
inspections. 
4.2.20. The Court considers that, in the context of joint 
management, the Commission ought to be systematically 
informed of the implementing measures taken by the 
Member States, of all updates and of the rates of checks carried out at regional level, so that it can perform its 
supervisory duties more effectively. 
MANAGEMENT AND CONTROL 
OF THE SYSTEM AT THE LEVEL OF THE 
MEMBER STATES 
4.2.21. The regulation for implementing the system 
stipulates that the Member States are to designate the 
competent authorities with whom applications for the 
premium may be lodged and who are to carry out 
administrative checks and field checks. It is therefore up 
to the Member States to establish a monitoring system 
and to specify the control procedures likely to ensure 
correct implementation of the regulation. The Court of 
Justice ruling of 12 June 1990 in the C-8/88 Case (7) 
confirms that this obligation results implicitly from 
Community rules (8) even though it is not laid down 
explicitly. 
Instructions for management 
4.2.22. While these instructions have been distinctly 
improved in certain countries in the most recent 
marketing years, it was observed that they still occasion­
ally lack precision or do not even comply with the 
regulation. The following situations were thus observed 
in certain Member States: 
(a) no minimum rate of field inspections had been laid 
down before Commission Regulation (EEC) No 
1662/89 of 13 June 1989 (9) entered into force (Spain); 
(b) the supporting documents on which the status of a 
farmer practising farming as his main occupation had 
to be based were not specified (Spain, Italy) for the 
marketing years during which the provision, which 
was abolished by the regulation quoted under (a) with 
effect from 15 June 1989, was in force; 
(7) Appeal to the Court of Justice by the Federal Republic of 
Germany against the Commission's refusal to accept 
premiums paid in three Lander in 1984 and 1985 as 
chargeable to the EAGGF. 
(8) Articles 8 and 9 of Council Regulation (EEC) No 729/70 of 
21 April 1970; Special Edition 1970(1) of the OJ in English, 
December 1972 (original reference OJ L 94, 28.4.1970, p. 
13); and Article 4(1) of Commission Regulation (EEC) No 
1244/82 of 19 May 1982 (OJ L 143, 20.5.1982, p. 20). 
(9) Commission Regulation (EEC) No 1662/89 of 13 June 1989 
(OJ L 163, 14.6.1989, p. 11), laid down that this deadline 
must not exceed 10 days. 
12. 12. 90 Official Journal of the European Communities 73 
(c) no instructions exist concerning checks on non­
delivery of milk (Spain, Italy); 
(d) no instructions exist concerning the notification to be 
effected and the type of supporting documents to be 
retained following the sale of milk in the event of force 
majeure and natural circumstances (Greece, Spain); 
Role of central administration in the 
management of the system 
4.2.23. In Greece, the Ministry of Agriculture does not 
have inspection services of its own to ensure that the 
management of the system by the peripheral departments 
or delegates complies with the Community regulations 
and with the ministerial instructions. It therefore follows 
that the ministry has no precise knowledge of how the 
system is applied at local level and cannot therefore 
possibly intervene in good time when the ministerial 
instructions are not correctly applied. 
4.2.24. In Spain, management of the premium has been 
transferred to the autonomous communities, which draw 
up the relevant administrative procedures. Monitoring of 
the implementation of the system should, therefore, be 
carried out in each of the 16 autonomous communities 
involved. Since the Ministry of Agriculture has not been 
notified of the administrative procedures they have set up 
and does not have its own inspection services, it is unable 
to ensure that the rules are being properly implemented at 
local level. 
Herd inspections 
4.2.25. The Court considers that this aspect of inspec­
tion calls for the following comments: 
(a) the effectiveness of the checks is severely restricted in 
the Member States in which no system of identifi­
cation of the animals exists (Spain, Greece), par­
ticularly when the stock farmer must be given notice 
so as to allow him to round up the cattle; 
(b) in most of the Member States which were visited, the 
possibility of a second inspection at the end of the 
period is neither provided for nor taken up; such an 
inspection would avoid the risk of non-compliance 
with the commitment by farmers who have already 
been visited; 
(c) in Spain and Italy, numerous cases were uncovered, in 
relation to the 1988/89 year, in which the decline of the herd had given rise to a proportional reduction of 
the premium when the decline could not be attributed 
to natural circumstances of which due notice had 
been given; in accordance with the regulation, such 
cases ought to have led to the total refusal of the 
premium; 
(d) the fact that there was not a single instance of an 
application for a premium being refused in 23 nomoi 
in Greece in the last three years, while there were 
always refusals for the same years in 23 other nomoi, 
raises doubts as to the effectiveness and/or the reality 
of the on-farm inspection in the nomoi in question; 
according to the national laws, 100 % of applications 
should be subject to on-farm inspection; 
(e) Italy, when faced with the problem that the number of 
premiums paid exceeded that of the 'other cows' 
recorded by the statistics in several regions, was 
obliged to carry out on-farm inspections of all 
applications lodged for the 1988/89 year; these checks 
resulted in a very large number of applications being 
refused and in a notable reduction in the premiums 
paid out, compared with the previous year, in several 
regions; however, in Sicily, the number of premiums 
paid remains 20 % higher than all of the cows 
recorded on the island. 
Check on non-delivery of milk 
4.2.26. This check, which is normally carried out on the 
lists of quotas and the records of milk deliveries to dairies, 
is rarely implemented at the end of the 12-month period of 
the commitment not to deliver milk and dairy products. 
Since it is only at that point that there can be any certainty 
that the obligation has been fully observed, the Court 
considers that every application from producers who 
have a quota ought to be subject to a check on the dairies' 
records after the 12-month reference period has expired. 
Natural circumstances 
4.2.27. During checks on farms, the Court of Auditors 
observed that several cases where herds had declined due 
to natural circumstances had not been reported. Gen­
erally, the very low number of such cases reported would 
seem to indicate that, in many cases, such notice was not 
given since it automatically entails a proportional 
reduction of the premium. Unwarranted payments would 
therefore seem to have been made. 
74 Official Journal of the European Communities 12. 12. 90 
Method of payment of the premium 
4.2.28. In Greece, the premium is paid to farmers in 
cash, by the Union of Cooperatives, against the 
beneficiary's signature on the statement of payments. 
This practice is not satisfactory, in principle, in view of the 
risk of fraud which it permits. In particular, it was 
observed that the beneficiaries' signatures on the 
statements of payment for two villages bore no resem­
blance to the signatures on the corresponding appli­
cations. The local agricultural administration neverthe­
less accepted the signatures as proof of payment to the 
farmers who were entitled to the premium. 
4.2.29. In one of the Greek nomoi visited, it was 
observed that the involvement of the local Cooperatives 
and of the Union of Cooperatives in the administration of 
the premium entailed payment of a commission of 2 % of 
the total amount of the premium, at the beneficiary's 
expense. The Court considers that this financial charge, 
which results in a reduction of 2 % of the premium, is 
irregular, since the administration of the premium is 
entirely the responsibility of the national administrations. 
CONCLUSION 
4.2.30. Under current conditions, there is a real 
difficulty in assessing the impact of the premium, due to 
the inadequacy and unsatisfactory nature of the available 
information. 
4.2.31. It appears at the very least that the implemen­
tation of the measure does not meet the objectives 
assigned to it in full. In order to increase the effectiveness 
of the measure, the Commission could envisage the 
application of a ceiling to the number of premiums payable per herd. The average value of the premium could 
thus be reduced for the largest herds, thereby freeing 
resources for other uses. 
4.2.32. As regards the management and inspection of 
the measure, the Court is of the opinion that the 
weaknesses it has identified entail a considerable risk of 
irregularity in the payment of premiums. These weak­
nesses concern: 
(a) omissions in the implementing regulation, in par­
ticular the absence of the requirement for a national 
identification system, which is needed for effective 
physical checks on the number of qualifying animals; 
(b) shortcomings in the monitoring by the Commission, 
which is not adequately informed of the national 
instructions on inspections, nor is it systematically 
informed of the actual inspection rates at local level or 
of their results; 
(c) in the Member States, the imprecision of the national 
instructions on inspections, the inadequacy of the 
supervision by central administration, and weak­
nesses and omissions in the administrative and 
physical inspections. 
This situation, although less serious, resembles that of the 
ewe premium, which the Court examined in its annual 
report concerning the financial year 1988. However, the 
amendments to the implementing regulation which the 
Commission made in Regulation (EEC) No 1662/89 of 13 
June 1989 are, in the Court's opinion, a step in the right 
direction (10). 
(10) In addition, after the Court had finished drafting its 
observations of 15 July 1990, the Commission adopted 
Regulation (EEC) No 2079/90 of 20 July 1990 (OJ L 190, 
21.7.1990), which provides for the partial introduction of an 
identification system, which would apply to small milk 
producers who are new recipients of the premium. 
12. 12. 90 Official Journal of the European Communities 75 
4.3. The co-responsibility system in the common market organization 
for cereals 
4.3.0. TABLE OF CONTENTS Paragraph 
reference 
Historical background 4.3.1 —4.3.4 
Budgetary execution 4.3.5 —4.3.7 
The Court's inquiry 4.3.8 
The application of the system in the Member States 4.3.9 —4.3.48 
Establishing the levy base 4.3.9 —4.3.14 
Checks on individual levy declarations 4.3.15 — 4.3.24 
Late returns and late payments 4.3.25 
Reimbursements of additional co-responsibility levy 4.3.26 
Public accounting systems 4.3.30 
Exemptions 4.3.31 
Controls over opening and transitional stocks 4.3.32 
On-farm use of cereals for animal feed 4.3.36 
Aid for small producers of cereals 4.3.38 — 4.3.48 
The Commission's central management 4.3.49 — 4.3.57 
The implementing regulations 4.3.50 
Monitoring the implementation of the measures in the Member States 4.3.51 — 4.3.54 
The management information system 4.3.55 — 4.3.57 
General conclusions 4.3.58 — 4.3.66 4.3.29 
4.3.48 
4.3.35 
4.3.37 
HISTORICAL BACKGROUND 
4.3.1. Until the beginning of the 1980s the EEC cereals 
market could be kept reasonably in balance using the 
policy instruments then available, adopted under the 
Council's Regulation (EEC) No 2727/75 of 29 October 
1975 (!)• For various reasons, not all of them within the 
Commission's control, this situation changed drastically 
and led to increasing production, stocks and exports with 
the consequent increase in expenditure. 4.3.2. In order to achieve an improved balance in 
market forces, to control growth, to develop outlets and 
to give producers an indication of the market situation, 
the Council introduced in May 1986 a co-reponsibility 
levy (2) to be collected from 1 July 1986 onwards on all 
quantities of cereals processed for the first time, bought 
into intervention storage or exported in the form of grain. 
The rate of levy was set at 3 % of the intervention price for 
common wheat of breadmaking quality and was deducted 
from the price paid to the producers. The sums thus 
collected were to be declared and paid over by the 
collectors to the competent national paying agencies, the 
amounts paid over being declared to the Commission 
0) OJ L281, 1.11.1975, p. 1. (2) Council Regulation (EEC) No 1579/86 of 23 May 1986 (OJ 
L 139, 24.5.1986, p. 29). 
76 Official Journal of the European Communities 12. 12. 90 
within the monthly declaration procedure. Stocks from 
the pre-1986 harvest were exempt from levy as were 
cereals processed into animal feed on behalf of producers. 
4.3.3. This levy system, initially introduced for the 
marketing years 1986/87 to 1990/91, was revised in 1988 
and extended to the marketing year 1991/92 (3). Without 
changing the basic system of declarations and payments, 
the levy was passed from first processing to first 'placing 
on the market' so first buyers of grain became liable, 
whoever these first buyers might be. The rate for the basic 
levy was maintained, but an additional levy was 
introduced up to a maximum of 3 % of the intervention 
price, reimbursable as follows: to 220 Mio ECU to cover the effect of the additional levy. 
The aid, for any one producer, may not exceed the 
equivalent of the levies for 25 tonnes of cereals, nor can 
the total amount of aid paid or set off by a Member State 
exceed its allocation. The aid is granted by way of direct 
payment to eligible smali producers according to 
nationally fixed criteria which have to be approved by the 
Commission. By way of exception Spain and Italy, in the 
first two marketing years, and Greece from 1988/89, were 
authorized, because of administrative or technical 
difficulties, to set off the aid against the levies due. 
(a) in full, when cereals production did not exceed the 
simultaneously introduced maximum guaranteed 
quantity (MGQ) of 160 Mio tonnes within one 
marketing year; 
(b) proportionally, when cereals production did not 
exceed the MGQ by more than 3 %. 
4.3.4. At the same time as the basic levy was introduced 
the Council provided for a system of direct aid for small 
producers, intended to compensate them for the effect of 
the co-responsibility levy on their income (4). The annual 
amounts allocated for such aid were set at 120 Mio ECU 
for 1986/87 and 1987/88. In 1988/89 they were increased 
(3) Council Regulation (EEC) No 1097/88 of 25 April 1988 (OJ 
L 110, 29.4.1988, p. 7). 
(*) Council Regulation (EEC) No 1983/86 of 24 June 1986 (OJ 
L 171, 28.6.1986, p. 1). BUDGETARY EXECUTION 
4.3.5. As shown in Table 4.3.1 budgetary net expendi­
ture in the cereals sector increased rapidly between 1985 
and 1988 from 2 309,8 Mio ECU to 4 571,1 Mio ECU. 
For 1989 net expenditure fell back to 3 150,0 Mio ECU 
due largely to favourable conditions on the world market. 
This table also shows the increasing contribution of the 
co-responsibility net receipts to the overall financing of 
the cereals sector. 
4.3.6. Basic levy, additional levy and aid to small 
producers are further analysed and compared with 
budgetary appropriations in Table 4.3.2. 
4.3.7. The direct payments of aid to small producers 
have been very low up to 31 December 1989, representing 
Table 4.3.1 — Expenditure per principal heading in the cereals market 
(Mio ECU) 
Description 
Export refunds 
Intervention storage 
Other interventions 
— Production aid for durum wheat 
— Production refunds 
Other interventions 
Depreciation of stocks 
Co-responsibility levy and aid to small producers 
Total expenditure 
Contribution of the levy to finance the expenditure 1985 
1 076,6 
810,0 
242,4 
180,8 
0,0 
0,0 
— 
2 309,8 
— 1986 
1 711,6 
1 347,4 
210,7 
177,7 
0,0 
0,0 
-56,4 
3 391,0 
2% 1987 
3 070,6 
937,1 
256,1 
235,5 
0,0 
0,0 
-361,8 
4 137,5 
8% 1988 
2 924,6 
1 274,7 
275,0 
393,3 
33,3 
306,8 
-636,6 
4 571,1 
12% 1989 
2 597,0 
576,0 
365,0 
301,0 
0,0 
0,0 
-689,0 
3 150,0 
18% 
12. 12. 90 Official Journal of the European Communities 77 
Table 4.3.2 — The net co-responsibility levy revenue as compared with budgetary appropriations 
(Mio ECU) 
Description 
Basic levy 
Additional levy 
Reimbursement of levy 
Aid to small producers 
Total 1986 
Budget 
-452,0 
80,0 
-372,0 Actual 
-56,4 
-56,4 1987 
Budget 
-650,0 
115,0 
-535,0 Actual 
-378,7 
16,9 
-361,8 1988 
Budget 
-814,0 
75,0 
-739,0 Actual 
-677,5 
40,9 
-636,6 1989 
Budget 
-491,0 
-628,0 
213,0 
122,0 
-784,0 Actual 
-532,5 
-266,8 
78,8 
31,5 
-689,0 
23 % of budgeted amounts. For those Member States 
authorized to set off the aid against levy due, the present 
accounting procedures do not allow the Commission to 
monitor the utilization of the aid. 
THE COURT'S INQUIRY 
4.3.8. The purpose of the Court's inquiry was to assess 
the impact of the co-responsibility levy system on market 
stability and budgetary cost in the cereals sector. The 
Court organized control missions to paying agencies, 
other competent authorities involved and levy collectors 
in the FR of Germany, Spain, Greece, France, Ireland, 
Italy, the Netherlands and the United Kingdom which 
together account for over 90 % of the Community's 
cereals production. levy was paid with the quantities disposed of according to 
national statistics of supply and use of cereals. However, 
the statistical data available in Member States were 
inadequate for reliance to be placed on this type of check. 
The main problem is to establish the quantities consumed 
on farm and therefore exempted from levy. In all Member 
States except the United Kingdom this was a residual 
figure rather than one established by surveys. In most 
Member States significant percentages of total cereals 
production were not subjected to levy: FR of Germany 
50 %, Greece 74 %, Spain 75 %, France 20 %, Ireland 
50 %, Italy 65 %. Even in cases like the FR of Germany, 
where statistics over a long period, even before the 
introduction of the levy system, consistently show high 
percentages of on-farm consumption, there is no 
guarantee that such figures do not conceal a large number 
of leviable barter operations and inter-farm or other non-
recorded transactions. 
4.3.11. Other factors which affect the reliability of a 
comparison of the production with the out-turn of levied 
quantities are: 
THE APPLICATION OF THE SYSTEM 
IN THE MEMBER STAf ES 
(a) in all Member States the late submission of levy 
returns by undertakings means that any corrective 
action can only be taken several months in arrears; 
Establishing the levy base 
4.3.9. According to the regulations in force, first 
processors and, now, first buyers, have to declare and pay 
levy on all quantities which they process or buy. 
4.3.10. The Court tried to check the reliability of the 
declared levy base by reconciling the quantity on which (b) in France, while, according to national legislation, 
only approved first buyers (collecteurs agrees) are 
authorized to trade in cereals, other transactions, up 
to 15 % in certain regions, do exist; at present 
reliance is placed on purchasers to voluntarily declare 
such transactions through the approved operators; 
such procedures are unlikely to prove effective 
without appropriate control; 
7D Official journal of the European communities Unl^o 
^ in Spain and Italy the system is particularly weak in 
thatnoregisterofpersonsliabletolevyhasbeen 
established andthereeanbe no assurance that all 
liable quantities are declared^ 
^ in C^reecealevy register exists, however, the Crreek 
authorities have said that they cannot detect or bring 
to account transactions between producers, including 
barters the quantities involved are likely to be 
substantial as, for the marketing yearl^^^7, the 
Crreek authorities estimated such transactions to 
account for l,^^io tonnes C^^of production. 
4,11^. The inability to carry out reliable checks ona 
global basis ^vould suggest the needfor increased testing 
ofliablefirms.rlo^ever,theC^ourtobservedagenerally 
passive attitude on the part of the competent national 
authorities towards identifying liable firms,There ^vasa 
^videlyheldattitudethatthoseliablewereobligedto 
declaretheirliabilitiesandthatthisalonev^assufficientto 
ensure that they did so. 
4BoeLl Theabovementioned relianceon the traders' 
obligation to make the necessary declarations vBas 
particularly evident in the FP of olermany, Spain and 
Italy,Although the German authorities had systematic 
cally drawn the attention ofpotentially liable firms to the 
levy,therev^as no follo^v^up to establish the veracity of 
those ^vhich replied that they were not liable for the levy, 
SpainandltalyhovBeverdidnothingat all. In the United 
kingdom this weakness v^as overcome by systematic 
cross-checking of the supporting documentation for 
reimbursement claims or for aid to small producers to 
ensurethat the tradersmentionedinthe claims vBere 
makinglevy returns and the invoices submitted appeared 
in their accounts. 
4,^,14, In other member States, however, such cross^ 
checks were eithernotbeingmadeortheywere not being 
vigorously pursued. In Italy and Spain the absence ofa 
levy register together ^vith the set^otf arrangements for 
small producers clearly diminished the possibility of 
making such cross-checks. In Crreece,v^hich also applies 
set-off arrangements for small producers sincel^^, 
no cross-checks are made. In Prance cross-checks vBere 
madeforlevy reimbursements, butnotfordirect aid 
claimsv^hich are handled byaseparateadministration. In 
Crermany they v^ere made intermittently.In the l^ether^ 
lands and Ireland reimbursements ^vere made by collect 
Lors themselves and so cross-checks could not be made. However in thel^etherlands,where such checks could 
have been carried out in respect of small producers, they 
were not. 
C^o^o^^n^^^v 
^,1^, I^he summary nature of declarations provide 
only limitedpossibilitiesformakinguseful administrative 
controls. The basic supporting documentation for 
individual transactions is normally only available at the 
declarant'spremises and frequently only at the point of 
physicalintake,Theveracity of declarationscan therefore 
only be checked directly by means of onthe^spot visits. 
^,lo. In the FR.ofC^ermanytheon^the^spot controls, 
for ^vhich the customs service is responsible, have been 
concentrated on the old ^first processor' scheme and 
verification of the nevB .first buyer' scheme only 
commenced in late 1^, oliven such delays, only 
documentary verification cannon be carried out and the 
possibility of discovering any undeclared levies by 
physical stocktaking is greatly diminished. Furthermore^ 
^no attention has been given to establishing the 
accuracy of declarations by means of physical 
stocktaking or attendance at stocktaking e^ercises,a 
procedure which would have significantly enhanced 
overall controls^ 
^noneofthecustomsofficesvisitedcouldidentify clear 
criteriaused for selecting firms for verification, a 
weaknessdueinnosmallmeasuretoalack of central 
guidance on the subject from the tederal authorities^ 
^ in the ^Vurzburgcustoms office, insufficient staff 
were available to carry out effective verifications 
^ the only documentation furnished byfour of the five 
traders visited, and accepted by the customs ofiices, 
were the general ledger accounts which purported to 
show all amounts deducted from producers for the 
co^responsibilitylevy^such summary records,which 
show only values but not quantities, are inadequate 
for control purposes and not in conformity with the 
detailed documentation stipulated by the ReguD 
lations. 
12. 12. 90 Official Journal of the European Communities 79 
4.3.17. In Greece registered traders are monitored up to 
four times a year by the departmental agricultural 
inspectorates but checks are limited to verifying entries in 
the approved pro-forma registers against the copy 
invoices rather than checking the commercial records of 
the traders. Also, inspection reports show no details of 
work undertaken. The Court considers such verification 
to be inadequate. 
4.3.18. In Spain the following situation was found: 
(a) the levy is declared and paid through the banking 
system to the tax authorities; there was a very distinct 
lack of coordination between these authorities and 
Senpa (the intervention agency), to the extent that 
each body considered the other responsible for 
surveillance of liable firms; 
(b) although Spanish national rules (Article 5 of Royal 
Decree No 1423/1988 and Judgment of 16 January 
1989, second paragraph, of Ministry of the Economy 
and Finance) (5) require first buyers to submit 
declarations of purchases of cereals each quarter, the 
rule is not enforced and many firms have submitted 
one or two quarterly declarations a year; 
(c) Senpa provincial offices which receive copy declar­
ations, do not systematically check the calculations, 
nor list and follow up errors detected; 
(d) the tax authorities apply their national rules when 
deciding on the frequency of on-the-spot verifications 
with the result that only companies with annual 
turnover in excess of 2 000 Mio PTA (15 Mio ECU) 
are liable to be checked annually but the low priority 
given to the verification of the levy makes this 
unlikely, those between 200 and 2 000 Mio PTA are 
checked every three years and those under 200 Mio 
PTA (1,5 Mio ECU) are checked on a random basis; 
given such a frequency it is unlikely that any first 
buyer will be checked more often than every three 
years and the majority are unlikely to be verified at 
all. 
4.3.19. In Greece and Spain, the declarations of levy are 
not included in the base for the application of the Council 
'Audit Directive' 77/435/EEC (6) of 27 June 1977 thus 
(5) Boletin Oficial del Estado No 288 (1.12.1988). 
(6) Council Directive (EEC) 77/435 of 27 June 1977 (OJ L 172, 
12.7.1977, p. 17). Replaced by Council Regulation (EEC) 
No 4045/89 of 21 December 1989 (OJ L 388, 30.12.1989, p. 
18) excluding the possibility to examine the commercial 
records of the traders. 
4.3.20. In France, control responsibility rests with the 
Office national interprofessionnel des cereales (ONIC), 
which, as an intervention agency specializing in the 
cereals market and with an extensive regional structure, 
has substantial resources at its disposal to verify if the levy 
provisions are being correctly applied. Generally speak­
ing the Court's audit revealed that verification of levy 
declarations was of a satisfactory quality and frequency. 
However, no physical inventory checks are made as part 
of the on-the-spot controls; an opportunity is lost, 
therefore, to verify the completeness of levy declarations. 
4.3.21. In Ireland, grain is mostly sold in its undried 
state yet levy is based on a dried weight of 15 % moisture 
content rather than on the contracted moisture content as 
provided by Community regulations (7), thus leading to 
underpayment of levy. In addition the records in the 
trading firms visited did not facilitate checks between 
undried and dried tonnages, a situation which had 
hitherto not been questioned by the Department of 
Agriculture. 
4.3.22. In Italy, the regional authorities have allocated 
to the administration and control of the levy only one full-
time official in each of the provinces of Bologna and 
Padova — both important cereal-growing regions. In the 
circumstances the officials could do no more than file the 
considerable mass of declarations without any 
worthwhile controls. Furthermore: 
(a) none of the provinces visited had established a 
procedure for verifying that identified liable firms 
were making all the necessary returns; the need for 
such a procedure is illustrated by the fact that in the 
province of Viterbo the number of quarterly declar­
ations varied between 42 and 107 for the period 
examined during the audit; 
(b) the Italian law restricts access to the financial records 
of companies to the Guardia di Finanza; in addition, 
national laws do not permit the amount of co-
responsibility levy to be shown separately on the 
invoices, thus leading to a gap in the audit trail; the 
controllers of the co-responsibility levy, not being 
(7) Commission Regulation (EEC) No 1432/88 of 26 May 1988 
(OJ L 131, 27.5.1988, p. 37). 
80 Official Journal of the European Communities 12. 12. 90 
part of the Guardia di Finanza are limited to the 
comparison of pro-forma records annexed to the 
declaration with the copies of the same records 
maintained by the firm; no reliance can be placed on 
such checks if the pro-forma records cannot be traced 
back into the financial records; 
(c) the Italian authorities considered the application of 
the levy at first processing to be too difficult to 
administer and applied the levy from the very 
beginning (1986) when the cereals were first placed on 
the market, a system which was only authorized by 
Community regulations from 1 July 1987 (8); 
(d) the early application of the 'first buyer' scheme in 
Italy — not approved at Community level — while all 
other Member States applied the 'first processor' 
scheme, opened a loophole for cereals imported into 
Italy from other Member States; under the 'first 
processor' scheme intra-Community transactions 
were not levied in the exporting Member State and 
therefore entered Italy levy free; the Court's audit 
revealed, that: 
(i) although the ministerial decree issued by the 
Italian authorities assimilated importers of 
cereals from other Member States to 'first buyers' 
the administrative instructions issued make no 
mention of procedures in respect of such transac­
tions ; 
(ii) although the 1986/87 balance sheet supplied by 
the Italian authorities gives levy-free imports of 
cereals from other Member States of 5,7 Mio 
tonnes, the summary of quantities declared for 
levy purposes for that marketing year totalled 
only 3,1 Mio tonnes, of which 0,4 Mio tonnes 
were declared as exempt; 
(iii)a processing firm selected for detailed exami­
nation by the Court and which imports signific­
ant quantities of cereals from France for proces­
sing in Italy, had declared for levy purposes only 
40 tonnes of cereals (which were declared to be 
(8) Council Regulation (EEC) No 1900/87 of 2 July 1987 (OJ L 
182, 3.7.1987, p. 40). exempt from levy) during the 1986/87 marketing 
year — a quantity which is inconsistent with the 
firm's scale of operations; 
(iv)the national controllers made no attempt to 
establish in collecting firms the veracity of 
quantities declared as exempted. 
4.3.23. In the Netherlands, the responsible control 
service took more than a year to fix a programme of on-
the-spot visits for the new levy scheme; furthermore: 
(a) there was no standard method for dealing with the 
moisture content of grain, an important factor in the 
Netherlands, as well as drying factor adjustments and 
allowances for weighbridge inaccuracies; as a result, 
significantly varying methods were noted, contrary to 
the principle of equal treatment of producers; 
(b) in some of the collecting firms visited difficulties were 
encountered in reconciling the quantities declared for 
levy with the firm's records, due partly to non-
standardization of records to be maintained but also 
because, in one case, basic supporting documen­
tation, i.e. laboratory analysis bulletins, had been 
destroyed prior to the visit. 
4.3.24. In the United Kingdom the extensive use of 
agents to collect the levy and to verify the correctness of 
levy declarations requires close cooperation between the 
various bodies involved to ensure effective control, yet 
such cooperation was not in evidence: 
(a) no on-the-spot verification programme had been 
instituted during the first year of operation of the new 
scheme with the result that the reliability of declar­
ations could not be established; 
(b) the type and extent of checks conceived by the 
Intervention Board for Agricultural Products (IBAP) 
and intended to be carried out by the Ministry of 
Agriculture, Fisheries and Food (MAFF) field staff 
were, in the Court's opinion, superficial and signific­
antly less thorough than were necessary to verify the 
veracity of levy declarations; 
(c) one of the traders visited during the audit was still 
applying an ad hoc scheme based on net purchases 
used for processing, a situation which could have 
been corrected by more timely on-the-spot verifi­
cation. 
12. 12. 90 Official Journal of the European Communities 81 
Late returns and late payments 
4.3.25. The Court's audit revealed significant and 
widespread delays in declaring and remitting levies 
collected in all the Member States visited. Delays of six 
months or more were not uncommon. While the situation 
generally improved over time, certain undue delays 
persisted in the following cases: 
(a) in Spain and Italy, where there is no register of first 
buyers, the monitoring of late payments is practically 
impossible under the present system; furthermore 
both Member States allow cooperatives, through a 
procedure of storing cereals on deposit, to delay 
payment of the levy until the cereals have been sold to 
third parties; also in Spain significant delays occur 
between the date when the levy is paid by the collector 
and the date when the levy is entered in the Member 
State's EAGGF accounts; these latter delays are 
further aggravated by the practice of the Treasury in 
remitting the sums collected on a quarterly basis; further estimated amount of 432,2 Mio FF 
(62,5 Mio ECU) for October-December 1989; 
only about 80 Mio FF (11,6 Mio ECU), or 5,4 % 
of the total due in respect of this period had 
already been paid over to ONIC at the time of the 
audit; from discussions held with the three co­
operatives visited, it appears that the refusal to 
pay over was taken at trade association level on 
the grounds that the Commission had failed to 
use the levy income to develop new market 
outlets; producers, from whom the levy had 
already been collected, were not consulted; 
meanwhile the sums collected have been de­
posited on interest-bearing, blocked bank ac­
counts by these collectors; the Court is concerned 
at the apparent lack of action by the French 
authorities to secure the transfer of the levies; 
(d) in the Netherlands the paying agency's practice of 
issuing an invoice for the amount of levy declared as 
due increases the delays by granting an additional 
period before payment falls due. 
(b) in Greece, while a levy register exists at local level, 
there is no central monitoring of late payments and 
the interest charges provided for by Community 
legislation were not being applied some six months 
after their introduction; fines and penalties, as 
prescribed by Greek law, have been applied in certain 
cases of late payment but not systematically; Reimbursements of additional 
co-responsibility levy 
(c) in France the payment situation is particularly acute 
involving: 
(i) the refusal of some processors to pay over all co-
responsibility levy due in respect of the period 
July 1986 to August 1987 (estimated amount 
outstanding 110 Mio FF (15,9 Mio ECU) as at 15 
May 1990); 
(ii) many collecting firms, mainly cooperatives, did 
not pay the additional co-responsibility levy due 
in respect of 1988-89 until the definitive rate of 
levy was fixed and then paid over the net amount 
due; 
(iii) about half of the collecting firms who normally 
account for 90 % of payments are refusing to pay 
over any levy collected in respect of the 1989-90 
marketing year; an amount of 948 Mio FF 
(137 Mio ECU) was outstanding in respect of the 
period July-September 1989, together with a 4.3.26. Reimbursements of additional co-responsibility 
levy are organized differently in the Member States. In the 
FR of Germany and the United Kingdom, at the date of 
the Court's audit, cereal producers had to send in to the 
competent authority a claim backed up by the invoices 
proving that they had paid the additional levy for the 
quantities involved. The FR of Germany has now 
switched over to the system used in the other Member 
States except Italy. In those Member States the additional 
levy is withheld by the first buyers and redistributed some 
six months later in part or in full to their suppliers after 
the Commission's decision fixing the final rate of 
additional levy. In the case of partial reimbursement the 
remaining sum is paid to the competent authority. 
4.3.27. In the FR of Germany and the United Kingdom 
the Court found that there was a gap in the audit trail 
because the invoices supporting reimbursements had 
been returned by the competent authority to the 
producers. Although the recall of a limited sample of 
invoices gave generally satisfactory results in both 
Member States, the Court considers nevertheless that, for 
audit purposes, the original supporting documents, or 
copies of them, should have been retained. 
82 Official Journal of the European Communities 12. 12. 90 
4.3.28. In Italy reimbursements are made by the paying 
agency on the basis of lists supplied by the regional 
agricultural inspectorates. The audit revealed significant 
delays in making reimbursements even beyond the 
deadlines set by Community regulations. Taking into 
account the inadequate procedures for reconciling the 
reimbursements with the additional levy paid, the Court 
considers that there is an urgent need to review the entire 
reimbursement operation in order to take corrective 
action where irregular reimbursements have been made. 
Because of the lack of control over reimbursement 
operations by the paying agency, the Court cannot 
exclude the fact that some producers have not been 
reimbursed. 
4.3.29. In Greece reimbursements were made directly to 
the producers against copy invoices showing levies paid 
but cross-checks against levy declarations were not made. 
In Spain reimbursement procedures are cumbersome, 
requiring confirmation, by the commercial banks, that 
the levies have been paid. Also, since reimbursements are 
made partly by Senpa and partly by the collectors, these 
procedures are error prone and require a thorough review 
on a yearly basis, including the reconciliation of total 
sums reimbursed with additional levies paid. 
Public accounting systems 
4.3.30. In spite of the importance of such checks, the 
Court found that in certain Member States, the reconcili­
ation between declarations and payments was either not 
possible or not performed: 
(a) in the FR of Germany payments are recorded at the 
'Bundeskasse Bremen', and declarations are manu­
ally registered at the competent authority; an 
attempted reconciliation by the competent authority 
led to significantly different outstanding amounts 
from those recorded by the Bundeskasse; a proper 
reconciliation was not made; 
(b) in Spain, the commercial banks play a key role in the 
accounting system but, because payments and 
declarations are handled separately, the authorities 
are unable to reconcile amounts declared with sums 
paid; the Court cannot accept the lack of correspon­
dence between the two sets of data and recommends 
therefore that the necessary procedures be introduced 
to allow regular reconciliations; (c) in Italy, the collectors' declarations are recorded in a 
computerized system maintained by the Ministry of 
Agriculture, after the amounts due are reconciled in 
theory with the amounts paid to the Treasury; yet 
substantial differences exist between the payments 
recorded by the two systems, and the scale of the 
differences, which continue to exist some three years 
after the first transactions were recorded, casts 
considerable doubt on the usefulness of that database 
for management purposes. 
Exemptions 
4.3.31. The co-responsibility levy system provides for 
the following main exemptions: 
(a) opening stocks on hand at first processors, interven­
tion warehouses and exporters at the date of 30 June 
1986 (the day before the first levy scheme was 
introduced); 
(b) transitional stocks on hand at the date when the 'first 
buyer scheme' superseded the 'first processor 
scheme', were leviable only at the old rate of basic levy 
and exempted from the new additional levy; 
(c) on-farm consumption of cereals and outside proces­
sing of identifiable quantities of cereals into animal 
feed on behalf of the producer; 
(d) up to 25 tonnes of cereals bought from each small 
producer are exempted through the small producers 
aid system; 
(e) certified seeds which have been the subject of a 
multiplication contract; 
(f) farmers participating in the set-aside scheme with at 
least 30 % of their arable land are exempted in respect 
of 20 tonnes of cereals placed on the market. 
Controls over opening and transitional stocks 
4.3.32. Opening stocks had to be declared by traders 
and processors to the competent national authority which 
12. 12. 90 Official Journal of the European Communities 83 
after having checked such declarations, delivered exemp­
tion certificates to the declarants. With each sale of 
cereals, these certificates were passed on to the new owner 
until they were finally joined to declarations of quantities 
processed or exported in order to exempt them from levy. 
4.3.33. In general, Member States' documentary con­
trols over such exempted stocks were satisfactory, but 
physical verification of the stocks was inadequate overall. 
In addition the Member States, with very few exceptions, 
failed to furnish to the Commission the report required by 
the relevant Commission regulation on the use made of 
the exemption certificates. 
4.3.34. The Court found that controls over transitional 
stocks were also largely confined to administrative checks 
on the accuracy of levy payments in relation to the 
quantities declared. Once again, little or no attention was 
given to verifying the reliability of the quantities declared 
either by means of on-the-spot checks at, or close to, the 
changeover date or through a reconciliation of the 
quantities declared with subsequent physical verifications 
by independent third parties such as the external auditors. 
4.3.35. The Court's audit revealed the following 
discrepancies: 
(a) in the FR of Germany, the stock records of one firm 
visited during the audit indicated an under-declar-
ation of transitional stocks by some 3 900 tonnes; 
(b) in the United Kingdom, the records of two out of 
three firms visited showed significant under-declar-
ations of these stocks, one by 12 % and the second by 
34 % of book stocks; 
(c) in Spain, where physical verification was left to the 
discretion of local Senpa offices, one firm visited 
during the audit had failed to declare any transitional 
stocks; this had the effect that levy on the 220 tonnes 
actually in stock at that time was not paid over 
although it had been passed on to the firm in the price 
paid for the cereals. 
(d) in Greece, where the Volos departmental agricultural 
inspectors stated that they physically checked all 
stocks declared, the Court's audit revealed one case 
where the transitional stocks were over-declared by 
3 741 tonnes (31 %) and another case where there was a 549 tonnes (7 %) discrepancy at the date of audit, 
thus casting doubt on the reliability of national 
controls over stocks. 
On-farm use of cereals for animal feed 
4.3.36. In spite of the fact that global statistics in 
Member States indicate that large quantities of cereals are 
consumed on the farm, none of the Member States 
visited, except the United Kingdom, undertook steps to 
check the reliability of global figures and to check farms 
on a test basis. 
4.3.37. The French authorities have allowed remere 
contracts, which are sales contracts granting a right of set­
off against sales of grain and later purchases of 
compound feedstuff containing grain. As no direct link 
can be established between grain sold by the producer and 
the processed feedstuff, often bought from a third party, 
such contracts appear to be against the principle of the co-
responsibility levy which provide that even barter 
transactions are leviable. Therefore these remere con­
tracts result in the avoidance of co-responsibility levy. 
Aid for small producers of cereals 
4.3.38. The arrangements for exemption from the co-
responsibility levies for small producers are applied in the 
form of direct aid, with the exception of Greece, Italy and 
Spain, where the aid takes the form of an exemption from 
payment of the levies. Despite numerous proposals made 
by the Commission, the Communities' regulations do not 
define a small producer, but lay down some criteria to be 
taken into account: 
(a) the area under cereals; and/or 
(b) the utilized agricultural area; and/or 
(c) the proportion of holdings' incomes which is derived 
from cereals. 
The aid is granted on the basis of supporting documents 
certifying that the claimant has paid the co-responsibility 
levies, Member States may require other supporting 
documents to be presented. 
4.3.39. The Court's audit revealed a widespread range 
of eligibility criteria amongst Member States. It was 
^ Cofticialiournal of the European communities ULl^ 
foundthatthe^iemberStatesdidnotde^inetheeligibility 
criteria following some socio-economic standards or 
averages,butinaccordance withthe wishtousethe 
amounts of aid up to the ceiling allocated to them by the 
commission.In France, for e^ample,the size of small 
producers eligiblefor aid changed from^hectares to ^0 
hectares. Thus it was this ceiling which decided the 
qualifying size ofasmall cereal producer in each of the 
member States 
^B^. lnlreland,theverywidedetinitionadoptedfora 
^small producer, i.e. someone growing less than l^u 
hectares of cereals, allows all butahandful of producers 
to benetit from themeasure. Accordingly, checksare 
conlined to the veritication that the levies have been paid. 
Itis worth noting however that, notwithstanding the 
possibilities offered by the wide detinition, the amount 
allocated tolreland^l,71viio^C^^ had not been used 
due, it seems, to the producers considering the aid 
available as not sufficiently attractive for the etfort 
involved to makeaclaim. 
4B141. in the Netherlands the veritication of claims is 
contined to an administrative check on proof of payment 
of levies, for which purpose photocopy invoices rather 
than originals are accepted, which the C^ourt considers 
inadequate.Lhe administrative checks do not extend to 
verifying whether the levy rates shown are correct. 
^Bl^. I^he German authorities do not retain invoices 
used as proof of payment of the levy,or copies of them, 
thus posing difUculties also for national audit purposes. 
As to entitlement to the aid the system used is sound in 
theory,as it is based on comparing data furnishedfor the 
smallproducer aidto thoserelatingtoanationalaid 
where there is a counterinterest for the producer to 
overdeclare arable land. 
^B]ml IntheUnited^ingdomthenonretentionof 
invoices also posed difliculties for audit purposes.The 
audit sample was tested by way of recalling supporting 
documentation but in only half of the cases were 
satisfactory data furnished. 
^Bl^. InFrancethesystemconfersaspecialadvantage 
on the members of olAFC^ ^r^^^^ ^r^^ 
^^^^^^c^^^^ in that the average holding of 
itsmembersratherthantheirindividualsizesistakeninto 
account.Furthermore,the French authoritiesalso accept 
photocopieddocuments or sometimes certilicates from 
collectors stating quantities purchased, neither of whichis 
satisfactory^some crosschecking is made against data used for agricultural social security payments but these 
checks are not systematically carried out. 
^mO. In Italy,aid is granted in the form of exemption 
fromthepaymentofthelevies^ thesituationcanbe 
summarized as follows^ 
^ the entitlement to the aid is based on the declaration 
of the producer to the collector at the time of sale^as 
suchadeclaration is required foreach delivery the 
number of transactions to be processed for possible 
verification isincreasedbya largemultiple which 
inevitably dilutes the percentage which can be 
verified^ 
^ it is difticult to ensure respectof the national aid 
allocations the Italian authorities admitted that this 
wasnotpossiblein the tirst three yearsofthescheme^ 
for thecurrent year acomplicated administrative 
procedure has been introduced which may improve 
control but even this cannot be considered as 
foolproof^ 
^ the number of on-the-spot veritications undertaken 
to date in the regions visited has been particularly 
low^ for instance, in the province of Bologna only 
nine such visits were made to date, all of them on the 
same day,while in Padova province seven such visits 
were made^ while the authorities have stipulateda 
minimum veriticationoflu^oof transactions from 
1^^^0onwards,asubstantial number of regional 
authorities have already indicated their inability to 
meet the targets. 
^.^. In Spain, the local Senpa offices furnish a 
certificate of eligibility to small producers against a 
certiticate from the camera Agraria as to the producers^ 
total holding and sometimes against other evidence such 
as the insurance cover of the holding and^or requests for 
productionaidfordurumwheat.However, the recordsof 
the camera Agraria are frequently out of date, do not 
necessarily record all rental agreements and do not give 
an accurate indication of the area planted with cerealsin 
the circumstances, on-the-spot veritications are the only 
reliable method for establishing entitlement to aid. 
Although the Senpa oflicials indicated that such veriti^ 
cations are made, no reliable statistics e^ist.Lhe fact that 
Senpa in calculating the aid usesaceilingof!3u^of the 
average yield per hectare declared for the region, is 
indicativeof the unreliability of the system.I^urthermore, 
the delays in issuing certificates have the effect of 
collecting tirms considerably delaying their levy declare 
ations, by up to Sm months in some cases examined. 
12. 12. 90 Official Journal of the European Communities 85 
4.3.47. In Greece where some 430 000 producers are 
eligible for the small producer scheme, the aid was paid 
directly to the producers for 1986/87 and 1987/88. From 
1988/89 onwards the aid was granted by way of set-off 
against the levy. The following observations arise : 
(a) the procedures for verifying producers' entitlement to 
aid would appear to be satisfactory although the 
practice of limiting aid entitlement to the average 
yield per hectare declared has the effect of encourag­
ing barter transactions for quantities produced over 
that limit; 
(b) the administration of the scheme in the first two years 
of its operation was satisfactory and the changeover 
to the set-off scheme would not appear justified by 
'administrative or technical difficulties'; 
(c) the Greek authorities estimate that up to 10 % of 
certificates issued and partly or fully used are not 
returned to the administration and, as a result, no 
reliable statistics are available concerning the total 
amount of aid granted. 
4.3.48. The setting-off system cannot ensure that the 
total amount of aid available per Member State is not 
surpassed. While Spain had a certain success in respecting 
the national allocation of aid, apart from 1987/88 when it 
exceeded its allocation by some 665 000 tonnes, Italy has 
failed to do so. The Ministry of Agriculture database 
shows a cumulative over-utilization of some 8,7 Mio 
tonnes, or 62 % of the cumulative national allocation, 
representing uncollected levies totalling 67,3 Mio ECU. 
The Italian authorities justify the overrun by claiming 
that the national allocation was set too low. Whatever the 
reason, Community regulatory provisions are crystal 
clear on the subject, the national allocation established 
annually by the Council cannot be exceeded. 
THE COMMISSION'S CENTRAL 
MANAGEMENT 
4.3.49. Despite the fact that the Community's legis­
lation delegates the day-to-day management and the 
control of the co-responsibility levy system to the 
Member States, the Commission's role remains essential. 
This role comprises in particular: (a) the development of implementing regulations; 
(b) monitoring the implementation of the measures in the 
Member States and clearing the accounts; 
(c) establishing an appropriate information system for 
the purposes of implementing routine management 
decisions. 
The implementing regulations 
4.3.50. The Commission's implementing regulations 
are incomplete in many important respects: 
(a) there are no detailed provisions for control pro­
cedures to be implemented by the Member States in 
important areas such as on-the-spot verification, with 
the result that the Member States' controls are not 
adequate in relation to the whole of the co-
responsibility levy system; 
(b) co-responsibility levy is not a preferential debt in all 
Member States; 
(c) the Commission's criterion for the allocation of 
global amounts to the Member States, i.e. the number 
of producers marketing less than 25 tonnes, bears no 
relationship to the criteria used by each Member State 
in distributing these amounts. 
Monitoring the implementation of the 
measures in the Member States 
4.3.51. The Commission did not react against the non-
implementation of the first processor scheme in Italy. 
Notwithstanding that the Italian authorities had no legal 
basis to apply the first buyer scheme for the 1986/87 
marketing year, no infringement procedures were taken. 
4.3.52. Another case which merited more active moni­
toring and decisive reaction by the Commission was the 
refusal of many large French levy collectors to remit the 
levies. This refusal has been continuing in one form or 
another since the introduction of the levy. 
^ Official lournal of the European Communities l^.l^.^O 
4.3.53. The set-off arran^ementsforsmall producer aid 
in Spaing Italy and Greece should also have been more 
closely monitored by the Commission. This set-off 
arrangement ^vas introduced asatemporary measure in 
1^8o^7 in view of ^administrative or technical dif­
ficulties^ but has been extended to each subsequent 
marketing vear and now appears to be a permanent 
feature ofthe system. This arrangement is out of controls 
especially due to the impossibility of monitoring the 
utilization of the national aid allocation. The accounting 
procedures for levy set-off arran^ements^^vhereby only 
thenetleviescollectedaresho^vnintheaccounts^notonly 
hinders the transparency of the accounts^ but also does 
notallo^vtheCommissiontomonitortheimplementation 
of the measure by the member States concerned. In fact 
all three countries have over-used their national aid 
allocations. 
^.3.5^. Thedetailed study of the system which the 
Commissioncommencedinl^7^vasdiscontinuedaftera 
vervshorttimebecauseoflackofstaffwiththeresultthat 
the ma^or system weaknesses ^vent unnoticed. The 
clearance exercises for 1^8^ and 1^87 included a 
reconciliation of quantities declared for levy against 
quantities leviable as shown by the available official 
statistics.^Vhile such global reconciliation isavaluable 
preliminarye^erciseinhi^hli^htin^problemareasitismn 
itself not sufficient to detect the underlying reasons for 
discrepancies shown. I^he Court notes v^ith satisfactions 
hov^even thatfrom the 1^8^ clearance exercise on^vards^ 
the Commission has supplemented its global statistical 
reconciliation approach v^ith detailed svstems reviews in 
several member states. 
^^^^^^^^^^^^^^^^^^^^ 
^.3.55. The Commission hasbeen hindered in many 
important areas by lack of appropriate information. In 
some instances thisisdue to the failureof^ember States 
tofurnishdataforeseenbyCommunityre^ulationsbutin 
other cases it ^vas due to the lack of a regulatory 
framework for collecting the required data. Possible 
improvements introduced by Council ^.e^ulation^PC^ 
l^o 837^0 of^lvlarch 1^^^ are unlikely tobe 
effective before the expiry of the co-responsibility levy 
system^iunel^^ 
^.3.5o. unimportant weakness is the lack ofareliable 
basis for establishing the production estimate — akey 
factorin determining the definitive rate of the additional 
co-responsibility levy. I^he^^c procedures usedfor its 
^ O^L^^t^n^ t establishment as well as the lack of provision to date for 
ad^ustin^thelevyratebasedonthefinalout-turn^hinders 
thetransparency of the exercise and makesit unduly 
pronetonon-ob^ectiveinfluences.Therecentlvintro-
ducedchan^einthesystem^establishin^aprovisional 
additional levy toapplv throughout the vear^vith an 
adjustment in the follo^vin^ year based on the final out­
turns ^vill be equally open to manipulation in the absence 
ofclearcut procedures for establishing the out-turn. I^he 
Commissions recognizing the inadequacies of its official 
statisticsfcrmarketmana^ementandfortimelymonitor-
in^makesuseof alternativesources. Ho^veven these 
sources are oftenunclear and are poorlydocumented. 
Furthermore^the revised system moves away from the 
very essence of the co-responsibility levy — the principle 
of collecting the levv in the same year as the production 
overrun occurred. 
^.3.57. Finally^thelackofreliablestatisticsforon-farm 
consumption of cereals isalimitin^ factor in monitoring 
the implementation of theco-responsibility levy arrange­
ments.The majority of member States simply estimate 
thisas thebalancin^fi^urein theircerealsbalance sheets. 
uBi^hout more reliable statistics on this elements the 
reasonablenessof the levy returnsforeach member State 
cannot be assessed. 
dEl^ERALCC^CLHSIC^S 
4.3.58. An analysis of the economic data leads to the 
conclusion that theco-responsibility levy^ even taken 
together ^vith other related measures^ has not improved 
the market balance. Looking to variations in production 
overalar^erperiodmtbecomesclearthatthesevariations 
must bedue to ^eneralfactors such asclimaticconditions 
rather than to the nev^ measures introduced in the last 
years, ^^^.^showsthatproductionstillcontinuedto 
increase afterthe introduction of the levy and occasional 
decreases vBere even smaller than those ^vhich also 
occurred before the introduction of the co-responsibility 
measures. Production is still considerably over internal 
consumption and nevB outlets capable of increasing 
internal consumption or exports inacost-effective^vav 
have not been found. 
C^^o^cit^^^tiori^^^o^Ot^Oot^^ri^rvt^O 
^L^^7.t.t^0^.7^. 
12. 12. 90 Official Journal of the European Communities 87 
Table 4.3.3 — Cereals supply balances 
Marketing year 
Production 
Imports 
Decreases in stocks (2) 
Total availability 
Utilization 
Internal consumption 
Exports 
Increases in stocks (2) 
Total utilization 1984/85 
151,3 
6,9 
158,2 
118,6 
29,1 
10,5 
158,2 1985/86 
160,4 
10,9 
171,3 
143,2 
27,5 
0,6 
171,3 1986/87 
154,6 
7,1 
5,3 
167,0 
139,6 
27,4 
167,0 1987/88 
153,6 
7,5 
161,1 
134,7 
17,9 
8,5 
161,1 (Mio tonnes) 
1988/89 
(3) 
164,3 
7,8 
172,1 
136,1 
26,9 
9,1 
172,1 
Source: Eurostat database Cronos at 9.4.1990. 
(') EUR 10. 
(2) Private and public stocks. 
(3) Estimates as at 15.10.1990. 
4.3.59. At best the co-responsibility levies could only 
have had a marginal effect in avoiding larger market 
imbalances. However the series of important weaknesses 
in the implementation of the co-responsibility levy system 
prevented it from being fully effective. Those weaknesses 
are found at Community level and consequently, at 
Member State level. 
4.3.60. In this area the Commission has not played a 
sufficiently active role. More stringent implementation 
regulations in respect of the controls to be organized by 
the Member States, the timely intervention of the 
Commission, by means of on-the-spot visits rather than 
reliance on exchanges of views at the Management 
Committee or statistical clearing exercises, could have 
helped to overcome implementation problems at an early 
stage. This lack of monitoring and supervision is 
illustrated by the failure to take appropriate action 
against French levy collectors who refused to remit sums 
collected and against Italian authorities who illegally 
applied in the first year a system other than the approved 
one. (b) in certain Member States, there is an undue readiness 
to allow avoidance or payment-delaying measures to 
be implemented; 
(c) overall the frequency and duration of the on-the-spot 
visits are hardly adequate to provide the opportunity 
to carry out effective checks; in most Member States 
the importance given to on-the-spot checks can best 
be gauged by the fact that, some two years after their 
implementation, the revised co-responsibility levy 
arrangements had either not yet been the subject of 
on-the-spot verifications or only to a very limited 
degree; most Member States give too little attention 
to late returns and late payments; particularly in 
cases where there is a risk that the levy may not be 
paid over to the national authorities, a more active 
monitoring of the growing debts and more vigorous 
efforts to obtain payment are necessary; 
(d) the records stipulated by the national instructions are 
frequently inadequate with many important elements 
as stipulated by Community regulations not being 
specifically provided for; 
4.3.61. Other problems encountered in Member States 
can be summarized as follows: (e) levy reimbursement procedures are error-prone and 
fail to include elementary reconciliation procedures. 
(a) control over the levy base is not satisfactory; no 
assurance can be drawn from the checks performed 
by the Member States' control bodies that all liable 
transactions are levied; 4.3.62. Lack of harmonization of national definitions of 
'small producers', resulted in the majority of definitions 
being drawn up for the sole purpose of distributing the 
88 Official Journal of the European Communities 12. 12. 90 
entire amount of aid available rather than on an objective 
basis. Indeed, the differences in the national definitions as 
approved by the Commission ranging between 15 and 100 
hectares, cannot be justified by any objective criteria. 
Inadequate procedures for verifying entitlement to aid for 
small producers leads to the inequity of the present system 
for allocating this aid. Finally, the very low utilization of 
direct aid allocations (23 % to date) is in stark contrast to 
the significant over-utilization of allocations granted 
under the set-off arrangements. Member States author­
izing the aid to be set off against levies due were unable to 
ensure compliance with the limits set by the Council. 
4.3.63. There was admittedly an element of realism in 
the Commission's proposal to allow set-off arrange­
ments. The acknowledged 'administrative or technical 
difficulties' make it likely that stricter observance of the 
limits on the amount of aid set off would not be reflected 
in the net yield of the levy, due to the inadequate control 
procedures. This line of reasoning is, of course, close to an 
admission that the whole scheme is unworkable in some 
Member States. 
4.3.64. The method used for establishing the definitive 
rates of additional co-responsibility levy to date have 
lacked transparency and were established too early in the 
marketing year without any provision for their correction 
based on final results. The recent modification to the 
method cannot hope for better results without a 
significant improvement in the reliability of the Com­
mission's database. 
4.3.65. The Commission, in opting for the co-respons­
ibility levy rather than alternative cost-cutting measures, 
justified the choice on the grounds that such a levy would apply to all cereals' production, whereas alternative 
measures, having a more limited base of application 
would have to be correspondingly much more severe in 
their impact. However, this argument loses its value in the 
present situation where, for one reason or another, the 
levy is not collected on about half of all cereals production 
and on more than 60 % in certain Member States (see 
paragraph 4.3.10). The weaknesses described above show 
that the present co-responsibility system is complicated 
and open to manipulation and leads to unequal treatment 
of producers and collectors. It should be noted, however, 
that a proper management of the scheme would require a 
very considerable supplementary administrative effort by 
the national administrations. 
4.3.66. Taking all the facts into account, the Court 
comes to the conclusion that, notwithstanding the 
importance of the revenue generated, weaknesses in the 
implementation of the scheme prevented the co-respons­
ibility system from being fully effective in achieving its 
declared objectives. Some of the implementation weak­
nesses stemmed from the very nature of the system which 
was developed. Furthermore, the assumed higher ef­
fectiveness of a levy system in comparison to more 
substantial price cuts is far from evident. In effect, since 
1988, the co-responsibility levy scheme, together with the 
budgetary stabilizers, results in a mixture of a tax-
collection scheme and a price-reduction scheme. How­
ever, due to inadequacies in the implementation of the 
levy, the system neither offers the desired equity and 
effectiveness of the former nor can its hoped-for effects as 
a price-reduction mechanism be more than marginal. 
Finally, although the levy revenue undoubtedly facili­
tated the financing of the traditional market outlets it did 
not, to date, result in the opening up of new market 
outlets at reasonable budgetary cost. 
12. 12. 90 Official Journal of the European Communities 89 
4.4. Observations concerning the application of the set-aside policy in 
the Community 
4.4.0. TABLE OF CONTENTS 
Set-aside: Outline of the scheme 
Appropriations available and payments made 
Nature of the audit 
Audit findings 
Levels of aid 
Commission 
Member States visited 
Rate setting 
Differentiation of rates for permanent and rotational fallow 
Non-agricultural use 
Problems concerning the reference year 
Administrative aspects 
FR of Germany 
Italy 
United Kingdom 
Inspections 
Control problems 
Use of fertilizers, etc. 
Plant cover 
Non-agricultural use 
Problems arising during visits on the spot 
Sanctions 
Reimbursement by the Commission 
Commission monitoring 
Cost effectiveness 
Aspects concerning the quality of the land set-aside 
The use of rotational fallow for set-aside 
Former set-aside scheme in the FR of Germany 
Administrative expenses and costs Paragraph 
reference 
4.4.1 
4.4.6 
4.4.7 4.4.5 
4.4.8 
4.4.9 —4.4.35 
4.4.9 —4.4.12 
4.4.9 
4.4.10 — 4.4.12 
4.4.10 
4.4.11 
4.4.12 
4.4.13 — 4.4.15 
4.4.16 — 4.4.22 
4.4.16 
4.4.17 — 4.4.21 
4.4.22 
4.4.23 — 4.4.25 
4.4.26—4.4.28 
4.4.26 
4.4.27 
4.4.28 
4.4.29 — 4.4.32 
4.4.33 
4.4.34 
4.4.35 
4.4.36—4.4.41 
4.4.36—4.4.37 
4.4.38 
4.4.39 
4.4.40—4.4.41 
Conclusions and recommendations 4.4.42 — 4.4.51 
90 Official Journal of the European Communities 12. 12. 90 
SET-ASIDE: OUTLINE OF THE SCHEME 
4.4.1. Set-aside is aimed at reducing the area of arable 
land under cultivation. Its main impact is on cereals 
production, though in principle the measure is more 
broadly based. The legal basis for the measure is Council 
Regulation (EEC) No 1094/88 of 25 April 1988 (*) 
amending Council Regulation (EEC) No 797/85 of 12 
March 1985 (2). The implementation rules were fixed by 
the Commission with its Regulation (EEC) No 1272/88 of 
29 April 1988 amended by Commission Regulation 
(EEC) No 3981/89 of 20 December 1989 (3). The first year 
of application was the marketing year 1988/89, during 
which a total of 362 495 hectares was set-aside in the 
Community. In January 1990 the Commission proposed 
to allow non-food-oriented production under the set 
aside scheme (4). 
4.4.2. Aid for set-aside may be granted for all arable 
land that has been cultivated during a reference period 
(see paragraph 4.4.13). Land used for crops not subject to 
a common market organization is however excluded from 
the scheme. 
4.4.3. Farmers wishing to participate in the scheme have 
to undertake to withdraw at least 20 % of their arable 
land for five years (but may terminate the set-aside 
obligation without penalty after three years). Farmers 
who set aside at least 30 % of their arable land are 
exempted in respect of a quantity of 20 tonnes from the 
cereals co-responsibility levy. 
4.4.4. To qualify for aid, land which is set aside must be 
used for permanent or rotational fallow (see paragraph 
4.4.11), for afforestation or for non-agricultural pur­
poses. Member States can, however, authorize extensive 
grazing of livestock or the growing of lentils, chickpeas 
and vetches, on land which is set aside. 
(i) Council Regulation (EEC) No 1094/88 of 25 April 1988 (OJ 
L 106, 27.4.1988, p. 28). 
(2) Council Regulation (EEC) No 797/85 of 12 March 1985 (OJ 
L 93, 30.3.1985, p. 1). 
(3) Commission Regulation (EEC) No 1272/88 of 29 April 1988 
(OJ L 121 of 11.5.1988, p. 36), modified by Commission 
Regulation (EEC) No 3981/89 of 20 December 1989 (OJ L 
380, 29.12.1989, p. 22). 
(4) Document COM(89) 597 final of 23 January 1990, including 
proposal for a regulation amending Council Regulation 
(EEC) No 797/85 on improving the efficiency of agricultural 
structures. 4.4.5. Although integrated in the structural policy 
carried out in the context of Regulation (EEC) No 
797/85, the budgetary cost of the scheme is divided 
equally between the Guarantee and Guidance Sections of 
the EAGGF although Member States' payment claims 
are reimbursed initially from the Guarantee Section. The 
Guidance Section is responsible for the management of 
the scheme. As foreseen in Regulation (EEC) 
No 1094/88(0, set aside should have been introduced by 
14 July 1988. As Table 4.4.1 makes clear, initial 
implementation of the scheme in most Member States 
was delayed. 
APPROPRIATIONS AVAILABLE AND 
PAYMENTS MADE 
4.4.6. In the 1989 budget, a total of 40 Mio ECU was 
made available for set-aside purposes. This amount was 
increased to 140 Mio ECU in the 1990 budget (Article 
390). However, only a few payments were made during 
the budgetary year 1989 (see Table 4.4.1) because most 
Member States paid the set-aside premiums for the first 
year of application (1988/89) during the second half of 
1989 (Italy as late as January 1990). These claims are 
therefore excluded from the 1989 accounts of EAGGF-
Guarantee. 
NATURE OF THE AUDIT 
4.4.7. Discussions were held with the Commission and 
the central, regional and local authorities in Italy, United 
Kingdom and FR of Germany — the three Member 
States in which take-up has been greatest. Forty-three 
farms were visited in order to substantiate the data held 
on file at the administration concerned. 
4.4.8. The Court examined the implementation of the 
scheme in seven regions during March and April 1990: 
Puglia and Sicily (Italy), south-west England and 
Scotland (United Kingdom) and the Lander of Rhein-
land-Pfalz, Niedersachsen and Schleswig-Holstein (FR of 
Germany). 
12. 12. 90 Official Journal of the European Communities 91 
Table 4.4.1 — Set-aside take-up and Community expenditure by Member State 
Member State (') 
Belgium 
FR of Germany 
Greece 
Spain 
France 
Ireland 
Italy 
Luxembourg 
Netherlands 
United Kingdom 
Total Date 
of 
introduction 
18.10.1988 
12.8.1988 
13.12.1988 
12.12.1988 
19.11.1988 
9.12.1988 
6.2.1989 
12.4.1989 
16.8.1988 
29.7.1988 Area set-aside 
1988/89 
(hectares) 
352 
165 125 
— 
34 229 
15 707 
1 310 
91 617 
6 
2 582 
51 567 
362 495 1989/90 
(hectares) 
148 
57 259 
250 
18 000(*) 
39 702 (*) 
382 
110 000(**) 
31 
6 155 
50 321 
282 248 Total 
(hectares) 
500 
222 384 
250 
52 229 
55 409 
1 692 
201 617 
37 
8 737 
101 888 
644 743 Community payments (2) 
(1 000 ECU) 
Financial 
year 1989 
— 
5 818 
— 
— 
— 
167 
— 
— 
— 
__ 
5 985 Financial 
year 1990 (3) 
49 
18 220 
— 
— 
— 
87 
13 152 
— 
— 
6 191 
37 699 
(45 446) (4) 
(*) Unofficial Commission estimate. 
(**) Court estimate. 
(') Portugal is excluded. The scheme was not introduced in Denmark until 1990. 
(2) Commission data. 
(3) Payments made from October 1989 to April 1990. 
(4) Commission forecast for payments October 1989 to June 1990. 
AUDIT FINDINGS Member States visited 
Rate setting 
Levels of aid 
Commission 4.4.10. Italy applies a differentiated flat-rate system 
taking into account land characteristics, while the United 
Kingdom applies one rate in areas classified as less-
favoured areas under Directive 75/268/EEC (7) and 
another in areas not so classified. In the FR of Germany 
the rates are calculated individually. Table 4.4.2 refers. 
4.4.9. The Community reimburses part of national aid, 
and the reimbursement rates are differentiated according 
to the aid provided at national level. They were initially 
between 15 % and 50 % but have been increased recently 
to 25% and 60% (Council Regulation (EEC) No 
752/90 (5)) (Table 4.4.2 refers.) The latter rates were valid 
until 31 December 1989 for land set-aside during 1989/90. 
The Commission fixed the reimbursement rates valid 
from 1 January 1990, on 6 July 1990 (6). 
(5) Council Regulation (EEC) No 752/90 of 26 March 1990 (OJ 
L 83, 30.3.1990, p. 1). 
(6) Commission Regulation (EEC) No 1941/90 of 6 July 1990 
(OJL 174, 7.7.1990, p. 34). Differentiation of rates for permanent and 
rotational fallow 
4.4.11. Under rotational fallow the producer leaves a 
different piece of land fallow each year, but the total area 
left fallow remains constant. For rotational fallow each 
Member State has adopted a completely different 
C) Council Directive 75/268/EEC of 28 April 1975 (OJ L 128, 
19.5.1975), last modified by Council Regulation (EEC) No 
797/85 of 12 March 1985 (OJ L 93, 30.3.1985). 
92 Official Journal of the European Communities 12. 12. 90 
Table 4.4.2 — Rates of set-aside aid in the FR of Germany, 
Italy and the United Kingdom and the Community contribution 
Germany (}) 
According to land-quality evaluation 
Italy (2) 
Po valley 
Other valleys 
Hill regions 
Disadvantaged hill regions 
Mountain regions 
United Kingdom 
Normal rate 
Less-favoured area 
Community contribution 
Marketing year 
1988/89 (3) 
Marketing year 
1989/90 (4) Permanent 
fallow 
and 
woodland 
(a) 
297 to 600 ECU 
550 ECU 
440 ECU 
400 ECU 
380 ECU 
380 ECU 
270 ECU 
300 ECU Rotational 
fallow 
(b) 
(a) rates 
fixed by 
region, deduction 
between 0 
and 40 % 
of (a) 
300 ECU 
267 ECU 
Permanent, rotational, 
non-agricultural 
Member State 
aid level 
(ECU) 
up to 200 
part 200-400 
part 400-600 
up to 300 
part 300-600 Commission 
contribution 
% 
50 
25 
15 
60 
25 Non-
agricultural 
use 
(c) 
(a) rates less 
income from 
non-agricultural 
use (case-by-case 
calculation) 
fixed by 
region, deduction 
between 0 
and 75 % 
of (a) 
250 ECU 
216 ECU Extensive 
grazing 
(d) 
-40 to -60% 
-40% 
not applicable 
Extensive 
grazing 
Member State 
aid level 
(ECU) 
up to 100 
100-200 
200-300 
up to 150 
150-300 Commission 
contribution 
% 
50 
25 
15 
60 
25 
(0 Except Rheinland Pfalz, where these rates apply only for rotational fallow (permanent fallow: -20 %). 
(2) In Italy 60 % of the permanent fallow rate is paid for the growing of lentils etc. on set-aside land. The Community contribution is as for extensive grazing. 
12. 12. 90 Official Journal of the European Communities 93 
approach. In the United Kingdom the rates are lower 
than the permanent fallow rate. In Italy the rotational 
fallow rates vary by region. For example in Basilicata the 
rate is equal to the permanent fallow rate, whereas in 
neighbouring Calabria it is 40 % lower. In the FR of 
Germany rotational and permanent fallow rates are the 
same, except for Rheinland-Pfalz where the rotational 
fallow rate is actually higher than the permanent fallow 
rate by some 20 %. 
Non-agricultural use 
4.4.12. According to Article 10 of Commission Regu­
lation (EEC) No 1272/88 account shall be taken, when the 
rate of aid is determined, of the income to be derived from 
such uses. In the United Kingdom a uniform reduction of 
50 UKL per ha is applied to the permanent fallow rates. 
In Italy the deductions vary by region. There are no 
deductions in Aosta, Trentino Alto Adige, Lazio and 
Calabria but 75 % in Liguria. The other regions apply 
reductions within this range. In the FR of Germany 
income is deducted from the normal rate on a case-by-
case basis. 
Problems concerning the reference year 
4.4.13. It is for Member States to choose the reference 
period mentioned in paragraph 4.4.2. This period had to 
span not less than one marketing year between 1 July 1985 
and 30 June 1988. 
4.4.14. The FR of Germany and the United Kingdom 
chose the marketing year 1987/88 as the reference period. 
Italy fixed a reference period from September 1987 to 
March 1988 which is less than one marketing year and 
does not therefore meet the requirements of the regu­
lation. 
4.4.15. The United Kingdom invited farmers who might 
be interested in the set-aside scheme to register their 
cropping patterns for the reference year. Many of the 
farmers who registered were inspected even though they 
did not subsequently apply to join the scheme. Unlike the 
procedure in the United Kingdom, data concerning the 
reference year were not systematically verified in the FR 
of Germany and Italy by the national authorities. Administrative aspects 
FR of Germany 
4.4.16. In the FR of Germany the Lander administer the 
scheme and execute the payments. The Ministry of 
Agriculture in Bonn coordinates but cannot directly 
decide upon the implementation of the scheme. The 
administrative practice differed in each of the Lander: 
(a) in Rheinland Pfalz comprehensive documents from 
the land register are required from the farmers but 
there are no maps showing the location of the fields to 
be set aside; 
(b) in Niedersachsen the decision on the aid is based 
entirely on the farmers declaration. No supporting 
documents are required. 
(c) in Schleswig-Holstein extracts from the land register 
and maps showing the location of the land to be set 
aside are required. However a comprehensive list of 
all fields of the holding is not required. 
Italy 
4.4.17. In Italy payments are authorized and executed 
by the central government but the regions have to prepare 
farmers' applications for set-aside, carry out the neces­
sary inspections and submit to the Italian paying agency 
(AIMA) lists of beneficiaries with the calculation of the 
aid to be paid. 
4.4.18. Farmers are required to present extracts from 
the cadastral register including maps showing the 
location of the fields concerned. However, in Sicily these 
maps and extracts are obsolete because the land register 
dates back to 1940. 
4.4.19. The decree on set-aside for 1988-89 was 
published on 6 February 1989 and gave a deadline for 
application of 31 March 1989. The decree for the 
marketing year 1989/90 was published 8 February 1990 
and fixed the deadline of 31 March 1990. In both 
instances publication was too late to influence farmers' 
crop decisions. By the same token farmers may choose to 
> 
^4 Cottlcial journal of the European Communities 12 12 ^0 
applytbrset^asideiftbrinstancetheactualraintall during 
the winter proves inadequate to sustainacrop. 
4.4.20. Applicants are not informed as to whether they 
have beenacceptedintothescheme. They do notreceivea 
payment advice.They did not know the outcome until 
they received paymentg^hich tor the 1^88/8^ marketing 
yearwasmadein^anuaryl^u.Thereisariskthatduring 
thislongperiodofuncertaintyfarmerswillproducecrops 
on land whieh they had intended to set aside. 
4.4.21. The Italian central authorities receive copies of 
applicationformsbetbre the regionshavee^amined them 
and use this information to compile statistics. 
L^hedalB^de^ 
4.4.22. In thellnited kingdom beneficiaries have to 
presentamapoftheholding^ showing field numbers. 
However there is no proof of tenure (ownership or 
tenancy) and in the case of rotational fallow farmers are 
not required to indicate onamap which land will be left 
fallow. The authorities have agreed toasample check to 
ensure that scheme participants who are tenant farmers 
do in tact rent the land they propose to set aside. 
However^asimilar check on ownership is considered by 
the authorities to be too time-consuming. 
^^C^eo^ 
442oe Articlel4of^egulation(EEC)Nol272/88 
provides thatMember States shall inspectarepresen^ 
tativesampleof beneficiary holdings every year. The 
sample must be not less than 5^. This minimum 
criterion appears tobe respected in allthreeMember 
States though there are big differences within and 
between Member States with regard to the frequency of 
inspections, and thetimingofinspectionsisinmany cases 
predictablegwhich makes their value doubtful. Indeed, 
there is little orno unannounced inspection in any of the 
three Member States. In Niedersachsen (Ltineburg) 
tarmers knew in January that they would be inspected in 
April. In KheinlandDPfalz inspections concerning roD 
tational fallow are confined to the period fromlMay to 
15 lune. In Sicily inspections were carried out after the 
cropping periods too late to identify the misuse ofland. 4.4.24. Thereisalack of control guidelines, inspection 
tools and reporting in all Member States visited. Each 
regionis free to determine its own practice. Cenerally the 
ma^or control was the measurement ofthe land set aside. 
4425 Regulation(EEC)Nol272/88requiresMember 
StatestoreporttotheCommissionbeforellulyeachyear 
onthefindingsarisingfrominspection.AsatMarchl^O 
neither Italy, the FI^ of Cermany nor the United 
kingdom had submitted the reports due bylluly 1^8^. 
C^^o^^oo^^ 
L^eofterhl^ze^,etc. 
4.4.2t^. loiflerent Community rules apply concerning 
theuseoflertilizersghedistributionoforganicwasteand 
the application of plant-protection productsaccordingto 
the type of set aside.The control of all these conditions, 
notably of the spreading of organic waste, is difficult if 
not impossible. 
Pt^teover 
4427 Article4of regulation (EEC)No 1272/88 
providesfortheestablishmentofappropriateplantcover. 
Such coveris not defined. For example in Luneburg (PP. 
of Germany), maize was accepted as appropriate plant 
cover,but the farmer succumbed tothetemptationto 
crop rather than leave it as required by the regulations. 
No^^cuh^d^e 
4.4.28. Theregulationprovidesthatthelandmaynothe 
usedfor plant or animal production. However,atypical 
example of permitted use is the grazing of riding horses. 
The rules on non-agricultural use are interpreted 
ditlerentlyin eachMember State. In the FI^ of Germany, 
non^agricultural use is etfectively limited to environment 
protection schemes whereas in the united kingdom such 
activitiesasturfproduction,andthekeepingofhorsesfor 
their blood (forpharmaceuticalpurposes)are permitted. 
12. 12. 90 Official Journal of the European Communities 95 
The regulation gives no clear guidance on the eligibility of 
golf courses and artificial lakes. 
Problems arising during visits on the spot 
A A.29. Most problems related to the measurement of 
the land set aside, for example footpaths or storage areas 
to be deducted. In Italy one field inspected gave serious 
doubts as to whether the land was really arable. In the FR 
of Germany, one farmer overstated the measurement of a 
field and there was unauthorized afforestation on a 
particularly poor field. In Schleswig-Holstein one 
administration considered that drains and small canals 
owned by the farmer could be eligible for set aside. 
4.4.30. In the United Kingdom one farmer had built a 
lake on set-aside land without authorization thereby 
improving the quality of the surrounding land. 
4.4.31. In Italy and, to a lesser extent, in the FR of 
Germany (Rheinland-Pfalz) itinerant shepherds allow 
their flocks to graze on set-aside land without permission 
from the farmers. In Scotland farmers are given one 
warning if on inspection or informal observation animals 
are seen grazing on land set aside. A second offence would 
lead to cancellation or recovery of payment. Three cases 
out of the 14 examined for Scotland snowed that cows or 
sheep had been sighted on set-aside land. 
4.4.32. In certain cases where the administration failed 
to keep comprehensive files (see paragraph 4.4.16) or 
where the data used was obsolete, the auditors found it 
difficult and sometimes impossible to identify on the spot 
exactly which land had been set aside. 
Sanctions 
4.4.33. Regulation (EEC) No 1272/88 requires that in 
the case of serious irregularities Member States shall 
decide on the financial penalty to apply. This shall be at 
least equal to the wrongly paid amount of aid with the 
addition of interest. However, the regulation does not 
define what constitutes a serious irregularity. For 
example, are illegal cropping, failure to notify sale of set-aside land and the spreading of organic waste all deemed 
to be 'serious irregularities'? 
Reimbursement by the Commission 
4.4.34. Although set-aside is regarded as a structural 
measure, it is financed jointly by EAGGF Guidance and 
Guarantee Sections (see paragraph 4.4.5.). The financial 
rules of the Guarantee Section apply. In the Court's view, 
and contrary to the preamble in the basic regulation (8), 
this does not facilitate the administrative and financial 
management of the scheme. Moreover, as with all 
Guarantee expenditure, supporting documents are not 
submitted with the claim, thus the Guidance Section 
responsible for monitoring the scheme is unable to verify 
payments. The Court recommends that payment claims 
should be administered like other reimbursement claims 
for indirect action of the Guidance Section. 
Commission monitoring 
4.4.35. In 1989 the Commission's service visited Italy 
and the FR of Germany to evaluate and control the set-
aside scheme. The three Member States visited in the 
context of the Court's audit regretted a lack of technical 
advice and interpretation of particular points. 
COST EFFECTIVENESS 
Aspects concerning the quality of the land 
set aside 
4.4.36. The audit confirmed that in most cases the land 
with the lowest productivity has been set aside. Indeed 
some national guidelines recommend farmers to consider 
setting aside land with soil limitations, disease, pest or 
weed problems and land whose location creates farming 
problems. 
(8) Council Regulation (EEC) No 1094/88 of 25 April 1988 (OJ 
L 106, 27.4.1988, p. 28). 
96 Official Journal of the European Communities 12. 12. 90 
4.4.37. In Scotland strips of a minimum width of 15 m 
around the edges of fields are frequently set aside. Strips 
alongside forests, riverbanks and lakes of 5 m and 10 m 
width are also accepted in some Lander of the FR of 
Germany. These strips are invariably the least productive 
parts of a field. 
The use of rotational fallow for set-aside 
4.4.38. In Sicily rotational fallow is a normal produc­
tion method. The cultivation of cereals is periodically 
interrupted in order to give the land a chance to recover 
by growing legumes which improve the soil fertility. Set-
aside provides a bonus payment in these circumstances 
and does little to reduce the production of cereals. 
Former set-aside scheme in the 
FR of Germany 
4.4.39. In the Land of Niedersachsen, set-aside had been 
introduced by 1986. This programme provided aid for the 
annual set-aside of arable land. The EEC scheme replaced 
the national programme and land which had been set 
aside in the context of the national scheme was considered 
as eligible by the national authorities under the EEC 
scheme after its introduction. However, the land set aside 
in the context of the national scheme was not necessarily 
used for growing products for which there is a common 
market organization. Under the national programme, 
50 200 hectares had been set aside during 1987/88. During 
the first year of the EEC scheme 53 800 hectares were set 
aside, only 3 600 hectares more. 
Administrative expenses and costs 
4.4.40. An official estimate of the cost of administering 
the scheme in England amounts to 21 % of the value of 
aid paid (or some 50 % in relation to the amount 
reimbursed by the Commission). In the FR of Germany 
the competent authorities broadly agree with this 
estimate. Other 'costs' of the set-aside scheme are the loss 
of Community revenue as a result of the cereals co-
responsibility levy exemption and the costs of unemploy­
ment resulting in particular from whole farm set-aside to 
permanent fallow. 4.4.41. Using the Commission's own data (9) the Court 
has calculated that the average cost for the Community of 
not producing one tonne of a typical cereal is at least 60 
ECU. (Table 4.4.3 refers.) However this calculation fails 
to take into account the fact that it is the Member States 
who paid the majority of set-aside aid (60 % or more) and 
who incur the administrative costs. Allowing for these 
factors gives an estimated cost of at least 180 ECU per 
tonne. This is equivalent to more than twice the prevailing 
export refund rates for cereals during 1989. In the Court's 
view this is a measure of the need to improve the 
implementation of the set-aside scheme in order to make 
it more cost-effective. 
CONCLUSIONS AND 
RECOMMENDATIONS 
4.4.42. The Court could find no evidence that the set-
aside scheme has significantly reduced the production of 
cereals. Take-up has been low and in many cases the most 
marginal land has been set aside. Between 1988 and 1989, 
the total area used for cereals production increased by 
212 500 hectares. 
4.4.43. Certain aspects of the scheme require a level of 
control which is extremely difficult to attain. This is 
especially true for the fallow option under which the 
spreading of organic waste and the use of herbicides are 
forbidden, and for extensive grazing which specifies a 
maximum grazing density, limits the number of cuts for 
hay and prohibits irrigation and the use of organic 
fertilizers. 
4.4.44. Verification of data concerning the reference 
year becomes more difficult as time passes. Evidence on 
the land disappears and farmers do not normally keep 
records of their production by field. If meaningful 
controls are to be carried out the regulation will have to be 
amended to permit more recent reference years to be used 
for new entrants. 
4.4.45. There are wide differences in the way Member 
States interpret and apply the rules. The Commission 
needs to define such aspects as non-agricultural use and 
appropriate plant cover in order to ensure the equal 
application of the scheme throughout the Community. 
(9) Report on the application of the Community scheme for the 
set-aside of arable land; Doc. COM(89) 353 final of 12 
September 1989. 
12. 12. 90 Official Journal of the European Communities 97 
4.4.46. The Commission should prescribe a uniform 
approach to the inspection of set aside, and should 
increase its own level of monitoring. Member States' 
claims for reimbursement should be verified before 
payment, on the basis of supporting data to be supplied 
by Member States. The Court recommends in this context 
that payment claims should be administered through the 
procedures applicable to indirect action of the Guidance 
Section. 
4.4.47. Member States are uncertain as to how infrac­
tions should be penalized and in particular whether the 
penalty should be restricted to the year in which the 
irregularity occurred or should be applied retrospectively 
to all prior years. The Commission should take steps to 
have the situation clarified. reduce the area used for the production of cereals. Thus 
the cereals hectarage on the holding should not exceed the 
area so used in the reference period less the area set aside. 
4.4.50. Table 4.4.2 shows that there is a wide variation 
in the rates of aid between Member States. It also shows 
that reimbursement by the Commission is regressive by 
nature, there being little incentive for Member States to 
set rates at the upper limit of the scale because the higher 
the rate set by the Member State, the lower the proportion 
paid by the Community. The publication of the higher 
reimbursement rates in July 1990 (10) has not changed this 
situation. 
4.4.51. In addition, in order to improve the effectiveness 
of the scheme the Commission should consider: 
4.4.48. The current regulations do not prevent farmers 
from increasing their cereals production on fields not 
eligible for set aside. However certain Member States 
have introduced their own restriction to prevent this. 
Such rules should be enshrined in Community legislation 
on set aside. (a) raising the minimum area and/or percentage of arable 
land to be set aside: 
(b) prohibiting the inclusion of part-fields and strips of 
land in set aside. 
4.4.49. If the option of rotational fallow is retained (see 
paragraph 4.4.38) the beneficiary should be obliged to (10) Commission Regulation (EEC) No 1941/90 of 6 July 1990 
(OJL 174, 7.7.1990, p. 34). 
Table 4.4.3 — Cost per tonne of cereals not grown during 1988/89 
as a result of application of the set-aside scheme 
Community cost calculation: 
Ha set aside (') 
Community aid (Mio ECU) (') 
Average aid per ha B/A 
Estimated yield of set-aside land (2) 
Community cost per tonne C/D 362 495 
51,4 
142 ECU 
2,3 tonnes/ha (A) 
(B) 
(C) 
(D) 
62 ECU 
Community and Member State cost calculation: 
Community aid (Mio ECU) 40 % 
Member State aid (Mio ECU) 60 % (3) 
Subtotal (Mio ECU) (B + E) 
Administrative costs ( + 20%) 
Subtotal (Mio ECU) (F + G) 
Cost per ha (4) 
Cost per tonne I/D (4) 51,4 
77,1 
128,5 
25,7 
154,2 
425 ECU 
185 ECU (B) 
(E) 
(F) 
(G) 
(H) 
(I) 
(0 See Table 4.4.1. 
(2) Doc. COM(89) 353 final. 
(3) Member State aid in % of total expenditure: United Kingdom 57,2 %, FR of Germany 66,2 % and Italy 63,1 %. 
(4) Calculation made by the Court of Auditors based on the Commission's data on hectarages set aside and average yield and payments made; see Table 4.4.1 
for basic data. 
98 Official Journal of the European Communities 12. 12. 90 
CHAPTER 5 
Common policy on fisheries and the sea 
5.0. TABLE OF CONTENTS Paragraph 
reference 
Introduction 5.1 — 5.2 
Observations concerning budgetary management 5.3 — 5.8 
Utilization of commitment and payment appropriations 5.4 —5.5 
Inactive projects 5.6 — 5.8 
INTRODUCTION 
5.1. The implementation of the common policy on 
fisheries and the sea is financed from the Community 
budget in the following ways: 
(a) export refunds and intervention measures, as part of 
the Guarantee Section of the EAGGF (Chapter 
40)0; 
(b) marine inspection and surveillance (Chapter 41); 
(c) international fisheries agreements, which enable 
fishermen from the Community to fish in the waters 
of third countries (Chapter 42); 
(d) measures to modernize, improve and adapt structures 
in the fisheries and aquaculture sectors, as part of the 
Guidance Section of the EAGGF (2) (Chapter 46) 
and, since 1986, under the European Fisheries 
Guidance Fund (3) (Chapter 47). 
The two largest expenditure headings are the inter­
national agreements and the structural policies, account­
ing respectively for 47,4 % and 45,6 % of 1989 commit­
ment appropriations. 
(i) OJ L 24, 27.1.1983. 
(2) Council Regulation (EEC) No 2908/83 of 4 October 1983; 
OJ L 290, 22.10.1988, p. 1 and Commission Regulation 
(EEC) No 378/84 of 13 February 1984; OJ L 46, 16.2.1984, 
p. 11. 
(3) Council Regulation (EEC) No 4028/86 of 18 December 
1986; OJL 376, 31.12.1986, p. 7. 5.2. This chapter of the annual report concerns Title 4 
except for expenditure on guarantee measures (Chapter 
40) which are covered in the chapter on EAGGF-
Guarantee: Management and budgetary control (4). 
OBSERVATIONS CONCERNING 
BUDGETARY MANAGEMENT 
5.3. Table 5.1 shows that 317,4 Mio ECU were commit­
ted on these four chapters in 1989, which was an increase 
of 14,3 % over 1988, and 238,0 Mio ECU were paid, 
11,7 % more than in 1988. At the beginning of 1989 past 
commitments still outstanding amounted to 320,9 Mio 
ECU, whereas at the end of December 1989 amounts still 
to be paid on commitments in 1989 and prior years 
amounted to 401,5 Mio ECU. 
Utilization of commitment and payment 
appropriations 
5.4. The table shows that there was a high overall level 
of utilization of commitment appropriations (97,8 % of 
those initially available, 98,9 % of final appropriations), 
a similar situation to 1988. The utilization of payment 
appropriations, however, was only 63,9 %, down from 
78,7 % (of finally available appropriations) in 1988. The 
main reasons for this reduction was a slowdown in the use 
(4) See Chapter 3 of this report. 
12. 12. 90 Official Journal of the European Communities 99 
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100 Official Journal of the European Communities 12. 12. 90 
of payment appropriations in Chapter 46, concerning 
structures projects committed between 1982 and 1986, 
from 86,3 % in 1988 to 53,9 % in 1989. 
5.5. Commitment appropriations of Chapter 42 (Inter­
national Fisheries Agreements) are referred to in 
paragraphs 1.89 and 1.90 of Chapter 1 of this report. 
Inactive projects 
5.6. As part of its examination of the use of payment 
appropriations the Court examined in depth a sample of 
81 projects committed under Council Regulation (EEC) 
No 2908/83 of 4 October 1983 (5) between 1983 and 1986, 
on which no payments were made in 1989. The Court 
found that of these projects, 39 were either cancelled at 
the end of 1989, or were in the final stages of being 
cancelled. Most of these projects concerned Italy 
although the 1986 projects included several from Spain. 
In all 39 cases no payments were made. On the basis of the 
information available at the time of the audit, it is likely 
that at least 20 % of the 239,1 Mio ECU committed 
under Council Regulation (EEC) No 2908/83 will be 
cancelled. 
5.7. The above situation gives rise to the following 
observations: 
(5) Council Regulation (EEC) No 2908/83 of 4 October 1983; 
OJ L 290, 22.10.1988, p. 1 and Commission Regulation 
(EEC) No 378/84 of 13 February 1984; OJ L 46, 16.2.1984, 
p. 11. (a) the procedures followed for cancelling a project are 
excessively slow. It is most unsatisfactory that 
commitments in respect of such projects should 
remain unused in the accounts for five years; 
(b) excessive delays in cancelling projects and with them 
the related budgetary commitments is one of the 
factors contributing to the excessive provision of 
payment appropriations each year in the budget, 
leading to inevitable under-utilization of payment 
contributions; 
(c) it is cause for concern that at a time when not all 
projects submitted for financing could be accepted 
because of lack of funds, 20 % or more of the funds 
available will eventually remain unused: this in­
dicates that the procedures for screening projects in 
the Member States primarily concerned (Italy, 
Spain), are inadequate. 
5.8. To some extent, the revised procedures provided 
for in Council Regulation (EEC) No 4028/86 of 18 
December 1986 (6) and the associated implementing 
regulations in respect of projects committed in the period 
1987-91 should improve the follow-up of projects. It 
remains essential, however, that the Commission acts 
quickly to deal with projects as soon as there are 
indications that they are not going ahead and that 
Member States should respond to reminder telexes from 
the Commission. 
(6) Council Regulation (EEC) No 4028/86 of 18 December 
1986; OJL 376, 31.12.1986, p. 7. 
12. 12. 90 Official Journal of the European Communities 101 
CHAPTER 6 
European Agricultural Guidance and Guarantee Fund, 
Guidance Section (EAGGF-Guidance) 
6.0. TABLE OF CONTENTS 
Introduction Paragraph 
reference 
6.1 
The system of aid for investments in agricultural holdings set up by 
Regulation (EEC) No 797/85 of 12 March 1985 on improving the efficiency of 
agricultural structures 
Introductory remark 
Main elements of the system of aid examined 
Conditions for granting the aid 
Objectives of the aid 
Scope of the audit performed by the Court 
Remarks relating to the regulations 
Community provisions 
National implementing provisions 
Specific remarks on the aid for carrying out plans to improve agricultural 
holdings 
Balance between aid requested and appropriations available at 
national level 
Form and content of the improvement plans 
Labour income per man-work unit (MWU) 
Adequate occupational skill and competence 
Keeping of accounts 
Restrictions regarding the milk production sector 
Community reimbursements 
Nature of the aid recipients and the investments 
Specific remarks relating to aids to young farmers 
Installation of young farmers 
Occupational skills of the young farmer 
Evaluation of the results of the aid 
Conclusion 
Forestry measures financed by the Guidance Section of the EAGGF in the 
context of Regulation (EEC) No 269/79 of 6 February 1979 
Introduction 
The legal framework 
The measures 
The objectives 
Nature of the operations 
National implementing programmes 
Observations 6.3 
6.4 
6.4 
6.5 
6.5 
6.8 
6.9 
6.12 
6.12 
6.15 — 6.78 
— 6.8 
— 6.7 
— 6.11 
— 6.21 
— 6.14 
— 6.21 
6.22 — 6.67 
6.22 
6.28 
6.33 
6.43 
6.46 
6.51 
6.55 
6.64 
6.68 
6.68 
6.71 
6.72 
6.75 
6.79 
6.79 
6.84 
6.84 
6.86 
6.87 
6.88 
6.89 — 6.27 
— 6.32 
— 6.42 
— 6.45 
— 6.50 
— 6.54 
— 6.63 
— 6.67 
— 6.71 
— 6.70 
— 6.74 
— 6.78 
— 6.127 
— 6.83 
— 6.94 
— 6.85 
— 6.94 
102 Official Journal of the European Communities 12. 12. 90 
Implementation, monitoring and checking of the measures 
State of financial and physical implementation 
Observations on the implementation of the measures 
Observations on the monitoring and checking 
At Commission level 
At the Member States' level 
Conclusion 6.95 
6.95 
6.97 
6.114 
6.114 
6.119 
6.122 — 6.121 
— 6.96 
— 6.113 
— 6.121 
— 6.118 
— 6.121 
— 6.127 
General conclusion 6.128 —6.130 
INTRODUCTION 
6.1. The main observations concerning the legality, 
regularity or detailed rules for the presentation in the 
accounts of the operations charged to the part of the 
budget relating to the EAGGF-Guidance Section are set 
out in Chapter 1 of this report (see in particular 
paragraphs 1.87 and 1.88). adopted. Save where otherwise specified, this report deals 
with the provisions applicable in 1988, because the 
Community payments made in 1989 correspond to 
national expenditure incurred in 1988. 
Main elements of the system of aid examined 
6.2. The situation regarding the commitments and the 
payments of the financial year in relation to the 
appropriations of the original budget and the final 
appropriations available is summarized in Table 6.1. Conditions for granting the aid 
6.3. In this Chapter, the Court looks — largely from the 
point of view of sound financial management — at two 
topics which were chosen in 1989 for in-depth study, 
namely the system of aid for investments in agricultural 
holdings and the forestry measures financed by the 
Guidance Section of the EAGGF. 6.5. The system of aid for investments in agricultural 
holdings, which was the subject of the Court's audit, is 
provided for in Title I of Regulation (EEC) No 797/85. 
This Title relates to general aid governed by Articles 2 to 6 
of the Regulation and special aids for young farmers 
governed by Article 7. The general aid is reserved for 
holdings where the farmer: 
(a) practises farming as his main occupation; 
THE SYSTEM OF AID FOR INVESTMENTS 
IN AGRICULTURAL HOLDINGS SET UP 
BY REGULATION (EEC) NO 797/85 OF 
12 MARCH 1985 ON IMPROVING THE 
EFFICIENCY OF AGRICULTURAL 
STRUCTURES (b) possesses adequate occupational skill and com­
petence ; 
(c) submits to the competent national administration a 
plan for materially improving his holding; 
Introductory remark (d) undertakes to keep simplified accounts (Article 2(1)). 
6.4. Council Regulation (EEC) No 797/85 of 12 March 
1985 (!) on improving the efficiency of agricultural 
structures has been amended many times since it was 
(!) OJ L 93, 30.3.1985. Furthermore, the holding's labour income per man-work 
unit (M WU) must be less than a reference income fixed by 
the Member State and the improvement plan must not 
provide for a labour income in excess of 120 % of the 
reference income (Article 2(2)). No aid may be granted in 
the egg and poultry sector and special restrictions are 
12. 12. 90 Official Journal of the European Communities 103 
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104 Official Journal of the European Communities 12. 12. 90 
imposed in the milk and pigmeat sectors (Article 3(3), (4) 
and (5)). The value of the aid, limited to a total investment 
of 60 000 ECU per MWU and 120 000 ECU per holding, 
may not exceed 35 %, or in less-favoured areas 45 %, of 
the amount of the investment in the case of investments in 
fixed assets and 20 % and 30 % respectively in the case of 
other types of investment. These percentages are in­
creased by 10 points, however, in Spain, Greece, Ireland, 
Italy and Portugal (Article 4). The restrictions specified 
here (ceilings and percentages) relate to aid qualifying for 
partial reimbursement by the EAGGF-Guidance. In 
some cases (in particular for the construction of farm 
buildings), the Member States may pay higher amounts of 
aid, but the part of this aid which is in excess of the limits 
in question will not be reimbursed by the Community 
(Article 8). 
6.6. Special aids for young farmers, which, unlike the 
general aid, the Member States are not obliged to 
introduce, are intended for persons who: 
(a) are under 40 years of age; 
(b) set up on a holding and practise farming as their main 
occupation; 
(c) at the time of their installation or at the latest two 
years later possess occupational skills of a satisfactory 
level. 
6.7. These special aids may comprise: 
(a) a single premium of a maximum amount of 7 500 
ECU, as a capital sum or as an interest-rate subsidy; 
(b) an interest-rate subsidy of a maximum of 5 % for 15 
years on loans taken out with a view to covering the 
costs arising from the installation; the capitalized 
value of the subsidy may not exceed 7 500 ECU; 
(c) an additional investment aid representing not more 
than 25 % of the aid granted to the improvement plan 
provided that this is submitted within five years of the 
installation. 
Objectives of the aid 
6.8. Pursuant to Article 2 of Regulation (EEC) No 
797/85, the overall objective of the aid for investments is 
'to contribute to the improvement of agricultural incomes and of living, working and production conditions on 
agricultural holdings'. Article 3 also states the specific 
objectives of the assisted investments: 
(a) 'the qualitative improvement and conversion of 
production in line with market requirements'; 
(b) 'the adaptation of the holding for the purposes of 
reducing production costs, improving living and 
working conditions or saving energy'; 
(c) 'the protection and improvement of the environ­
ment'. 
With regard to the special aids for young farmers, 
Regulation (EEC) No 797/85 does not define any special 
objective, apart from that of encouraging installation. 
Scope of the audit performed by the Court 
6.9. In 1989 the Court examined the way in which the 
system of aid described above was applied in certain 
regions of six Member States (FR of Germany, Spain, 
France, Ireland, Italy and the United Kingdom). 
6.10. The Court's audit, based on an examination of the 
management systems and of a sample of files relating to 
the aid paid, concerned the expenditure incurred by the 
Member States in 1988 and reimbursed by the Commis­
sion in 1989. Payments borne by the EAGGF-Guidance 
relating to the measures scrutinized amounted in 1989 to 
133,4 Mio ECU for all the Community, which cor­
responds to 30 % of the total payments under Regulation 
(EEC) No 797/85. 
6.11. In the following paragraphs, the comments arising 
from the audit are preceded by an analysis of the 
problems posed by the terms of the Community and 
national provisions governing the aid examined. This is 
because it has been found, as a result of the on-the-spot 
audit inquiries, that these same problems are reflected in 
concrete terms in the implementation of the system of aid. 
12. 12. 90 Official Journal of the European Communities 105 
Remarks relating to the regulations 
Community provisions 
6.12. Regulation (EEC) No 797/85 expresses the 
objectives of the system of aid and the conditions for 
implementing it in vague and imprecise terms, without 
any reference to the special, practical needs of the many 
sectors comprising today's very diversified farming 
community. Because of the vagueness of the terms of the 
Regulation, it is not possible to identify the Community 
agricultural development policy of which it should be the 
instrument. There are no operational criteria for selecting 
potential aid recipients and no priorities are determined. 
The Community has at its disposal specific information 
and analysis aids, such as the Farm Accountancy Data 
Network (FADN), the audits on the structure of 
agricultural holdings and the sizeable body of statistics 
regularly drawn up by Eurostat. Nevertheless and 
notwithstanding that it manages the agricultural markets 
directly, it has determined neither the types of agricultural 
holdings which could, by virtue of their size, labour 
composition, capital, equipment, crops, level of produc­
tion, etc., help to improve the efficiency of structures 
advocated by the Regulation, nor the investments which, 
in the present state of Community agriculture, are most 
needed in order to achieve the desired improvement. Even 
the introduction in 1988 of a reference, in the text of 
Article 2 of the Regulation, to 'agricultural holdings 
which have a family character' has not provided a clear 
indication of a Community choice or priority, since the 
Member States have merely been 'authorized' to 'restrict' 
the system of aid to this category of holding (2). 
6.13. Other expressions in this Regulation have a 
hollow ring to them: for example, the objective of 
'conversion of production in line with market re­
quirements' (Article 3(1)), bearing in mind that a specific 
system of aid for the conversion of production, provided 
for in Title 3 of the same Regulation, has not been applied 
because the Council has not been able to define the 
products towards which production 'may be converted' 
(Article lc). 
6.14. The general lack of preciseness in Title 1 of 
Regulation (EEC) No 797/85 makes it impossible to draw 
any conclusions as to the extent to which Community 
objectives have been achieved and prevents any genuine 
analysis of the implementation of suitable means for 
achieving such objectives. 
(2) Council Regulation (EEC) No 1137/88 of 29 March 1988 
(OJ L 108, 29.4.1988). National implementing provisions 
6.15. The systems of aid provided for by Title 1 of 
Regulation (EEC) No 797/85 must formally be im­
plemented by national provisions, which are subject to a 
two-stage procedure of approval by the Commission: 
first, an opinion on the draft provisions, which the 
Member States are obliged to forward to it (Article 24), 
and then, once these provisions have been enacted by the 
Member States concerned, a decision confirming that 
they comply with the Regulation and, consequently, that 
they satisfy the conditions for a financial contribution by 
the Community (Article 25). 
6.16. In this respect, the Court found that in most cases 
the national legislative texts confined themselves to 
adopting the terminology of the Regulation, without 
adding any further explanations. This attitude is under­
standable on political and legal grounds. The fact is that if 
the Member States amend, restrict or supplement the 
substance of the system of aid, they run the risk of the 
validity of the national provisions being disputed because 
they do not comply with the Regulation. This risk is not 
just a theoretical one, as demonstrated by the Court of 
Justice's judgment (3) on the application of the similar 
system of aid set up by Council Directive 72/159/EEC of 
17 April 1972 (4). From a political point of view, it is hard 
to imagine any Member State setting about giving a 
restrictive application to such a general system of aid. If it 
did, it would in effect be giving all its farmers less easy 
access to aid than the farmers of other Member States 
which had not chosen to apply the Regulation in a 
restrictive manner. 
6.17. With regard to the Commission's examination of 
the national provisions, this relates mainly to whether 
they comply formally with the conditions laid down in the 
Regulation. 
6.18. It is essential for the effectiveness of the aid for 
investments in holdings, for example, for the farmer to 
submit a valid improvement plan. A model of the plan to 
be submitted by aid applicants, however, is often not even 
part of the provisions submitted to the Commission; this 
shows that the Commission's examination does not 
involve a technical evaluation of the validity of the model 
plan. 
6.19. Moreover, the fact that the Community measures 
cannot actually come into force until they have been 
reproduced in national provisions which are in turn 
subject to a two-stage examination by the Commission, 
means that there are delays, which, given the regional 
structure of some Member States (there are not just 12 
(3) Judgment of 18 December 1986 in Case 312/85 (Reports of 
Cases 1986, p. 4039). 
(4) OJL 96, 23.4.1972. 
106 Official Journal of the European Communities 12. 12. 90 
national legislations but dozens of them, depending on 
the degree of legislative competence of the various 
regions), lead to a fragmented implementation of 
Community measures both geographically and chronolo­
gically and to possible distortions of their effects. By way 
of example: in 1990, the procedure relating to the 
legislation of some Italian regions had still not been 
completed and the farmers in these regions were thus, in 
principle, excluded from receiving aid under these 
Community measures. It must also be noted that the 
problems described above arise every time a major 
amendment is made to the Regulation, since this once 
again sets in motion the procedure in question. 
6.20. This being so, the Court is obliged to question the 
need for and the value, for sound management of the 
measures, of the cumbersome procedure of the Commis­
sion giving formal approval to national provisions. This 
procedure could be abandoned in favour of direct 
implementation of the Regulation, in keeping with its 
legal nature as a directly applicable instrument. 
6.21. Moreover, the task of checking that the conditions 
which allow Community reimbursement of part of the aid 
granted by the Member States have been complied with 
should be carried out by means of simpler but more 
effective procedures, including notification to the Com­
mission of any national provisions which may supple­
ment the Regulation, and also on-going consultation 
between national and Community administrations about 
any problems of interpreting and applying the rules. The 
fact is that the present procedure may even contribute to 
irregular applications of the Regulation, for example in 
those cases (see paragraphs 6.66 and 6.71) where the 
Commission has mistakenly declared the national 
provisions to be in compliance with the conditions. 
Specific remarks on the aid for carrying out 
plans to improve agricultural holdings 
Balance between aid requested and appropriations 
available at national level 
6.22. The application in the Member States of the 
system of aid for investments in agricultural holdings may 
come up against difficulties of national financing. 
6.23. It was found that in the Italian region of the 
Abruzzi the fact that the region's available budgetary 
funds were exhausted meant that in 1989 the right to 
submit improvement plans was suspended and, for part of the region, even the granting of aid for investments 
provided for by plans already approved was suspended; 
furthermore, the funds required for carrying out the plans 
already submitted put a burden for years on the use of 
future budgetary appropriations. There therefore arises a 
de facto situation comparable to the non-application of 
the system of aid, which, in view of the fact that it is 
compulsory, constitutes an infringement of the Regu­
lation. 
6.24. In Piedmont, in order to tailor the aid requested to 
the appropriations available, the regional administration 
allows applications for aid to be submitted only within 
certain periods of time, which are announced, moreover, 
with little advance notice. Furthermore, the possibility of 
submitting applications for aid may be reserved for 
certain categories of farmers (first installation, other 
young farmers, mountain and hill areas). This system, 
imposed by the undeniable constraints connected with the 
limitation of national appropriations, does not in itself 
constitute the ideal solution for allowing farmers to plan 
and carry out investments at the best time for their 
holding. Also, restricting the aid to certain priority 
categories of farmers, which would, however, be a valid 
decision in terms of rational management of the system, 
does not appear to comply with the terms of the 
Regulation, which 'authorizes' only one restriction, in the 
already mentioned case of family-run holdings. 
6.25. In other Member States, it appears to be easier to 
strike a balance between the amount of aid requested and 
the appropriations available, either because the level of 
their agricultural structures is already more developed 
(Bavaria) or because the farmers have a smaller capacity 
for investment (Spain). 
6.26. In the event of requests for aid well in excess of the 
available appropriations, a balance should be achieved by 
selecting the plans most in keeping with agricultural 
development priorities, which should be defined be­
forehand. Since no priorities of this kind are laid down by 
Regulation (EEC) No 797/85, however, the Member 
States' authorities are not as a rule willing to choose 
between plans which comply formally with the terms of 
the Regulation, for fear that a decision excluding some 
plans might not have a firm legal basis. 
6.27. The problems described above ought to be solved 
by the Community's defining precise objectives and 
priorities worked out in advance and by fixing, in 
conjunction with the Member States, the financial means 
required for attaining them. 
12. 12. 90 Official Journal of the European Communities 107 
Form and content of the improvement plans 
6.28. According to Article 2(1) and (4) of Regulation 
(EEC) No 797/85, the improvement plan must contain at 
least: 
(a) a description of the initial situation; 
(b) a description of the situation upon completion of the 
plan, drawn up on the basis of an estimative budget; 
(c) an indication of the measures and in particular the 
investments planned; 
(d) specific calculations showing that the investments are 
justified from the point of view of the situation of the 
holding and its economy and that completion of the 
plan will bring about a lasting and substantial 
improvement in that situation, and in particular in the 
income per MWU. It is permissible, however, for a 
plan simply to maintain the present level of income: 
in this case, the reimbursement to be borne by the 
EAGGF is reduced by 20 %. 
6.29. The plan is the key element of the system of aid: it 
is therefore essential that its structure and content 
constitute a reliable, rational and objective justification 
for the planned investments. Everything must be done to 
avoid situations arising where the plan is reduced to an 
extra formality to be carried out, where, once one 
investment or another has been decided, it is always 
possible to produce a corresponding plan, and where the 
result to be aimed at (for example, increasing the labour 
income per MWU) can always be attained, on paper, by 
applying suitable evaluation and calculation methods. 
6.30. The audits performed by the Court prove that 
these situations are frequently not avoided. 
6.31. The form of the plan varies considerably from one 
region of the Community to another. In Bavaria, the 
Abruzzi and the Val d'Aosta, the plan is a voluminous 
form, which requires, for the periods prior to and after the 
execution of the investments, a detailed description of the 
areas, the other property comprising the undertaking and 
the available, requisite workforce, an analytical statement 
of the factors necessary for establishing the gross margins 
per crop and per type of livestock reared, the fixed costs, 
including the financial ones, the debts, the holding's 
income and the labour income. In Piedmont, the plan 
supplies details of the holding's assets and gross 
production, but no information concerning the margins, 
costs or income. In the United Kingdom, the plan 
contains summary declarations by the farmer (total 
agricultural income, number of hours' labour necessary 
for managing the entire holding, total increase in income after implementing the plan), devoid of any analytical 
justification. In the other Member States visited, the 
model plans fall somewhere between the two extremes 
referred to above: the essential data are there, but in a 
rather concentrated form. 
6.32. Moreover, even in the case of the most complete 
form, the value of the plan's forecasts depends on the 
reliability of the data and the evaluation methods 
employed. It is common knowledge, for example, that in 
some Member States it is particularly difficult to check on 
the areas actually owned, leased or worked under other 
arrangements by farmers. If the farmer has not kept 
accounts during the period prior to submission of the 
plan, the results of his management may only be 
estimated and the value of the estimate depends on 
knowledge of the holding and of the farmer's personality. 
It may be difficult to ensure the accuracy of the plans' 
contents where there is a system such as that applied in the 
Italian regions visited, where the administration does not 
help the farmer to draw up the plan, this being the task of 
private consultants or professional associations. The 
competition between these persons or bodies makes it 
unlikely that a farmer would be advised against submit­
ting a plan, even though his real investment capacity and 
the likelihood of profitability were doubtful; further­
more, it cannot be excluded that, in some cases, the data 
and estimates are suitably 'adjusted' in order to satisfy the 
formal conditions for obtaining aid. 
Labour income per man-work unit (MWU) 
6.33. One of the main factors which the plan must make 
clear is the level of labour income per MWU before and 
after its completion. In 1988, the increase in this income 
involved a financial advantage for the Member States, in 
terms of a higher rate of reimbursement by the EAGGF 
(see paragraph 6.28). 
6.34. There is no definition of the term 'man-work unit' 
to be found anywhere in Community legislation. 
Depending on the region, this term has been considered to 
be equivalent to a certain number of hours of work per 
year (2 300,1 920,1 500 or 1 168) or days of work per year 
(287, 250). 
6.35. It is accepted that the number of MWUs does not 
have to correspond to the number of people working on 
the holding: for instance, a plan may state that two 
persons carry out work corresponding to five MWUs. 
Taking into account a number of MWUs higher than the 
number of workers actually present on the holding 
reduces the value of the labour income per MWU and a 
reduction of this kind may be useful, in some cases, in 
108 Official Journal of the European Communities 12. 12. 90 
demonstrating that this income is lower than the reference 
income and that the holding therefore qualifies for aid. 
6.36. As for determining the labour income per MWU, 
the calculation methods applied in the Member States 
differ widely one from another, and in many cases it is 
doubtful whether the increase in this income, which is 
stated in the plan, is genuine. 
6.37. Regulation (EEC) No 797/85 does not restrict the 
scope of the expression 'labour income' to the labour of 
the farmer and his family: consequently, according to the 
method of calculation usually used, if the farmer employs 
paid staff the gross wages are included in the calculation 
basis for the labour income per MWU. However, in 
France the gross wages of up to and including only three 
MWUs are taken into consideration and the rest is 
regarded as running costs; in the Abruzzi and the Val 
d'Aosta the gross wages are regarded only as costs. The 
first calculation method, whilst in keeping with the spirit 
of the Regulation, usually results in a reduction in the 
farmer's labour income, which, in some situations, may 
be useful in showing that this income is lower than the 
reference income above which aid is not granted. The 
advantages of the two other methods for determining an 
increase in the farmer's income are obvious. 
6.38. In general, the holding's total labour income is 
obtained by deducting from the agricultural income an 
amount corresponding to the return on the capital 
invested in the holding. The methods for calculating the 
capital and its return, which vary widely according to the 
region (from a fixed, invariable standard amount to the 
application of interest rates specific to the real estate and 
to the other elements of the assets), may make the 
mathematical determination of an increase in the labour 
income easier. For example, according to one of the 
methods applied in Bavaria, the debts contracted by the 
farmer in order to carry out the plan are regarded as 
reducing his capital. In this specific case, the value of the 
capital is obtained by multiplying the holding's income by 
a fixed figure and deducting from the product of this 
operation the total amount of the farmer's debts. Since 
this amount is higher after the plan has been completed, 
the capital and the return thereon are automatically 
reduced and the share of the labour income in the total 
income is increased. It is thus easy to establish an increase 
in the labour income even where there has been a 
reduction in the holding's income. 
6.39. In Piedmont, the labour income is evaluated by 
the regional authorities by applying pre-determined 
coefficients, derived from a study of the results of earlier 
development plans provided for by Directive 72/159/ 
EEC, to the value of the holding's gross production. Since 
the coefficient relating to the final situation is systemati­cally higher than that used for calculating the income at 
the outset, the increase in the income is always assured. 
6.40. The increase in the labour income per MWU may 
be accompanied by a reduction in the income of the 
holding, due to new financial costs (non-subsidized part 
of the interest on borrowings) and higher depreciation 
charges (corresponding to the value of the new invest­
ments) not offset by a rise in production, which may be 
forbidden, as in the milk sector, or difficult to achieve in 
view of the present state of Community agriculture. In 
this case, if the plan provides for a reduction in the hours 
of work which is more than proportional to the reduction 
in the overall income, an increase in the income per MWU 
may be achieved, even though the income available to the 
farmer and his family after completion of the plan is lower 
than before. 
6.41. In some Member States all the plans (Ireland, 
Italy, United Kingdom), or almost all (France), are 
supposed to achieve an increase in the labour income per 
MWU; in two Member States (Spain, France) the 
compulsory minimum rate of increase is 15 %. It is 
doubtful whether an across-the-board increase in income 
of this kind can really be achieved. 
6.42. The determination, by an improvement plan, of 
the increase in or mere maintenance of the labour income 
per MWU seems to depend largely on the methods of 
calculation used or on the positions of principle adopted 
by the national authorities and there is no guarantee that 
all the cases declared by the Member States as qualifying 
for the higher rate of reimbursement corresponded to 
objective, indisputable forecasts for income increases. 
Adequate occupational skill and competence 
6.43. A farmer who submits an improvement plan must 
possess 'adequate occupational skill and competence', to 
be determined by the Member States 'by reference to the 
standard of agricultural training received and/or to a 
minimum period of farming experience' (Regulation 
(EEC) No 797/85, Article 2). 
6.44. In practice, in all the Member States, where the 
farmer has not completed specific vocational studies, a 
minimum period of farming is supposed to give him 
'adequate occupational skill and competence'. The 
minimum period required lasts between two and 10 years, 
depending on the Member State. There is no justification 
for such a disparity between the conditions supposed to 
ensure 'adequate occupational skill and competence'. An 
improvement in the conditions of production is based on 
agronomic techniques and management methods in 
general use. The level of occupational skill needed to 
12.12.9a] Official journal of the European communities 109 
manage an agricultural holding efticiently certainly does 
not ditler much from one member State to another. 
o^5. I^he fact that the member States are free to 
determineastheywishwhatthee^pression^occupational 
skillsHnfarmingmeanscontradicts^moreoventheetforts 
mademn particular on the basis ofArticles 57 and 128 of 
the Treaty^ to achieve harmonization of vocational 
training in the community. 
^eeeu^ot^ccoBBt^ 
o.4o. Thesystem of aidfor development plans set up by 
Directive 72^159^P^ made it compulsory for every aid 
recipient to keep detailed management accounts. ^Vhen 
tlussystemwas reorganized byRegulation^P^^l^o 
797^85^, this obligation was downgraded to the level of 
^implitledaccounts^recording of revenue and e^pendP 
ture^ annual balance sheet of assets and liabilities^. 
oB47. In the member States visited^ enforcement of this 
requirement to keepaccountsrangesfrommereformality 
t^aform which the farmer has to till outandkeepathome^ 
to the keeping of proper management accounts^ the 
results of which have to be submitted to the adminis^ 
tration every year. 
o.48. The duration of the obligation ranges^ according 
to the member Stated f^omaminimum equivalent to ^ust 
the period ofimplementing the plan t^two to three years^ 
toama^imumoflOyears. 
^9. l^oneof thenationaladministrationsmakesa 
study of the accounting results in order to determine the 
economic and tinancialetlects of carrying out the plan. 
o.50. aPhefact that the provisions of theR.egulation 
have very little binding etfect and the often somewhat 
formal manner in which they are applied are in striking 
contrast to the solemn assertion in the lifth recital of the 
regulation that dheonlyholdingscapableofad^ustingto 
economic conditions willbe those on...whichprotit^ 
ability is verified by accounts^. 
^e^h^c^oB^^e^^B^tBeBut^B^oduc^oB^ecto^ 
o51 Pursuant to Article 3^ ofloegulation^P^oP^o 
797^85^ aid must not be granted for investments relating to milk production where these may have the eftect of 
e^ceedingthereferencequantityallottedtoeachproducer 
under the milk quota scheme. 
o.52. In Italy^notasingle individual reference quantity 
had been allotted by the end of 1988. If no reference 
quantity is ti^ed^ it is impossible to know whether an 
investment relating tomilkproductionmay have the 
effect of exceeding suchaquantity.Lhe failure to apply 
the milk quota scheme should have meant^ consequently^ 
that it was impossible to grant aidfor investments in the 
milk production sector. Aid of this kind has^howeven 
been paid in Italy^ without the commission disputing its 
conformity with community rules. 
o.5^. C^f the two regions visited whichhavealarge milk 
productions one financed investments which usually 
involved an increase in milk production and the other 
introduced intoitslegislationasubsequent restrictions 
namelyaban on increasing the number of dairy cows in 
relation to thenumberinl98^.Lhenumberof dairy cows^ 
however is not equivalent to the quantity of milk 
produced^ which also depends on other factors, 
^ioreoven the audits show that even this alternative 
restriction has not been applied strictly and that plans 
involving an increase in the number of dairy cows have 
been financed. 
0.54. A situation similar to that found in Italy is 
occurring in Spain where regulation t^E^^ l^o797^85 
has beenappliedsince!989.Ithasbeenfoundthatin that 
year in Cialicia no reterence quantities were detinitively 
allocated but investments in the milk sector were 
financed. 
^OBUBBB^y^eBBBB^eB^eBt^ 
0.55. The Val d^Aosta^s regional law implementing 
regulation ^P^^ l^o797^ adopted on 18 August 
198o^was the subject ofaC^ommission decision on 28 
December 1987 within the meaning of Article 25 of 
regulation t^C^ ^o 797^85 In this decisions the 
commission considered that the parts ofthe law relating 
to aid for improvement plans and for the installation of 
young farmersdid notcomply withthe regulations 
provisions.The aid paid by the region was nevertheless 
reimbursed by the ^ACrCrF guidance Section to the tune 
of0^9^vIioPC^Il.Phe commission has failed to abide by 
Article 27^ of regulation ^^^^o797^under 
which measures are not eligibleforatinancialcontri 
butionfromtheC^ommunityunlessafavourable decision 
hasbeengivenbeforehand in respectof the measures^ 
compliance with the regulations provisions 
110 Official Journal of the European Communities 12. 12. 90 
6.56. National provisions for implementing the system 
of aid for investments in agricultural holdings were 
adopted in Spain in 1987 and 1988 and were approved by 
the Commission on 24 July 1987 and 1 December 1988. 
By 1 December 1988 at the latest, a legislative structure 
had been set up enabling Regulation (EEC) No 797/85 to 
be applied and the procedure provided for in Articles 24 
and 25 of the Regulation had been completed. 
6.57. By a subsequent decision of 15 December 1988, 
however, the Commission considered that a series of 
national provisions adopted outside the framework of 
Regulation (EEC) No 797/85 and, for the most part, 
already in force at the time of accession, also satisfied 'the 
conditions for a financial contribution by the Community 
to measures eligible under the Regulation' (Decision 
89/114/EEC, Article 1) (5). The fact is that the reimburse­
ments borne by the EAGGF-Guidance in 1989 concern 
expenditure relating to these purely national measures, 
which, contrary to the tenor of the Commission's 
decision, are in reality often far removed from the 
conditions for granting aid laid down by the Regulation. 
Moreover, at the time the Commission approved them, 
these measures had already been expressly repealed by the 
specific provisions adopted in order to implement 
Regulation (EEC) No 797/85, whereas if they had truly 
complied with the Regulation they could have been 
accepted as 'existing provisions which may make it 
possible to implement the Regulation' (Article 24(1), 
second indent, of Regulation (EEC) No 797/85), without 
having to be replaced. 
6.58. The audits performed by the Court have revealed 
that a large number of aids which have received EAGGF-
Guidance reimbursement relate to expenditure which it is 
difficult to regard as an investment: the mere replacement 
of cows suffering from tuberculosis or brucellosis, in the 
context of improving the health of cattle ('saneamiento'); 
even the replacement of a single cow has been regarded as 
a measure comparable to an improvement plan. Further­
more, the audit inquiries also found cases of aid for 
setting up electricity networks (laying of medium-voltage 
and low-voltage power lines to serve hamlets still without 
electricity), which relate to general infrastructure and not 
to investments in agricultural holdings. In the Com­
munity context, special provision is made for financing 
this type of infrastructure (Council Regulation (EEC) No 
1760/78 of 25 July 1978 and, for Spain, Council 
Regulation (EEC) No 1118/88 of 25 April 1988) (6). 
(5) OJL43, 15.2.1989. 
(6) OJ L 204, 28.7.1978 and OJ L 107, 28.4.1988. 6.59. In most of the cases, there is no improvement plan 
within the meaning of Regulation (EEC) No 797/85: it is 
only for some aids based on the 'ley de explotacion 
familiar agraria y de los agricultores jovenes' (law on 
family-run farms and on young farmers) (Law No 
49/1981) that 'modernization plans' are to be found 
which are comparable to those provided for by Regu­
lation (EEC) No 797/85. 
6.60. According to the type of national measure applied 
and according to the competent administration, the 
labour income has been regarded as systematically 
increased once the work has been completed, or else its 
level has been established on the basis of flat-rate 
calculation criteria. In any case, determining the effects of 
the investments on the labour income was not usually a 
precondition for granting national aid. 
6.61. It may be concluded that much of the aid granted 
in Spain between 1986 and 1988 and reimbursed by the 
Commission under Article 4 of Regulation (EEC) No 
797/85 does not satisfy the material conditions laid down 
by the Regulation (improvement plan showing by means 
of specific calculations that its completion will bring 
about a lasting and substantial improvement in the 
situation of the holding and in the labour income). 
6.62. Furthermore, the Spanish measures, as national 
measures, were financed at purely national level; the 
Community reimbursement had no influence, not even at 
the stage of national budget forecasts, on the volume of 
expenditure disbursed by Spain. The reimbursements 
paid by the Commission, which amounted to 26,2 Mio 
ECU in 1989, do not therefore constitute a contribution 
to the implementation of a common measure; they are 
rather transfers of funds, justification for which ought to 
have been found outside the system established by 
Regulation (EEC) No 797/85. 
6.63. The situation described has not satisfied the 
requirement of speedy and uniform implementation of 
Regulation (EEC) No 797/85 throughout the Com­
munity. The argument relating to adaptation difficulties 
following accession does not appear to be conclusive in 
this case. The fact is that the obligation to adopt the 
necessary national provisions for implementing Regu­
lation (EEC) No 797/85 is equally incumbent on all the 
Member States and those who have done so belatedly 
have not been able to obtain EAGGF-Guidance re­
imbursement of other national aids, replacing those 
provided for by the Regulation. 
Nature of the aid recipients and the investments 
6.64. The range of persons receiving aid for investments 
in agricultural holdings is very broad because of the lack 
12. 12. 90 Official Journal of the European Communities 111 
of selectivity in the conditions on which aid is granted 
under the Regulation. The extreme cases found by the 
Court range from tiny holdings, which can provide work 
for only a fraction of a MWU (about 30 days' work per 
year), to a 646-hectare holding with 907 cattle and 52 paid 
work units. 
6.65. The nature of the investments per improvement 
plan varies from simple work worth a few thousand ECU 
(land clearing, basic drainage, concrete slabs for silage, 
fences, short unasphalted country roads) to buildings 
costing hundreds of thousands of ECU (fully equipped 
cowsheds, forage driers, etc.). 
6.66. The fact that the system of aid for carrying out 
improvement plans has generally been regarded as a 
measure enabling all kinds of investments relating to 
agricultural production to be financed is particularly 
highlighted by a number of individual cases in Piedmont. 
In that region, on the basis of the regional law 
implementing Regulation (EEC) No 797/85, which was 
approved without any objections by the Commission, 
investments were also financed which had been carried 
out before the Regulation came into force and which, for 
lack of funds, could not be financed on the basis of the 
specific regional laws in force at the time the applications 
for aid were submitted. In these cases, a 'plan' was added 
ex post facto, in order to 'comply' formally with the 
provisions of Regulation (EEC) No 797/85. A plan drawn 
up years after the investments have been completed can 
only be fictitious: the very concept of a 'plan' implies 
future action. 
6.67. Apart from the particular situations described 
above, in most cases the type of aid recipient and the kind 
of investment correspond to the structure of the 
agricultural holdings predominating in the region in 
question. The investments aim to preserve the existing 
structure and to improve the technical conditions of 
production (more modern cowsheds, renewal of orchards 
or of machines, etc.). The concepts of 'adaptation' and 
'conversion', which are scattered about the Regulation 
without ever being defined, are not reflected in any special 
way in the implementation of Title 1 of Regulation (EEC) 
No 797/85. 
Specific remarks relating to aids to 
young farmers 
Installation of young farmers 
6.68. In 1988 the Member States could grant a 'single 
premium', reimbursed by the EAGGF-Guidance up to a limit of 50 % of a maximum amount of 7 500 ECU, to 
farmers under 40 years of age who were setting up on a 
holding where farming was their main occupation and 
who had 'occupational skills' of a satisfactory level at the 
time of their installation or would acquire such skills in 
the following two years. 
6.69. Except in France, where a number of young 
farmers have set up on holdings not belonging to their 
family of origin, almost all the installations concern 
young farmers working on their father's holding. The 
parents may retire from farming at the same time as the 
young farmer sets up on the holding and in this case the 
young farmer effectively becomes the owner and re­
sponsible for managing the holding; but if this is not the 
case the installation may be reduced to a formality 
making it possible to receive the aid. In Spain, for 
example, the installation may consist of a 'collaboration 
agreement' between the parents and their child, which, in 
its minimum form, provides for the son's participation in 
the work on and management of the holding (which he 
normally does already) without fixing any exact remuner­
ation; in France, the collaboration between father and 
son may be formalized by forming an 'agricultural group 
with a joint holding' of which they are the sole members; 
in the Abruzzi, a farmer may be regarded as 'installed' if 
he has signed an unremunerated leasing contract 
('comodato') for a duration of nine years, or a 'delegation 
of management'. In all these cases, there is no transfer of 
the ownership of the holding, the problems linked with 
any future hereditary transfer of the holding remain open 
and the installation covers only the administrative costs. 
It is not clear that an aid which results only in formalizing 
a de facto situation is of any value or even has any 
justification. 
6.70. Council Regulation (EEC) No 3808/89 of 12 
December 1989 (7) has in the mean time amended the 
conditions for granting the single premium by making 
them, at first sight, stricter. It is now required that the 
young farmer set up as 'head of holding'. If this new 
condition were applied strictly, there ought to be a fall in 
the number of installation premiums granted. However, 
the apparent clarity of the new provisions is clouded by 
the remainder of the amended text. The new provisions 
are not applicable as they stand, which would be entirely 
possible, but the Member States have to 'define' them 
subsequently and lay down 'specific conditions in a 
situation where a young farmer does not set up as sole 
head of holding' (Article 7(2) of the amended version). If 
it is accepted that a holding can have an indeterminate 
number of heads, then in the last analysis the installation 
premium could continue to be granted as before: to do 
this, all that would be needed would be to give the title of 
head also to the young farmer who would be installed 
beside the head(s) already there. 
(7) OJL 371, 20.12.1989. 
112 Official Journal of the European Communities 12. 12. 90 
Occupational skills of the young farmer 
6.71. In respect of setting-up aid for young farmers, 
Regulation (EEC) No 797/85 uses the term 'occupational 
skills' of a satisfactory level, based on occupational 
training (Article 7), and for farmers submitting an 
improvement plan it uses the term 'adequate occup­
ational skill and competence', which may be confined to 
mere 'farming experience' (Article 2(1) and (6)). It is 
entirely logical for the conditions applicable to special 
aids for young farmers to be stricter that those relating to 
general aid and for the Commission, consequently, not to 
have considered a provision of the Val d'Aosta's regional 
law to comply with the Regulation since it was 
tantamount to reducing the 'occupational skills' to the 
level of 'occupational skill and competence' (Opinion C 
(87) 201 of 5 February 1987). The Commission has, 
however, accepted a similar provision in Piedmont's 
regional law without raising any objections. In this region 
a young farmer with no specific occupational training is 
eligible for the installation premium, without being 
obliged to acquire this training subsequently, provided 
that he has farmed for at least three years. Since the 
Commission no doubt did not intend to apply two 
different yardsticks, it must be supposed that the 
difference in the appraisal is due to a problem of 
interpretation and of evaluation of the possible impli­
cations of the national provisions. This case illustrates the 
conclusions set out in paragraphs 6.20 and 6.21 above on 
the pointless and even harmful nature of the complex 
procedure of prior approval of national provisions by the 
Commission. 
Evaluation of the results of the aid 
6.72. According to Article 29 of the Regulation, the 
Commission ought to have presented to the Council and 
the European Parliament an annual report based on 
documentation supplied by the Member States. The 
Council for its part ought to have evaluated 'the results of 
such measures, taking into consideration the rate of 
structural development required to achieve the objectives 
of the common agricultural policy, the effect on the 
production objectives of the Community and on the 
harmonious development of the regions of the Com­
munity, and the financial implications of the measures in 
question'. 
6.73. The Commission's report has never been pre­
sented and the Council's evaluation, if made, has not been 
made public. In 1989, Article 29 was deleted as part of the 
reform of the structural Funds. In future, any infor­
mation on the results of this aid will have to be sought in 
general reports on the activities of the three Funds. 6.74. The Member States visited do not make a specific 
study of the effects of the installation premiums and the 
improvement plans on each holding and, at a more 
general level, on the degree of technical development 
achieved by farming, or on any changes in the production 
methods, working conditions or economic structures of 
the regions concerned. 
Conclusion 
6.75. At the level of the individual holding, the aid for 
investments granted on the basis of Regulation (EEC) No 
797/85 serves in most cases to cover part of the costs of 
strengthening the production plant. From a technical 
point of view, the investments subsidized undoubtedly 
constitute an improvement in the recipient holding's 
means of production. 
6.76. At the general agro-economic level, the lack of 
specific objectives and precise selection criteria enabling 
the aid to be directed towards certain types of production 
or certain categories of holding makes it impossible to 
regard the measures in question as being part of a genuine 
policy. As experience has shown, these measures con­
stitute a liberal distribution of aid, from which no 
agricultural holding is a priori excluded. Even the 
stipulation that farmers submit an improvement plan, a 
corner-stone of the system of aid, may be watered down, 
as the results of the audits show, to just an additional 
formality and in any case it never in itself constitutes an 
insurmountable obstacle to obtaining aid. 
6.77. With regard in particular to the installation 
premium for young farmers, it should be clearly 
established whether 'installation' should be taken to 
mean simply practising farming as a main occupation on 
a holding or rather the 'taking-over' or creation of a 
holding with concrete guarantees as to the permanence of 
the holding. The second case necessarily involves costs 
and investments and it would therefore be advisable for 
the premium to be granted only to help cover the costs 
incurred by the installation. 
6.78. There seems to be a clear contradiction, moreover, 
between the vagueness of a financially very important 
measure such as Regulation (EEC) No 797/85 and the 
logic of the recent reform of the structural Funds, which is 
based on the principles of planning, monitoring and 
evaluating the impact of the measures financed. At the 
time of the adaptation (8) carried out in accordance with 
the rules relating to the reform (Regulation (EEC) No 
4256/88, Article 1(3)), none of these principles was 
(8) OJ L 371, 20.12.1989. 
12. 12. 90 Official Journal of the European Communities 113 
introduced into the Regulation. The fact that there is no 
programme which at the very least states the quantitative 
objectives to be attained and which specifically defines the 
structural shortcomings to be eliminated is an additional 
obstacle to assessing the effects on Community agricul­
tural structures of the aid granted on the basis of 
Regulation (EEC) No 797/85. 
FORESTRY MEASURES FINANCED BY 
THE GUIDANCE SECTION OF THE EAGGF 
IN THE CONTEXT OF REGULATION (EEC) 
No 269/79 OF 6 FEBRUARY 1979 
Introduction 
6.79. The Community has been financing forestry 
measures, mainly since 1980, based on a threefold 
approach: forest protection, research in the forestry 
sphere and forest development. 
6.80. Two measures aimed at protecting forests against 
atmospheric pollution and against fires were set up in 
1986 for a period of five years, costing 10 Mio ECU and 
20 Mio ECU respectively. 
6.81. Several research programmes have been launched 
relating wholly or partly to forestry. The total cost may be 
put at about 10 Mio ECU. 
6.82. Forest development measures have been initiated 
in the context of the common agricultural policy, mainly 
by means of assistance from the Guidance Section of the 
EAGGF. This Section at present finances 15 measures 
aimed exclusively or partly at forest development, at an 
estimated cost of over 600 Mio ECU. 
6.83. This part of the Chapter is confined to an 
examination of the forestry measures financed by the 
EAGGF Guidance Section in the context of Council 
Regulation (EEC) No 269/79 of 6 February 1979 (9) and 
its prolongation by means of Council Regulation (EEC) 
No 2088/85 of 23 July 1985 (10). These nevertheless 
represent, in financial terms, the major part of the Community effort to assist forests, i.e. about 420 Mio 
ECU of estimated commitments. The observations 
expressed below result from a series of audit inquiries 
performed in the Commission's departments and in 
various regions of France and Italy up until 1989. 
The legal framework 
The measures 
6.84. Council Regulation (EEC) No 269/79 established, 
as of 1980, a common measure for forestry in certain 
Mediterranean areas, in France and in Italy. This 
measure, which was extended until the end of 1985, was 
continued by Council Regulation (EEC) No 2088/85 of 
23 July 1985 concerning the integrated Mediterranean 
programmes (IMPs), in force until 31 December 1993. 
6.85. In the context of the new objectives assigned to the 
Guidance Section of the EAGGF, Council Regulation 
(EEC) No 1610/89 of 29 May 1989 (n) provides for a new 
measure to develop and optimally utilize woodlands in 
rural areas in the Community. This must be implemented 
in the Member States in the form of operational 
programmes. 
The objectives 
6.86. The objectives of these measures are general. They 
aim to improve, by means of intervention in the forestry 
sector, the geophysical and cultivation conditions which 
hamper agriculture particularly as regards soil and water 
conservation. It should also be noted that they are 
designed to raise the standard of living of the agricultural 
population of the areas concerned. 
Nature of the operations 
6.87. In general, the measures involve afforestation 
work, the improvement of deteriorated forests and other 
supplementary measures. 
(9) OJ L 38, 14.2.1979. 
(10) OJ L 197, 27.7.1985. C11) OJ L 165, 15.6.1989. 
114 Official Journal of the European Communities 12. 12.90 
National implementing programmes 
6.88. The forestry measures must be incorporated into 
national implementing programmes. The Member States 
concerned must submit, on the one hand, a national 
outline programme for the duration of the measure and, 
on the other, special multiannual programmes for one or 
more specific geographical areas covered by the outline 
programme or for a large part of such an area. These 
programmes have to be approved by the Commission. 
Observations 
6.89. The abovementioned Community regulations do 
not set out any clear objectives. Since timber is not 
regarded as one of the products subject to the common 
agricultural policy, it has not been possible to establish a 
genuine forestry policy in the agricultural context. The 
measures, financed by the EAGGF Guidance Section, are 
aimed primarily at objectives which do not specifically 
relate to forestry. There are no precise guidelines on the 
land to be afforested, the woodlands which need to be 
improved or on forestry needs. The end result is therefore 
a confusion between the agricultural and forestry aspects, 
thus allowing any measure relating to forestry in any part 
of the areas defined as eligible. 
6.90. The regulations do not specify which categories of 
work are likely to receive financial assistance. The terms 
'afforestation' and 'improvement of deteriorated forests' 
can cover very diverse situations. It is not specified 
whether the associated or supplementary measures are 
supplementary to the individual afforestation and 
improvement projects or whether they are minor projects 
in relation to more important measures. 
6.91. The national implementing programmes remain 
very vague. There is inadequate information on the 
reasons for the planned work and the arrangements for 
carrying it out. No priority for intervention is specified. 
All the eligible regions listed in the Community regu­
lations are included in their entirety in these programmes. 
6.92. The French outline programme makes provision, 
as preparatory work, for studies of general interest, whose 
results will not be available by the time the special 
programmes start up. The Italian outline programme 
gives forecasts for EAGGF-Guidance aid in ECU and for 
an amount well in excess of the forecast cost of the 
measure for both these countries together. 6.93. The special programmes should have focused 
more on a few projects, as advocated by Article 6 of the 
Regulation. This would have made it possible to follow 
up and check the projects more effectively. Instead, there 
are a very large number of project sites, which vary 
considerably in size and are scattered over several areas. 
The French special programmes contain on average 100 
to 200 project sites; in Italy they are generally divided 
between the Comunita Montane of a region, without any 
indication of the number of sites, but the volume of work 
is more or less the same as in France. These programmes 
do not fully satisfy the conditions stipulated in Article 7, 
they are usually very vague about their justification, the 
objectives to be attained and the technical and financial 
means available. The conditions introduced in para­
graphs 2 and 3 of this Article have not really been 
incorporated. The special programmes submitted do not 
provide an adequate guarantee as to their effectiveness. 
Nor have these programmes given any priority to areas 
which have special difficulties as regards erosion and the 
water-holding capacity of the soil. No preference is 
indicated for areas relating to an important catchment 
area nor are there any precise criteria for selecting the 
work. 
6.94. The lack of clarity in the objectives means that it is 
impossible to check up subsequently on the results of 
these measures. The Commission, for its part, has not 
specified how it intended to evaluate the effects of these 
measures. 
Implementation, monitoring and checking 
of the measures 
State of financial and physical implementation 
6.95. Commitments totalled about 350 Mio ECU and 
payments about 270 Mio ECU at 31 December 1989 for 
36 French and 75 Italian special forestry programmes. 
6.96. The situation regarding physical implementation 
is more difficult to check because the Community 
regulations require only that the Member States send in 
annual reports; these are not all brought together by the 
Commission, a procedure which could show what had 
been implemented to date. The multiannual nature of the 
special programmes does not help to make the infor­
mation any more transparent during the implementation 
of these programmes, which, moreover, are not yet 
finished. 
12. 12. 90 Official Journal of the European Communities 115 
Observations on the implementation of the measures 
6.97. The application of Regulation (EEC) No 269/79, 
which has been finished from the point of view of 
Community commitments, shows cancellations of com­
mitments for virtually all the French and Italian special 
programmes and for relatively high amounts. Where they 
exceed 20 % of the commitments, as in Basilicata, 
Umbria and Campania, for example, there is a clear 
question mark over the value of what has been carried 
out. For the special programmes which have been 
finished, the overall cancellation rate is 4,7 % for France 
and 8,3 % for Italy, corresponding to about 19 Mio ECU 
in all. These cancellations are to a large extent the direct 
consequence of insufficiently precise planning, sometimes 
involving over-estimations. 
6.98. It was also found that some old special program­
mes, in Corsica, Sardinia, Basilicata, Apulia and 
Lombardy in particular, have not yet been closed. These 
delays are due to muddled situations at regional level, for 
which the Commission has in vain asked the Member 
States to bring the work to a close. These programmes will 
undoubtedly lead to further cancellations of commit­
ments. 
6.99. Since forestry work is of necessity multiannual in 
character, given that the various stages of the work are 
spread out over several seasons, the Community aid 
arrangements presupposed that the commitment ap­
propriations would be grouped together at the most over 
the first two budgets concerned. In the event, the 
budgetary authority divided the commitment appropri­
ations into equal parts for the entire duration of the 
measure. This poor synchronization between the in­
tended programmes and the budgetary availability of the 
appropriations has led the Commission's departments to 
grant aid, contrary to the requests of the national officials 
responsible, for special programmes lasting one year, a 
length of time in which it is impossible to complete any 
afforestation or forestry improvement operations; this 
has of course led to problems of the set time-limits not 
being complied with. 
6.100. As a result of the vagueness of the Community 
legislation (see paragraphs 6.89 — 6.94), the forestry 
operations are very dispersed and there are big differences 
in the size and nature of these operations. 
6.101. Article 7(3) of Regulation (EEC) No 269/79 
provides for measures in regions which have special 
difficulties as regards erosion and the water-holding 
capacity of the soil, preferably in important catchment 
areas. The operations are in fact scattered over the whole 
territory of the eligible regions. In general, these measures 
have been carried out in public forests; less work has been done in private forests, which account for the bulk of the 
forest land of these areas and which are for the most part 
in a deteriorated condition. 
6.102. Regulation (EEC) No 269/79 has been continu­
ously implemented in France since 1980. Community aid 
has been in addition to the national assistance already 
available in this field. France has used up about 32 % of 
the commitment appropriations, taking account of the 
cancellations, which roughly corresponds to the proposal 
unofficially accepted at the start of the measure. The 
prolongation of the measures by means of the IMPs is 
accounting for more or less the same proportion of funds. 
New IMP appropriations have been committed in 
Corsica, however, even though the situation is completely 
blocked for the special programmes under Regulation 
(EEC) No 269/79. 
6.103. In Italy, Regulation (EEC) No 269/79 is not 
implemented uniformly, even at the level of the outline 
programme. This outline programme does not try to 
achieve one of the main objectives of the Regulation and 
it is the northern regions which have mainly benefited 
from the aid, even though the priority dry areas are more 
in the south. Thus, Sicily has not implemented any special 
programmes and Campania, Apulia and Calabria have 
carried out only a few measures. The rate of aid is also 
uneven. Only Tuscany has received annual amounts of 
aid, the other regions implemented special programmes at 
the start of the measure in 1980 and then stopped or else 
did not present any new programmes until 1985. This is 
mainly due to uncertainties with regard to national funds 
available and to the sometimes muddled political and 
administrative organization in some regions, which has 
not made it possible to undertake larger projects. It has 
been found that the region of Tuscany stands out clearly 
from the other regions in terms of the volume of aid 
granted: to date it has implemented 20 special program­
mes involving total Community commitments of around 
55 Mio ECU (77 410 Mio LIT, about 25 % of the aid). 
The reasons for the special programmes relating to the 
island of Elba or to the massif of Argentario appear to 
have little to do with the objectives of Regulation (EEC) 
No 269/79. The prolongation of this measure by means of 
the IMPs also favours the northern regions. 
6.104. In France, apart from some work carried out by 
the 'Office national des forets' (National Forestry Board) 
using its own funds or some isolated cases of work done 
by private individuals, all the rest of the work is entrusted 
to specialized forestry firms following an invitation to 
tender procedure. All the necessary mechanical means are 
thus employed. The unit costs have been found to be 
generally lower than the maximum costs laid down in 
Regulation (EEC) No 269/79. 
6.105. In Italy, virtually all the work is carried out with 
State funds with very limited use of machines and 
employing above all a large workforce, which is often 
116 C^fticiallournal of the European Conununities 12 12 90 
elderly and relatively unskilled.Thecosts^ mainly the 
wages^ are higher than the maximum eligible costs.The 
resultsofthework^moreovenarenotalwayssatisfactory. 
This type of major work should have been put out for 
tender to specialized firms at European levels given that 
there are no such companies in Italy.At the same time^a 
resolutevocationaltrainingpolicywouldhavebeenmore 
beneficial to the local economy and to those concerned 
ratherthan this kind ofdisguisedtemporarysocialaid.lt 
isclearthattheauthoritieshaveoptedtotavour^obsfora 
workforce threatened with unemployments at the 
expense of economy and effectiveness. 
6,106, ^Vithregardtoafforestation^theworksinErance 
were carried out with considerable means making it 
possible to ensure positive results in terms of protection 
and production. The works sites^howeven are scattered. 
Even though the latter are supposed to cover areas of at 
leastlOhectares^theeffectivenessofisolatedtreeplanting 
inthemidstofcultivatedlandisdoubtful^evenmoresoin 
lowland areas. In Italy^ much of the planting has been 
done with theaid of small ploughingimplements. In such 
cases^ more difficult growing conditions for the seedlings 
aretobeteared.^oreovenitisvirtuallyneverpossibleto 
check up on the origin and quality of the seedlings^ since 
the payments for them are not eligible for an EACCrE^ 
Cruidance reimbursement. In some regions^ it has been 
noted thataconsiderable number of small plantations^ 
varying between one andlOhectares in size^ are scattered 
around. In this case too^ the set objectives do not appear 
to be truly fulfilled. 
6.107, Theworktoimprovedeterioratedforestsposesa 
special problem^fonintheabsence of any specific details 
about what it hasbeenagreedtotlnanceandtaking 
account of the very poormonitoring by the national and 
Community authorities(see paragraphs 6,11^— 6,121^ 
these terms have been interpreted by the national 
authoritiessothattheyincludeallkindsofforestrywork^ 
in particular dayDtoDday management of productive 
forests (clearing of undergrowth^ treeDfelling), This 
muddledsituationhasundoubtedlyledtothefinancingof 
work whose financial importance is not inconsiderable^ 
given that improvement work constitutes the bulk of the 
work carried out^ and whoseeligibilityandeftectiveness it 
is diftlcult to determine. 
6108 Article2 of Regulation(EEC)No 269/79 
provides^ apart from afforestation and improvement 
measures^ for necessary supplementarymeasures such as 
theconstructionofforestroads^ evacuation workandfire 
protections andfor indispensable specific studies and 
experiments. Phis Article has not been interpreted in the 
same wayinEranceandinItaly,Inmostcasesmn Frances 
the supplementary measures constitute work associated 
with an afforestation or improvement site. In Italy^ this 
type of work was considered independently of the main 
work. There are therefore sites solelyfor one road orfor 
fireprotection.TheCommissionhas not decided between these two interpretations because the rules are vague and 
imprecise. It regarded the implementation in both 
countries as in compliance with the Regulation, The te^t 
of Article 2^ howeven seems to implyalink between the 
main work and the supplementary measures which are 
deemed necessary. 
6,109, With regardtothearbitrarydivision in some 
cases of Italian multiDannual operations into special 
annualprogrammes^ there are specific operations for 
whichitisnotknownwhethertheywill be linked to other 
categories of operations on the same site. Consequently^ 
no overall groupings are available making it possible to 
know what has been done where. 
6,110, With regard to fire protections there isalarge 
variety of operations^ very oftenindependent of the main 
work, Bearinginmindwhathasbeennotedinparagraph 
6,109 above and given the low amount of aid^ 100 u,a,/ 
ha(^somelargeDscaleoperationsdonotalwaysseemto 
be in keeping with Regulation (EEC) No 269/79 A 
specitlc tlre^protection measure has^ moreover^ been 
introduced byCouncil Regulation (EEC) No 3529/86of 
17Novemberl986(^), 
6,111, Theconstructionofforestroadsalsoraisessome 
problems regarding eligibility. Some have been conD 
structed without any other forestry work and their 
purpose has in some cases been to allow the transport 
tationoftimberfromaproductiveforest^oreventobethe 
foundationforafuture road. Since the Commission has 
not issued any specific rules^nodistinctionwas made 
when the costs were defrayed. 
6,112, Lastly^with regard to the preparatory work or 
indispensable specitlc studies and experiments^ it trans^ 
pires that the costs of general studies have been horned 
even though the — belated ^^ results cannot be regarded 
as elements of preparation for the special programmes. 
6,113, The costs of this work are veryoften roughly 
equal to thema^imumeligibleamountsfi^edby the 
Community regulations^ without its always being 
possible to establish and check the e^act costs. The 
division of the costs between the different categories of 
work is usually theoretical^ given that the various 
operations are all linked,The areas covered which are 
declaredfor some types of work^ such as fire protections 
torrent control or related work are difficult to proved and 
very often they are merely the result of dividing the total 
cost by the maximum eligible cost per hectare. 
(^)ni 1979 the aid was calculated inagriculturalunits of 
account(greenu,a,)—1 green u,a.^lB^9^green^o5 
(^)Ori^^ ^11119^ 
12. 12. 90 Official Journal of the European Communities 117 
Observations on the monitoring and checking 
At Commission level 
6.114. The French and Italian outline programmes and 
special programmes have been approved despite the 
shortcomings and weaknesses noted in paragraphs 6.91 
— 6.93. Although a number of visits were made to the 
Member States by the responsible departments of the 
Commission when the measures were being implemented, 
these inspections were basically technical in nature. All 
the aspects relating to priorities have been neglected, no 
further stipulations have been made concerning the 
objectives to be achieved or the nature of the work likely 
to receive EAGGF-Guidance aid. 
6.115. The interim report published in 1984 by the 
Commission is superficial and statistical. The proper use 
of Community funds is not really examined. The effects of 
this measure are not shown. Since no final report by the 
Commission is provided for by Regulation (EEC) No 
269/79, this measure, like many others, will come to an 
end without its being possible to determine its actual 
results. 
6.116. When applications for aid are being appraised, 
the French and Italian files have been treated differently 
in terms of the duration of the special programmes, the 
nature of the work and the calculation of the aid. A 
similar finding was made with regard to the subsequent 
interpretations of the Community regulations when the 
programmes are being implemented. 
6.117. In view of the lack of precise criteria, in the 
regulations, concerning the eligibility of work operations, 
the checks made by the authorizing officer at the payment 
stage have been basically confined to the financial 
aspects. 
6.118. The Court considers that it would be advisable to 
achieve better coordination of the various stages of 
follow-up of measures, covering the financial and 
technical aspects as well as the examination of whether 
objectives have been achieved and Community funds 
used properly, with the aim of ensuring greater know­
ledge of the effects and the impact of these measures and 
ensuring convergence in the use of funds. 
At the Member States' level 
6.119. In general, the national circulars or instructions 
for implementing the measures merely reiterate the 
provisions of the Community regulations. They do not 
provide the necessary supplementary explanations nor do they make it possible to avoid the errors of interpretation 
which lead to problems of eligibility. A great deal of 
leeway is consequently given to local administrations or 
bodies in planning and carrying out the work. 
6.120. The individual files on the projects do not always 
contain all the specific documents needed to be able to 
examine the proof of the work carried out, its integration 
in the approved programme, the eligibility of the 
expenditure disbursed and other factors making it 
possible to assess the usefulness and the proper execution 
of a forestry project. 
6.121. Checks on projects, where they exist, relate 
mainly to ascertaining whether the forestry work has been 
carried out properly from a technical point of view. Any 
analysis of the results, put off until the long term, it is true, 
in this type of operation, is virtually absent from the 
Member States' reports. The Member States confine 
themselves to sending the Commission statistics on the 
number of hectares treated or kilometres of road 
constructed, which does nothing to prove the usefulness 
of the work carried out. 
Conclusion 
6.122. The fact that the EEC Treaty contains no specific 
provisions relating to forestry is the main obstacle to 
implementing a Community forestry policy. For want of 
a policy of this kind, the Commission has been virtually 
unable to influence the local management authorities' 
thinking with regard to forests. It has endeavoured, with 
limited success, either to assist existing regional or 
national measures, whence the lack or inadequacy of 
financial aid in the dry areas where these measures would 
have been very useful, or else to stop all aid in fields where 
the situation seemed suspect. 
6.123. There is thus a disparity in the various projects 
carried out: some of them are truly forestry related, but 
others are solely a means of keeping jobs in this sector. 
6.124. Bearing in mind, moreover, that the funds 
available are small in comparison to the large number of 
requirements, the financing of the measures should have 
concentrated mainly on priority projects selected in 
accordance with the conditions laid down in the 
Community regulations. Quite the contrary has been 
found: numerous aid measures for operations for which it 
is not even known, in many cases, whether they are part of 
a whole forestry project and whether they help to achieve 
the desired results. A consequence of this situation is the 
unsatisfactory utilization of Community funds. 
llD Otticial journal of the European Communities 1^1^^ 
o.!^. The Court recon^mends that the Commission 
improve its examination of the effects and the impact of 
thesemeasures,theappraisalofnational programmes by 
its departments, and its checks. In the member States 
concerned, themonitonngandcheckingoftheworkneed 
to be strengthened. 
oi^o. Lastly,theforestsbenefit^erylittlefromthisaid 
and thiswill continue to be truesolongasthesemeasures 
are tinanced by provisions which do not have forestry as 
their priority. Future Community measures should be 
clearly designed from the point of ^iew of general 
improvement oftbrests and its contribution to conserva^ 
tion and environmental protection, in conjunction ^ith 
all the national provisions aimed at developing and 
protecting woodlands. 
o.l^7. Itisthereforeurgentandnecessarythat, with the 
new, sroeciflc^llytbrestry^related regulation ^C^o 
l^l^^,eventhoughit is still under EACCF^uidance 
financing,anew approach be taken by the national and 
Community authorities to direct the Community^ 
financial aid towards operations selected more in 
accordance with clearly detined objectives. 
^E^ERALCO^CLHSIC^I 
o.!^. The observations relating to the FACCFD 
C^uidancemeasuresdealtwithinthisChapterareclosely 
akintothosewhichtheCourthasonnumerousoccasions expressed in its previous reports and in particular in the 
reportconcerningthetinancialyearl^^.Inthatreport, 
an evaluation was made of all the EACCF^uidances 
activities at the time when regulation ^EFC^o 7^7^^ 
cameinto tbrceand whenthere wereprospectsof a 
reform of thestructural Funds, Three years on, the same 
shortcomings are evident^ undefined objectives,^ague 
expressions, dispersal of measures, lack ofoperational 
guidelines and lack of effective coordination of the 
various aspects of the common agricultural police. At 
best, the measures tlnanced under the structural policy 
resultinfragmented,ger^ralizedfmancingofin^estments 
relatingtoagriculturalorforestryactivities.Therealneed 
forandtheusefulnessofthiskindoftinancingstillha^eto 
be demonstrated. 
oEl^, ThereformofthestructuralFundswillbeableto 
improve the present situation only by making the 
detinition and management of the Community policy on 
agricultural structures more strict and more precise. In 
this respect, the amendments to regulation ^EFC^o 
7^7^^,aspartofthisreform,aremoreastepinthewrong 
directions the conditions tor granting the aid have been 
made even more liberal, without any more specific 
objectives being detlned. Furthermore, the principles of 
planning,monitoringandassessmentoftheimpactofthe 
measures tinanced, laid down in the texts relating to the 
reform ofthestructuralFunds, continue to haveno place 
in Regulation ^EEC^o 7^7^^, 
ohloal As regards more particularly the forestry policy 
tobe pursued as part of the retbrmof the structural 
Funds, it is indispensable that these same principles be 
appliedetlectively during the implementationby the 
Community and national authorities of the ne^^egu^ 
lation^FFC^ol^lO^specitlcallyrelatingto forestry. 
12. 12. 90 Official Journal of the European Communities 119 
CHAPTER 7 
The European Regional Development Fund (ERDF) 
7.0. TABLE OF CONTENTS 
Introduction 
Preliminary comments 
Diversification of the types of ERDF activity 
Implementation of the 1989 budget 
Examination of diversification 
Management of implementation of diversification 
System of commitment 
System of payment 
The allocation of ERDF resources 
Non-quota measures 
Programmes of Community interest 
National programmes of Community interest 
ERDF financing in 1989 
Conclusion concerning financial management 
Selection of types of measures in ERDF management 
Methods of applying the principle of diversification 
Preparation and appraisal of measures 
Monitoring of operations 
Attainment of the objectives of diversification 
Meeting regional needs 
Coordination of measures 
Assessment of effectiveness 
Conclusions 7.109 — 7.123 Paragraph 
reference 
7.1 
7.1 
7.7 
7.14 
7.20 
7.20 
7.20 
7.30 
7.38 
7.39 
7.43 
7.46 
7.50 
7.58 
7.61 
7.65 
7.65 
7.73 
7.84 
7.85 
7.90 
7.102 — 7.19 
— 7.6 
— 7.13 
— 7.19 
— 7.108 
— 7.64 
— 7.29 
— 7.37 
— 7.42 
— 7.45 
— 7.49 
— 7.57 
— 7.60 
— 7.64 
— 7.83 
— 7.72 
— 7.83 
— 7.108 
— 7.89 
— 7.101 
— 7.108 
120 Official Journal of the European Communities 12. 12. 90 
INTRODUCTION 
Preliminary comments 
7.1. The European Regional Development Fund 
(ERDF) was set up by Council Regulation (EEC) No 
724/75 of 18 March 1975 Q). Its objective is to help 
correct the main regional imbalances in the Community 
by contributing to the funding of projects concerning the 
development and structural adjustment of under-de­
veloped regions and the introduction of new industries in 
declining industrial regions. An amendment of the 
Regulation in 1979 (2) gave the Fund the possibility of 
limited involvement in programmes. In 1984 a new 
Regulation (3) broadened the range of possibilities for 
intervention in this form. 
7.2. The Single European Act considerably strength­
ened the role of the Community in the reduction of 
regional imbalances and provided for a reform of the 
structural Funds, in particular with a view to improving 
their effectiveness and to coordinating their activities 
between themselves and with the operations of other 
Community financial instruments. The reform entered 
into force in 1989 (4) and laid down five objectives. These 
are to be achieved by supplementing existing activities 
with programmes determined on the basis of Community 
support frameworks (CSFs). Such programmes are 
becoming the main type of intervention. 
7.3. In 1989, the Commission went to considerable 
lengths to implement the reform of the structural Funds, 
in particular by drawing up and adopting most of the 
CSFs provided for. However, the application of the 
regulations in force prior to 1989 will continue to weigh 
heavily on the management of the budget of 1989 and 
subsequent financial years. In fact, over three-quarters of 
the commitments of the Fund in 1989 concern operations 
decided on in the framework of earlier regulations. 
Furthermore, for the 1989-93 period, almost a quarter of 
the foreseeable commitments of the ERDF, that is, 
8 000Mio ECU, will have to be allocated to the 
(i) OJL73, 21.3.1975, p. 1 
(2) Council Regulation (EEC) No 214/79 of 6 February 1979, 
OJ L 35, 9.2.1979, p. 1. 
(3) Council Regulation (EEC) No 1787/84 of 19 June 1984, OJ 
L 169, 28.6.1984, p. 1. 
(4) Council Regulation (EEC) No 2052/88 of 24 June 1988, OJ 
L 185, 15.7.1988, p. 9 and Council Regulations (EEC) 
Nos4253 to 4256/88 of 19 December 1988, OJ L 374, 
31.12.1988, p. 1. continuation of operations carried out under previous 
provisions, and the completion of previous operations 
will require 15 000Mio ECU, taking into account the 
commitments not yet paid. 
7.4. One of the main trends resulting from the change in 
the rules is the diversification of the types of ERDF 
activity. Diversification began in 1979, with the introduc­
tion of specific programmes. It continued under the 1984 
Regulation and became fully recognized in the reform of 
the Funds in 1989. 
7.5. The application of the earlier regulations was 
marred by a variety of weaknesses, which the Court 
pointed out on several occasions in its annual and special 
reports. These inadequacies mainly concerned the 
preparation, follow-up and subsequent assessment of the 
measures undertaken. The rules which came into force in 
1989 contain a variety of provisions which should remedy 
the situation. For example, the CSF should, in principle, 
enable Community aid to be more effective, by providing 
better back-up from the moment the measure is drawn up 
until the assessment of the final results of the operations 
supported by the Community. 
7.6. The Court considers it useful to draw the attention 
of the discharge authority to the problems encountered in 
diversification, not only because of the continuation of its 
financial impact, but also to underline the need to ensure 
optimum implementation of the new regulations at both 
Community and Member State level. 
Diversification of the types of ERDF activity 
7.7. This chapter deals mainly with the operations 
which were implemented under the 1984 Regulation and 
are still in progress. It also contains a few preliminary 
observations on the introduction of the 1989 reform of 
the Funds. Its purpose is to establish whether the 
diversification of Community intervention has brought 
about an improvement in the effectiveness of the ERDF 
and to draw any conclusions that may be useful for the 
implementation of the reform of the Funds. 
7.8. Initially, the ERDF could assist only industrial and 
infrastructure projects. The 1979 Regulation brought 
about the first diversification, by introducing non-quota 
measures, in order to take greater account of the regional 
dimension of Community sectoral policies and those 
connected with the enlargement of the Community. 
12. 12. 90 Official Journal of the European Communities 121 
Alongside this, the Commission experimented with 
integrated approaches, which combined the activities of a 
number of structural Funds (5). The Court has already 
produced special reports on non-quota measures and 
integrated approaches (6). 
7.9. Apart from the financing of projects, the 1984 
Regulation allowed the financing of measures aiming at 
internally-generated development, which are intended to 
promote the growth of small and medium-sized enter­
prises. Projects and internally-generated development 
measures may be grouped together into consistent multi-
annual sets. These are called programmes of Community 
interest (PCIs), or national programmes of Community 
interest (NPCIs),depending on how directly connected 
they are with Community policies. NPCIs translate the 
guidelines contained in regional development program­
mes (RDPs) into operational commitments. 
7.10. The 1984 Regulation gave priority to integrated 
development operations (IDOs), which involve the use of 
various Community instruments and in which the ERDF 
participates in the form of NPCIs. It is also in this form 
that the Fund takes part in the integrated Mediterranean 
programmes (IMPs), which were set up in 1985 (7). These 
are funded by means of a specific financial contribution 
and contributions from the structural Funds and the 
European Investment Bank (EIB). 
7.11. The reform of the Funds, which came into force in 
1989, gives formal recognition to the concepts ex­
perimented with under the 1984 Regulation and provides 
for the coordination of the Community's structural 
measures in order to achieve five objectives. For this 
purpose, the Commission sets up CSFs, which define the 
intervention of the structural Funds and grant priority to 
operational programmes (OPs) that are to be im­
plemented on the initiative of the Member States or the 
Commission. OPs can draw on all the Community's 
financial instruments. The Commission can also grant aid 
to other operations, such as the joint-financing of aid 
schemes or the granting of overall subsidies, and it can 
continue to grant aid to large-scale projects. 
7.12. Such diversification of Community measures 
should make it possible to adapt ERDF aid more closely 
(5) Belfast integrated development operation, Naples in­
tegrated development operation, integrated development 
programmes for Lozere, South-East Belgium and the 
Western Isles of Scotland and the various preparatory pilot 
measures for integrated Mediterranean programmes 
(IMPs). 
(6) Court of Auditors special report on specific Community 
regional development measures (non-quota measures), OJ C 
262,20.10.1986, p. 1 and Court of Auditors special report on 
the integrated approach, OJ C 188, 18.7.1988, p. 1. 
O Council Regulation (EEC) No 2088/85 of 23 July 1985, OJ L 
197, 27.2.1985, p. 1. to the actual needs of the regions, by combining aid for 
investment projects with measures to promote the activity 
of enterprises. The reform of the Funds also strengthened 
this mechanism by introducing the idea of partnership. 
This is supposed to allow close participation between the 
Commission and the authorities involved in each stage of 
the Community measure. 
7.13. The complexity of regional development problems 
requires coordination of the financial instruments, both 
at Community level and at national level. The programme 
approach, in particular the use of integrated programmes, 
in principle promotes such coordination and, con­
sequently, the effectiveness of the measures. Further­
more, it should simplify the task of assessing their impact 
because they are more comprehensive in nature. In this 
respect, the reform of the Funds confirmed the import­
ance and necessity of improved coordination and of a real 
evaluation of measures and laid down the relevant 
procedures. 
Implementation of the 1989 budget 
7.14. Table 7.1 gives a breakdown of the implemen­
tation, during 1989, of Title 5 of the budget, of which the 
ERDF (Chapter 50) is the main chapter. 
7.15. The year 1989 saw a significant increase, mainly 
due to the ERDF, in commitment and payment appropri­
ations under Title 5 (increases of almost 900 Mio ECU for 
commitments and 1 100 Mio ECU for payments). The 
utilization rates for appropriations remained high, in 
particular for the ERDF, where they almost reached 
100 %. The lowest utilization rates (60 % for commit­
ments and less than 50 % for payments) concerned 
Chapter 55, because of delays encountered by the IMPs. 
7.16. Commitment appropriations which have been 
made available again account for almost 5 % of 
appropriations available for the ERDF and over 50 % of 
those available for the whole of the budget. Chapter 1 of 
this report highlights the sloppiness with which appropri­
ations were made available again and administered. It 
also contains other observations on the legality, regu­
larity and manner of presentation in the accounts of 
operations concerning Title 5 of the budget (paragraphs 
1.18, 1.23, 1.28, 1.33. 1.41, 1.44 and 1.89— 1.93). 
7.17. The ERDF budget accounts allow very little 
analysis of the actual activities of the Fund. For 1989, all 
ERDF appropriations are grouped together under one 
single budget heading. Although there is also an article in 
the budget for a contribution by the Fund to the IMPs, 
there is only a token entry against it. 
122 Official Journal of the European Communities 12. 12. 90 
Table 7.1 — Implementation of the budget under Title 5: 
Appropriations for intervention in regional development, including the ERDF, and transport 
(0 Including 60,0 Mio ECU entered in Chapter 100. 
(2) Including 30,0 Mio ECU entered in Chapter 100. 
C = Commitments. 
P = Payments. (Mio ECU) 
For the financial year 
Carry-overs from the previous 
financial year 
Appropriations made available 
again 
TOTAL C 
P 
C 
P 
C 
C 
P Title 5 
of which ERDF 
Title 5 
of which ERDF 
Title 5 
of which ERDF 
Title 5 
of which ERDF 
Title 5 
of which ERDF 
Title 5 
of which ERDF 
Title 5 
of which ERDF Initial 
budget 
(a) 
4 956,2(0 
4 495,0 
4 330,9(2) 
3 920,0 
2,4 
— 
32,8 
— 
215,4 
215,4 
5 174,0 
4 710,4 
4 363,7 
3 920,0 Final 
budget 
after SAB 
and 
transfers 
(b) 
4 958,7 
4 495,0 
4 333,4 
3 920,0 
2,4 
— 
32,8 
— 
215,4 
215,4 
5 176,5 
4 710,4 
4 366,2 
3 920,0 Implement­
ation 
(c) 
4 767,6 
4 450,8 
4 134,3 
3 920,0 
2,3 
— 
10,1 
— 
215,4 
215,4 
4 985,3 
4 666,2 
4 144,4 
3 920,0 Implement­
ation 
rate 
of final 
budget 
(d) = (c)/(a) 
96,2 
99,0 
95,5 
100,0 
95,8 
— 
30,8 
— 
100,0 
100,0 
96,4 
99,1 
95,0 
100,0 Implement­
ation 
rate 
of final 
budget 
(e) = (c)/(b) 
96,1 
99,0 
95,4 
100,0 
95,8 
— 
30,8 
— 
100,0 
100,0 
96,3 
99,1 
94,9 
100,0 
7.18. This situation, which has already been criticized 
by the Court (8), is not consistent with the principle of the 
specificity of the budget and does not reflect the 
guidelines which the budget should follow. It also makes 
it difficult to carry out an effective control of the 
implementation of the budget. Furthermore, it fails to 
respect the provisions concerning PCIs and non-quota 
measures, according to which contributions from the 
Fund 'shall be provided within the framework of the 
appropriations entered for this purpose in the general 
budget of the European Communities' (9). commitment and payment appropriations provide only a 
very rough indication of the precise state of Community 
obligations, as regards commitments, and the actual 
progress of measures as regards payments. 
EXAMINATION OF DIVERSIFICATION 
7.19. Furthermore, the examination of the management 
and financial implementation of the ERDF, which is set 
out below, shows that the high utilization rates of 
(8) See paragraph 7.25 of the Court's annual report concerning 
the financial year 1985. 
(9) See, for example, Article 5 of Council Regulations (EEC) 
Nos2615 to 2619/80 of 7 October 1980, OJ L 271, 
15.10.1980, p. 1 and Council Regulations (EEC) Nos 3300 
and 3301/86 of 27 October 1986, OJ L 305, 31.10.1986, p. 1. Management and implementation of 
diversification 
System of commitment 
7.20. In the case of programmes, successive ERDF 
regulations have provided for the commitment of 
Community aid in annual instalments, the first of which is 
fixed in advance in the decision to grant aid and is 
12. 12. 90 Official Journal of the European Communities 123 
committed right from the beginning of the programme. 
Subsequent commitments are made as the measures 
progress and appropriations are made available. The 
Commission laid down criteria which, in particular, made 
the commitment of a new instalment of aid dependent on 
the level of the contribution from public funds to the 
previous instalment. The level of payment necessary for 
the commitment of an additional instalment was reduced 
from the initial rate of 70 % to 60 % at the end of 1989. 
7.21. In such a system, the link made between the 
carrying-out of measures and commitments does not 
comply with the concept of a commitment as expressed in 
the Financial Regulation, which concerns the obligations 
entered into and not their level of implementation. In 
addition, the instalments mentioned in the programmes 
are purely financial indicators and do not correspond to 
any real plan of the measures to be carried out or of the 
corresponding obligations. As a result, the due dates for 
commitments are often different from those forecast and 
the amounts forecast are frequently changed. 
7.22. More fundamentally, the system of making 
commitments only in instalments has already been 
criticized by the Court in various annual or special 
reports (10), because it does not reflect all the Com­
munity's legal obligations and, consequently, conceals 
the level of the burden of the past which has been, and 
continues to be, one of the major recurring preoccup­
ations of the discharge authority (H). 
7.23. Following these observations, the Commission 
took steps to provide information, as from 1986, on its 
future obligations in its presentation of its revenue and 
expenditure accounts and its balance sheet accounts. It 
stopped doing this after 1987 as far as the ERDF and the 
other structural Funds are concerned. 
7.24. Additions should therefore be made to the present 
system of entering commitments in the account so that all 
the Community's legal obligations are recorded, as 
provided for by the Financial Regulation, thus enabling 
the authorities responsible for the budget and its 
discharge to take their decisions in full knowledge of the 
facts. 
(,0) See, for example, the annual reports of the Court of 
Auditors concerning the financial years 1985 (paragraphs 
1.3 and following, 7.15 and following and 7.27), 1986 
(paragraphs 1.13 and following and paragraph 9.60), 1987 
(paragraphs 1.20 and following) and 1988 (paragraphs 1.5 
and following) and the special report on specific Community 
non-quota measures (paragraphs 2.11 and following). 
('!) See, for example, the resolution of the European Parliament 
on the discharge of the budget (OJ L 156,23.6.88, paragraph 
1, p. 56) and the recommendation of the Council of 
12.3.1990 (Annex B.I) for the discharge concerning the 
financial year 1988. 7.25. Such a revision of the practices currently in force is 
particularly necessary and urgent since the Financial 
Regulation lays down, as from 1990, that the balance 
sheet accounts must show the expected effects of the 
Community's legal obligations. For example, 3 019 Mio 
ECU were allocated to OPs decided on in 1989, of which 
only 926 had been entered in the accounts in the form of 
commitments. 
7.26. In addition, the system of commitment by 
instalment can function correctly only if the national 
administrations take steps to adjust to the characteristics 
of this system. For example, in Italy, the national system 
for funding the STAR programme (regional advanced 
telecommunications systems) envisaged the commitment 
of the bulk of the national contribution all at once, which 
did not accord with the annual commitment instalments 
provided for in the programme as submitted by the 
national authorities and approved by the Commission. 
Consequently, because of the lack of certainty about the 
final extent of the Community's financial contribution, 
the Italian budgetary authorities did not commit their 
contribution, which led to considerable delays. 
7.27. In other cases, financial programming by the 
Member States mainly concerns commitments and not 
payments, whereas the Community's system of commit­
ment is based to a large extent on actual expenditure. 
These differences in approach have often led to delays in 
implementation, which have sometimes been accentuated 
by the fact that the national authorities have difficulty 
gathering information on expenditure, in particular that 
of bodies not directly in receipt of Community aid. 
7.28. Finally, in some cases, the national authorities 
commit their contribution only once they are in 
possession of Community funds. The application of this 
principle is also a source of delay, since the submission of 
applications for payment and the transfer of Community 
aid sometimes take a considerable length of time. 
Furthermore, in a system of joint financing, this practice 
makes it impossible, in principle, to execute all the 
commitments provided for, in so far as the final payment 
of Community aid is made only if the Member State has 
effected the total amount of expenditure forecast. 
7.29. The Commission should therefore review the 
application of the system in order to make its future 
financial obligations more transparent. The Commission 
and the Member States should also do all they can to 
eliminate the problems which may arise in the implemen­
tation of the system. In this respect, the new regulations 
should, in view of the possibility they provide for 
improved planning and the development of the system of 
partnership, enable improvements to be made. 
124 Official Journal of the European Communities 12. 12. 90 
System of payment 
7.30. Generally speaking, payments are made in the 
form of advances against the annual commitment 
instalments. An initial advance is paid at the beginning of 
the operation and a second as soon as half of the first 
advance has been used. The final payment is made when 
the level of expenditure laid down for the instalment is 
reached. The settlement of commitments, as shown in the 
Commission's accounts, therefore provides only a rough 
idea of the actual progress of programmes. Furthermore, 
until the Funds were reformed, the regulations allowed 
expenditure to qualify 12 months after the date on which 
the Commission received the application for assistance, 
which further reduced the significance of the data on 
payments. 
7.31. This lack of transparency is made even worse by 
the fact that, as already mentioned, the Commission has 
reduced the level of expenditure needed for the commit­
ment of an additional instalment, thus making advances 
available more quickly. 
7.32. When annual instalments are wound up, the final 
payments provided for are paid in full. However, most 
programmes provide for various levels of aid, depending 
on the type of operations to be undertaken. Con­
sequently, when an instalment is completed, it is virtually 
inevitable that the final payment due on the basis of 
expenditure will be different from that paid by the 
Commission. In fact, detailed checking of the precise 
amounts due is not envisaged until the programmes are 
concluded. However, there is a danger that the passage of 
time and the sheer size of the operation will make this very 
difficult, if not impossible. 
7.33. Only in a few cases does the Commission make use 
of the possibility open to it of not applying the maximum 
rate for advances, a fact which further reduces the 
significance of the payment data. Generally speaking, the 
Commission should, as the Court has already advocated, 
avoid automatically paying advances and draw up strict 
criteria in order to ensure they are used as effectively as 
possible. 
7.34. These shortcomings are accentuated by the brevity 
of the information provided by the Member States to 
support their applications for payment: applications for 
the final payment of instalments should include at least 
some information on the operations completed in the 
period in question. The Member States should also ensure 
that the financial data submitted in the progress reports 
and those accompanying applications for payment 
correspond more closely. 7.35. In principle, advances should simplify and speed 
up operations. Given the Member States' budgetary rules 
and the length of time taken to apply them, they are often 
reduced to the role of a refund to final recipients of 
expenditure already incurred. 
7.36. In some cases, the national managers of oper­
ations came up against difficulties as a result of the 
sluggishnessof the administrative procedures for making 
Community funds available. In Spain, France and Italy, it 
was observed that periods of almost a year elapsed 
between the issuing of a payment order by the Commis­
sion and the receipt of the funds by the bodies concerned. 
7.37. The payment system is based too exclusively on 
purely financial indicators. The documents the Member 
States submit in support of their applications for payment 
should contain details of the physical monitoring of the 
operations and the results already achieved. In this 
respect, the regulations concerning the reform of the 
structural Funds contain provisions which the Commis­
sion should make full use of in order to ensure better 
correspondance between payments and the actual 
likelihood of progress being made in practice. 
The allocation of ERDF resources 
7.38. Between 1985 and 1989, ERDF commitments rose 
by almost 90 %, to reach 4 666 Mio ECU. Over the same 
period, the proportion allocated to programmes rose 
from 6 % to 58 %. However, although the 1979 
Regulation earmarked 5 % of Fund resources to non­
quota measures, it was not until 1989, the year in which, in 
theory, most of such measures came to an end, that 
commitments for them exceeded this threshold. The 1984 
Regulation laid down that the share of ERDF aid 
allocated to programme financing should amount to at 
least 20 % of the appropriations allocated by the ERDF 
in 1987. In fact, this objective was achieved only as from 
1988. Furthermore, for 1989, the share of resources 
allocated to Community measures was significantly lower 
than the 15% level fixed by Regulation (EEC) No 
2052/88. The implementation of ERDF measures other 
than projects is examined in the following paragraphs. 
Non-quota measures 
7.39. Non-quota measures are an interesting subject for 
examination because they are an early type of diversifi-
12. 12. 90 Official Journal of the European Communities 125 
cation and foreshadow certain types of later programmes. 
Table 7.2 provides a summary of the state of progress of 
non-quota measures. the operations mentioned here had been decided on as 
early as 1981 and their termination was postponed from 
1985 to 1989. 
7.40. Taken as a whole, the use of the appropriations 
provided for is apparently satisfactory, since over 80 % 
have been committed. However, several measures which 
were supposed to end in 1989 suffered significant delays. 
The measures particularly affected concerned the textile 
and clothing sector in Belgium, Ireland, the Netherlands 
and the United Kingdom, the steel sector in the 
Netherlands and the United Kingdom, the shipbuilding 
sector in France and Italy and measures concerning 
enlargement in France. It should be stressed that some of 7.41. In the case of other measures which were supposed 
to be completed in 1989, the reorganization of the 
planned instalments enabled enormous commitments to 
be made in the same year, which was in principle the 
deadline for this type of operation. For example, 
operations concerning the steel industry in Belgium 
received commitments amounting to 18,2 Mio ECU, out 
of the total allocation of 34 Mio ECU, and in Italy, those 
connected with enlargement received commitments for 
76 Mio ECU out of the total allocation of 130 Mio ECU. 
Similar situations were observed in textile and fisheries 
Table 7.2 — Implementation of non-quota measures as at 31 December 1989 
(Mio ECU) 
MS 
(a) 
B 
D 
DK 
F 
GR 
IRL 
I 
L 
NL 
UK 
EC Measure 
(b) 
Steel industry 
Textiles 
Total 
Steel industry 
Shipbuilding 
Textiles 
Fisheries 
Total 
Fisheries 
Enlargement 
Steel industry 
Shipbuilding 
Textiles 
Fisheries 
Total 
Enlargement 
Energy 
Total 
Frontiers 
Textiles 
Total 
Enlargement 
Steel industry 
Shipbuilding 
Energy 
Textiles 
Total 
Steel industry 
Steel industry 
Textiles 
Total 
Steel industry 
Shipbuilding 
Frontiers 
Textiles 
Fisheries 
Total 
Total Expiry 
date 
(c) 
1989 
1989 
1989 
1991 
1991 
1991 
1991 
1989 
1989 
1989 
1989 
1989 
1989 
1989 
1991 
1989 
1989 
1989 
1989 
1989 
1989 
1989 
1989 
1989 
1989 
1989 
1991 
1989 
1991 Appropri­
ations 
provided 
for 
(d) 
34,0 
8,0 
42,0 
42,0 
11,0 
16,0 
9,0 
78,0 
13,0 
110,0 
69,0 
14,6 
79,2 
9,0 
281,8 
40,0 
20,0 
60,0 
48,0 
3,0 
51,0 
130,0 
42,0 
12,0 
39,0 
56,9 
279,9 
9,0 
8,0 
7,0 
15,0 
81,0 
34,0 
24,0 
105,0 
15,0 
259,0 
1088,7 Commitments 
as at 31 December 1989 
Amount 
(e) 
30,4 
5,7 
36,1 
41,8 
9,1 
6,6 
5,9 
63,4 
5,7 
81,3 
56,1 
6,4 
68,2 
8,2 
220,2 
40,0 
18,1 
58,1 
36,9 
0,7 
37,6 
130,0 
38,8 
4,7 
38,9 
56,1 
268,5 
9,0 
0,8 
2,7 
3,5 
59,0 
31,6 
15,4 
73,5 
2,0 
181,5 
883,6 % 
(0= (e)/(d) 
89 
71 
86 
99 
83 
41 
66 
81 
44 
74 
81 
44 
86 
91 
78 
100 
91 
97 
77 
23 
74 
100 
92 
39 
99 
99 
96 
100 
10 
39 
23 
73 
93 
64 
70 
13 
70 
81 Payments 
as at 31 December 1989 
Amount 
(g) 
24,3 
4,0 
28,3 
40,7 
7,2 
4,9 
4,9 
57,7 
4,9 
79,0 
46,1 
3,9 
52,5 
7,6 
189,1 
36,5 
11,8 
48,3 
34,4 
0,6 
35,0 
81,6 
31,6 
1,2 
28,7 
44,8 
187,9 
9,0 
0,7 
1,9 
2,6 
55,7 
31,0 
14,8 
69,5 
1,2 
172,2 
735,0 % 
(h)= (g)/(e) 
80 
70 
78 
97 
79 
74 
83 
91 
86 
97 
82 
61 
77 
93 
86 
91 
65 
83 
93 
86 
93 
63 
81 
26 
74 
80 
70 
100 
88 
70 
74 
94 
98 
96 
94 
60 
83 
126 Official Journal of the European Communities 12. 12. 90 
measures in France, enlargement and energy measures in 
Greece, steel, energy and textile measures in Italy and 
textile measures in the United Kingdom. ment' measures in Greece) show commitment and 
payment levels which give reason to believe that they were 
carried out within the prescribed deadlines. 
Programmes of Community interest 
7.42. Given the system of advances applied, it is difficult 
to draw precise conclusions as to the progress of 
operations on the basis of data concerning payments. Of 
the 22 sets of non-quota measures due to expire in 1989, 
only three of them ('steel' measures in the Federal 
Republic of Germany and Luxembourg and 'enlarge-7.43. Table 7.3 gives a breakdown of the financial 
implementation of the PCIs implemented under national 
intervention programmes, the first of which were decided 
on at the end of 1986 in implementation of the 1984 
Regulation. In many cases, the schedules laid down for 
the commitment of instalments were not observed, with 
the result that as at 31 December 1989 only 53 % of the 
Table 7.3 — Implementation of programmes of Community interest and national programmes of 
Community interest as at 31 December 1989 
(Mio ECU) 
Nature 
of 
programmes 
(a) 
PCI 
STAR(i) 
Valoren (2) 
Resider (3) 
Renaval(4) 
Total 
NPCI 
Belgium 
Denmark 
Germany 
Greece 
Spain 
France 
Ireland 
Italy 
Luxembourg 
Netherlands 
Portugal 
United Kingdom 
Total 
Of which included 
inanlDO: 
Belgium 
France 
Netherlands 
Portugal 
United Kingdom 
Total 
in an IMP: 
Greece 
France 
Italy 
Total Number 
(b) 
— 
— 
— 
— 
— 
4 
6 
6 
8 
2 
17 
1 
12 
1 
4 
4 
19 
84 
2 
7 
1 
1 
7 
18 
6 
5 
9 
20 Budgetary 
allocation 
(c) 
776,5 
392,8 
108,6 
9,0 
1286,9 
94,8 
34,2 
233,7 
844,2 
647,4 
647,6 
251,4 
701,7 
4,8 
53,8 
571,1 
1 753,5 
5 838,2 
44,2 
290,4 
23,7 
44,0 
1 073,2 
1 475,5 
798,0 
233,4 
291,7 
1 323,1 Commitments as at 31.12.1989 
Provided 
for 
(d) 
457,9 
228,0 
66,7 
2,9 
755,5 
59,7 
21,8 
117,0 
414,8 
285,3 
449,9 
182,9 
299,9 
3,9 
35,7 
189,0 
808,9 
2 868,8 
25,0 
210,9 
23,7 
21,2 
295,7 
576,5 
398,4 
135,4 
114,9 
648,7 Imple­
mented 
(e) 
270 
90,2 
36,4 
2,8 
399,4 
45,7 
16,2 
104,4 
409,7 
249,9 
356,0 
160,4 
110,5 
1,9 
17,7 
176,3 
799,8 
2 448,5 
22,4 
148,2 
10,4 
8,5 
368,7 
558,2 
394,1 
135,8 
32,4 
562,3 % 
(0 = (e)/(d) 
59 
40 
55 
97 
53 
77 
74 
89 
99 
88 
79 
88 
37 
49 
50 
93 
99 
85 
90 
70 
44 
40 
125 
97 
99 
100 
28 
87 Payments as 
Amount 
(g) 
196,8 
61,6 
24,3 
1,4 
284,1 
34,4 
13,2 
69,9 
263,6 
206,6 
259,8 
150,6 
44,1 
1,6 
13,9 
110,9 
494,0 
1662,6 
18,9 
115,4 
9,5 
6,8 
142,5 
293,1 
254,9 
88,8 
12,9 
356,6 at 31.12.1989 
% 
(h) = (g)/(e) 
73 
68 
67 
50 
71 
75 
81 
67 
64 
83 
73 
94 
40 
84 
79 
63 
62 
68 
84 
78 
91 
80 
39 
53 
65 
65 
40 
63 
(') Advanced telecommunications services. 
(2) Exploitation of energy potential. 
(3) Conversion of steel areas. 
(4) Conversion of shipbuilding areas. 
12. 12. 90 Official Journal of the European Communities 127 
commitments provided for had been implemented. This 
was the case in particular for national intervention 
programmes connected with Valoren (a name based on 
the French expression for the exploitation of regional 
energy resources). The expiry dates of all these pro­
grammes, except for one, were postponed for one year. 
The situations which gave rise to most concern appeared 
in the STAR programme in Italy and the Valoren 
programmes in Greece and Italy, where total commit­
ments up to the end of 1989 amounted to only 15 %, or 
less, of the estimates. 
7.44. In some cases, given the level of completion of 
programmes, the Commission has been able to simul­
taneously commit two annual instalments and thus partly 
make up for the delays. 
7.45. Payments are often in the form of advances and it 
is therefore difficult to draw valid conclusions as to the 
actual implementation of measures. However, the delay 
in implementation already apparent in commitments is 
worse at the level of payments. In fact, of the 20 national 
intervention programmes in existence, two instalments 
were completed in only one case and the first instalment 
was terminated in only four cases. 
National programmes of Community interest 
7.46. Table 7.3 gives a breakdown of the financial 
implementation of NPCIs, for which most of the 
decisions were taken in 1987 and 1988. 
7.47. Generally speaking, commitments for NPCIs 
were subject to shorter delays compared with forecasts 
than were the PCIs, although the schedules were extended 
by at least one year in many cases (e.g. the NPCIs at 
Westhoek in Belgium, Start Lolland in Denmark, 
Rhineland-Palatinate in the Federal Republic of Ger­
many, the Asturias in Spain, Charente Maritime in 
France, the European development pole in Luxembourg, 
Groningen in the Netherlands and Birmingham in the 
United Kingdom). In some cases, the Commission 
committed instalments planned for 1990 in 1989, or 
instalments that were higher than those initially planned. 
Some commitments were also made at the end of 1989, at 
a time when the Commission had relaxed its internal rules 
on the commitment of new instalments in order to 
promote the utilization of appropriations. 
7.48. Integrated approaches such as the IDOs and the 
IMPs account for about 45 % of aid granted in the form 
of NPCIs and have met with varying success. The 
timetable for commitments is observed only in those NPCIs that have been integrated into the IMPs in Greece 
and France and in the IDOs in the United Kingdom. In 
every other case there were delays, particularly in Italy. 
This is paradoxical given that, in principle, integrated 
approaches are supposed to be given priority in the 
management of the Fund's resources. It is also re­
markable to see how limited the interest of some Member 
States is in integrated approaches. More detailed 
observations on IMPs are contained in a recent special 
report by the Court (12). 
7.49. As with the PCIs, the system of advances makes it 
impossible to draw accurate conclusions on the actual 
progress of operations by examining payments. In the 
case of NPCIs, the delay at the commitment stage was 
worse when it came to payments. All the instalments for 
1988 and before should, in fact, have been completely 
settled by the end of 1989 at the latest. This proved to be 
the situation only for about 50 instalments, in other 
words, in a third of cases. As with commitments, the 
payment rate for NPCIs included in integrated ap­
proaches is lower than for the others. 
ERDF financing in 1989 
7.50. In 1989, 26 % of commitments funded the new 
forms of intervention provided for by the reform of the 
Funds. The remaining 74 % concerned measures pro­
vided for under the previous regulations. Over 40 % of 
the aid granted by the Fund concerned individual 
projects. Some Member States received a large propor­
tion of ERDF aid for projects even in 1989: 68 % in 
Greece, 70 % in Spain and 43 % in Portugal. 
7.51. In order to achieve the aims of the Single Act as 
regards the correction of the main regional imbalances, 
the 1989 reform of the structural Funds provides for the 
allocation of ERDF resources, irrespective of whether 
they are allocated to finance new or old measures, for the 
attainment of three objectives. Objective 1 consists of 
reducing the degree to which regional structural develop­
ment is lagging behind, Objective 2 concerns the conver­
sion of regions suffering industrial decline and Ob­
jective 5b is aimed at developing rural regions. 
7.52. Table 7.4 gives a breakdown of ERDF activity in 
1989 by objective and shows that Objective 1 accounts for 
almost 80 % of all commitments made in 1989. The 
guidelines for the allocation of resources by the Member 
(12) Special report of the Court of Auditors on integrated 
Mediterranean programmes, (adopted by the Court on 
10.5.1990 and in the process of publication). 
128 Official Journal of the European Communities 12. 12. 90 
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States to attain Objectives 1 and 2 are not applied. For 
instance, Ireland and the United Kingdom received 
commitments for Objective 1 that were considerably 
higher than the guidelines. There was a similar situation 
in the Federal Republic of Germany and in the United 
Kingdom for Objective 2. 
7.53. The use of the instruments provided for by the 
reform of the Funds is determined by CSFs connected 
with one of the objectives. For Objective 1, the Commis­
sion adopted CSFs for six of the seven countries 
concerned; only Greece had exceeded the six-month 
deadline laid down in the Regulation. For Objective 2, the 
CSFs were also all approved in 1989, except those 
concerning Spain. Table 7.5 gives the main details 
concerning the expected contribution from the ERDF in 
these CSFs and that concerning the OPs resulting from 
them. No CSFs were approved in 1989 for Objective 5b. 
7.54. The financial programming of the CSFs includes, 
in principle, all the commitments to be made for all the 
measures decided on under the ERDF. On the whole, the 
estimates contained in the CSFs for 1989 were scarcely 
ever kept to (see columns (c) and (d) of Table 7.5). For 
Objective 1, the commitments made in 1989 correspond 
to the CSF forecasts only in the case of Spain. In some 
cases, they are 50 % lower or higher than the CSF 
forecasts. Owing to lack of information in this respect in 
the CSFs for Objective 2, it is not possible to gauge their 
level of implementation in 1989. However, the financial 
forecasts of the CSFs for 1989 ought to be particularly 
accurate, given that they were drawn up in the second half 
of 1989, which should have simplified forecasting for that 
year. 
7.55. As far as OPs for Objective 1 are concerned, the 
Commission has not been able to approve pro­
grammes for France. For Spain, the Commission delayed 
its decisions and the corresponding commitments. This 
was the case for two OPs decided on in 1990. In fact, 
commitments had been made for the two OPs, then they 
were released in 1989. This is rather paradoxical, given 
that, at the end of 1989, the Commission granted aid to 
other OPs, in particular in Ireland and the United 
Kingdom, and simultaneously committed two instal­
ments for them. 7.56. For Objective 2, the Commission approved 53 
CSFs, which resulted in just six OPs. Commitments for 
these amounted to 235,2 Mio ECU in 1989, although 
forecasts amounted to 349,9 Mio ECU for new measures 
resulting from the reform of the Funds. Furthermore, of 
the seven countries for which new measures were laid 
down in 1989, only three were able to receive aid for OPs. 
7.57. Total payments for the OPs decided on amounted 
to 155,3 Mio ECU. These were all in the form of 
advances. In this respect, it should be noted that the 
Commission did not pay the maximum advances 
provided for in the regulations. Given that payment 
appropriations were 100 % utilized, such a situation 
implies that there must have been a discrepancy between 
the forecasts for commitment and those for payments and 
highlights the need to improve the accuracy and reliability 
of budget estimates. 
Conclusion concerning financial management 
7.58. The financial statements set out in Tables 7.2 to 
7.5, which show the instruments used in connection with 
diversification, suggest the situation was fairly satisfac­
tory from the financial point of view, but it would be 
unwise to draw conclusions from this as to the actual 
progress made. 
7.59. As regards commitments, the system of commit­
ment by instalment results in the underestimation in 
Community accounts of the level of expenditure to be 
carried out in connection with the obligations contracted 
by the Commission. As regards payments, the Com­
mission's financial data provide only a very rough 
indication of actual implementation, mainly because of 
the system of advance payments, which, by its very 
nature, anticipates actual events on the ground, a 
phenomenon which is made worse by the fact the 
Commission pays the maximum advances provided for 
under the regulations almost automatically. In addition, 
the way the systems of commitment and payment operate 
has enabled the use of the funds allocated to be speeded 
up, despite the delays and problems discovered in the 
implementation of the operations, as the situations 
described in paragraphs 7.41, 7.44, 7.47 and 7.55 show. 
7.60. In view of all these findings, the Commission 
should improve its practices as regards commitments and 
payments, bearing in mind the basic principles of the 
Financial Regulation for more rational and transparent 
management. 
130 Official Journal of the European Communities 12. 12. 90 
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12. 12. 90 Official Journal of the European Communities 131 
Selection of types of measures in ERDF management 
7.61. Given the length of delays, it is likely that 
programmes with similar objectives and with contents 
that differ only as regards their legal framework will be 
conducted at the same time. Such a situation does not 
simplify the performance of operations aided by the 
Community. In addition, programmes such as IMPs or 
NPCIs contain, repeat or extend operations carried out 
previously, without significantly increasing their added 
value in terms of effectiveness. 
7.62. For instance, the regulations on Resider and 
Renaval (names based on the French terms for the 
conversion of steel-producing and shipbuilding regions) 
include provisions for the corresponding non-quota 
measures, in spite of the problems encountered in 
implementing the latter, which the Court dealt with in the 
special report referred to above. This is also true for Italy, 
where the Valoren programme includes non-quota energy 
measures, whose level of implementation is still very low. 
7.63. The Belgian European development pole (EDP) 
NPCI funds the redevelopment of industrial wasteland 
that had already received ERDF aid as an individual 
project, the execution of which was severely criticized by 
the national external audit body. The road element in the 
Auvergne NPCI in France and the roads-NPCI in Ireland 
supplement national plans whose components were 
previously funded in the form of projects. Their inclusion 
in a Community programme has not produced any 
significant improvement. 
7.64. Non-quota measures already included measures 
similar to those concerning internally generated develop­
ment. The Commission also took the initiative to support 
the creation of business and innovation centres 
(BICs) (13), the specific nature of which in comparison 
with the measures concerning internally generated 
development is not apparent in practice. Furthermore, 
although the BICs were in principle supposed to be self-
financed, several of them continued to receive Com­
munity aid through measures concerning internally 
generated development. 
Methods of applying the principle of 
diversification 
Preparation and appraisal of measures 
7.65. As was previously the case for projects, the 
preparation and appraisal of measures comprises two 
elements: appraisal proper by the department responsible 
(n) BICs are funded by the Commission and intended to 
promote the creation and development of innovatory 
enterprises in less-favoured areas. for regional policy, and consultation with the other 
departments concerned. 
7.66. For the first two PCIs (STAR and Valoren), 
because they concern specific sectors, specialized Com­
mission departments played an important role in shaping 
the technical side of the programmes. Furthermore, the 
Commission circulated a vade-mecum to specify its views 
on the drawing-up of the programmes. Unfortunately, 
this initiative was neither pursued nor taken up as the 
general norm. 
7.67. The result is that the appraisal and consultation 
procedures are often essentially formal in nature. An 
examination of the programmes reveals inadequacies in 
the prior assessment procedure. For instance, most of the 
programmes, even when they fund a large part of regional 
expenditure, do not include a quantified forecast of their 
effects on the development of the region in question and 
are limited to qualitative considerations. 
7.68. The indicator of overall impact most often cited is 
the number of jobs created directly or indirectly by the 
programmes. However, taken in isolation, this is not 
always relevant. For instance, the number of jobs directly 
created by the construction and maintenance of telecom­
munications equipment is too remote from the actual 
objectives of the programme to serve, in itself, as a 
satisfactory gauge of a programme's impact. In some 
cases, the job forecasts in programmes were inconsistent 
and overestimated. Sometimes, the number of jobs 
expected to be created through particular measures were 
cancelled out by the rationalization carried out by the 
administrative body. 
7.69. In some cases, the programmes present what are 
simply means indicators as impact indicators. Even in 
such cases, the data provided should be viewed with 
caution. For instance, discussions on the length of the 
network in an NPCI concerning only road infrastructures 
revealed that the figure put forward in the programme 
was based on incorrect assumptions. 
7.70. In addition to these inadequacies in the assessment 
of objectives, there were sometimes shortcomings in the 
technical and economic appraisal of the measures to be 
carried out. For example, some Valoren programmes 
included the construction of small hydroelectric plants. 
Many of the projects planned had to be abandoned or 
postponed because of inadequate technical preparation 
or because they had adverse effects on the development of 
tourism or on the environment. Similar situations were 
found as regards plant and equipment for the production 
of energy from household waste or by windmills. 
132 Official Journal of the European Communities 12. 12. 90 
7.71. The peat bog section of the Valoren programme 
met with similar problems in Ireland. The programme 
was delayed because of uncertainties surrounding the 
continued use of a power plant and hesitations for 
ecological reasons in authorizing the use of peat for urban 
domestic heating purposes. Furthermore, it has been 
possible to gather only a few patchy details as to the 
viability of the operations in question. 
7.72. An examination of the appraisal carried out for 
various measures concerning internally generated de­
velopment revealed that some departments involved were 
not consulted or that guarantees were not sought 
concerning the observance of the rule that the final 
recipients should bear a minimum amount of the cost of 
the measures. 
Monitoring of operations 
7.73. In principle, the purpose of monitoring is to 
ensure that measures are carried out smoothly, by looking 
at the financial and physical indicators. It must make it 
possible to assess the progress of measures and to identify 
any problems, so that changes can be made to meet any 
requirements that arise during implementation. 
7.74. To monitor Community regional activities as a 
whole, the 1984 Regulation provided for the submission 
by the Member States of progress reports on RDPs. In 
addition, to replace, to some extent, the statistical reviews 
required under the previous regulation, details concern­
ing the results of regional action and the financial means 
used were to be submitted each year to the Commission. 
The regulation also provided for the monitoring of all 
measures in the form of two-yearly reports on the 
implementation of programmes and a follow-up ap­
praisal. The fact that the rules are cumbersome and 
complex has certainly not simplified their implementation 
and, so far, the provisions have not been observed to any 
great extent by the Member States. Monitoring is scarcely 
any better at national and regional level. For instance, the 
regional authorities of Abruzzo had only a very rough 
idea of the measures carried out on their territory under 
the STAR and Valoren programmes and did not discover 
that one measure concerning internally generated de­
velopment had been abandoned until the Court carried 
out an audit. 
7.75. In addition to the provisions laid down in the 
regulation, the Commission stipulated in its decisions to 
grant assistance that committees should be set up to 
monitor each programme and to draw up annual reports. 
The monitoring committees, which must include Com­
mission representatives, meet, in principle, twice yearly 
on the initiative of the Member States. Their role and 
composition vary considerably. Sometimes they are set 
up at a very late stage and sometimes they meet only very 
sporadically, on the pretext that the progress of the projects does not justify more regular meetings. It is, 
however, precisely in cases of delay that the monitoring 
committees could play an active part and be of real use by 
urging the administrative authorities responsible to find a 
solution to the difficulties encountered. In fact, in practice 
the work of the monitoring committees usually consists of 
noting the problems encountered, without really promot­
ing the execution of the programmes. 
7.76. The annual progress reports are frequently not 
submitted or are submitted only after a considerable 
delay, in spite of the reminders the Commission 
sometimes sends out. Furthermore, information is not 
systematically used and contains omissions. For instance, 
the Commission does not ensure that reports that do exist 
are analysed in accordance with predetermined rules. 
7.77. In this respect, the Court notes that the 1988 
Regulations have institutionalized the role of the 
monitoring committees and made the submission of 
progress reports a precondition for the payment of 
commitments, which should, in principle, improve the 
situation. 
7.78. In general, until 1989, there was little exchange of 
information on the results of the monitoring committees 
and the conclusions of examinations of the reports 
between the department responsible for monitoring and 
that which carries out the financial management of the 
programmes. The latter therefore carried out its transac­
tion primarily on the basis of the financial provisions of 
the regulations. However, the information gathered by 
the monitoring committees and the progress reports 
should have played an integral part in the assessment of 
the validity of the Member States' applications for 
payment, in particular as regards the compliance of 
transactions with the objectives of the measures. Con­
versely, the department responsible for the performance 
of the measures was not systematically informed of the 
situation regarding financial implementation, which 
reduced the effectiveness of the monitoring. However, in 
1989, the Commission set up a mutual information 
system, which should enable close cooperation between 
the departments in question. 
7.79. Even as regards the observance of the basic rules 
on the management of Community finances, monitoring 
is unsatisfactory. For example, there were sometimes 
anomalies in the application of the rules on the 
commitment of Community funds: in three NPCIs which 
were part of IMPs, commitments (8,2 Mio ECU) were 
made in December 1988, although the corresponding 
decisions to grant aid were not taken until February 1989. 
These commitments, which were made contrary to the 
provisions of the IMP and ERDF Regulations, con­
stituted an exception to Commission practices. More 
12. 12. 90 Official Journal of the European Communities 133 
seriously, the Commission took a decision in 1988 to 
grant aid to an NPCI, which was the equivalent of a 
commitment, without the Financial Controller's prior 
approval (Turnhout NPCI / 1,7 Mio ECU). 
7.80. In the case of some measures concerning internally 
generated development, the sum of commitments is partly 
based on contributions in kind, which do not qualify. For 
instance, the financial plan for a measure of this type in 
favour of a body which promotes the development of 
SMEs in Dublin shows that over 15 % of resources will be 
provided in kind, in particular in the form of an 
assessment of the time devoted to it by the members of its 
management board, and will not, therefore, involve 
actual expenditure. 
7.81. At Member State level, the Court's inspections 
revealed that the drawing-up of certificates in support of 
applications for payment is often unsatisfactory. As a 
rule, certification consists of the compilation by a central 
body of information submitted by the managing bodies, 
without any real verification of eligibility under Com­
munity rules. Furthermore, the financial data are often 
submitted after long delays by the bodies administering 
the measures, especially when they do not benefit directly 
from ERDF aid. The most detailed financial statements 
submitted during the Court's audit frequently included 
expenditure that was not eligible, either because it had not 
yet been effected or because it corresponded to sums 
transferred for equipment acquired previously, or 
because it was an estimate. In other cases, national 
expenditure was for commitments made long before the 
programme's period of eligibility or the type of commit­
ment itself was not eligible. 
7.82. However, in so far as the measures or interven­
tions concerned have not yet come to an end and, 
therefore, their content in terms of projects has not yet 
been finally determined, it is difficult to assess the exact 
effect of the national systems' shortcomings. Indeed, the 
managing bodies are completely free until the end of the 
measures to amend the lists justifying expenditure in 
order to make them comply with the Community criteria 
on eligibility. 
7.83. Because of the brevity of the grounds justifying 
applications for payment, only frequent on-the-spot 
Community audits can prevent or correct any abnor­
malities. This results from the de facto delegation of the 
management of measures to the national, regional or 
local authorities and the increase in the complexity and 
quantity of operations to be carried out in connection 
with diversification. Consequently, the Commission 
should ensure that it provides the most precise inform­
ation possible on its principles and methods of financial 
management to those participating in the execution of 
Community measures. It should also urge the Member 
States to take greater care to ensure that Community rules 
are complied with as regards the financial data provided 
and the speed with which they are submitted. Attainment of the objectives of diversification 
7.84. The main objectives of diversification are dis­
cussed in paragraphs 7.2 and 7.13. They centre around 
taking better account of the actual situation in the 
regions, improving the coordination of Community 
measures and forming a better assessment of their 
effectiveness. 
Meeting regional needs 
7.85. Until 1988, the regulations gave a central role to 
regional development programmes (RDPs), which were 
drawn up by the Member States to define priorities and 
objectives and the financial and operational means to 
carry out regional development and to determine the 
priority areas for ERDF intervention. The reform of the 
Fund amended this system. The Member States must now 
draw up regional development plans for the achievement 
of each of the priority objectives of structural measures. 
These plans serve as a basis for the Commission when it 
draws up CSFs, which determine the priority areas for 
action and provide an outline of the types of aid to be 
implemented and a tentative financing plan. 
7.86. An examination of the RDPs used as a reference 
framework for the application of the 1984 Regulation 
reveals certain weaknesses. These are mainly due to the 
fact that objectives are too imprecise and are not placed in 
order of priority and that there are no clear links between 
them and the means by which they are to be achieved. 
7.87. Since the NPCIs are decided on in accordance 
with the RDPs, it is not surprising that they reveal the 
same type of weaknesses. For example, it is often doubtful 
whether the operations really qualify for priority 
treatment. In Belgium, the area of eligibility of the EDP-
NPCI was changed to satisfy the requirements of one 
enterprise and thus allow it to enjoy the special 
advantages connected with this operation. In Ireland, it 
was the road projects in the roads-NPCI which bore the 
brunt of the reductions in expenditure connected with 
budget cuts. In Portugal, the Estrela telephone exchange 
is being funded under the STAR programme, although it 
serves mainly the Lisbon area, which does not qualify. 
1^4 Official iournal of the European communities nlnl^ 
^D, In some cases, the suitability of the measures to 
meet the needs of the regions should be examined. For 
example, in the French departments in the Antilles, the 
Valoren programme concentrates on energy savings in 
the industrial and public amenities sectors, however, the 
agency responsible for implementing the programme 
noted that, in fact,the most pressing needs concerned 
housing accommodation, an area excluded from the field 
ofapplicationofthere^ulation.InFrance,theAuver^ne 
^PC^I measures to aid spa towns were, toalar^e extent, 
not applied, because they were not sutficiently suited to 
requirementsintheener^ysectorinIreland,theproblem 
most frequently encountered whenauditin^ industries 
was the cost ofener^y.However,the priorities of the 
Valoren programme deal with the development of 
marginal hydroelectric plants and, above all, increased 
use ofpeat, which is the most expensive source of energy. 
7.^. Lhe commission has tried to remedy the inD 
adequacies of the RlOPs by launching preparatory 
studies. ^owever,ithas often taken decisions to ^rant aid 
even before thestudieshavebeencompleted.Theroleand 
usefulness of such studies in the decision^makin^ process 
should thereforebeexaminedinthecaseoftheAuver^ne 
IL^O, the relevant commission departments, faced with 
thedisappointin^resultsofthepreparatorystudy,atfirst 
proposed to refuse to pay the remaining sum due. It was 
onlyonthebasisoftheC^ommissiondecisioninfavourof 
the Auver^ne IL^C^, which was considered to have 
approved and implicitly complemented the preparatory 
study, that they made the final payment. 
Ceo^du^hoBofB^^e^ 
7,^ l^he commission has always stressed the import­
ance of coordinatin^re^ional development measures.To 
thisend,itsetupaspecificlOirectorate-Creneralandthe 
reform regulations frequently reter to the need for 
coordination, nevertheless, it is strange that no precise 
definition is ^iven in the regulations. 
7,^1, Ananalysisofthere^ulationsrevealsavery broad 
interpretation of coordination. It may be confined tea 
simpleexchan^eofinformationortothedivisionoftasks 
in order to reduce any overlapping or contradictions in 
the measures inaparticularre^ion.Phe analysis also 
shows that, in contrast with this passive concept, 
coordination can also assumeamoreactivecharacterand 
result in integration if, by means of an adequate 
mana^ementstructure,itenablesmutualconsolidationof 
the efiects of the measures taken. approaches,Forexample,variousre^ulations,suchasthe 
1^4 ERIOF Regulation or the l^eoIlvIP Regulation, 
specifically emphasize the IL^C^sand integrated pro^ram^ 
mes in which the ERIoF could participate in the form of 
l^PC^Is, Phe findings on the progress of integrated 
approaches^seepara^raph7,^and^^^showhow 
illusory the priority granted to these measures is. 
7.^, Integrated action is difficult to organize, because 
thereissometimesalon^time between thedecisionsofthe 
various structural Funds. Forinstance,anintervalof 
three years passed between the decision to ^rant aid for 
the Iviid-C^lamor^anl^PC^I and that concerning an IL^C^ 
inwhichitwasincluded. In this respect, the reform of the 
Funds has scarcely improved the situation, Indeed,the 
decisions concerning the C^Ps mention that they will be 
included later in multifund operational programmes 
which combine measures underanumber of structural 
instruments. 
7,^4, Fxamination of the IL^COs revealed that they are 
frequently superficial and are simplyajuxtaposition of 
the measures taken under the various Funds, For 
example, in the case of the Auver^nellOCO, the FACrOlF^ 
guidance element of this IL^COcoversadifierent period 
from that covered by the FRIOF and the FSF.Further 
more, it simply groups to^ethermeasures in progress and 
scarcely mentions measures to assist the placing on the 
market and processing of agricultural products, despite 
the importance attached to the a^ro-industry sector for 
the development of this region. 
7,^eo. Lhe commission should do more to ensure that 
inte^rationis real, in particular by ensurin^thatefiective 
management structures are set up and by ^rantin^ them 
definite preterentialtreatment. This approach appears 
more likely to convince the national authorities involved 
of the need for greater coordination. 
7.^o, At community level,coordinationbetweenthe 
various financial instruments is very limited. For 
example, financing by the FIB is often mentioned asa 
possibility and is not really integrated in the implemen­
tation ofthe operations, coordination between the three 
structural Funds is also limited. In an area in northern 
Abruzzo^Italy^, the FSF continued to fund traditional 
trainin^unsuitedtotheneedscreatedbytheconsiderable 
development of telematics services funded by the FRIOF 
in this region. 
7,^, LheC^ommission^sinterest in coordination emer­
ges, for instance, in the priority it attaches to integrated 7,^7, community regional policy itself often seems to 
concentrate on dividing funds between the regions rather 
12. 12. 90 Official Journal of the European Communities 135 
than on providing an overall, coordinated vision of the 
objectives to be achieved. It is not unusual for areas to 
benefit from the full range of ERDF measures, sometimes 
with the addition of support for one or more BICs. 
7.98. There are no fewer than five Community oper­
ations in the Abruzzo region. They were selected at 
around the sam ; time and mainly provide for measures to 
assist SMEs. 1 Aere are two NPCIs, which were decided 
on in 1988, one measure concerning internally generated 
development, one big operation in the STAR programme 
and one measure to support a BIC. Given that the 
objectives for these various operations converge, the 
value of carrying out so many operations, which can only 
be detrimental to their effectiveness, should be looked 
into. In the Glasgow area (United Kingdom), two NPCIs, 
one of which was part of an IDO, exist alongside two non­
quota measures concerning the steel industry and 
shipbuilding, and a BIC. All these measures contain 
similar aspects, with the result that, in practice, the two 
non-quota measures are administered as one, with 
expenditure being divided between them purely in order 
to gain maximum benefit from Community funds. The 
same situation was found in Italy, in the case of various 
energy programmes. 
7.99. As far as rules and administration are concerned, 
coordination has encountered difficulties here, too. 
Sometimes, the Commission accepted programmes which 
included aid procedures which it had not yet approved or 
which contravened its own rules. For example, some 
measures in France provided for the involvement of 
national systems of consultancy aid for companies which 
the Commission had not finished examining when the 
decisions were taken. For some projects covered by the 
Irish roads-NPCI, the level of Community aid was set at 
55 %. However, these projects benefit under measures to 
assist transport infrastructures which limit Community 
aid to 50 %. 
7.100. In the Member States, the flow of information 
between the central and regional administrative author­
ities is often unsatisfactory. For instance, in the 
hydraulics section of the Asturias NPCI, the evaluations 
proposed by the regional authorities, and included in the 
programme outline, proved to be three times lower than 
those of the ministry responsible for carrying out the 
work. 
7.101. This situation, which was made worse by 
conflicts over competence, has sometimes led to con­
siderable hold-ups. For instance, in Italy, it took a 
number of years to set up a management structure for non-quota 'energy' measures and the Valoren pro­
gramme. Also in Italy, the body which was supposed to 
manage the STAR programme never came into existence. 
A similar situation arose in Portugal for certain measures 
under the STAR programme. 
Assessment of effectiveness 
7.102. While monitoring mainly involves examining the 
implementation of the funds provided, assessment 
consists of examining the results obtained and comparing 
them with the objectives of the measures, to gauge their 
effectiveness. To be carried out properly, this type of 
exercise therefore requires the expected effects of 
operations to be identified in advance and forecast as 
precisely as possible. In addition, predetermined indi­
cators must make it possible to observe ex post the 
progress towards achieving the objectives. Under the 
reform of the structural Funds, the assessment methods 
should be fashioned in such a way as to check whether the 
measures have a real economic impact on the regions in 
question and whether they lead to an increase in the 
Member States' action to assist less-favoured regions. 
7.103. In practice, the Commission has not yet de­
veloped operational assessment methods for projects or 
programmes. Furthermore, the shortcomings generally 
found as regards the precision of objectives and the 
identification of the methods by which they are to be 
achieved will not simplify any assessments. In addition, 
the Commission departments have made little effort to 
obtain the necessary information, including that required 
by the regulations, little though that is. In 1989, for 
instance, three Member States had still not sent in their 
statistical summaries for 1984, and the most recent annual 
statistics in the Commission's possession date back to 
1987 and concern only one Member State. 
7.104. Only in the occasional programme, notably 
STAR, has any real attempt been made to acquire a basis 
for evaluation; in such programmes, the Commission has 
tried to create specific assessment methods. Since, under 
the reform of the Funds, priority is given to measures 
presented in the form of a programme, it is a matter of 
urgency that the Commission should develop appropriate 
assessment methods that are sufficiently general to enable 
a comparison to be drawn between the effectiveness of 
measures. 
7.105. It is difficult, at present, to assess the effective­
ness of measures taken in the context of diversification, 
since most of them have been subject to delays and are still 
in the course of progress. However, the difficulties 
discovered suggest that there has been no increase in 
effectiveness, especially since the level of synergy between 
1^0 Co^fticial journal of the European Communities Llnl^ 
thevariousmeasuresincludedinthepro^rammesin often 
low.For instance, the Auver^nel^PCIprovidesfor road 
developments mainly in the southern part of the region, 
although the other measures are centred chiefly on the 
moreindustrializednorthempart^developmentofS^^s 
andtourism^The sparse information available shows 
that the objectives are only slowly bein^ realized. For 
e^ample,forthe^L^P^PCI,thenumberofjobsthathad 
actually been created by the date of the audit was 
considerably lower than that forecast in the implement 
tation schedule and some of the companies assisted had 
already had to cease trading. 
7.n]o. The principle of complementarity aims at 
ensurin^thatCommunityactionisinaddition to national 
action toassistthere^ionsandisnotusedasassubstitute. 
Theimplementationofthisconceptrequiresthedrawin^ 
up ofadequate procedures to ensure that Community 
contributions to regional development are not in practice 
diverted from their purpose. Phese should be backed up 
by the introduction of the appropriate verification 
procedures. 
7.107. Previous PRToFre^ulationsdid not ^iveanyreal 
substance to the idea of complementarity and the 
Commission did little to make up for this inadequacy by 
setting up systems ensuring etlective complementarity. 
^ulation^PPC^o4^^^madetheconceptsli^htly 
clearer,but did not specify what methods and criteria 
should be applied to ensure it existed. In this respect, the 
Commission should take greater care to ensure that the 
minimum of information necessary is submitted to it, in 
particular the expenditure of the member States^ public 
amenities budgets, broken down by region. 
7.10^. COneconcretee^ample of complementarity could 
be that Community contributions help to speed up the 
measures inpro^ress or toincreasetheirvolume.Lhe 
delaysinimplementation discovered ^iverisetodoubtsas 
to whether complementarity speeds up proceedings. 
Worse still, a study of the management of some 
programmes revealed that it consisted mainly of drawing 
up lists of projects that were almost complete, so that the 
maximum amount of eligible expenditure could be 
submitted to the Commission and Community aid could 
be paid more quickly. CC^CLHSICB^S 
7.10^. respite the problems discovered,the diverse 
cation ofthe methods of Communityintervention, which 
has developed sincel^eo,does include positive aspects 
which couldmakeauseful contribution to theimplemen^ 
tation of the reform of the structural Funds which be^an 
inl^^ 
7.110. Fore^ample,thedevelopmentofthepro^ramme 
approachprovidedthebasisforcooperation between the 
Commission, the member States and the regional 
authorities.^Iowever,this cooperation still needs to be 
strengthened if theprinciple of partnership, whichis 
supposed to playamajor role in the implementation of 
the reform of the Funds, is to live up to expectations. 
7.111. L^iversiticationhasalsoincreasedcooperation 
between the various administrative departments inD 
volved, at both national and Community level, which, in 
the lon^ run, should enable their preoccupations to be 
viewedinamoreinte^ratedconte^t. Alongside this,ithas 
alsobeen possible to experiment with new monitoring 
systems. 
7dL^. Finally, the new Community instruments for 
interventionhaveplaced^reateremphasisonmeasuresto 
stimulate the activity of companies and supplement aid 
formaterialinvestment,eveniftheinitialresultsareoften 
below expectations. 
7.11^. I^owever,despitethesepositiveelements, diverse 
tication is often contined to pursuing, in another form, 
the measures funded previously as individual products, 
shortcomings inthe approaches adopted andintheir 
preparation have limited the increase in effectiveness 
expected of the new measures and have reduced them to 
simple tinancin^ procedures. 
7.11^. I^he programmes which make up the bulk of the 
new measures contain various weaknesses, in particular 
as regards the inadequate or unsuitable definition they 
provide oftheir objectives and priorities. Theconnection 
between the objectives and the means to achieve them, 
both tinancialandor^anizational, is often not clearly 
established. 
7.11eo. COnemajorweaknessofdiversiticationliesinthe 
structure and application of the monitoring and assess^ 
ment systems. The programmes contain virtually no 
indicatorsorcriteriathatenabletheiractualpro^ressand 
success to be evaluated. 
7.11^. As regards effectiveness, the extent of the delays 
discovered in theimplementation of thepro^rammes 
examined does not bear witness to any significant 
^ 
LlLl^ Official journal of the European communities 137 
improvement compared with previous approaches, such 
as the project approach and that proposed in the first 
nonquota measures. 
7.117. The C^ourCspreviousanalysesof^P.IOF activity 
and the quality ofits management, ^vhich it presented in 
itsannualorspecialreports,haveconsistentlyshownthat 
the measures taken bv the commission in regional 
development are generally disappointing.This has been 
due tofailure to pay adequate attentionto the actual 
conditionsthathavetobeachievedforthemeasurestobe 
effectively implemented and to learn enough from 
previous experiences. This situation was widely repeated 
in the 1^^ period, ^vhich corresponds to the 
implementation of regulation ^Eoe^o 17^7^4, and 
theC^ommission should take the necessary steps toensure 
that it does not happen again. 
7.11^. The ne^v programming procedure should make 
theprioritiesofC^ommunity action clearerandreducethe 
danger of e^cessivefragmentationofFund aid. Further­
more, the principle of partnership shouldenable the 
potential and priority needs of the regions concerned to 
be better accommodated. 
7.11^. Thenewregulationscontaindetails on what 
concepts such as coordination, monitoring, assessment 
and complementarity shouldmeanin practice, denerally 
speaking, thev reorganize the responsibilities involved in 
the implementation of C^ommunitv measures^ response 
ibilityformanagement and control at the financial level 
liesprimarilywiththe^iemberStates,v^hichhavealarger 
margin for manoeuvre in carrying out measures. Po 
compensate for the increase in autonomv granted to the 
national authorities, the regulationincreased the require-
mentsconcerningmonitoring,whichnowhastodealwith 
both the financial and physical implementation of 
measures, andrequirementsconcerning the assessment of 
the results compared with the objectives. 
7.1^tl In order to ensure that the commission is, in 
practice, able to assess whether sound use has been made 
ofC^ommunityfundsfor the measures it has approved, it 
is absolutely essential for it to ensure strict monitoring 
andassessmentofthemeasuresandforittocarryoutthe 
resulting recommendations effectively. 7.1^1. For the member States to accept and share this 
concern for thoroughness, the commission, for its part, 
must attempt to ensure transparency. Transparency 
should consist of providing administratorsand recipients 
^vith information that is as accurate as possible on the 
measures in v^hich the oeommunity participates and on 
the objectives andmethodsofC^ommunity action. This is 
particularly important given that the management and 
supervision of measures are increasingly in the hands of 
the member states. 
7.1^. There must also be transparency intheC^om-
mission'smanagement.Toachievethis,theapplicationof 
the system of budgetary and financial management in 
forceneedstobeimproved. Failingarevision of the 
budgetary nomenclature, to take into account the 
diversity of community measures, detailed explanations 
onthevariousmeasuresshouldbegiveninthecomments 
onthebudget. Asregardsfinancial management, the 
commission is still tarfrom achieving the obiective laid 
do^ninArticle^^of^egulation^FF^l^o^^^^, 
which statesgfor the greater effectiveness of the Funds, 
the commission shall ensure that particular attention is 
paid to transparency ofmanagement.l^eitherthesystem 
of commitment nor that of pavment, nor, consequently, 
theC^ommunityaccounts,enabletheC^ommissiontohave 
an accurate idea of thee^tentofits obligations and of the 
level of implementation ofoperations.In addition,the 
generalized introduction of these systems in other 
structural Funds v^ill not help improve the transparency 
of CAammunitv policies. 
7.1^3. ThereformoftheFundsdoesnotinitself contain 
any guarantee of success.COnthecontrary,thee^perience 
of the past has sho^vn that in vie^v of its ambitions, the 
commission must be increasinglv diligent in monitoring 
measuresandmustmakeaconsiderableeffortinthe area 
oftransparency,inorderimprovethe effectiveness of 
structuralpolicies.Itshouldalsocontinuetoputconstant 
pressure on the member States to improve theirmethods 
and procedures in order to achieve greater eftectiveness 
and to ensure that the measures they propose are better 
suited to achievingC^ommunity regionaldevelopment 
objectives. 
138 Official Journal of the European Communities 12. 12. 90 
CHAPTER 8 
The European Social Fund (ESF) 
8.0. TABLE OF CONTENTS Paragraph 
reference 
Implementation of the budget 
Preliminary remark 
Community measures in the field of long-term unemployment 
Introduction 
Observations on the planning procedures 
The fight against long-term unemployment as a political objective 
Details of the guidelines for the management of the ESF concerning 
the long-term unemployed 
Community statistics on long-term unemployment 
Policy analyses 
Coordination 
Measures concerning the long-term unemployed in the second 
programme to combat poverty 
Observations on the implementation procedures in the EDF 
Criteria for granting assistance in relation to the long-term 
unemployed 
General criteria of eligibility 
Observations on the appraisal, monitoring and follow-up procedures 
The impact of ESF intervention 
Conclusion on the new Fund 
ESF measures relating to the restructuring of industrial enterprises 
Introduction 
Observations on the implementation of ESF measures concerning the 
restructuring of companies 
Aspects relating to the size and the nature of companies receiving ESF 
assistance 
Observations concerning the charging of certain categories of expendi­
ture to the ESF 
Trainees' income 
Expenditure on the preparation of training courses 
Other expenditure concerning industrial restructuring measures 
Revenue deriving from the measures 
The ESF as an instrument of the Community's industrial policy 
Conclusion 8.1 
8.5 
8.6 
8.6 
8.14 
8.14 
8.16 
8.20 
8.26 
8.33 
8.36 
8.37 
8.37 
8.40 
8.42 
8.49 
8.53 
8.57 
8.57 8.4 
8.56 
8.13 
8.36 
8.15 
8.19 
8.25 
8.32 
8.35 
— 8.41 
— 8.39 
— 8.41 
— 8.48 
— 8.52 
— 8.56 
— 8.104 
— 8.64 
8.65 — 8.72 
8.73 — 8.77 
8.78 
8.80 
8.84 
8.87 
8.90 
8.91 
8.97 — 8.89 
— 8.83 
— 8.86 
— 8.89 
— 8.96 
— 8.104 
12. 12. 90 Official Journal of the European Communities 139 
IMPLEMENTATION OF THE BUDGET PRELIMINARY REMARKS 
8.1. Table 8.1 shows how many appropriations were 
available in 1989 as well as the use that was made of them 
for the European Social Fund. 
8.2. Final appropriations for commitment (3 519,7 Mio 
ECU) and for payment (2 918,5 Mio ECU) showed an 
increase in 1989 of, respectively, 21,40 % and 10,87 % on 
the corresponding figures for 1988. 8.5. The Court's audit concerned, on the one hand, 
measures in favour of the long-term unemployed 
(paragraphs 8.6-8.56) and, on the other hand, measures 
concerning the restructuring of industrial enterprises 
(paragraphs 8.57-8.104). 
8.3. Total ESF resources in 1989 were boosted by 
147,7 Mio ECU of appropriations made available again 
by virtue of the new Article 6, paragraph 6, of the 
Financial Regulation, which was introduced by Council 
Regulation No 2049/88 of 24 June 1988 Q): with effect 
from 19 July 1988, any decommitment of appropriations 
committed during previous financial years should 
ordinarily result in the cancellation of the appropriations 
concerned, except where they are made available again, 
which ought to be the exception rather than the rule and 
should be undertaken in accordance with criteria which 
must be shown to have been observed and arise from the 
need to carry out the programmes that had been initially 
envisaged, in a situation where appropriations for such a 
purpose are not available in the current budget. The 
appropriations that were made available again in this way 
corresponded to decommitments recorded at the end of 
1988 against 1987 commitments. They are commented on 
in this report in paragraphs 1.40 and 1.42. 
8.4. The rates of utilization of final appropriations for 
commitment and payment amounted, respectively, to 
98,8 % and 91,7 %, compared with 99 % and 87,3 % in 
1988. COMMUNITY MEASURES IN THE FIELD 
OF LONG-TERM UNEMPLOYMENT 
(]) Council Regulation (ECSC, EEC, Euratom) No 2049/88 of 
24 June 1988 amending the Financial Regulation of 21 
December 1977 applicable to the general budget of the 
European Communities, OJ L 185, 15.7.1988, p. 3. Introduction 
8.6. Community intervention during the period 1984-89 
in the field of long-term unemployment — employment 
lasting longer than one year, the scale of which is 
indicated in Table 8.2 — consists essentially of the 
following: ESF financial assistance, measures to combat 
poverty, the ERGO action programme concerning long-
term unemployment, the mutual information system on 
employment policies (Misep) and measures intended to 
improve statistical information. 
8.7. ESF aid to promote the re-employment of the long-
term unemployed is provided for in Article 4, paragraphs 
1 and 2(a), of Council Decision 83/516/EEC of 17 
October 1983 (2). 
(2) Council Decision 83/516/EEC of 17 October 1983 concern­
ing the tasks of the ESF, OJ L 289, 22.10.1983, p. 38. 
Appropriations for com­
mitment 
Appropriations for pay­
ment Table 8.1 — Implementation of the ESF's 
Initial 
budget 
(a) 
3 387,0 
2 950,0 Initial budget 
and 
appropriations 
made available 
again 
(b) 
3 534,7 
2 950,0 Budget after 
SAB and 
transfer 
(c) 
3 519,7 
2 918,5 1989 budget 
Implement­
ation 
(d) 
3 478,4 
2 676,1 Rate of 
implementation 
of budget after 
appropriations made available 
again 
(e = d/b) 
% 
98,4 
90,7 Rate 
of 
implementation 
of final 
budget 
(f=d/c) 
98,8 
91,7 
140 Official Journal of the European Communities 12. 12. 90 
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12. 12. 90 Official Journal of the European Communities 141 
8.8. In addition, the Commission guidelines in respect 
of the management of the ESF establish certain priority 
measures once a year, amongst which are measures 
concerning the long-term unemployed (3); these are part 
of broader priority groups. During the period 1984-89, 
commitments entered into by the Commission under 
these guidelines concerning the long-term unemployed 
amounted to 1 616,8 Mio ECU, as can be seen from Table 
8.3. On 31 December 1989, commitments concerning the 
period 1984-88, which amounted to 1 083,4 Mio ECU, 
had given rise to 820,1 Mio ECU of payments (or requests 
for payment, in the case of files which had not at that date 
been closed), which amounted to a utilization rate of 
75,7 %. Bearing in mind that the financial years 1984, 
1985 and 1986 may be considered more or less closed, it 
can be seen that, for this period, the rate of utilization of 
commitments specifically concerning the long-term 
unemployed (77 %) does not differ very much from the 
rate of utilization of ESF appropriations as a whole 
(75 %). Table 8.3 also shows a generalized and often 
sizeable fall in real costs per person for the ESF during the 
period 1985-88, compared with the relevant figures as 
they emerge from the approval decisions; this might 
indicate inadequate appraisal by ESF staff of the 
forecasting element that is inherent in any application for 
aid. A detailed analysis of costs per person and per hour 
ought to make it possible to explain the discrepancies 
between actual costs and forecast costs. 
8.9. A group of 12 measures belonging to the second 
programme to combat poverty (1985-89) (4) concern the 
long-term unemployed; these are research-measures, for 
which commitments and payments on 31 December 1989 
amounted to, respectively, 2,9 Mio ECU and 2,4 Mio 
ECU. 
8.10. The ERGO programme, which was implemented 
at the beginning of 1989 (5) for a period of three years, is 
intended to draw up a list, using the contributions of a 
network of correspondents in each Member State, of 
programmes and projects intended to assist the long-term 
unemployed and to disseminate the information thus 
collected. Another aim of this programme, moreover, is 
to create tools for evaluating the different types of 
measure intended to combat long-term unemployment, 
(3) Commission guidelines for the management of the ESF for 
the financial years 1984-86, OJ C 5,10.1.1984, p. 1 (renewed 
for the financial years 1985-87, OJ C 126, 12.5.1984, p. 3). 
Commission guidelines for the management of the ESF for 
the financial years 1986-88, OJ L 133, 22.5.1985, p. 26. 
Commission guidelines for the management of the ESF for 
the financial years 1987-89, OJ L 153, 7.6.1986, p. 59. 
Commission guidelines for the management of the ESF for 
the financial years 1988-90, OJ L 167, 26.6.1987, p. 56. 
Commission guidelines for the management of the ESF for 
the financial years 1989-91, OJ L 143, 10.6.1988, p. 45. 
(4) OJL 2, 3.1.1985, p. 24. 
(5) Following the Council's conclusions of 1 December 1987 
concerning the struggle against long-term unemployment, 
OJC 335, 15.12.1987, p. 1. through the development of a common methodology. 
Commitments and payments on 31 December 1989 
amounted to respectively 3 Mio ECU and 1,3 Mio ECU. 
8.11. The mutual information system on employment 
policies, known by the acronym Misep, was created in 
1982 (6) in response to the wish expressed by the Member 
State delegates to the Council to be kept mutually 
informed regarding developments in national measures 
and structures in the field of employment. This system, 
which operates on the basis of a network of cor­
respondents belonging to the government departments in 
the Member States responsible for employment questions 
and with a central secretariat under the responsibility of 
the Commission, is supposed to collect the relevant 
information, periodically update it and disseminate it. In 
so doing, Misep's publications (basic information reports 
and updatings published in Social Europe) also itemize 
national measures which specifically concern the long-
term unemployed. 
8.12. The Statistics Office is responsible for collating 
and supplying comparable statistical data on long-term 
unemployment, not only at the national level but also at 
the level of a relatively sophisticated regional breakdown. 
8.13. The Court's audit mainly concerned ESF assist­
ance to the long-term unemployed, without, however, 
overlooking the links between the Fund's work and other 
Community measures mentioned in paragraph 8.6; it 
concerned planning, execution, appraisal, monitoring 
and follow-up procedures, as well as the impact of ESF 
aid. 
Observations on the planning procedures 
The fight against long-term unemployment 
as a political objective 
8.14. As part of the re-examination of Decision 77/801/ 
EEC, and of the regulation implementing this Deci­
sion (7), which was carried out in 1982 and 1983 and 
(6) Following the Council Resolution of 27 June 1980 
concerning guidelines for a Community labour market 
policy (OJ C 168, 8.7.1980). 
(7) Council Decision 77/801/EEC of 20 December 1977, OJ L 
337, 27.12.1977, p. 8 and Council Regulation (EEC) No 
2893/77 of 20 December 1977, OJ L 337, 27.12.1977, p. 1. 
142 Official Journal of the European Communities 12. 12. 90 
Table 8.3 — European Social Fund — Long-term unemployment — Approvals (commitments) and payments 
at the rates prevailing on 31 December of each financial year 
Financial year 
Guidelines concerning 
the long-term 
unemployed (') 
Belgium 
Approvals: 
— sums(4) 
— number of 
beneficiaries 
Payments: 
— sums 
— number of 
beneficiaries 
Denmark 
Approvals: 
— sums 
— number of 
beneficiaries 
Payments: 
— sums 
— number of 
beneficiaries 
FR of Germany 
Approvals: 
— sums 
— number of 
beneficiaries 
Payments: 
— sums 
— number of 
beneficiaries 
Greece 
Approvals: 
— sums 
— number of 
beneficiaries 
Payments: 
— sums 
— number of 
beneficiaries 
Spain 
Approvals: 
— sums 
— number of 
beneficiaries 
Payments: 
— sums 
— number of 
beneficiaries 
France 
Approvals: 
— sums 
— number of 
beneficiaries 
Payments: 
— sums 
— number of 
beneficiaries 
Ireland 
Approvals: 
— sums 
— number of 
beneficiaries 
Payments: 
— sums 
— number of 
beneficiaries 1984 
(2) 
6,1 
2 717 
6,0 
(6) 
— 
— 
(6) 
(6) 
6,2 
3 609 
5,9 
(6) 
— 
— 
— 
— 
5,4 
3 297 
3,8 
(6) 
— 
— 
— (3) 
16,2 
9 706 
14,6 
(6) 
11,8 
6 493 
11,1 
(6) 
4,4 
2 132 
2,4 
(6) 
5,4 
5 122 
2,3 
(6) 
0,8 
533 
0,8 
(6) 
0,0 
38 
0,0 
(6) 1985 
(2) 
6,2 
3 551 
4,8 
3 020 
— 
— 
— 
— 
4,4 
14 853 
4,0 
3 993 
— 
— 
— 
— 
19,9 
8 181 
19,0 
20 471 
— 
— 
— (3) 
26,4 
(5) 
15 007 
17,2 
(5) 
35 745 
11,9 
9911 
8,6 
4 363 
6,2 
14 652 
5,7 
15 961 
7,0 
11 170 
6,1 
30 525 
0,5 
2 396 
0,5 
1 305 
3,1 
3 296 
2,1 
6 122 1986 
(2) 
0,3 
198 
0,2 
297 
2,3 
905 
1,1 
562 
7,6 
3 753 
7,4 
3 629 
5,7 
5 832 
4,0 
5 049 
43,0 
44 195 
34,5 
52 364 
43,1 
23 026 
40,5 
38 177 
16,3 
8 204 
9,5 
12 379 (3) 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
13,1 
21 381 
11,7 
35 871 
19,2 
13 742 
8,8 
7 396 
0,0 
27 
0,0 
27 
7,0 
6 465 
7,0 
15 185 1987 
(2) 
5,1 
1 311 
3,5 
1 770 
0,5 
179 
0,5 
244 
15,2 
7 332 
14,5 
7 996 
9,5 
7 752 
5,1 
6 141 
65,3 
56 197 
64,6 
89 814 
48,3 
26 434 
44,5 
37,709 
12,2 
6 105 
9,6 
8 310 (3) 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
19,2 
34 525 
16,1 
37 583 
27,9 
20 792 
14,6 
12 303 
0,0 
26 
0,0 
— 
10,8 
11 228 
9,4 
19 846 1988 
(2) 
3,2 
893 
2,7 
1 669 
0,2 
53 
0,2 
126 
13,4 
6 525 
10,4 
5 976 
11,0 
7 056 
5,2 
1 119 
81,3 
59 334 
76,7 
126 545 
69,2 
33 365 
33,6 
77 228 
15,7 
8 310 
10,8 
6 893 (3) 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
25,7 
41 691 
16,2 
48 718 
21,7 
13 557 
18,2 
13 366 
0,1 
176 
0,0 
75 
12,2 
12 323 
11,1 
22 650 1989 
(2) 
4,4 
1 879 
2,2 
0,4 
79 
0,2 
19,2 
5 754 
10,1 
15,9 
11 160 
8,7 
176,2 
99 929 
87,9 
112,9 
41 151 
56,5 
16,2 
12 544 
8,1 (3) 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
— 
17,5 
31 409 
8,7 
26,4 
16 820 
13,7 
0,0 
0 
0,0 
12,4 
13 040 
6,2 
12. 12. 90 Official Journal of the European Communities 143 
(cont.) 
Financial year 
Guidelines concerning 
the long-term 
unemployed (') 
Italy 
Approvals: 
— sums 
— number of 
beneficiaries 
Payments: 
— sums 
— number of 
beneficiaries 
Luxembourg 
Approvals: 
— sums 
— number of 
beneficiaries 
Payments: 
— sums 
— number of 
beneficiaries 
Netherlands 
Approvals: 
— sums 
— number of 
beneficiaries 
Payments: 
— sums 
— number of 
beneficiaries 
Portugal 
Approvals: 
— sums 
— number of 
beneficiaries 
Payments: 
— sums 
— number of 
beneficiaries 
United Kingdom 
Approvals: 
— sums 
— number of 
beneficiaries 
Payments: 
— sums 
— number of 
beneficiaries 
Total 
Approvals: 
— sums 
— number of 
beneficiaries 
Payments: 
— sums 
— number of 
beneficiaries 1984 
(2) 
1,3 
473 
0,7 
(6) 
3,1 
2 016 
3,0 
(6) 
6,8 
13 779 
4,2 
(6) 
28,9 
25 891 
23,6 (3) 
1,2 
744 
— 
(6) 
0,4 
286 
0,2 
(6) 
21,2 
20 018 
19,6 
(6) 
61,4 
47 778 
51,0 1985 
(2) 
5,4 
1 688 
3,8 
1 794 
3,5 
6 921 
2,5 
3 522 
10,6 
11 594 
7,1 
12 082 
50,0 
46 788 
41,2 
44 882 (3) 
1,2 
756 
0,3 
947 
2,2 
1 677 
1,8 
3 037 
14,7 
12 686 
11,6 
86 666 
73,2 
71 551 
53,9 
184671 1986 
(2) 
16,3 
5 216 
7,5 
2 751 
5,6 
1 917 
3,3 
5 412 
2,5 
1 965 
1,8 
1 521 
4,7 
6 877 
2,3 
4 878 
147,4 
102088 
112,1 
127019 (3) 
1,1 
931 
0,5 
260 
— 
— 
— 
-— 
2,2 
6 240 
1,5 
5 880 
3,6 
4 346 
3,6 
8 360 
46,2 
53 132 
33,1 
72 979 1987 
(2) 
22,6 
6 126 
11,4 
4 752 
7,5 
2 215 
6,9 
4 057 
7,9 
5 276 
3,3 
4 005 
9,4 
7 169 
6,6 
18 685 
203,5 
126096 
170,7 
183 483 (3) 
1,1 
646 
0,4 
655 
— 
— 
— 
— 
8,8 
17 180 
5,6 
15 394 
7,2 
8 676 
5,0 
9 426 
75,0 
93 073 
51,1 
95 207 1988 
(2) 
33,4 
6 956 
19,5 
6 531 
11,4 
3 219 
7,2 
2 247 
9,7 
6 057 
6,8 
25 922 
72,2 
73 648 
51,8 
115 093 
320,7 
205416 
224,9 
369 349 (3) 
2,7 
1 628 
0,6 
552 
— 
— 
— 
— 
9,9 
18 640 
7,8 
18 914 
4,8 
6 072 
4,8 
9 796 
77,1 
94 087 
58,7 
114071 1989 
(2) 
31,3 
8 353 
14,5 
18,8 
6 043 
9,9 
9,2 
3 845 
3,7 
59,8 
41 734 
29,9 
464,2 
231674 
231,6 (3) 
2,8 
2 170 
0,7 
— 
— 
— 
— 
— 
— 
— 
— 
4,0 
20 454 
5,0 
6,1 
7 151 
2,9 
69,2 
91 044 
37,2 
Source: Eurada system. 
(') The details of the guidelines are given in footnote 3. 
(2) Vocational training. 
(3) Hiring/putting to work. 
(4) The sums are in millions of ECU. 
(5) A sizeable reduction in real unit costs compared with the estimated unit costs as indicated in the approval decisions may be observed (see paragraph 8.8). 
(6) Statistics not directly available for the financial year 1984. 
144 Official Journal of the European Communities 12. 12. 90 
resulted principally in Decision 83/516/EEC concerning 
the tasks of the ESF and the regulation implementing this 
Decision, the Commission did not make any explicit 
overall analysis of the question of long-term unemploy­
ment, although it was statistically already a serious 
structural problem in seven Member States of the Europe 
of Ten at that time, in 1982, and numerous studies had 
pointed this out (8). 
8.15. In its memorandum of 18 March 1987 (9) concern­
ing the fight against long-term unemployment, the 
Commission observed that, out of 16 million unemployed 
persons in the Communities, some 8 million had been 
unemployed for one year or more and it considered that, 
in the event that the Community should opt for the 
principle of an appreciable reduction in long-term 
unemployment, it would be desirable to reduce the 
percentage of the long-term unemployed between then 
and 1990 from its then level (50 %) to a level of 30 % of 
the total unemployed population; if the overall number of 
the unemployed remained the same, that would have the 
effect of reducing the number of the long-term un­
employed from about eight to less than five million. 
Whilst indicating the main features of the policy that 
needed to be developed, the Commission gave no 
concrete indication of how this objective could be 
achieved. 
Details of the guidelines for the management of the ESF 
concerning the long-term unemployed 
8.16. The details of the guidelines concerning the long-
term unemployed, like other details, are the fruit of a 
process of preparation and selection, which, from the 
beginning, was conditioned by legal constraints, such as 
those laid down in Article 7 of Council Decision 83/516/ 
EEC concerning the aims of the ESF. The general 
objectives, as defined in this Council Decision, also 
constitute a basic datum for the process of preparing the 
guidelines. 
8.17. Thus, the overall financial constraint of a budget 
which is always distinctly less than the volume of requests 
for aid, along with the specific constraints referred to 
above, ought to have led the Commission to establish 
strict rules of sound financial management for the annual 
drafting of guidelines for the management of the Fund. In 
contrast, it was observed, through a study of the files in 
the Fund's departments, which helped trace the process of 
(8) Communication from the Commission to the Council and 
the Standing Committee on Employment on combating 
long-term unemployment, Doc. COM(84) 484 final of 
18 September 1987, OJ C 322, 3.12.1984. 
(9) Commission memorandum concerning the struggle against 
long-term unemployment, Doc. COM(87)231 of 18 May 
1987. the drafting of the guidelines for the financial years 1984-
89, that this process (10) had not been formally subject to 
rules or procedures intended to ensure sound financial 
management, such as 
(a) presentation and discussion of policy proposals, 
where: 
(i) the priority objectives are clearly identified and 
graded in terms of importance; 
(ii) the sub-objectives and the programme objectives 
are evaluated, individually or by groups, as 
regards the proportion of the higher Community 
objectives which they are suitable to achieve; 
(iii) the measures presented are evaluated in terms of 
their effectiveness — in the light of the objectives 
which each is supposed to be achieving — and 
their efficiency as regards effects that are contrary 
to other Community policies; 
(b) the availability, for discussions, of precise, up-to-date 
and reliable information on the socio-economic 
situation of the target groups and regions assisted by 
the Fund, and on national and Community policies in 
this field which are in the process of being carried out. 
8.18. In practice, the process has the following charac­
teristics : 
(a) given the limited amount of financial resources, the 
idea of greater selectivity in the guidelines, by 
proposing different degrees of priority and the 
application of the programme approach, has some­
times been advanced; the same idea was argued in 
another form, when the integration of various 
political objectives — such as the introduction of new 
technologies, the creation of employment at local 
level and action to help disadvantaged categories of 
persons — was recommended as part of a broader 
programme or objective rather than as a choice 
between objectives (n); 
(10) The various stages are the preparation of proposals for 
guidelines, the consultation of the Directorates at the 
Directorate-General for Employment, Industrial Relations 
and Social Affairs and the other Directorates-General and 
departments concerned in the Interdepartmental Group, the 
Committee of the Fund and the Member States; the taking 
into account of any views expressed by the European 
Parliament; and final discussion at the Commission. 
(u) Working document concerning guidelines for the manage­
ment of the ESF, Task Force for the coordination of 
financial instruments, TFC/99/84, of 15 November 1984. 
Doc. SEC(84) 1773, working document concerning the 
guidelines for the management of the ESF of 12 November 
1984 
12. 12. 90 Official Journal of the European Communities 145 
(b) very few proposals were evaluated, just as there were 
very few structured proposals for objectives and 
measures highlighting the precise relationships 
between unsatisfactory socio-economic situations 
and the objectives, on the one hand, between the 
objectives themselves, on the other hand, and finally 
between the objectives and the measures; 
(c) in order to draft the new guidelines for the following 
financial year, the Commission was not able to base 
its decisions on an assessment of the effectiveness and 
the efficiency of previous measures and on the follow-
up to measures which were still in the process of being 
carried out: there was practically no evaluation of 
measures co-financed under the 1978-83 and 1984-88 
Funds (see paragraphs 8.30 and 8.31); moreover, the 
procedures necessary for effective follow-up had not 
been stipulated in the Community rules (see para­
graph 8.48). Thus, although, as regards improving 
employment prospects as a result of professional 
training measures in favour of persons of over 25 
years of age who had been unemployed for over 12 
months, the Commission observed in the com­
mentary concerning the approval decisions in 
1984 (12) that the Member State declarations to this 
effect had been satisfactory during the first years of 
implementation of the new system, but that during 
the process of approving new applications account 
would be taken of the results obtained in the past, in 
practice, no such follow-up action took place. As 
regards the past, the only information available to the 
Commission concerned: 
(i) the type of measures previously approved; 
(ii) changes in the distribution of ESF appropriations 
amongst the Member States; 
(iii)the effects of a linear reduction during the 
previous years; 
(iv) global and partial imbalances between commit­
ment appropriations and requests for aid; 
(v) adaptation of national structures and policies to 
the needs of Community financing; 
(vi) the extent to which the working population in the 
Member States was covered by the guidelines; 
(d) bringing the expected volume of requests for aid into 
balance with the available resources, whilst at the 
same time avoiding the use of excessively burdensome 
(12) Document V/995/84 of 18 July 1984. linear reductions, was undertaken using proposals for 
administrative and technical conditions and con­
straints — the direct connection of which with actual 
needs cannot be established and which in the end 
dominated the discussion of the preparatory stages in 
the guidelines — such as: 
(i) the proposal to restrict during financial year n + 
1 the proportion of the working population 
relative to the priority regions mentioned in the 
guidelines for financial year n (for example, from 
64 % for the financial years 1984 and 1985 to 
63 % for the financial year 1986 (13), to 57 % for 
the financial year 1987 and 50 % for the financial 
year 1988); 
(ii) the proposal that there should be varying periods 
of vocational training, varying minimum periods 
for the re-employment of the long-term un­
employed and even for long-term unemployment 
itself; 
(iii) the motivation and orientation stages which must 
be included in any vocational training measure in 
favour of the long-term unemployed were mainly 
introduced in 1986 in order to make the priorities 
more restricted (14). 
8.19. The result may thus be open to criticism as regards 
the soundness of the management: 
(a) thus, as regards long-term unemployment, the Court 
noted that, during the preparation of the 1986-88 
guidelines, the Commission departments emphasized 
the importance and the growth of long-term un­
employment and stressed that these unemployed had 
received particular attention in the new guidelines. 
Nevertheless, the 1986-88 guidelines are much more 
restrictive than the previous ones, both because of the 
imposition of a period of training of at least 200 
hours, the inclusion in the professional training 
measures of motivation and orientation stages and 
because of the exclusive priority given to measures to 
re-employ long-term unemployed persons in regions 
of absolute priority; this latter restriction was, 
moreover, introduced during the final stage of 
drafting, very discreetly and without any explicit 
motivation; 
(b) in contrast, the criterion of achieving a significant 
improvement in employment prospects, which was 
part of the guideline — for the financial years 1984 to 
1986 — concerning professional training for persons 
of more than 25 years who had been unemployed for 
more than 12 months, was not included in the 1986-88 
guidelines; 
(13) Draft ESF 1986-88 guidelines of 11 March 1985. 
(14) Report on the meeting between representatives of the ESF 
and the Dutch Government: 'Consultation of Member 
States on the DG V text of the guidelines V/209/85' of 20 
March 1985. 
146 Official Journal of the European Communities 12. 12. 90 
(c) the presentation of the guidelines in the form of an 
unintegrated juxtaposition of criteria for granting 
assistance, and the multiplicity of the aspects 
characterizing the long-term unemployed, such as 
sex, age, qualifications, regional location, etc., meant 
that files concerning the long-term unemployed were 
submitted, whether referring explicitly or not to this 
target group, under other guidelines, such as those 
concerning vocational training measures or measures 
to encourage employment of women, measures to 
encourage the employment of persons aged 25 years 
or less and vocational training measures or measures 
to encourage employment included in local employ­
ment initiatives; 
(d) not always precise and measurable. This was true as 
regards the question of a significant improvement in 
the outlook for stable employment or the provision of 
training offering genuine prospects for employment, 
the motivation and orientation stages, employment 
for an indeterminate period and even the notion of 
long-term unemployment itself. 83/516/EEC concerning the tasks of the ESF, the 
appropriations left over — after charging, amounting to 
40 % in 1984 and 1985 and 44,5 % with effect from 1986, 
of all available appropriations for measures to promote 
employment in regions of absolute priority — must be 
concentrated on measures to promote the development of 
employment in other areas of high employment and long-
term unemployment and/or industrial and sectoral 
restructuring. 
8.22. The Commission has been obliged to abandon the 
practice of identifying areas with long-term unemploy­
ment on the basis of harmonized Community criteria, 
since the statistical experts have pointed out that the 
existing statistics are by-products of administrative 
statistics drawn up according to different standards, 
which are not comparable from country to country and, 
in some cases, even over time (,6). The Commission has 
treated regions of long-term unemployment as equivalent 
to regions with high unemployment — the list of which is 
drawn up by reference to the unemployment indices for 
young people and adults and in terms of the per capita 
GDP — maintaining that, on the whole, these regions are 
also regions of high unemployment for young people and 
adults and areas of low GDP per capita or areas which are 
in the process of restructuring, given the correlation 
between these different economic and social phenomena. 
Community statistics on long-term unemployment 
8.20. An examination has shown that harmonized 
statistics concerning long-term unemployment have only 
recently become available to the Community at the 
national and NUTS II levels — and not at the NUTS 
III (15) regional level. These harmonized statistics — an 
indispensable tool for Community decision-taking — 
concern the financial years 1987 and 1988. 
8.21. The absence of harmonized Community statistics 
on long-term unemployment, which was already obvious 
during the preparatory work for the Fund which became 
operational on 17 October 1983, has always been typical 
of the management of this Fund, although, from the 
moment of implementation, the need to define regions 
with long-term unemployment was evident. In fact, 
according to Article 7, paragraph 3, of Council Decision 
(15) NUTS: Nomenclature of territorial statistics units 
Level HI: 
Belgium arrondissement 
Denmark Amt 
FR of Germany Kreis 
Spain provincia 
France departement 
Italy provincia 
Luxembourg the whole country 
Netherlands COROP — Regio 
Portugal — 
United Kingdom county/local authority/region 
For levels I and II, which are made up using level III, see 
Eurostat Regio; regional data bank. 8.23. In the mean time, the Commission has not been 
able to promise any more (17) than that it will attempt to 
improve statistics on long-term unemployment using 
material from administrative resources and through the 
exploitation and the development of the series of labour 
force surveys. 
8.24. The Council, in turn, asked the Commission 
(a) in its resolution of 19 December 1984 (18), to take 
steps — and, where necessary, to make the relevant 
proposals to the Commission — to arrive, in 
collaboration with the Member States, at a situation 
of improved understanding of the nature and the 
extent of long-term unemployment by improving the 
collection of adequate statistics on a Community 
basis accepted by all; 
(b) in its conclusions of 1 December 1987 (19), to submit 
an action programme in favour of the long-term 
unemployed which, amongst other things, would 
(16) See 'Mecanisme statistique permettant de definir les regions 
prioritaires a l'octroi du concours FSE', Commission 
communication to the Council, COM(84) 344 final of 13 
July 1984. 
(17) Commission memorandum concerning the struggle against 
long-term unemployment, COM(87)231 final of 18 May 
1987. 
(18) Council resolution of 19 December 1984 concerning the 
struggle against long-term unemployment, OJ C 2,4.1.1985. 
(19) The Council's conclusions of 1 December 1987 concerning 
the struggle against long-term unemployment, OJ C 335, 
15.12.1987. 
12. 12. 90 Official Journal of the European Communities 147 
make it possible to supply broader and more 
comparable statistical data on long-term unemploy­
ment. 
8.25. The Commission was only able to obtain harmo­
nized statistics on long-term unemployment, for the 
implementation of the new Fund, once work started on 
establishing the Community support frameworks. 
Policy analyses 
Analyses concerning all the factors on which Community 
measures have a bearing 
8.26. During the period 1984 to 1989, the Commission 
devoted too few resources to analysing this group of 
factors, that is to say, the characteristics, the causes and 
the effects of long-term unemployment, the studies 
concerning the employment market, analysis of national 
policies in favour of the long-term unemployed and the 
prospects as regards measures to be developed. These 
efforts, moreover, appear to be rather diffuse. 
8.27. During the period 1984-86, the analysis that was 
carried out was mainly confined to statistical studies by 
the Statistics Office and the collation by the Directorate 
for Employment at the Directorate-General for Employ­
ment, Industrial Relations and Social Affairs, via its 
system of national correspondents, of studies carried out 
in the Member States, amongst other things, in the field of 
long-term unemployment — an activity for which it has 
for some time been responsible (20). 
8.28. The Commission's work on the analysis of all the 
factors upon which measures carried out by the Com­
munity have a bearing — and mainly the work of the ESF 
— took place during the period 1987-89. Thus: 
(a) the Statistics Office, whilst carrying out its own 
statistical studies regarding the long-term unem­
ployed, was responsible for follow-up work on the 
study project carried out by the Economic and Social 
Research Institute in Dublin on behalf of the 
Commission; this study, based largely on the data 
from the labour force survey, dealt mainly with 
statistical problems, the demographic, social and 
regional characteristics of long-term unemployment 
and the main effects of long-term unemployment (21); 
(20) See bibliography (Annex III) of the Commission communi­
cation to the Council and the Standing Committee on 
Employment, OJ C 322, 3.12.1984. 
(21) 'Long-term unemployment and its main effects on the 
employment market in the countries of the European 
Community7, Eurostat, theme 3, series D, 1988. (b) the Commission, represented by the Directors-
General for Employment, Industrial Relations and 
Social Affairs and for the Coordination of Structural 
Policies, signed, on 20 April 1989, a study contract 
with a consultant, as a result of an invitation to tender 
concerning studies of the impact of the ESF within the 
framework of the structural reforms (22). This 
contract stipulated, amongst other things, that the 
interim report should describe the structure and the 
strategies of the vocational training programmes and 
the programmes intended to combat long-term 
unemployment. The final report, which was submit­
ted in January 1990, and the annexed reports, 
including general studies by Member State, regional 
studies and case studies, do not provide the means for 
singling out national policies on long-term unemploy­
ment ; these studies generally contain less information 
than the Misep's information reports. The general 
studies do not describe the structure and the strategies 
of programmes intended to combat long-term 
unemployment; 
(c) the analytical work by the Directorate for Employ­
ment has become more systematic as regards long-
term unemployment, through the implementation, at 
the beginning of 1989, of the ERGO action pro­
gramme mentioned in paragraph 8.10. In addition, 
this Directorate is involved in OECD work, mainly 
concerning the evaluation of national measures to aid 
the long-term unemployed (23). As regards future 
measures to be implemented, it is involved in research 
and synthesis work carried out by Cedefop as regards 
the provision of continuous training and the profes­
sional guidance of the long-term unemployed; it has 
also been involved in work carried out by the 
European Foundation for the Improvement of Living 
and Working Conditions. A summary report pre­
pared by this Foundation (24), drawn up on the basis 
of national reports covering 20 local initiatives 
designed to prevent long-term unemployment and 
intended to draw the lessons and describe the 
problems at the various levels, such as effectiveness, 
management and the financing of projects, only 
resulted in general recommendations to the Com­
munity, such as: 
(i) either to extend or to review the scope and the 
objectives of the ESF and/or of the action 
programme to combat poverty, or to establish a 
new European action programme to aid the long-
term unemployed, the main burden of which is to 
(22) Notice of invitation to tender: studies of the impact of the 
ESF in the framework of the reform of the structural Funds, 
OJC298, 23.1.1988, p. 4. 
(23) For example, in the context of the summary report entitled 
'Measures to aid the long-term unemployed in some OECD 
countries', OECD, 1988. 
(24) 'Local responses to long-term unemployment', European 
Foundation for the Improvement of Living and Working 
Conditions, Office for Official Publications of the European 
Communities, 1988. 
148 Official Journal of the European Communities 12. 12. 90 
put the accent on the development of local 
projects and new methods in the fields of 
coordination, evaluation, monitoring and ex­
changes of information and expertise, 
(ii) the allocation to the Commission, and to agencies 
such as the European Foundation and Cedefop, 
of the necessary resources for them to carry out 
further research, in particular, research-measures 
designed to find the best solutions to the problem 
of aiding the long-term unemployed; 
(d) in the same field of forecasting, the ESF had the 
option, according to Article 3, paragraph 2, of 
Decision 83/516/EEC, of promoting the implemen­
tation of projects of an innovatory nature, generally 
as part of an action programme decided on by the 
Council (25). The ESF has in fact financed specific 
training and placement measures intended for groups 
of persons who are exclusively, or in part, members of 
the long-term unemployed. Over and above the 
question of the management of individual files, the 
administration of the Fund has not, however, carried 
out a structured analysis of the problems of long-term 
unemployment; nor, moreover, was this included, as 
such, amongst the topics selected by the Commission 
for the management of specific measures. Though 
they were processed individually, either by the 
promoters or by the Commission itself, the results of 
these measures have never been extrapolated in such a 
way as to enable useful general information to be 
extracted from them for the planning of guidelines 
concerning long-term unemployment. Evaluation of ESF assistance 
8.30. It must be emphasized once again (27) that the ESF 
missed an opportunity to promote an examination of the 
effectiveness of those projects that have received ESF 
assistance, by means of Article 3, paragraph 2, section 2, 
and Article 5, paragraph 3, of Decision 83/516/EEC. 
Decisions to grant ESF aid on the basis of this regulation 
have been very rare. 
8.31. Amongst the policy analyses which the ESF has 
carried out itself or financed, it is worth mentioning (28) 
the evaluation operation which the ESF departments 
carried out in 1985. This operation, which gave rise to 
about 20 on-the-spot visits to Belgium, Germany, Greece, 
France and Ireland, covered the content of vocational 
training activities in favour of young people, and their 
effectiveness in terms of qualifications obtained, real 
chances of stable employment and courses for trainees. In 
this context, that is to say, on the basis of a very limited 
sample of measures, both in terms of space and time, the 
ESF observed — as regards young members of the long-
term unemployed, and whatever the value of the training 
given to them — the importance of the entire training 
course environment, that is to say the quality of the links 
established with potential employers, personalized inter­
views concerning professional orientation or motivation 
and the situation in the labour market at the moment the 
trainees finish their courses. In addition, modest results in 
terms of the employment or re-employment of young 
unemployed people are probably not attributable to 
shortcomings in the training methods. Very often, it 
appears, they result from the fact that the long-term 
unemployed show little geographical mobility and 
similarly resist any changes in their professional standing 
and working environment, in spite of the precariousness 
of their situation (29). These observations, which are very 
relevant, have not however been used by the Fund for the 
purpose of orientating its work more specifically and for 
improving the definition of the notions of motivation and 
orientation. 
8.29. In spite of a measure of development during recent 
financial years of Community studies and proposals in 
the field of long-term unemployment, an examination of 
the documentation shows that this work has not led to 
any consistent proposals regarding Community policies 
and programmes which are specific and feasible as part of 
the annual revision of the guidelines or of the Com­
mission's memorandum on combating long-term un­
employment (26). 
(25) These projects have been christened 'Specific measures'. 
They were commented on in Chapter 9 of the Court's annual 
report on the financial year 1988. 
(26) Commission memorandum concerning the struggle against 
long-term unemployment, COM(87) 231 final of 18 May 
1987. 8.32. As part of the abovementioned study (paragraph 
8.28(b)), case studies, that is to say, ESF files selected in 
terms of the importance and the contents of the files, the 
regions and the managing bodies, also dealt with a 
number of files concerning the long-term unemployed. 
The measures concerned by these files were carried out in 
1989, with the result that analysis of them did not provide 
any evidence on which to express an opinion regarding 
their effectiveness. 
(27) Annual report of the Court of Auditors on the financial year 
1988, paragraphs 9.13-9.14. 
(28) Special report No 1/88 of the Court of Auditors, OJ C 126, 
16.5.1988. 
(29) Fourteenth ESF activity report, financial year 1985, Doc. 
COM(86) 583 of 10 November 1986, paragraph 2.4.2, p. 
122. 
12. 12. 90 Official Journal of the European Communities 149 
Coordination 
8.33. The function of planning (30) should be ac­
knowledged and organized as such, and should in any 
case be more coordinated. The fact is that it can be seen 
that most Community bodies develop separate evaluation 
methodologies; under the terms of the ERGO action 
programme, an evaluation methodology which concerns 
both national programmes and decentralized projects has 
been developed (31) and has already been tested on a series 
of pilot projects; the study contract mentioned in 
paragraph 8.28(b) also resulted in the presentation of a 
methodology (32); Cedefop develops its own meth­
odologies, and the ESF departments do the same thing for 
the future ex ante and ex post evaluation of measures co-
financed by the Fund (33); the financial control depart­
ments had already looked at the methodological ap­
proach in 1987 (34); the programme to combat poverty, in 
view of its over-riding importance of research-measures, 
has its own evaluation method. A degree of coordination 
in methodological research would result in greater 
effectiveness and efficiency. 
8.34. The very fact of recognizing the planning function, 
in terms of identifying alternative policies, proposing 
amendments to current policies on the basis of follow-up 
and ex post evaluations, and ex ante evaluations of 
alternative and proposed amendments, should, with a 
view to preparing ESF decisions, result in closer 
cooperation — over and above mere consultation — 
between all Commission departments responsible for 
carrying out analytical work. 
8.35. Improved coordination at the Commission would 
make it possible to take greater account of the connec­
tions between unsatisfactory socio-economic situations 
and the related policies and programmes; this is 
particularly true as regards the link between poverty and 
(30) Including, in the broad sense, the system for preparing 
decisions (studies of alternative solutions, collating the 
necessary information, carrying out cost/benefit analyses, 
drafting recommendations or proposals and the system for 
taking alternative solutions into consideration). 
(31) ERGO, an action programme for the long-term un­
employed, Report on the first year, prepared by PA 
Cambridge Economic Consultants, Annex 1, 'Evaluating 
long-term unemployment programmes and projects: a 
methodological framework'. See also the intermediate 
report, included in Doc. SEC(90) 361. 
(32) 'New prospects for the ESF in the framework of the reform 
of the structural Funds', Main conclusions, Final report, 
January 1990. 
(33) Internal document of 18 January 1990. In addition, 
attention should also be drawn, at the general level, to a 
recent study by CEGOS entitled 'Mise en place de couts 
standards pour rationaliser les interventions du FSE dans le 
'domaine de la formation professionnelle', Doc V/1894/89, 
September 1989. 
(34) Cost-benefit/cost-effectiveness, methods used in Member 
States and possible applications in the EEC structural Funds 
(ERDF, ESF, EAGGF Guidance Section), Directorate-
General for financial control, 3 November 1987. long-term unemployment and the related policies; thus, 
for the purpose of reforming the structural Funds, 
defining new orientations and evaluating operational 
plans and programmes under the third objective, it would 
have been possible to take account of the intermediate 
results of the programme to combat poverty, and in the 
same way it would have been possible to consider in this 
programme the results obtained and the lessons learned 
from other research programmes in the field of employ­
ment and professional training, such as ERGO and 
LEDA (35). 
Measures concerning the long-term unemployed in the 
second programme to combat poverty 
8.36. In this second programme, the long-term un­
employed are one of the eight thematic groups and are 
included in 12 action research projects out of a total of 91. 
An examination of the files concerning these projects 
showed that: 
(a) the Commission has no comparable statistical 
estimates of poverty valid for all the Member States, 
since the available data are based exclusively on 
persons' incomes and are calculated according to 
different methodologies; 
(b) the objectives of the programme and of the projects 
are not clearly established and quantified. The result 
is that the projects as a group do not amount to a 
consistent programme but to a series of isolated 
measures. This results in a mediocre degree of 
effectiveness: at the present stage of evaluation of the 
programme (36), it is already clear that, in the case of 
long-term unemployment, it will not be possible to 
devise a range of measures which are capable of being 
broadly implemented in the Member States. 
Observations on the implementation 
procedures at the ESF 
Criteria for granting assistance in relation to the 
longterm unemployed 
8.37. In its guidelines, the Commission defines the long-
term unemployed as those who have been unemployed for 
more than 12 months. This definition was given greater 
(35) LEDA is a so-called 'research measure' programme for the 
development of local employment. 
(36) The final report will be presented to the Council towards the 
end of the first half of 1990. 
150 Official Journal of the European Communities 12. 12. 90 
precision internally by the ESF, when it said that it 
considered persons who had been unemployed for more 
than 12 months, uninterruptedly, and regardless of the 
system for registering the unemployed in the various 
Member States, to be long-term unemployed. This 
definition has not been officially notified to the Member 
States — even though some of them use a more flexible 
notion, such as 12 months of unemployment out of the 
last 15 or 16 months — not even after the Commission's 
on-the-spot inspection of French promoting bodies. The 
definition mentioned above was strictly applied by the 
Commission during its inspection, which resulted in a 
reduction of the number of payments authorized by the 
financial control department, since many participants at 
courses had not been unemployed for at least 12 months 
uninterruptedly at the moment they started the training 
course that was eligible for assistance. Nevertheless, the 
abovementioned Member States maintained their own 
definitions, whilst the Commission did not carry out any 
further in-depth checks in this respect. 
8.38. Regarding the 'notable improvement in the 
prospects for stable employment' (the guidelines for the 
financial years 1984-86 and 1985-87) and the 'real 
prospects for employment' (the guidelines for the 
financial years 1987-89, 1988-90 and 1989-91), it can be 
seen from some comments annexed to proposals for 
approval of applications for ESF assistance for the 
various financial years that some requests for assistance 
were considered non-priority when the placement rate 
expected was less than 50 %; this criterion, which is not 
applied without exception, has not been notified officially 
to the Member States and has not been used in the 
appraisal of applications for final payment: citing as the 
reason its 'legitimate confidence', the Commission 
maintains that it cannot refuse to make a final payment 
when it is requested if the actual rate of placement is less 
than 50 %, since the criterion of employment prospects 
was not specified for requests for payment. Moreover, an 
examination of the files revealed that in the event of the 
absence of any indication concerning placements, 
additional information on this topic was not always 
requested, which amounts to incorrect implementation of 
the regulations and a failure of management. 
8.39. The theoretical contents and the duration of the 
motivation and orientation stages which must be included 
in professional training measures have not been defined 
by the Commission, apart from the indication that these 
stages may be situated upstream of training proper or 
may accompany it and that they are not to be taken into 
account for the purpose of calculating the minimum 200 
hours of vocational training (37). As a result, it can be 
observed that these stages are not always correctly 
described or that their content is very variable, the link 
with the specific 'needs' of long-term unemployed persons 
not being always detectable. 
(37) Doc. V/1160/85: minutes of the information meeting of 
11 July 1985 on the implementation of ESF guidelines for 
the period 1986-88. General criteria of eligibility 
8.40. The files concerning professional training meas­
ures in favour of the long-term unemployed contain 
problems of eligibility which are also to be met with in 
other ESF files. 
8.41. For example, contrary to the rule of compatibility 
of depreciation — presented as eligible expenditure — 
with national law (38), the Fund's departments accept 
various cases of presentation of depreciation expenditure 
by national administrations which would not be author­
ized for depreciation purposes at the national level. This 
practice (39) was observed once again by the Court. 
Observations on the appraisal, monitoring 
and follow-up procedures 
8.42. In the files concerning measures in favour of the 
long-term unemployed, problems of the appraisal, 
monitoring and follow-up of the measures found in other 
ESF files are also to be met with. 
8.43. Thus, concerning the calculation procedures — an 
important factor for the appraisal of applications for aid 
and for final payment by the Commission and by the 
national administrations concerned — the Court ob­
served on several occasions that it was difficult for the 
Fund to define the contents of these procedures in a 
consistent manner, both for itself and for the national 
administrations and promoting bodies concerned. On 
several occasions, the Court also observed an absence of 
calculation methods, or else the methods in use made it 
impossible to check the accuracy of the charging of 
expenditure to the measures concerned. An examination 
by the Court on the premises of one national adminis­
tration (UK) of files concerning the long-term un­
employed showed that the amounts of wage and salary 
assistance submitted to the ESF were not based upon 
genuine financial data but had been established theoreti­
cally. The size of the sums paid over, as well as the number 
of beneficiaries per group (women, young people, 
handicapped people, etc.) were calculated on the basis of 
overall regional statistics, using distribution formulas 
established at the national level. The average periods of 
maintenance within a system, presented as a factor in the 
calculation, were in fact nothing more than the result of 
the previous calculation. As a result, the financial and 
factual data were largely based upon estimates. 
(38) This rule was confirmed by the Director of the Fund in his 
note No 7258 of 9 June 1986, addressed to the Court. 
(39) Inter alia in the Court's special report No 1/88, paragraph 
3.7(a), OJC 126, 16.5.1988. 
12. 12. 90 Official Journal of the European Communities 151 
8.44. Similarly, it was observed that there was in­
adequate information concerning the description of 
operations, although on the whole this has improved. 
8.45. Since 1987, the Fund has made use of a points list 
for the purpose of appraising applications for assistance 
concerning measures which come within the framework 
of the specific guidelines on the long-term unemployed. It 
is worth emphasizing that lists of this kind do not exist for 
other guidelines. Using them, however, is only of limited 
effectiveness, since identifying problems or uncertainties 
in the files as a result of this points system sometimes has 
no effect. 
8.46. The inadequacy of the controls was stressed in the 
Court's special report on the Community and national 
procedures and systems concerning the management of 
the ESF (40). This shortcoming was also evident in the 
field of long-term unemployment. On the basis of 
Commission inspection reports sent to the Court, about 
30 files concerning this subject were examined on the spot, 
some of them during the process of execution — 
sometimes for the purpose of examining the professional 
training abilities of the new promoting bodies — and 
others ex post, with the aim of checking the applications 
for final payment. In the case of most of these 30 files, the 
mission reports concerning these topics do not provide 
the information with which to judge whether the criteria 
for granting aid concerning measures in favour of the 
long-term unemployed were taken into account during 
the visits. Moreover, these files were always part of a 
programme of visits generally concerned with fairly 
broad control objectives along with files concerning other 
guidelines. 
8.47. The absence of any specific control programme 
concerning measures in favour of the long-term un­
employed is evident. Some mission reports by the 
Commission, and the Court's own checks, however, show 
that such programmes would have been, and still are, 
justified. In fact, it was observed in Italy that certification 
of the factual and accounting accuracy of information 
contained in the applications for payment (41) was not 
reliable as far as the question of the duration of 
unemployment for the beneficiaries of professional 
training measures was concerned. 
8.48. As regards follow-up action, Article 8 of Commis­
sion Decision 83/673/EEC provides for the communi­
cation to the Commission by the Member States, before 
15 December of each year, of statistical data concerning 
measures carried out with Fund assistance during the 
previous financial year, using an ad hoc form (42). If this 
procedure had been adhered to, it would have been 
possible to obtain quantified data on the actual bene-
(40) Special report No 1/88, p. 1. 
(41) Annex 2, paragraph 18, of Commission Decision 83/673/ 
EEC of 22 December 1983, OJ L 377, 31.12.1983. 
(«) Annex 4 of Decision 83/673/EEC. ficiaries of the ESF assistance, broken down by type of 
measure, and concerning, amongst other things, the long-
term unemployed. In fact, the Commission has received 
statistical reports concerning the financial years 1984 and 
1985 only—and only from Denmark, Greece and Ireland 
— and has only implemented a system of reminder notes, 
which has not proved to be very effective. 
The impact of ESF intervention 
8.49. In order to be able to embrace all national and 
regional measures in favour of the long-term unemployed 
in the field of vocational training and employment — for 
the purpose of relating the ESF aid to these measures — 
the Court was obliged to ask the national administrations 
concerned to supply the requisite information; in fact, the 
Commission only has very incomplete information. The 
Misep reports contain principally information on the 
legal and administrative aspects, but, in contrast, little 
information as regards expenditure and beneficiaries. 
8.50. The Court's search for information took the form 
of a survey of national administrations, either in the form 
of on-the-spot visits or by the sending of questionnaires. 
The purpose of this research, for each measure in favour 
of the long-term unemployed and for each financial year 
during the period 1984-89, was to check the number of 
beneficiaries, the rate at which they found work, other 
quantifiable results, the costs of the measure and 
intervention by the government and by the ESF. 
8.51. This process of collecting information turned out 
to be rather difficult in certain cases and could not be 
completed. Belgium, Denmark, Germany, France, Italy 
and the United Kingdom, with varying degrees of detail, 
supplied relevant data regarding the measures to combat 
long-term unemployment which they had developed. 
Other Member States confined themselves to measures 
carried out and co-financed with the ESF, and some did 
not specify the rate at which people found jobs, the factor 
which made it possible for the vocational training 
programmes to receive ESF aid. The Netherlands 
supplied very little relevant information. 
8.52. On the basis of the information mentioned in 
Tables 8.2 and 8.3, and of the information received — or 
available by deduction, from Misep for measures for 
which no information had been submitted by the national 
administrations — the following observations can be 
deduced: 
(a) during the period 1984-88, the number of the long-
term unemployed who were concerned by ESF 
assistance, within the framework of the specific 
guidelines for these persons, represents little more 
than a weighted average of 4,2 % of all the long-term 
152 Official Journal of the European Communities 12. 12. 90 
unemployed (4 % in 1985, 2,68 % in 1986, 3,56 % in 
1987 and 6,61 % in 1988), bearing in mind, however, 
that these unemployed persons also receive the 
benefit of measures financed under other guidelines; 
(b) in the case of most Member States, the ESF financial 
contribution to vocational training for the long-term 
unemployed may be estimated to be less than 10 % of 
the corresponding national expenditure; sometimes it 
is even less than 5 %; its impact is all the more limited 
as it is distributed over a very large number of 
projects, according to macro-criteria which are not 
suited to the specific needs; the effectiveness of a 
particular contribution would have been more 
significant if it had been included in hierarchically 
graded structures of objectives and programmes, in 
the light of Community priorities and actual needs; 
(c) it should nevertheless be noted that, until 1989, most 
of the Member States did not have any policy 
regarding vocational training that was specifically 
aimed at the long-term unemployed, or had only 
developed limited measures specifically designed to 
provide such persons with vocational training and 
recruitment opportunities. France is the only 
Member State which, since 1984, has developed an 
entire range of measures in the field of vocational 
training for the long-term unemployed. In general, 
unemployed persons are entitled to vocational 
training measures to the same extent as other social 
groups; in some cases it proved impossible to estimate 
the extent to which the long-term unemployed were 
involved in the overall volume of professional 
training schemes. Within the framework of the 
guidelines concerning measures in favour of the long-
term unemployed, a large number of files for requests 
for aid have been created by the promoting bodies 
much more in the light of expected rates of 
participation by the long-term unemployed in the 
measures questioned, on the one hand, and in the 
light of the convenience of Community financing, on 
the other, than in the light of the existence of a 
genuine policy in favour of this section of the 
unemployed; in the field of vocational training, Fund 
aid has therefore been mainly of incentive value for 
the promoting bodies; it has been much less 
instrumental in promoting the development of a 
policy for the professional training of the long-term 
unemployed; 
(d) as for deciding whether the Commission co-finances 
the most effective training measures, it should be 
remembered that the Commission has only selected 
the criterion of a rate of placement of at least 50 % in 
respect of applications for aid, a criterion, moreover, 
which is in fact applied in a very flexible manner. The 
result is that the ESF has sometimes co-financed 
measures whose rate of placement was in fact fairly 
mediocre over a period of several years. Moreover, it 
took only the effectiveness of the measure co-financed 
into consideration; in the case of several vocational 
training measures, the rates of subsequent recruit­
ment were not available; (e) an examination of measures principally concerning 
the long-term unemployed provides the means for 
observing that the Member States sometimes divide 
the long-term unemployed into fairly sharply dif­
ferentiated groups (unskilled women, women living 
alone, unemployed who are more than 45 years old, 
those who have been unemployed for at least two 
years, etc.) using specifically tailored measures, 
whereas the ESF, in the light of its macro-criteria, 
excludes a series of sub-groups and measures in an 
almost linear manner; 
(f) in a number of Member States and for some years 
now there have existed measures specifically designed 
for the long-term unemployed as regards aid for 
recruitment and starting work; in contrast, the ESF 
has only provided marginal aid, as far as most 
countries are concerned, which has, consequently, 
not had any great incentive effects; 
(g) certain national, regional or local measures in favour 
of providing the long-term unemployed with vo­
cational training or employment opportunities, along 
with the related ESF aid, could not be identified or 
quantified; 
(h) in some cases, ESF participation in national measures 
also covers measures co-financed under other guide­
lines. 
Conclusion on the new Fund 
8.53. The audit has shown that information on efforts 
by the Member States to help the long-term unemployed 
during the 1984-89 period was not systematically 
available, either at the Commission or in the Member 
States. The Commission could not therefore take account 
of the effectiveness of all the measures carried out in the 
past when it came to evaluate plans leading up to a choice 
of forms of Community support and assess the oper­
ational programmes. 
8.54. The Commission ought to do everything possible 
to obtain: 
(a) comparable statistics on long-term unemployment in 
all Member States at the NUTS III level; 
(b) at the right moment and on the basis of a partnership 
arrangement, socio-economic analyses concerning 
the long-term unemployed, intermediate reports on 
policies in the process of execution, proposals for 
policy amendment evaluated in terms of effectiveness 
and costs and evaluated proposals for new policies. 
12. 12. 90 Official Journal of the European Communities 153 
8.55. It should also ensure that a Community definition 
of the long-term unemployed exists and is used in all new 
programmes, as well as using it itself in its follow-up and 
inspection work. 
8.56. Finally, with a view to promoting sound financial 
management of the new Fund, and more particularly in 
the field of the third objective, it is up to the Commission 
to improve the organization and the use made of its 
analytical capacities, in the light of a redefined 'planning' 
function, where the adminstration thinks more in terms of 
alternative policies. 
ESF MEASURES RELATING TO THE 
RESTRUCTURING OF INDUSTRIAL 
ENTERPRISES 
Introduction 
8.57. 'Restructuring' is a word which has long been used 
to describe the reorganization of declining industrial 
activities within the framework of a process of structural 
adaptation of sectors of economic activity. Such forms of 
reorganization are often accompanied by large-scale cuts 
in the work-force. 
8.58. Gradually, forms of restructuring which are more 
concerned with the commercial and technological 
modernization of companies have begun to appear. Such 
restructurings call for both quantitative and qualitative 
adaptations of the labour force, as a result of changes that 
are imposed by the introduction of new technologies and 
the reorganization of production. 
8.59. Whereas the causes of restructuring are well 
understood at present, it is not easy to encapsulate the 
definition of such activities within a single and all-
embracing concept. Any measure undertaken in this field 
by the ESF should be preceded by a definition of the field, 
the objectives and the intervention criteria; if such prior 
requirements are not satisfied, the resources employed 
will only serve to rectify particular difficulties. 
8.60. The European Parliament considered (43) that 
since the level of employment was related to the general 
economic context of an individual company, the financial 
instruments available to the European Community 
(43) Report on behalf of the Committee on Social Affairs and 
Employment on the proposal from the Commission to the 
Council concerning a regulation implementing the Council 
decision concerning the tasks of the European Social Fund 
(Doc. 1.61/83 — EP 82.830/fm.). countries must be deployed within the framework of a 
policy of encouraging the creation and renewal of 
companies, and it further specified that the Social Fund 
should not be a palliative for critical employment 
situations for which no adequate solution is foreseeable in 
the immediate future, but should rather constitute an 
instrument for the renewal (of production, technology 
and organization), for all companies. 
8.61. The Commission confirmed (44) that the aim was 
to help make reconversions and restructurings of 
companies more effective by taking account of the 
training and employment aspects. In its interventions, the 
Fund should not ignore the economic purpose of 
restructuring. However, the objectives allocated to the 
Fund continue to be very general in terms of their 
definition. 
8.62. The inclusion, with effect from the 1986 financial 
year, of elements deriving either from the causes of the 
restructuring or relating to the scope of their con­
sequences as regards staff numbers, or further relating to 
measures adopted by the government in order to cope 
with them, will not offset — as the Court's audit was 
subsequently to show — except to a very limited extent, 
the absence of financial, economical and technical 
indicators, such as could be used to define the companies 
and the level of restructuring eligible for Fund aid in 
general terms and as an objective prior step. 
8.63. The forms of vocational training relating to the 
restructuring of industrial enterprises have been defined, 
since 1986 (45), in paragraph 4.3 of the annual guidelines 
established by the Commission, as 'priority measures 
without age limits'. The restructuring of companies 
should be part of a process of technological modern­
ization or result from changes in the structure of demand 
in the sector concerned. In addition, it should also have a 
substantial effect on qualifications and concern at least 
15 % of the company's staff for a period of two years. 
Training concerns workers who need to be retrained to 
occupy a new post at the company just as much as those 
who have been declared redundant and are obliged to 
seek work elsewhere. In non-priority regions, restructur­
ing should affect at least 25 % of the persons employed 
and should be located in an area with a particularly high 
i44) Manual for the management of the ESF, p. 10 (only 
available in French version). 
(45) The guidelines for the management of the Fund for the 
financial years 1984 and 1985 gave the Fund, as regards 
industrial restructuring, an almost unlimited field of action, 
since they embraced all companies that had adopted 
restructuring or conversion measures, whatever the econ­
omic sector they belonged to; the Commission refrained, in 
particular, from fixing a minimum level of restructuring on 
which grants of assistance would be conditional. The 
Commission was, however, to reduce the field in which it 
could intervene to industrial enterprises only; all the same, 
bearing in mind the special situation of Spain and Portugal, 
the Fund has derogated from this self-imposed rule in favour 
of those countries. In Portugal, for example, Fund 
assistance has been granted to companies in the banking 
sector. 
154 Official Journal of the European Communities 12. 12. 90 
rate of unemployment or one that has been affected by 
exceptional measures taken by the government to 
promote vocational training or the creation of jobs. 
8.64. For the purpose of examining ESF intervention in 
the field of industrial restructuring, the Court took the 
period 1986-89 inclusive into consideration. During this 
period the Commission approved 1 271 files relating to 
industrial restructuring and the commitments entered 
into as a result amounted to 505,3 Mio ECU. On 31 
December 1989, these commitments had given rise to 
318,0 Mio ECU of payments. The Court's examination 
covered about 20 % of aid decisions taken by the 
Commission, a quarter of which were subject to on-the-
spot inspections. 
Observations on the implementation of ESF 
measures concerning the restructuring of 
companies 
8.65. The examination carried out by the Court showed 
that the form and content of the files were extremely 
diverse, in the sense that the same beneficiary may submit 
during one year a file including a large variety of national 
industrial sectors with thousands of persons concerned, 
or, in contrast, a single file concerning a dozen people. In 
addition, beneficiary companies are not necessarily 
identified at the moment the application for assistance is 
submitted, or even at the moment the Commission gives 
its approval. 
8.66. The Member States tend to submit a number of 
applications for assistance that is greater than their actual 
needs, in order to absorb linear reductions, which, during 
the period concerned, cut the number of cases of 
assistance requested by about half. This is the reason why 
the Court noted that, in spite of these linear reductions, 
50 % (in terms of numbers) of files approved were not 
taken to their conclusion: the sums decommitted account 
for more than one-fifth of cases of approval, that is to say, 
104,6 Mio ECU for the period 1986-89; similarly, 
recoveries of funds wrongly paid out as payments on 
account total 23,8 Mio ECU and concern 18 % of the 
number of files approved. 
8.67. In addition, in the files which include applications 
for assistance received from several companies, it is clear 
that a large number of training measures provided for 
were not submitted at the moment the application for 
final payment was made, for various reasons (training not 
carried out, absence of the minimum number of hours 
required by the ESF, absence of public financing, etc.). 
8.68. Paragraph 4.3 of the guidelines confines itself to 
referring in very general terms to industrial restructuring, 
speaking of 'technological modernization' or 'funda­
mental changes in demand in the sector concerned'. In 
this context, applications for assistance submitted as part 
of a process of industrial restructuring only give explicit descriptions of the nature and the content of the 
restructuring envisaged in exceptional cases. The result is 
that cases that are completely different are accepted by 
the Commission under the heading 'restructuring'. For 
example, mention may be made of the creation of new 
production units involving the recruitment of new staff, 
the installation of new machines or a new production or 
management system, the purchase of a new patent, the 
closing of a factory, etc. 
8.69. Figures for the numbers of staff affected by 
restructuring are only rarely stated in applications for aid, 
and even less frequently in applications for final payment, 
except in cases where a factory is to be closed. It is not easy 
to interpret the data to which the guidelines laid down by 
the Commission refer. This is true, for example, of the 
type of staff who have undergone vocational training, of 
the reference date to be taken into consideration when 
calculating the percentage which determines eligibility 
and of the staff numbers to be taken into account if the 
restructuring relates to a single year or to more than two 
years, which is a fairly frequent occurrence. 
8.70. In its general guidelines, the Commission states 
that vocational training measures with a minimum 
duration of 200 hours (100 hours in the case of Greece, 
Portugal and Spain during the period of 1986-87) should 
be considered priority measures, periods spent bringing 
staff up to a minimum prior level of training being 
excluded from this calculation (46). During its checks, the 
Court observed that many trainees for whom ESF aid had 
been requested had not satisfied the minimum number of 
hours requirement. This was true in particular: 
(a) of private companies, which were not properly 
informed of the ESF requirements and which 
submitted, during an on-the-spot audit, a variety of 
items of information which clearly showed that the 
minimum number of training hours required had not 
been provided; 
(b) of companies which enter a large number of trainees 
— if not all trainees — as having received the precise 
minimum number of hours of training. In most cases, 
however, this threshold has not been observed, either 
because the time taken into consideration was 
theoretical, and did not correspond to reality, or 
because absences for reasons of sickness or other 
reasons had not been deducted from the number of 
hours submitted to the Commission, or, further, 
because the relationship between the theoretical 
number of hours of training and the actual number of 
hours of training to be taken into account had not 
been established by the Commission; 
(c) of many cases where the ESF admitted that the hours 
of training required by the 200 hour (or 100 hours) 
(46) Paragraph 2 of Article 1 of Commission Decision 85/518/ 
EEC of 20 November 1985 amending paragraph 1.44 of 
Decision 85/261 /EEC (OJ L 317, 28.11.85, p. 37). 
12. 12. 90 Official Journal of the European Communities 155 
threshold could be distributed over two, or even 
three, consecutive years; 
(d) of refresher courses, which are not included in the 200 
hours of training. In this connection, the Court 
observed that a substantial proportion of courses 
given consisted of refresher courses and nothing else. 
Similarly, in some cases the very general nature of the 
instruction provided (information on the company, 
health or social protection, effect of absenteeism, etc.) 
was not such as to make it possible to establish the 
functional link which might exist between the training 
and the restructuring. 
8.71. In accordance with guideline 4.3 of the manage­
ment of the Fund, industrial restructuring is required, 
amongst other things, to have a substantial effect on the 
qualifications of persons receiving training (and at least 
15 % of the staff of the company within a period of two 
years). There is nothing in the files examined by the Court 
that might enable the reader to grasp the relationship that 
exists between the origin or the subsequent assignment of 
staff receiving training and the restructuring. The only 
case of selection which the Court was able to observe on 
the companies' premises between trainees receiving 
continuous training (training supplied on a permanent 
basis) and trainees receiving training as a result of 
restructuring was the selection that was made in terms of 
the duration of the training: all forms of training which 
last for a period equal to or greater than 200 hours (or 100 
hours) are entered as due to restructuring and are 
submitted to the ESF for aid. All others constitute cases 
of continuous training. In no case did the nature of the 
training (which, moreover, was most usually a mere 
repetition of training given during previous years, with or 
without ESF aid) appear to be a criterion of selection. 
8.72. The ESF has paid out the final payments although 
the contributions to be made by some national govern­
ments are still suspended in 1990 and the Community aid 
was in some cases paid out several years ago. (It should be 
emphasized that this situation is not specific to cases of 
industrial restructuring but concerns the whole of the 
ESF.) 
Aspects relating to the size and the nature of 
companies receiving ESF assistance 
8.73. ESF aid for industrial restructuring has been 
limited (with effect from 1987) to industrial enter­
prises (47). A tendency to concentrate sums allocated to 
restructuring on large companies is often observable. It 
has proved to be the case that large companies are better 
organized for the purpose of preparing and following up 
their applications for assistance through the regional, 
national and Community administrations. In contrast, 
(47) Paragraph 4.3 of the guidelines, with effect from 1987, is 
confined to 'industrial enterprises'. small and medium-sized companies, which are not 
adequately informed on these matters, are often obliged 
to make use of consultants for the purpose of obtaining 
movement on and follow-up of their ESF files. These 
intermediaries, in return for the services they render to the 
small and medium-sized companies concerned, may 
absorb as much as 30 % of the ESF aid. 
8.74. The structure of the training system in large 
companies is peculiar to each company. Nevertheless, in 
each one certain identical features can be recognized: the 
centralization of management and administration and the 
operational decentralization of the training courses 
themselves. Bearing in mind that only a part of the 
company's training programme is funded by the ESF, 
there is no problem at all regarding the justification of the 
relevant expenditure. The company justifies the whole of 
its training costs by submitting invoices issued by its own 
training centre, which has usually been given a specific 
form of financial autonomy which makes of it a separate 
supplier of services to the company. As a result, all the 
expenditure indicated in the application for final payment 
is covered by lump-sum invoices submitted by the 
supplier of services and the corresponding payments. 
Even training courses which take place on the premises of 
a regional office or plant which have their own complete 
training equipment are fully funded by the central 
training body. Whether or not the costs paid by the ESF 
are the real ones is a matter of chance, given that the 
submission of expenses is no longer based on concrete 
facts but only on the theoretical breakdown of costs 
which have first been globalized. 
8.75. In addition, as regards industrial restructuring, 
internal vocational training (as contrasted with external 
training, which is intended for persons leaving the 
company, and is carried out off the company's premises) 
makes only a marginal call on specific supplies of goods 
or services from outside the company, for which reason 
all its costs may be treated as equivalent to the company's 
ordinary costs. These include: the salaries of trainees who 
are at the same time workers in the company, salaries paid 
to teachers who are at the same time employed by the 
company, the salaries of managers who are also company 
managers, raw materials which are used by the company 
in its normal course of business, depreciation of 
equipment and machines which make up the company's 
productive apparatus and overheads which are also those 
of the company as a whole. 
8.76. In addition, the Court observed that public or 
partly State-owned profit-making companies received 
increased assistance from the ESF. The fact is that the 
declaration referring to Article 5, paragraph 1, annexed to 
the Council Decision of 17 October 1985 (48) stipulates 
that profit-making bodies are required to bear at least 
10 % of the eligible expenditure. Consequently, the ESF's 
intervention should, in this case, never exceed 45 % of 
total eligible expenditure, which is the system applied to 
profit-making private companies. In contrast, in the case 
(48) Decision 83/516/EEC, OJ L 289, 22.10.1983, p. 41. 
1^0 Otlicialiournal of the European Communities Llnl^ 
ofState^ownedprotit^making companies, ESP intervene 
tion may account in fact for^^ofe^penditure.This 
fact accentuates the distortion of competition which 
private companies are already obliged to put up with in 
their search for tinancial support from the State. 
D5B^. So far these problems have not been solved.The 
scope of the area open to suhcontractingmay make 
certain forms of abuse possible, whether in large 
companies or in the intermediary role assigned to 
consultant coordinators, who steerapart of Community 
financings the direction of small and mediumDsized 
companies^Alltheseintermediaries, who tend toseparate 
thesupplieroftinance from theperson directly concerned 
with implementing the measure, add an additional 
element ofcost,whichmaypromotetheproliteration and 
the development of parasitical bodies. 
D.7D. Louring its on-the-spot audits the Court had no 
occasion to identity precisely the costs of vocational 
training arising from restructuring and to compare them 
with those that arise from training courses organized by 
the company by way of continuous or routine training, 
formally, the highest items of expenditure concerning 
these two categories of training are charged to the ESC, 
for lack of precise accounts for each of them, given that 
they normally take place together — only the criteria of 
following up the ^t^ hours minimum time constitutesa 
selection criterion. 
^B7^. lao the extent that companies are free to present 
their total training costs inavery summary manner, the 
risk of abuses exists. 
^^Bee^ecoB^ 
D.^0. The Court has observed that the incomes of 
trainees receiving training^an average of 4^oo^^o of the 
totals account for the bulk of the costs of carrying out 
trainingmeasures,andthereforemobilizeapreponderant 
portion of the funds allocated by the PSF to vocational 
training in the content of industrial restructuring. 
D.DH. ThisnotionofdraineesMncomesMsnotaccurately 
denned, and is thus opento divergent interpretations, 
both as regards the basis of calculations and with regard 
to the calculation itself L^he fact is that some companies, 
for example, calculate the average salary using, as the 
basisforthecalculation,thesalaryofaseniormanager,a 
middle manager andaskilled worker, without, however, 
weightingthis average byaquotientforthe proportion of each category in the total staff numbers receiving 
training. Others calculate the number of hours of 
practical training spent at the workplace in the case of 
only eo^^ofthesalariesactuallyreceivedbythe trainees. 
D.DU1 Lhe part of trainees^ salaries which is paid by the 
ESFvaries considerable fromone company, and from 
one country, to the other, in particular asaresult of the 
number of bonuses and allowances, as well as social 
expenditure. All thise^penditureissometimescharged on 
an overall lump-sum basis to the project. 
^.^. Over and above the divergences regarding the 
calculation base and final figures for incomes, the Court 
observed that practical training had resulted in the 
payment ofsalariesto which additionalpaymentsfor 
overtime,andeven for night-time working,hadbeen 
added. 
^BeBd^tB^eoBtheB^ee^^oBo^t^BiB^coun^e^ 
^.^. Lhe practice of charging expenditure incurred in 
the preparation of courses to the project is systematic in 
some countries, and, in particular, makes it possible to 
chargecommissionsreceivedby intermediaries to the 
pro^ect^thesecommissionsmay,moreover,bedistributed 
amongstavarietyofe^penditureheadings,the actual 
existence of which is not always easy to establish^, 
sometimes they reachalevel which is identical to that of 
training proper. Lhetilesdonotcontainany demons 
stration of the operational link that may e^ist between 
this preparatory work and the courses proper, much less 
evidence of their necessity. Cdven that most of this 
preparatorywork is carried out by staffemployed by the 
company,its cost is eftectively covered by the companies^ 
own salaries. 
^eo. In the case of training courses held outside the 
company,the Court observed cases where suchforms of 
training were also subject totheissuingof invoices in 
respect of preparatory work, atalevel which could be 
equivalent to that of training proper, without any 
supporting documents having been provided, it is, 
moreover, signiticantthat thesepurchases of external 
training,asregardsthe cases examined, had notbeen 
justified by speciticcontracts determining the various 
stages of the courses and their costs. 
^.^. In addition, in the tiles subject to on-the-spot 
checks, there was practically no clear distinction,within 
the company, between^S^ trainees andtrainees who 
were not receiving Fund assistance. 
12. 12. 90 Official Journal of the European Communities 157 
Other expenditure concerning industrial 
restructuring measures 
8.87. Regarding expenditure arising from the organiz­
ing and management of courses, including all the diverse 
components relating to training costs proper (teachers' 
salaries and expenses, administrative salaries and ex­
penses, overheads and the cost of teaching equipment and 
raw materials), it should be emphasized that: 
(a) salaries and expenses, both in respect of teachers and 
administrative staff, are very largely (80-100 %) part 
of a company's internal costs, bearing in mind the fact 
that the staff concerned, in most cases, are employed 
by the company itself. In this respect, the Court notes 
that administrative costs are never related to the 
section of the staff receiving training whose costs are 
covered by the ESF; 
(b) energy costs chargeable to the training measure were 
met in relation to the process of production as a 
whole, and not the part of the process concerning the 
vocational training. In fact, the Court observed in 
several cases which it audited on the spot that these 
costs were calculated on the basis of the average 
hourly costs of energy for the whole of the establish­
ment audited, this figure then being applied to the 
whole of the period of training; 
(c) the cost of raw materials and semi-finished products 
used in training was also very variable from one 
company to another. These raw materials are 
commonly used by the company in its cycle of 
production; given their perishable nature, they may 
easily be justified. In contrast, the use of such 
materials, which may bear down heavily on the costs 
of training, had not been defined in the cases 
examined by the Court. 
8.88. Moreover, the Court's on-the-spot audits in the 
field of industrial restructuring have shown: 
(a) that a number of items of expenditure, of which only 
depreciation should have been charged to the 
measure, had been charged to the ESF in total. Items 
concerned here include, in particular, purchases of 
simulation models for computers which were used for 
several consecutive years; in certain cases, moreover, 
it would have been more economical to hire them; 
(b) that some companies had charged all their depreci­
ation costs to the training measure from a production 
period equal to the duration of the training (both in 
theory and in practice); (c) that old productive equipment (textile machinery 
dating back more than 25 years) was written off at 
rates which were incompatible with its age; 
(d) that the rates of depreciation charged to training 
programmes financed by the ESF were greater by one 
or more points than the rate of depreciation as it 
resulted, for the same companies and for the same 
reference year, from their operating accounts. 
8.89. These examples confirm the confusion that exists 
between training and the process of production proper. 
The Court considers that, in order to cope with situations 
of this kind, the Commission ought to equip itself with 
adequate resources for carrying out investigations at the 
moment the applications for final payment are appraised. 
Income deriving from the measures 
8.90. The Court observed on the spot that, in most 
cases, a substantial proportion of raw materials and semi­
finished products had been processed during the cycle of 
production in which the trainee was involved at the 
workplace to produce finished products, at least a part of 
which, if not all, were marketable in the same way as the 
rest of the company's production. In cases of this kind, 
however, the revenue deriving from the sale of com­
modities which trainees had produced was not taken into 
account as an item that should have been deducted from 
the training expenses. This situation is so widespread that 
the Court was able to observe, on the spot, that revenues 
deriving from measures declared by a company were no 
longer mentioned in the application for final payment 
submitted to the Commission. The loss of revenue from 
this measure involved the ESF in extra costs. 
The ESF as an instrument of the 
Community's industrial policy 
8.91. Whereas the regional distribution of aid is a key 
element in ESF intervention, the Commission's computer 
system does not provide the means to establish precisely 
how much the ESF eventually allocated to measures to 
accompany restructurings in a given region. The regional 
distribution of the aid may be established on the basis of 
the approvals, but, bearing in mind, on the one hand, the 
particular system for submitting applications for assist­
ance, and, on the other hand, the volume of decommit-
ments carried out and the existence of recovery orders in 
certain cases, there is a sizeable time-lag between the 
forecasts included in the approvals and the projects 
actually carried out and financed by the Fund. 
158 Official Journal of the European Communities 12. 12. 90 
8.92. In the absence of a reference framework, both 
during the preparatory stages of the measures and during 
the implementation and evaluation of the results, 
referring to a national, regional or even local industrial 
policy, or to a clearly defined policy for accompanying 
restructurings, and in the absence of precise standards for 
Community intervention, the effectiveness of the Com­
munity's work in this field is still open to question. 
8.93. When the Fund's intervention comes on top of a 
group of measures, the objective of which is to meet the 
cost of certain measures relating to industrial restructur­
ing or its consequences, the structural effectiveness of the 
Fund's intervention may be affected by any contradic­
tions that may be concealed in the objectives pursued by 
the national policies, or by any antagonisms between one 
or more national policies and regional policies within the 
same Member State. 
8.94. The Commission says that it has asked the 
companies concerned to specify their restructuring 
programmes, so as to provide it with information on the 
content of these restructurings, on the consequences in 
the field of employment, on the vocational training 
measures and on internal or external placements resulting 
from them. This fact has not always been demonstrated, 
either by the content of the files or by the declarations 
submitted by certain national administrations. 
8.95. Moreover, checks showed that the Fund had only 
investigated the economic aspect of the restructurings to a 
very limited extent. 
8.96. Concerning more particularly the shipbuilding 
sector, the Court observed that the bulk of ESF assistance 
had made it possible to continue employing under­
employed workers, and that the level of training consisted 
mainly in a form of academic refresher course. This 
means that the real effect of the ESF financing was a 
disguised form of aid, mainly concerning salaries, rather 
than a factor making for the restoration of the economic 
health and the slimming-down of the sector. In order to 
avoid situations of this kind, the Commission ought to 
insist that the Member States draw up a concrete 
restructuring plan before any kind of financial interven­
tion designed to support the measure. 
Conclusion 
8.97. Applications for assistance (bearing in mind, in 
particular, the prospects for linear reduction) tend to maximize staff numbers and expenditure forecasts. In the 
same way, applications for final payment, in the absence 
of a clear calculation method, tend to broaden the mass of 
costs directly or indirectly related to the measure, in such 
a way that the gap between forecast expenditure and 
actual expenditure is reduced to the maximum. 
8.98. The criteria of eligibility and priority established 
by the Commission are sometimes too imprecise and may 
give rise to interpretations which make them inoperable. 
Thus, it should be emphasized that the minimum 
duration of training courses required by the Commission 
is often not observed; that there is a risk of repeated 
charging of the costs of one and the same measure; that 
mere refresher courses, and even information sessions 
with no direct connections with restructuring, are 
accepted as training measures. 
8.99. During the period examined, the administrative 
treatment of files by the Commission sometimes ignored 
the content of the training provided. The files examined 
suggest that the Commission does not take any account of 
the links that may exist between the professional training 
provided, on the one hand, and the restructuring, on the 
other. Thus, ESF aid may be nothing more than a means 
of solving companies' problems rather than an interven­
tion in favour of vocational training proper. 
8.100. As subcontractors create additional costs, the 
various levels of coordination resulting from the situation 
absorb a by no means negligible proportion of Com­
munity funds. 
8.101. To the extent that companies are free to present 
their total costs in a very summary fashion the risk of 
abuses exist. 
8.102. The contents of salaries and allowances paid to 
trainees, which represent 40 to 60 % of the costs of 
vocational training, vary in significant proportions. 
8.103. The fact that revenue from measures — the sales 
value of the resulting product — is not entered in the 
accounts results in substantial extra costs for the ESF. 
8.104. Vocational training provided as part of indus­
trial restructuring rarely results in improvements in 
participants' qualifications and/or salary levels. On the 
contrary, in most of the cases examined by the Court it 
had helped to keep staff artificially employed, who, in 
some cases, were destined to unemployment. 
12. 12. 90 Official Journal of the European Communities 159 
CHAPTER 9 
Expenditure on research and investment 
9.0. TABLE OF CONTENTS 
Introduction 
Implementation of the research budget 
Joint Research Centre 
Introduction 
Mid-term evaluation 
A new outlook for the JRC 
The restructuring of the JRC into nine institutes 
Work in support of the Commission 
Conclusion on work in support of the Commission 
Work for third parties 
Targets 
What do the targets mean? 
Achievements to the end of 1989 at the global level 
Achievements at institute level 
The order book at 31 December 1989 
Reconciliation of the JRC's and the Court's measurements of 
performance 
Pricing of work for third parties 
Accounting for work for third parties 
Marketing 
Budgetary problems 
Personnel policy 
Conclusion on personnel 
Analytical accounting 
Cost reductions 
General conclusion Paragraph 
reference 
9.1 
9.2 
9.3 
9.3 
9.8 
9.11 
9.15 
9.19 
9.25 
9.26 
9.27 
9.29 
9.31 
9.36 
9.38 
9.39 
9.41 
9.43 
9.48 
9.49 
9.55 
9.67 
9.68 
9.76 
9.80 — 9.86 
— 9.7 
— 9.10 
— 9.14 
— 9.18 
— 9.25 
— 9.54 
— 9.28 
— 9.30 
— 9.35 
— 9.37 
— 9.40 
— 9.42 
— 9.47 
— 9.54 
— 9.67 
— 9.75 
— 9.79 
— 9.86 
Joint European Torus (JET) 9.87 — 9.92 
160 Official Journal of the European Communities 12. 12. 90 
INTRODUCTION 
9.1. This chapter deals with: The main observations concerning the legality and 
regularity of transactions in the research sector are to be 
found in Chapter 1 of this report (in particular see 
paragraphs 1.18, 1.46 and 1.95). 
(a) the progress made in the restructuring of the Joint 
Research Centre (JRC); and JOINT RESEARCH CENTRE 
(b) the JET experiment on which the usual specific 
annual report has been issued and a particular aspect 
of which is drawn to attention in the concluding 
paragraphs of this chapter. 
IMPLEMENTATION OF THE 
RESEARCH BUDGET 
9.2. Table 9.1 compares the 1989 budgetary appropri­
ations for Title 7 of the general budget with the funds 
actually committed and paid. This title is dominated by 
Chapter 73, research and investment. It shows that, taken 
overall, the rate of utilization of both commitment and 
payment appropriations was satisfactory. There was, 
however, a significant underutilization of appropriations 
carried forward from 1988. This underutilization reflects, 
for commitment appropriations, the shortfall in the Joint 
Research Centre's work for third parties (commented on 
in detail later in this chapter); and, for payment 
appropriations, delays in completing contracts in the 
fields of energy (Item 7303) and the completion of the 
former joint programmes (Item 7305). Introduction 
9.3. In 1989 the Joint Research Centre employed a total 
of 2 116 staff at four sites, Ispra, Petten, Geel and 
Karlsruhe and at the headquarters in Brussels. Budgetary 
expenditure in the year amounted to 221,94 Mio ECU, of 
which 3,4 Mio ECU was covered by receipts in respect of 
work undertaken for third parties and the balance of 
218,6 Mio ECU was provided from the general budget. A 
further amount of 17,5 Mio ECU was committed outside 
the budget to cover the costs of operating the high-flux 
reactor at Petten, paid by the German and Dutch 
authorities, and to provide specific credits for other work 
for third parties. 
9.4. A panel of industrialists appointed by the Commis­
sion concluded in November 1986 that the effectiveness 
and efficiency of the Joint Research Centre were 
inadequate and that the Centre was not meeting the 
Community's needs. The panel made certain recommend­
ations principally aimed at injecting a more commercial 
approach into the JRC and improving its competitiveness 
through the introduction of measures designed to reduce 
costs, particularly staff and overhead costs, and achieve 
better management control of the Centre's activities. 
Table 9.1 — Comparison of budgetary appropriations with funds actually committed and paid 
C = commitments. 
P = payments. (Mio ECU) 
In respect of the financial year 
In respect of carry-overs from previous financial year 
The making available again of appropriations 
Total C 
P 
C 
P 
c 
c 
p Initial 
budget 
(a) 
1 561,38 
1 368,67 
11,27 
23,02 
— 
1 572,65 
1 391,69 Final 
budget 
after 
SAB and 
transfer 
(b) 
1 747,79 
1 481,28 
11,27 
24,98 
— 
1 759,06 
1506,26 Implemen­
tation 
(c) 
1 732,97 
1 444,81 
4,52 
14,00 
— 
1 737,49 
1 458,81 Rate of 
implemen­
tation of 
initial 
budget 
(d = c/a) 
111 % 
106 % 
40% 
61 % 
— 
110% 
105 % Rate of 
implemen­
tation of 
final 
budget 
(e = c/b) 
99% 
98% 
40% 
56% 
— 
99% 
97% 
LI 1^0 Official journal of the European Communities lol 
^Bo. The Commission accepted most of the panel's 
recommendationsinitsdocument^Anewoutlooloforthe 
loint^esearch Centre'publishedinAprill^^^ln this 
documents theCommissioncommitteditself to introduce 
certain changes in the management and operation of the 
Centred the most significant of which in the Court'sview 
were^ 
^ thefunctionsofthe^Cshouldfallintothefollowing 
four main categories of which the latter three were 
new^ 
^ the execution onamultiannual basis of specitic 
research programmes under the framework 
programmed 
^scientific and technical support of the other 
Commission services^ 
^perfonning research or providing services under 
contract for third parties^ 
^non-specific preparatory research intended to 
open upnewavenuesforthe]R.Cand to maintain 
ahigh level of scientific excellences 
^areduction in the share of resources allocated to the 
framework programme with a corresponding in 
crease in work for third parties under contracts^ 
^ a restructuring of the ]RC into nine scientitic 
institutes^ 
^arevision of the conditions governing staff recruits 
meat and retentions 
^ an improved method of cost control to reduce 
overheads. 
^.o. Lioc Council endorsed the approach set out in 5A 
new outlook for the ioint Research Centre' in iune 
l^^andpassed legislation thefollowingCOctober 
adopting the specific programmes to be implemented in 
theperiodl^^tol^l^rHowevenitwasnotuntiliune 
1^ that the Council approved the introduction of 
special measures to terminate the service of certain IRC 
otficials^ameasurewhichwasseenashavingakeyrole 
to play in achieving improved staff mobility^ageprotile^ 
etc. 
C^ OocCO^^^ttiri^o^^OAnrit^^ 
^ OI^l^^.7l^m^ ^,7. TheCourtrecognizesthatitwilltakesometimefor 
the new arrangements to settle down, nevertheless early^ 
ob^ectiveexaminationofprogresswillenableproblemsto 
be identitiedbeforethey become too deep-rooted and 
assist management to focus attention on those areas 
where remedial action is needed.The Court decided in 
1^^ therefore^ toexaminetheIRCandinparticularthe 
progress made by the end ofl^^ in the implementation 
ofthekeyelementsoftherestructuringplan.Thischapter 
dealswiththetindingsoftheCourt'sexaminationandthe 
conclusions which it draws from them. 
A^^^^^^^ 
^.D. Beforedescribingthetindingsofitsaudit^theCourt 
would like to refer toamid-term evaluation of the ]RC 
carried out byateamofindustrialists towards theend of 
1^ and whose conclusions were generally endorsed by 
the Board ofCrovernors^thebodyresponsibleforguiding 
the L^irector^Cleneral and providing opinions to the 
Commissions in December 1^^. 
^. This evaluation concluded that good progress had 
beenmadeinimplementingtherecommendationsforthe 
improved efficiency of the ]RC and that the quality of 
work done by the Centre and the communication of its 
results deservedpraise.^oweventhe report did make 
some recommendations^ amongst which were^ 
^ that the number ofinstitutes should be reduced ^from 
ninetosix^ 
^that the customer^contractor principle should be 
extended andintensitied^ especially as itapplies to the 
provision ofinfrastructureservices^totheinstitutes^ 
^ that recruitment procedures should be improved^ 
^that marketing of the IRC services should be 
improved. 
^Itl whilst recognizing the value of certain of the 
recommendations made by the evaluation tearn^ the 
Court does not completely share the team's conclusions 
regarding the progress made by the IRC. 
^ ^^^^nn^oftD.tt^O. 
162 Official Journal of the European Communities 12. 12. 90 
A new outlook for the JRC 
9.11. In endorsing the document 'New outlook', the 
Council approved a total budget for the JRC for the 
period 1988-91 of 950 Mio ECU (6). This amount was 
broken down between the four categories of work 
mentioned in paragraph 9.5 above as follows: the crucial elements in the plan are the targets for work in 
support of the Commission and for third-party work. The 
achievement of these targets will depend on the JRC's 
success in persuading others of the value of having work 
done in the Centre. For this reason the Court's 
examination of the position at 31 December 1989 (two 
years into the four-year programme) paid particular 
attention to these categories of work. 
(a) 700 Mio ECU for the specific programmes (of which 
an amount equivalent to 5 % could be used for 
preparatory research); 9.14. The examination showed that half-way into the 
1988-91 programme the Centre has fallen behind target in 
its work for third parties whereas expenditure on the 
specific programmes has been more than originally 
intended. 
(b) 120 Mio ECU for work in support of the Commis­
sion; 
(c) 130 Mio ECU for work for third parties other than 
the Commission. 
9.12. This breakdown reflects the Council's wish to 
reduce the Centre's emphasis on specific programmes and 
to increase the amount of work done for third parties, 
including work in support of the Commission. Table 9.2 
shows in percentage terms the targets set for the JRC over 
the period 1988-91, compared with the actual position 
1984-87, and the longer term target 10 years hence. In 
order to monitor progress towards reaching these targets, 
the Council has asked the JRC to include appropriate 
information concerning the different categories of work 
in the annual implementation report which it is required 
to submit to the European Parliament and the Council. 
9.13. While the main JRC effort in the period 1988-91 
will continue to go into the specific research programmes, 
(6) OJ C 197, 27.7.1988, p. 4. The restructuring of the JRC into nine 
institutes 
9.15. Following the proposals put forward in the 'New 
outlook for the JRC, the restructuring of the Centre took 
place towards the end of 1988. Six of the institutes are at 
Ispra with the others at Geel, Karlsruhe and Petten. The 
purpose of the restructuring was to give the scientific units 
a sharper identity and a clearer vocation. It was hoped to 
achieve this by making the institutes scientifically and 
financially responsible for the implementation of their 
tasks. 
9.16. The Court's examination showed that, at the end 
of 1989, the restructuring still had some way to go before 
it could be considered to be fully operational. For 
example by the end of 1989 the institutes had been given 
only limited freedom to manage their own affairs. The 
1989 budget was not broken down to institute level. This 
meant that it was not possible to hold directors 
responsible for budget implementation or programme 
achievement. In 1989 the institute directors had only 
limited control over the recruitment and retention of staff 
Table 9.2 — Targets concerning the four categories of work 
Categories of work 
1. Specific research programmes 
2. Work for third parties 
2.1. S/T support to the Commission 
2.2. Work for external private or public bodies 
3. Preparatory research Total 
Total 1984-87 
average 
% 
87,2 
3 
9,8 
12,8 
0 
100 1988-91 
average 
% 
69 
12 
12 
24 
7 
100 1991 
target 
% 
61 
14 
14 
28 
11 
100 Target 
in 10 years 
50 
30-50 
15 
100 
12. 12. 90 Official Journal of the European Communities 163 
and little choice in the use of services supplied by the JRC 
administration and other facilities. 
9.17. If the basic aims of the restructuring are to be met 
it will be necessary to increase the autonomy and 
accountability of the institutes. This will mean adopting a 
more business-like approach to transactions between 
institutes with greater freedom to choose between 
alternative sources of supply for services which they have 
to buy-in. It will also mean giving institutes more control 
over personnel matters. On the other hand, institutes need 
to be made more accountable for their performance. This 
could be achieved by setting budgets and targets for each 
institute and holding directors responsible for delivery of 
results. 
9.18. If, as recommended, institutes are to be given 
greater autonomy, consideration will have to be given to 
increasing the administration and financial support given 
to directors of the Ispra institutes. But any increase here 
should be at the expense of the central administration 
services of Ispra and should not be an additional 
overhead expense. 
Work in support of the Commission 
9.19. Work in support of the Commission consists of 
scientific-technical support tasks commissioned by 
various DGs of the Commission to be carried out by the 
JRC. These tasks may be incorporated into a multiannual 
agreement signed by the JRC and the DG concerned or 
may be undertaken on an individual basis. Whatever their 
form the cost of these tasks is met from the JRC budget 
and not from the budgets of the DGs. 
9.20. Clearly multiannual agreements allow for a more 
convenient management of JRC resources. By the end of 
1989 multiannual agreements had been signed with the 
following DGs: 
(a) DG I for activities in support of external policy; 
(b) DG VI for research into the application of remote 
sensing in agriculture (see Council Decision of 26 
September 1988) (7); 
(i) OJL273, 5.10.1988, p. 12. (c) DG XI for research into protection of the environ­
ment; 
(d) DG XI for research into radioactive monitoring; 
(e) DG XVII for activities in support of new energies and 
conservation of energy; 
(f) DG XVII for activities in support of nuclear 
safeguards. 
9.21. The target for expenditure on this category of 
work is 120 Mio ECU over the period 1988-91. The sub-
targets for 1988 and 1989 were 20,8 Mio ECU and 
30,8 Mio ECU respectively. 
9.22. The Court's examination showed that there has 
been a good demand for this category of work, so much so 
that, in 1989, the JRC was unable within its approved 
budget to meet all the requests made of it. This situation 
has led the JRC, following a recommendation of the 
Board of Governors, to ask for an increased target (and 
corresponding increased budgetary provision) of 
130 Mio ECU for the period 1988-91. 
9.23. The current budget structure under Article 92 of 
the Financial Regulation requires that all expenditure on 
scientific and technical support activities shall, along with 
other expenditure on research, be entered in a special sub­
section of the budget. It does not, therefore, favour the 
application of the strict customer/contractor relationship 
which should govern this type of research. An important 
control over the good use of scarce research resources — 
he who commissions research must pay for it from his 
own pocket — is missing. 
9.24. The Court's examination of multiannual agree­
ments also suggested that there is a need for greater 
control over and more precise specification of work in 
support of the Commission. For example, the exami­
nation showed, in relation to scientific-technical support 
tasks, a tendency for some DG XI services to play only a 
passive role and to let the JRC determine the detailed 
work programmes. In general the operational services of 
DG XI received back no financial information from the 
Institute of the Environment of Ispra. They were, 
therefore, ignorant of the cost of work performed there in 
comparison with the initial budget. Moreover, there was 
no control by DG XI over the spending of the JRC apart 
164 Official Journal of the European Communities 12. 12. 90 
from, in some cases, giving prior approval for the 
purchase of large items of equipment. Evaluation of the 
work done by the institute for DG XI could only be made 
on the basis of scientific results, it being impossible in the 
circumstances described above to make any value for 
money judgements. contractor basis, work for third parties is the only area 
where outsiders come to the JRC and pay for research to 
be done. 
Targets 
Conclusion on work in support of the Commission 
9.25. The Court is well aware of Article 92 of the 
Financial Regulation, but nevertheless it proposes that 
the aim must be to move in the direction of a strict 
customer/contractor relationship for work in support of 
the Commission even if, ultimately, a slight amendment 
of paragraph (e) of this Article is called for. In the mean 
time, a transitional arrangement could be established so 
as to give the JRC time to adapt gradually to the Court's 
suggestion without the need for an immediate amend­
ment of the Article. This approach would encourage DGs 
to define more precisely the objectives to be achieved by 
the research undertaken by the JRC and render it more 
relevant. The JRC is in a unique position to carry out this 
research independent of any national considerations. It 
should seek to build on this position, but on the basis of a 
strict customer/contractor relationship. 9.27. The financial targets laid down in the Council 
Resolution of 29 June 1988 (8) demand an increasing load 
of work for third parties, rising from 20,1 Mio ECU in 
1988 to 39,9 Mio ECU in 1991, and totalling 130 Mio 
ECU over the four years 1988 to 1991 (see Table 9.3). 
9.28. These targets are not so daunting as appears at 
first sight. The figures given above include the income 
expected to be received from the Dutch and German 
authorities for the operation of the high-flux reactor 
(HFR) at Petten. This is a long-standing arrangement 
dating from 1961, and the related income does not, 
therefore, reflect any expansion of the JRC's work for 
third parties. Setting aside the income from the HFR, the 
targets for other third-party work become more modest: 
2,9 Mio ECU in 1988 rising to 18,6 Mio ECU in 1991 and 
totalling 52 Mio ECU in the four-year period. 
What do the targets mean? 
Work for third parties 
9.26. If the JRC is to seek to develop a more commercial 
approach as recommended by the panel of industrialists 
and endorsed in the document 'A new outlook for the 
JRC the real test will be the extent to which it is successful 
in expanding its work for third parties. For, until work in 
support of the Commission is put on a proper customer/ 9.29. Before commenting on the JRC's achievements it 
is necessary to consider what the financial targets mean. 
According to the English version of the Council 
Resolution which sets the overall targets, they represent 
the financial turnover in the period in question. The 
French version of the Resolution uses a wider expression, 
global financial resources, which the Court takes to mean 
(8) OJC 197, 27.7.1988, p. 4. 
Table 9.3 — Financial targets for work for third parties 
Reference 
HFR 
Other work for third parties 
Total 1988 
17,2 
2,9 
20,1 1989 (») 
19,4 
14,6 
34,0 1990 
20,1 
15,9 
36,0 1991 
21,3 
18,6 
39,9 (Mio ECU) 
Total 
78,0 
52,0 
130,0 
(') The figures in this table are those published by the JRC in its 1989 annual report. There is, however, an error in the JRC's calculation of the target for 
1989; it should be 15,6 Mio ECU including receipts of 1 Mio ECU of supplementary credits, giving a total target of 18,5 Mio ECU for the two years 1988 
and 1989. The Court has used the corrected figures of 15,6 Mio ECU and 18,5 Mio ECU when comparing actual against targeted performance (e.g. in 
paragraph 9.33). 
12. 12. 90 Official Journal of the European Communities 165 
the sum of (a) appropriations from the general budget to 
cover the costs of the specific programme, and (b) the 
financial turnover of work for third parties. In both cases, 
however, the Court considers that it is clear that, for work 
for third parties, the targets must represent the financial 
turnover in the period in question. The normally accepted 
definition of financial turnover for a business such as the 
JRC is the value of work done as certified for payment or 
as invoiced to customers. In its measurement of 
performance against target the Court has, therefore, 
treated financial turnover as being equal to the amount of 
work done as invoiced to customers in the year in 
question. (It accepts that, in the early years of an 
expanding programme, this value is likely to be less than 
the value of work actually done in the year.) 
9.30. The JRC has tended to use other, wider interpre­
tations of this phrase. In reports to its Board of 
Governors, to the European Parliament and others (9) the 
JRC has included as financial turnover, when making 
comparisons between targets and achievements, the value 
of contracts signed but not implemented and, in extreme 
cases, the value of contracts still under negotiation (see 
paragraphs 9.39-9.40 below). 
Achievements to the end of 1989 at the global level bution in kind from the Dutch authorities) under the 
HFR agreement, broadly in line with the target. 
9.32. Other work for third parties, in terms of financial 
turnover, fell well below target. As is shown in Table 9.4, 
the value of invoices raised for third-party work in the two 
years to the end of 1989 amounted to only 6,67 Mio ECU 
against a target of 18,50 Mio ECU. 
9.33. Third-party work comprises two elements of 
expenditure: expenditure on staff, overheads, etc., where 
the corresponding income is reimbursed against advances 
from the general budget; and expenditure on specific 
equipment and services purchased to fulfil the contract, 
where the corresponding income is retained by the 
institute concerned to offset the cost of the purchases. The 
financial targets have been broken down to these two 
elements. 
9.34. Table 9.4 shows that in the two years to the end of 
1989 the reimbursements to the general budget out of 
receipts from third-party contracts amounted to only 
1,57 Mio ECU against the target of 15,60 Mio ECU. On 
the other hand, in the same period, the JRC received 
3,17 Mio ECU in reimbursement of specific expenses for 
third-party contracts, against the target of 2,90 Mio 
ECU. 
9.31. In the two years 1988 and 1989 the JRC received 
income totalling 31,2 Mio ECU (excluding the contri-
(9) CA(90) 11 of 12.2.1990, p. 2; annual report 1989 of the JRC, 
31.1.1990, p. 42. 9.35. Analysis of the receipts of 2,81 Mio ECU from 
third-party work in 1989, shows that 0,15 Mio ECU was 
in respect of rents paid by commercial users of JRC 
Table 9.4 — Financial data on work for third parties (excluding the HFR) (•) 
(Mio ECU) 
Reference 
Target 
— Reimbursement to the budget 
— Receipt of supplementary credits 
Order book 
Contracts signed 
— Expected reimbursements 
— Expected supplementary credits 
Amounts invoiced 
Payments received 
— Reimbursements 
— Supplementary credits 1988 
2,9 
5,79 
5,787 
2,67 
1,93 1,0 
1,9 
2,145 
3,642 
0,819 
1,111 1989 
15,6(2) 
9,919 
6,919 
4,0 
2,81 14,6 
1,0 
3,351 
3,568 
0,755 
2,055 1988-89 
18,5(2) 
15,709 
12,706 
6,67 
4,74 15,6 
2,9 
5,496 
7,21 
1,574 
3,166 
(') The figures in this table derive from contracts signed in 1988 and 1989. In accordance with the Court's definition of the target, work for third parties 
invoiced in 1988 and 1989 for contracts signed in 1987 and before should be included. But in order to allow a comparison of the figures published by the 
JRC this work is not taken into consideration. 
(2) Due to a miscalculation, which omitted the receipts of supplementary credits in 1989, the target for 1989 was published by the Commission as 14,6 Mio 
ECU (for 1988-89 as 17,5 Mio ECU). 
166 Official Journal of the European Communities 12. 12. 90 
accommodation at Ispra e.g. bank, travel agency, and of 
charges made on staff and visitors who made use of the 
JRC housing there; in other words, receipts unconnected 
with research. 
Achievements at institute level 
9.36. In 1988, the financial targets set by the Council 
were not broken down to institute level. The JRC itself 
made such a breakdown, however, for 1989. But under 
the existing management accounting system it is not 
possible to determine the corresponding performance 
figures by institute and thus to make a direct comparison 
of performance against target. However, some inform­
ation is available at institute level. Table 9.5 shows against 
the financial targets, the value of contracts signed by the 
different institutes in 1989. It then shows the division of 
these amounts between the two elements of expenditure 
mentioned in paragraph 9.33. above; and, finally, actual 
reimbursements to the budget in 1989. which signed contracts to a value of 3,11 Mio ECU (41 % 
of the total) compared to a financial target of 2,53 Mio 
ECU. Certain institutes, for example Environment and 
Remote Sensing, where one might have expected a wide 
appeal to third parties, produced unsatisfactory results in 
the year. Table 9.5 also shows a tendency for contracts to 
require increased expenditure on purchases of specific 
equipment and services at the expense of expenditure 
reimbursable to the general budget. This is an important 
point. Purchases of specific equipment reflect an ability to 
buy equipment, services, etc. and pass the costs on to the 
customer. Expenditure reimbursable to the general 
budget reflects the quality of the science and the 
infrastructure of the JRC. Further, if the trend continues 
it could seriously jeopardize the Centre's prospects of 
reaching the target figure of 47,1 Mio ECU for re­
imbursements to the general budget for the period 1988-
91. This situation has led the JRC to ask for an increase of 
6 Mio ECU in the target for work for third parties in the 
period 1988-91, and a corresponding increase in bud­
getary provision, to make room for higher direct specific 
expenditure. 
9.37. The data in Table 9.5 invite the following 
comments. Even using the value of contracts signed in 
1989 as a yardstick, performance in the year fell well 
below target. This was particularly so for the Ispra 
institutes which signed contracts to a value of only 
3,63 Mio ECU against a financial target of 10,49 Mio 
ECU. The bright spot in the table is the Institute of 
Advanced Materials (mainly the Petten establishment) The order book at 31 December 1989 
9.38. At 31 December 1989, the JRC held contracts 
valued at 12,71 Mio ECU for work for third parties. Of 
this sum, 6,67 Mio ECU represented work done and 
Table 9.5 — Financial data on work for third parties for 1989 split up by institutes 
(Mio ECU) 
Institute 
Administration 
Systems Analysis 
Environment 
Remote Sensing 
Safety Technology 
CITE 
Prosp. Techn. Studies 
Advanced Materials 
Ispra establishment 
Nuclear Measurements 
Transuranium Elements 
Advanced Materials (Petten) 
Total Target 
0,3 
2,941 
2,4 
0,33 
2,879 
0,8 
0 
0,842 
10,492 
0,395 
2,058 
1,684 
14,629 Contracts 
signed 
0,345 
1,53 
0,27 
0,002 
1,048 
0,078 
0,095 
0,263 
3,631 
0,115 
0,332 
2,842 
6,920 Expected 
reimburse­
ments 
to the budget 
0 
1,154 
0,101 
0,002 
0,317 
0,035 
0,081 
0,206 
1,896 
0,095 
0,255 
1,104 
3,350 Expected 
supple­
mentary 
credits 
0,345 
0,376 
0,169 
0 
0,731 
0,043 
0,014 
0,057 
1,735 
0,02 
0,077 
1,738 
3,57 Real 
reimbursements 
to the budget 
from contracts 
signed in 1989 
0 
0,004 
0,021 
0 
0,005 
0,034 
0 
0 
0,064 
0,054 
0,057 
0,013 
0,188 
12. 12. 90 Official Journal of the European Communities 167 
invoiced to customers up to the end of 1989; the balance 
of 6,04 Mio ECU representing work in hand at the start of 
1990. Of this balance, 0,9 Mio ECU concerns contracts 
which are, in effect, work in support of other services of 
the Commission and contributions to the Brite, COST 
and medical research programmes. Even if the JRC's 
participation in these programmes causes no problems in 
principal, the legal base for this participation as third-
party work and the consequent budgetary implications 
need to be clarified. The level of new third-party contracts 
signed in 1989,6,92 Mio ECU, and the volume of work in 
hand at the beginning of 1990,6,04 Mio ECU, show some 
signs of success in attracting commercial-type work to the 
JRC. But these figures are still well below the targets set 
by the Council, and the JRC will have to work hard to get 
near the final targets for the 1988-91 period. 
Reconciliation of the JRC's and the Court's 
measurements of performance 
9.39. In February 1990 the JRC reported to the Board 
of Governors on the 1989 accounts (at first closure 
stage) (10). This report repeated an assurance given to the 
Board in September 1989 C1') that the targets assigned for 
work for third parties 'had been closely met', but that 
there had been delays in completing the actual contracts 
and in receiving reimbursement from the third parties 
involved. This position is repeated in the JRC annual 
report for 1989 (12) submitted to the Council and the 
European Parliament. 
9.40. The JRC's statement to have closely met the target 
for third-party work in 1988 and 1989 is based, 
essentially, on the claim that the 'cash inflow' from third-
party work in the period was 15,7 Mio ECU, against the 
target of 18,5 Mio ECU. The Court's analysis of the 
figure of 15,7 Mio ECU shows it is made up as follows: 
Work completed, cash received 
Work completed, invoices not yet settled 
Work in progress not yet invoiced 
Contracts signed, work not yet started 
Contracts still under discussion 
Total Mio ECU 
4,74 
1,93 
2,94 
3,09 
3,00 
15,70 
(10) CA(90) 11 of 12.2.1990, p. 2. 
(") CA(89)54of9.10.1989. 
(12) Annual report 1989 of the JRC, 31.1.1990, p. 42. To speak of the 'cash inflow' as 15,70 Mio ECU when the 
actual amount of cash received in the period in question 
was only 4,74 Mio ECU seems to the Court misleading. 
Pricing of work for third parties 
9.41. The JRC started the 1988-91 new era without clear 
rules for the pricing of work for third parties. It was not 
until October 1989 that the necessary instructions were 
issued. These are based on the principle that the prices 
negotiated for work for third parties shall, as a general 
rule, recover full economic costs, that is direct costs plus 
all overheads including those of the departments in 
Brussels. Any proposal to deviate from this principle and 
to accept work at less than full economic cost requires the 
approval of the Director-General. 
9.42. The delay in propagating these rules has led to 
under-recoveries on some contracts. For example, five 
contracts signed by Petten before October 1989 were 
negotiated at prices which recovered less than full 
economic cost as defined in these rules, by up to 30 % of 
staff and overhead costs. In the Court's view under-
recoveries have probably also been incurred on contracts 
signed before 1989 by other institutes; but their extent is 
not quantifiable as the JRC's present management 
accounting system does not produce reliable profit and 
loss accounts for individual third-party contracts (see 
paragraphs 9.43-9.47). 
Accounting for work for third parties 
9.43. Proposed work for third parties is incorporated 
into an annual work schedule which shows also the 
estimated cost of each proposal. This schedule is 
submitted to the Board of Governors for approval. 
9.44. When the contract for a specific task has been 
agreed it may be necessary to adjust the estimated costs to 
match the income to be received under the contract. Any 
contracts where the income will not recover full economic 
cost must be fully justified and, as mentioned in 
paragraph 9.41, must receive the prior approval of the 
Director-General. 
16^ COfticial journal of the European Communities 1^1^^ 
^.45. ^Vhen the contract has been signed the income to 
be receivediscommittedin the Sibecaaccounting system. 
Costs incurred on third^party contracts are also input to 
theSibecasystemastheyarise,butthisisdoneonaglobal 
basisanddoesnotreadilyallov^acomparisontobemade 
of the costs incurred on individual contracts withthe 
income earned under the contract. 
^6. I^his system ^vhich operated throughout 1^^ and 
1^^ has the following consequences^ 
^ the Board ofCrovernorsapprovesproposalsforthird^ 
partv^vork on the basis of estimated costs submitted 
by the Centre, but receives no feedback of the actual 
costs of completing the ^vork^ 
^]R.Cmanagementhasapolicyunder^vhich,^vithfe^v 
exceptions, theincomefromthird^partvcontractshas 
to recover the full economic costs of the ^vork 
involved, but receives no systematic information on 
the full economic costs ofcompleting the contracts^ 
^ projectmanagerscannotbeheldaccountablefortheir 
performance on thirdDpartv contracts. 
^4^. Inthecircumstances,theCourtisunabletoforma 
^udgementas to ^vhethercontractsv^ith third parties have 
always recovered full economiccost.lt recommends that 
the^Cshould pursue efforts ^vhich are no^v in hand to 
setupamanagementaccountingsvstem^vhichprovidesa 
protit^anddoss account for each contract for third^party 
^vork^andthatsuchinformationbemadeavailahletothe 
Board of governors, senior management and the Court 
of Auditors. 
Iv^ketu^ 
^.^. If the l^C is signiticantlvLO expand its v^ork for 
third parties it ^vill, in the Courfsvie^v, be necessary to 
haveaprotessionalmarketingdepartment.Atthetimeof 
theCourfs examination no suchdepartment existed, 
althoughtheloirectoroleneral has informed the Board of 
governors ^^ofhis intention to introduce an improved 
marketing strategy and to recruit the necessarv staff. 
C^^A^^D,^t^Bt^^n^ B^et^rye^ot^en^ 
^.4^. The shortfall in third^partv^vork in 1^^ created 
problems for the implementation of the ]R.Cbudget.As 
appropriations had been provided in the budget to cover 
the costs of personnel and other services expected to be 
used for third^partvv^ork,the shortfall resulted in an 
under^utili^ation of these appropriations for their 
intended purpose, however, all of the unused appropriD 
ations could not be cancelled as the personnel concerned 
could not be scaled do^vn in line ^vith the reduced 
workload. Paragraphs^.50^.5^1 describe and comment 
on the ^vav in ^vhich the ^Cdealt^vith this problem. 
^.50 rhei^Cbudgetforl^^ provided commitment 
appropriations totallingl^,6 Mio ECU tocoverexpendi^ 
tureon^vork for thirdparties excluding the^IE^^a 
further 1,5 Mio ECU ^vas earmarked outside the budget 
to cover expenditure onspecilicitemsneededtofultil 
these contracts^. In the event, commitments in the vear, 
retlectingtheshortfallinthiscategoryof^vork, amounted 
toonlv5,l^MioECU,leavingabalanceof^,^Mio 
ECU.^fothis has to be added l,67Mio ECU of unused 
appropriations from the rlER. programme. 
^.5L l^heunusedappropriations totalling ll,15Mio 
ECU^veredealtv^ithasfollo^vs^appropriationsamount^ 
ingto 6,^6MioECUv^eretransterredto the specific 
programmes^ 0,^Mio ECU of appropriations ^vere 
transterred to v^ork in support of the Commission, and 
appropriations totalling ^,65 MioECU^vere cancelled, 
0,56 Mio ECU representing cancellation of unused staff 
appropriations and ^,0^Mio ECU representing the 
cancellationofappropriationsintended recover overD 
head and other expenses. 
^.5^. In terms of staff, the l^^budgetforesa^v the use 
of ^^ research man^vears on ^vork for third parties. The 
actual tigure for the vear^vas only 1^,61 man^vears^at 
Ispra the corresponding tigures were 6^ and ^. The 
balance^vastransferred almost entirelv to thespecitic 
programmes. 
^.5^. Lhereisarelatedbudgetaryproblem^vith the rate 
of reimbursement to the general budget of sums received 
under contracts ^vith ihird parties. COriginally the 
Commission expected that 15,6 Mio ECU ofthe cost of 
the ^C^sl^^ and 1^^ budgets ^vould be met from 
receipts fromthirdparties,thus reducing theMember 
States contributions bv this amount, in the event, during 
this period, the iR.C signed contracts v^ith third parties 
envisaging receipts reimbursable to the general budget of 
only5,5 Mio ECU.As the completion of these contracts 
is taking longerthan expected and there have been delays 
insubmittingandreceivingsettlementofinvoicesfor 
completed v^ork, the actual receipts credited to the 1^^ 
and 1^^ budgets amounted to onlv 1,57 Mio ECU. Lhe 
12. 12. 90 Official Journal of the European Communities 169 
disadvantage to the Member States of this position is 
reduced by the extent of the work for third-party payment 
appropriations cancelled in 1988 and 1989, a total of 
3,91 Mio ECU. 
9.54. The Court makes the following observations on 
these data: 
(a) the actual utilization of 18,61 research man-years on 
work for third parties compared to the forecast 88 
man-years (4,4 against 68 at Ispra) provides a graphic 
evidence of the extent of the shortfall in work for third 
parties in 1989; 
(b) that the transfer in the year, at what must have been 
short notice, of some 66 research man-years from 
work for third parties to the specific or framework 
programme casts serious doubt on the efficient use of 
these resources; 
(c) that if the four-year financial targets laid down by the 
Council for the different categories of work are to be 
respected it will be necessary to reduce the amount of 
work being carried out in 1990 and 1991 within the 
specific programmes to 'repay' the appropriations 
borrowed from work for third parties in 1989; 
(d) that the Commission grossly overestimated the level 
of reimbursements to the JRC's 1988 and 1989 
budgets from receipts from contracts with third 
parties; 
(e) that budgetary problems are likely to persist, in one 
form or another, during the second half of the 1988-
91 programme, and that the JRC should, therefore, 
prepare a budget strategy for dealing with significant 
differences which may arise between planned and 
actual levels of work for third parties. For example, if 
there is a significant shortfall in work for third parties 
it will be necessary to review the staff complement of 
the JRC. 
Personnel policy 
9.55. The problems facing the JRC arising out of a lack 
of staff mobility, an ageing workforce and the need to 
introduce new blood, bringing with it fresh special­
izations to match the changing needs of the Centre, were 
identified as long ago as 1975. It was decided at that time, 
with only a limited number of exceptions, to stop giving 
functionary status to staff recruited to the JRC. Instead 
new recruits were offered temporary contracts. Over the 
intervening years this change has failed to achieve the 
results expected of it, largely because the JRC has more-
or-less automatically extended each five-year contract by another five years and after 10 years has offered the staff 
indefinite contracts. Of the 1 000 or so staff employed on 
temporary contracts since 1975, to the Court's know­
ledge, apart from those who have left voluntarily, only 
four have not had their contracts extended. 
9.56. Another attempt was made in 1987 to seek to 
resolve the personnel problems mentioned above. By 
Council Regulation (Euratom, ECSC, EEC) No 2274/87 
of 23 July 1987 (14) the Commission was authorized to 
disengage the services of 134 temporary staff over the 
period 1987-90 (the number was increased to 150 by 
Council Regulation (EEC) No 2168/89 of 18 July 
1989 (15)). Under the terms offered to the staff concerned 
they will receive 70 % of their salaries until they reach the 
age of 65. Why it was necessary to give such terms to staff 
who were engaged on temporary contracts terminable at 
three months' notice is not clear. This exercise cost the 
Commission 1,03 Mio ECU in 1988 with further expendi­
ture totalling 5,54 Mio ECU forecast for 1989 and 1990. 
9.57. A stated aim of this disengagement exercise was to 
permit the recruitment of staff from the new Member 
States, Spain and Portugal. The Court observes that 100 
disengagements had been made available under this 
arrangement by the end of 1989; but that at this date the 
Centre had recruited a total of only 61 Spaniards and 
Portuguese. Further, there is no correlation between the 
grades of the posts actually vacated and these recruit­
ments. 
9.58. The Court also notes that 95 of the 100 staff whose 
services were terminated were 'C and 'D' grade staff 
whose departure will have had little impact on the quality 
of the science of the Centre. 
9.59. In 1989 a further disengagement exercise was 
authorized by Council generally aimed at terminating the 
services of officials whose qualifications no longer 
matched the new objectives of the JRC and specifically 
designed to improve the scientific quality, the age profile 
and the mobility of staff (16). Under this arrangement 100 
staff were to be let go; the cost to the Community budget 
was estimated at 1,559 Mio ECU rising to 5,160 Mio 
ECU for the full year 1990. 
(14) Council Regulation (Euratom, ECSC, EEC) No 2274/87 
(OJ L 209, 31.7.1987, p. 1). 
(15) Council Regulation (EEC) No 2168/89 (OJ L 208, 
20.9.1989, p. 4). 
(»«) Council Regulation (EEC) No 1857/89 (OJ L 181, 
28.9.1989, p. 2). 
170 Official Journal of the European Communities 12. 12. 90 
9.60. Given the specific aims of the Regulation it might 
have been expected that the staff whose services were to be 
terminated would have been selected by senior manage­
ment in the interests of the service. The Court's 
examination showed, however, that the Regulation has 
been implemented on an entirely voluntary basis, which 
gives no guarantee that the primary aims of this expensive 
exercise will be met. 
9.61. The Court's analysis shows that of the 100 staff 
who have left the JRC under this arrangement, 38 are 'A' 
grade staff, 52 are 'B' grade staff and 10 are 'C grade 
staff. Of the 38 'A' grade staff, at whom the Regulation 
seems to have been mainly directed, only 32 were engaged 
directly on scientific work. Again it is difficult not to 
conclude that the impact on the scientific quality of the 
Centre will be limited. 
9.62. A perennial problem with the JRC has been the 
increasingly adverse age-profile of its staff particularly of 
its scientific staff. Table 9.6 shows the age profile for the 
different categories of officials at 31 December 1989. The 
most significant figure here is the average age of scientific 
'A' grade staff, 56,08 years. Surprisingly the disengage­
ment exercise mentioned above will not in fact reduce this 
figure as the average age of those leaving is below 56,08 
years. So another main aim of the legislation will not be 
met, at least not directly; the position could change if and 
when replacement staff are recruited. 
Table 9.6 — Average age of the officials of the JRC 
(situation as at 31 December 1989) 
Group of officials 
Scientific/technical 
Category A 
Category B 
Category C 
Category D 
All scientific/technical officials 
Administrative 
Category A 
Category B 
Category C 
Category D 
All administrative officials 
Scientific/technical and administrative 
Category A 
Category B 
Category C 
Category D 
All officials Average 
age 
56,08 
52,75 
53,33 
54,08 
54,00 
52,16 
44,83 
36,83 
49,50 
56,00 
52,66 
48,41 
36,83 
53,41 9.63. In the 1989 budget the JRC also received approval 
to convert 30 scientific/technical 'C grade posts into 'A' 
grade posts. The fact that the JRC had 57 vacant 'A' 
grade scientific posts at 31 December 1989 shows that 
little advantage was taken of this concession in 1989. 
9.64. The Budget Authority approved a staff list of 
2 180 posts for the JRC for 1989, excluding auxiliary staff. 
Of these, 1 760 were scientific/technical posts and 420 
were administrative posts. The Court's analysis of the 
actual staff position at 31 December 1989 (Table 9.7) 
shows that the number of scientific/technical staff 
employed was less than the approved complement. The 
number of staff employed on administrative posts, 
however, exceeded the approved complement when 
account is taken of auxiliary staff. At 31 December 1989 
the JRC employed 463 administrative staff, including 65 
auxiliary staff, compared with the complement of 420. 
(Table 9.7 also shows that, at 30 June 1989, the JRC in 
fact employed more administrative staff excluding 
auxiliaries than was approved by the Budget Authority.) 
The figure of 463 staff employed on administrative duties 
at 31 December 1989 does not include 80 or so posts 
transferred from the JRC budget to the general budget 
but still filled by what are essentially JRC administration 
staff (see also paragraph 9.78); nor does it include 
accounting staff or financial control. Further the Court's 
enquiries revealed that at least 20 officials have been 
counted against the scientific/technical budget who are in 
reality employed on administrative tasks. 
9.65. The mid-term evaluation of the JRC carried out in 
December 1989 highlighted problems of staff recruit­
ment. The Court's findings endorse this opinion. The 
JRC had intended to use the opportunity granted by the 
1989 disengagement and the scope afforded by existing 
vacant posts to recruit 150 new scientists. To avoid the 
problems of the past the idea was to employ the new staff 
on three-year non-renewable contracts. This plan did not 
prove practicable — by the end of the year only 10 had 
been recruited — and it was abandoned without anything 
else being put in its place. The result is that there was little 
infusion of new scientific blood from this source in 1989; 
nor was there from the arrangements for the employment 
of visiting scientists, fellows, etc. where there was a net 
decrease in numbers in the year. 
9.66. A particular problem in the JRC in the Court's 
view concerns the absence of specialist staff in the 
administration of the Centre. The tendency in the past has 
been to redeploy into administration scientists whose 
qualifications no longer match the scientific needs of a 
12. 12. 90 Official Journal of the European Communities 171 
Group of personnel 
Administrative Staff 
Category A 
Category B 
Category C 
Category D 
Subtotal 
Auxiliary staff 
Total 
Scientific/technical staff 
Category A 
Category B 
Category C 
Category D 
Subtotal 
Auxiliary staff 
Total 
Total staff 
Category A 
Category B 
Category C 
Category D 
Subtotal 
Auxiliary staff 
Grand total Table 9.7 — Personnel of the JRC 
31 December 1988 
Author­
ized 
28 
113 
258 
20 
419 
419 
551 
663 
528 
19 
1 761 
1761 
579 
776 
786 
39 
2 180 
2 180 Present 
31 
110 
288 
24 
453 
62 
515 
502 
586 
467 
21 
1 576 
50 
1626 
533 
696 
755 
45 
2 029 
112 
2 141 Differ­
ence 
- 3 
+ 3 
- 30 
- 4 
- 34 
- 62 
- 96 
+ 49 
+ 77 
+ 61 
- 2 
+ 185 
- 50 
+ 135 
+ 46 
+ 80 
+ 31 
- 6 
+ 151 
-112 
+ 39 30 June 1989 
Author­
ized 
29 
116 
255 
20 
420 
420 
580 
663 
498 
19 
1 760 
1760 
609 
779 
753 
39 
2 180 
2 180 Present 
25 
100 
280 
25 
430 
69 
499 
507 
593 
455 
19 
1 574 
61 
1635 
532 
693 
735 
44 
2 004 
130 
2 134 Differ­
ence 
+ 4 
+ 16 
- 25 
- 5 
- 10 
- 69 
- 79 
+ 73 
+ 70 
+ 43 
± 0 
+ 186 
- 61 
+ 125 
+ 77 
+ 86 
+ 18 
- 5 
+ 176 
-130 
+ 46 31 December 1989 
Author­
ized 
29 
116 
255 
20 
420 
420 
580 
663 
498 
19 
1 760 
1760 
609 
779 
753 
39 
2 180 
2 180 Present 
24 
100 
259 
15 
398 
65 
463 
523 
596 
456 
19 
1 594 
59 
1653 
547 
696 
715 
34 
1 992 
124 
2 116 Differ­
ence 
+ 5 
+ 16 
- 4 
+ 5 
+ 22 
- 65 
- 43 
+ 57 
+ 67 
+ 42 
± 0 
+ 166 
- 59 
+ 107 
+ 62 
+ 83 
+ 38 
+ 5 
+ 188 
-124 
+ 64 
changed programme. Whilst on the one hand a certain 
number of scientific and technical staff in the adminis­
tration of a research centre can improve the understand­
ing of and the relations with the scientific and technical 
units, on the other the JRC needs professional staff in 
finance, administration and marketing to successfully 
implement the new policy (in particular professional 
accountants to control financial affairs both generally 
and in the institutes, marketing experts to promote the 
Centre's products). match the changed programmes of the JRC. On the 
administration side, there is a need to review the 
complement and staffing of posts to ensure that they are 
reduced to the bare minimum necessary for the efficient 
functioning of the Centre and that the qualifications of 
incumbents match identified needs. (This should be one 
of the first tasks to be undertaken by the 'costs reduction 
unit' proposed by the Court later in this chapter). 
Conclusion on personnel Analytical accounting 
9.67. The Court considers that, in relation to JRC 
personnel, measures taken to date have not made a 
significant contribution towards solving the basic 
problems of improving the scientific excellence of the 
Centre, of a lack of staff mobility and of an ageing 
workforce often with qualifications which do not now 9.68. The JRC's previous attempts to introduce an 
effective analytical accounting system, for example 
Sibeca, have not been entirely successful. The systems 
suffered from various faults and did not give management 
the essential information in a suitable form and on time to 
allow it to use them as efficient tools for identifying and 
tackling the Centre's problems. In the document 'A new 
17^ Coftlcialiournal of the European communities Llnl^ 
outlook for the ]R^ the commission signalled its 
intention to design and introduce a new analytical 
accounting system. 
^ In August 1^^ the ]R.C^placedacontractwitha 
tlrmofconsultants to design and supervisethelnstaP 
lation of anewsystemofanalytical accounting. Lhe 
contract was placed followin^arestricted invitation to 
tenderandiscostin^the]P^about^,^^^io8Cetl.Phe 
design phase of the contract was due for completion by 
November 1^^ withimplementationspread over the 
period to the middle of 1^0. 
^.7tP rhe consultants^ proposals were received in 
l^ovemberl^^ and approved by the commission and 
the^RC^ Board of governors in lOecember. The consults 
ants madeapresentation of the new system to staff of the 
CA^urtofAuditors early in 1^. 
^.71. Acting within their brief the consultants have 
designed a sensible and, if properly implemented, a 
competent system of allocating costs to cost centres and 
research projects.But in the C^ourfs view this is onlya 
small part oftheinformation which the^R-C^needsforthe 
improved management and control of its activities. 
^.7^. in the C^ourCsopinion extension of the system is 
urgently needed to cover the following detlciencies^ 
^a) that it simply allocates accrued costs to cost centres 
andthencetoprojectsmtdoesnotprovideforbud^ets 
for cost centres and projects against which costs can 
be compared and management performance meas^ 
ured^ 
^b)that it fails to include material costs of the iRC^ such 
as^ accounting services, tinancial control, canteens, 
medical services and some other administration 
expenditures nor does it include the expenses of 
pensions ^includin^ disengagement) or terminal 
benefits of staff leaving the CA^ntre^ 
^c) that, bysimplyallocatin^actual costs, thesystemfails 
to identify tbr management action cases of excessive 
costsintheprovisionofinternalservices^fore^ample 
by comparison with equivalent open market prices), 
cases of overmanning or of surplus capacity. 
^.7^. Inthenewsystemmostoverheadsareapportioned 
to projects by means ofapercenta^e addition to thecosts of direct labour attributed to the project concerned. As, 
therefore,averylar^e part of the tlnal cost ofaproject 
will be determined by the number ofdirect man-hours 
char^edtoit,itisclearlyessentialtohaveareliable, 
accurateandcontrollablesystem ofchar^in^ time to 
projects. The CAaurCs examination showed that little 
reliance can be placed on the ]R.Ce^spresent system for 
char^m^time to projects.tinder this system staff are not 
required to complete daily timesheetscertilled as correct 
by supervisory staff. Instead, senior staff in each 
department tlllmtimesheetsonceamonthfor all of their 
staff based on estimates of time spent on different 
projects. t^AtRetten it was the practice at the time of the 
oeonrfsvisit to complete timesheets only at si^monthly 
intervals.)ln the absence of detailed, accurate records of 
time actually spent onprojects, supervisory staff have 
plenty of scope to vary char^esbetweenprojects and 
between the different categories of worl^^and in present 
circumstances suchdecisionsarenotsusceptible to review 
by senior management nor to eftectivecontrolby the 
C^ourCsstaff. 
^.7^. Lhe consultants who have designed the new 
analytical accounting system have not been asked to put 
forward proposalsforimprovin^thepracticeand control 
of timesheets.Lhis lacuna should be tilled. 
^.7^. The ]R.C^ should ensure that management is fully 
informed of the possibilitiesfor Improved control oftered 
by anetlectiveanalyticalaccountin^system. What is 
needed here is not just a more developed system of 
analytical accounting but training at all levels to ensure 
that management can derive the maximum benetit from 
it. Recent experience at ^PT has shown that the 
introduction of a sound analytical accounting system 
linked to budgets and with management involvement at 
all levels leads to greater cost-awareness and si^niticant 
cost reductions. 
CEc^^^c^^ 
^.7t^. Initse^aminahon of the problems facing theiRC^ 
the panel ofindustrialists diagnosed thatamajor burden 
was the hi^h cost of ^R.C^ work, certain of these costs, 
such as those emanating from the conditions of service 
^overnin^ the employment of staff of the European 
communities, lie outsidethe immediate controlof the 
^R.C^. But others are very muchwithin its control, for 
example the number of staff employed, particularly 
temporary stall, and the costs of in^house services. 
12. 12. 90 Official Journal of the European Communities 173 
9.77. It is notable that in the 'New outlook for the JRC 
little consideration has been given to the question of ways 
of achieving cost reductions. The only practical example 
which has come to the Court's notice is at Petten where 
the management is seeking to re-negotiate, with the aim of 
securing cost reductions, its host support agreement with 
the Dutch authorities. 
9.78. The JRC might claim as a measure of cost 
reduction the decision to transfer 80 posts from the JRC 
payroll to the payroll of the Commission itself. But the 
bulk of the staff concerned, comprising canteen, medical 
and personnel administration staff, will continue to work 
for the JRC and will cost the same as before. 
9.79. The JRC must make a serious and sustained effort 
to reduce costs, in particular service costs. To this end the 
Court recommends the setting-up of a special unit 
charged with this responsibility. The unit should cover all 
of the institutes and report at regular intervals directly to 
the DG of the JRC. 
General conclusions 
9.80. The 'New outlook for the JRC set the Centre on a 
new track with opportunities to solve many of the 
problems of the past. The Court's review at the half-way 
stage of the initial four-year restructuring programme 
shows that progress has been made but that it has been 
patchy. 
9.81. The nine institutes foreseen in the restructuring 
have been created. If the creation of these institutes is to 
have the desired effects it will be necessary to give them 
more autonomy and to improve their accountability. The 
administration and financial support given to the 
directors of the Ispra institutes needs to be strengthened 
but at the expense of central services not as additional 
overheads. 
9.82. Work in support of the Commission should be 
encouraged. But it needs to be made subject to a proper 
customer/contractor relationship with initiating DG's 
setting precise research objectives and the price they are 
prepared to pay for them. 
9.83. The JRC has made only slow progress in 
expanding its work for third parties. The size of the order 
book at the end of 1989, however, gives some encourage­
ment. But there is still a long way to go if the financial 
targets set by the Council for 1988-91 are to be achieved. The performance of individual institutes has varied. The 
causes of this should be identified and the lessons learned 
applied to the less successful institutes. The accounting 
for third-party work needs to be improved to provide 
accurate profit-and-loss accounts for each contract. 
Present steps to improve the marketing of this work 
should be continued. The JRC should develop a strategy 
for dealing with budgetary implementation problems that 
arise when there are significant differences between 
planned and actual levels of work for third parties. 
9.84. The steps taken so far to deal with the long­
standing personnel problems of the Centre have not 
achieved the desired results, in particular the application 
of expensive disengagement exercises seems to have had 
only limited impact on the excellence of the science of the 
JRC. Recruitment procedures and the conditions of 
service of new recruits should be reviewed to enable 
procedures to be introduced which will encourage the 
inflow of new blood to the JRC. There should be an 
inspection carried out of the numbers and qualifications 
of central administrative staff to ensure that they are 
commensurate with the tasks concerned. 
9.85. Further development is needed of the design and 
application of the JRC's analytical accounting system to 
ensure that it provides management with the information 
necessary for the improved control of JRC activities. 
9.86. A costs-reduction unit should be set up to identify 
cost-savings to improve the competitiveness of the JRC. 
JOINT EUROPEAN TORUS 
9.87. The Joint European Torus (JET) is the largest 
project in the coordinated programme of Euratom which 
is aimed at proving the feasibility of using nuclear fusion 
as a source of energy. To implement the project, the JET 
Joint Undertaking was originally established for a 
duration of 12 years beginning in June 1978. In July 1988, 
the Council of Ministers adopted a new multiannual 
fusion programme and agreed to prolong the JET 
experiment to the end of 1992. 
9.88. Eighty per cent of the expenditure concerned is 
borne by the Commission (under Chapter 73 of the 
general budget). The United Kingdom Atomic Energy 
174 On^icial journal of the European Communities 12,12,9t] 
Authority,as the host organization, pays It^^and the 
balance is shared between members having contracts of 
association with Euratom, The annual cost of ^T is of 
the order of l^^io ECU, 
9,D59 In C0ctoberl9^9 the IFT Council, the budget 
authohtyfortheproject, recommended to theCouncil of 
^inistersthattheprojectbefurtherprolon^edtotheend 
of!99^,TheCouncilhasstilltopronounceonthematter, 
9,9t^, Asaresultofthedelayinannouncin^adecision 
on whether or not to prolong the project to the end of 
199^o, the project management, with the concurrence of 
the IET Council, is having to run two programmes in 
parallel — onewhichisbasedonaterminationdateofthe 
end of!992andtheother based onatermination date of 
theendof!99o. This situation entails risks to the project 
of incurring abortive or premature expenditure. For 
example, tritium operations will be introducedin 1992 if 
no extension is granted, or otherwise in 199^, In order to bereadytbrl992ane^pensiveactive^as-handlin^iacility 
has hadtobe constructed nowalthou^hifafurther 
prolongation is agreed it will not need to be operational 
until 199^, In addition, in order to safeguard the 
continuity of the project post-1992 a number of 
significant investments are in hand or planned, invest­
ments which ^illpro^elruitless if the project terminates 
attheendof!992. 
9.91, The project may also tace problems in retaining 
keypersonnelifthereisane^tendedperiodofuncertainty 
about its future. 
9,92, without wishing to comment on the merits ofa 
decision to terminate the project at the end of 1992 or to 
extend it to the end of 199ro, the Court ur^es the 
competentauthoritiestoreachadecisionontheliteofthe 
project as rapidly as possible to reduce the risks of 
abortive or premature expenditure andtoremo^ethe 
uncertainties ^hich face the projecfspersonnel. 
12. 12. 90 Official Journal of the European Gommunities 175 
CHAPTER 10 
Cooperation with developing countries 
10.0. TABLE OF CONTENTS 
Implementation of the budget 
Aid to Bangladesh 
Introduction 
Food aid 
Food situation 
The public foodgrain distribution system 
Subsidized sales from PFDS stocks 
'Non-monetized' issues from PFDS stocks 
EC direct food aid 
The role of the Bangladeshi authorities 
Effectiveness of direct food aid 
Indirect food aid via international organizations 
World Food Programme 
League of Red Cross and Red Crescent Societies, Geneva 
Financing of major projects 
Effectiveness in terms of principal objectives 
Unrealistic target dates 
Underemployment of assets 
Co-financing with international agencies 
Co-financing with Member States 
The role of the Bangladeshi authorities 
Non-compliance with agreements 
Lack of qualified personnel 
Government reluctance to use technical assistance 
Lack of cooperation among Bangladeshi implementing agencies 
Lack of project infrastructure and equipment 
The role of the Commission 
Premature decisions to finance 
Weak monitoring 
Commission's knowledge of government systems 
Inappropriate recourse to 'international tenders' 
Project autonomy Paragraph 
reference 
10.1 
10.4 
10.4 
10.8 
10.8 
10.11 
10.12 10.3 
10.63 
10.7 
10.26 
10.10 
10.16 
10.13 
10.14 — 10.16 
10.17 — 10.21 
10.19 — 10.20 
10.21 
10.22 — 10.26 
10.22 — 10.25 
10.26 
10.27 — 10.49 
10.28 
10.29 — 10.30 
10.31 
10.32 — 10.33 
10.34 
10.35 — 10.42 
10.35 — 10.38 
10.39 
10.40 
10.41 
10.42 
10.43 — 10.49 
10.43 
10.44 
10.45 
10.46 — 10.48 
10.49 
176 Official Journal of the European Communities 12. 12. 90 
Compensation for loss of export earnings (Compex) 
Co-financing with non-governmental organizations (NGOs) 
Emergency aids 
Conclusion 
Food aid 
Financing of major projects 10.50 
10.53 
10.56 
10.58 
10.59 
10.61 10.52 
10.55 
10.57 
10.63 
10.60 
10.63 
IMPLEMENTATION OF THE BUDGET 
10.1. The total budgetary appropriations and the extent 
to which funds have been committed and paid on the basis 
of these appropriations for Title 9 'Cooperation with 
developing countries' (*) are shown in Table 10.1. 10.3. The results of the analysis of budget management 
of project aid, allocations to non-governmental organiza­
tions, emergency aid show that there has been some 
overestimation of the need for appropriations. Neverthe­
less, the Court considers it important that the Commis­
sion should not have recourse to systems of advances or 
instalment payments except where this is necessary and 
after obtaining appropriate guarantees. 
10.2. From Table 10.1 it appears that there was a 
relatively high degree of conformity between budgetary 
forecasts and utilization of appropriations. However, 
analysis of the figures for food aid (Chapter 92) reveals 
certain problems with regard to over- and underestim­
ation of appropriations and commitments (see paragraph 
1.55). AID TO BANGLADESH 
(') The Court's observations on aid to African, Caribbean and 
Pacific States financed by the Member States outside the 
general budget of the European Communities will be found 
in Part Two of the report. Introduction 
10.4. In 1988 and 1989 the Court, continuing its audit of 
aid to major beneficiary countries in Asia and Latin 
America, turned to Bangladesh. The deficiencies de­
scribed in the observations which follow are, in many 
Table 10.1 — Comparison of budgetary appropriations with funds actually committed and paid — Title 9 
For the financial year 
By the way of carry-overs from the previous 
year 
Appropriations made available again 
Total C 
P 
C 
P 
c 
c 
P Initial 
budget 
(Mio ECU) 
(a) 
1 240,5 
1 031,6 
11,5 
70,4 
— 
1 252,0 
1 102,0 Final budget 
after 
Supplementary 
and amending 
budget 
(Mio ECU) 
(b) 
1 448,3 
1 239,4 
11,5 
70,4 
— 
1 459,8 
1 309,8 Implemen­
tation 
(Mio ECU) 
(c) 
1 441,7 
1 009,1 
11,5 
54,6 
— 
1 453,2 
1 063,7 Rate of 
implemen­
tation 
of initial 
budget 
(%) 
(d) = %(c)/(a) 
116,2 
97,8 
100,0 
77,6 
— 
116,1 
96,5 Rate of 
implemen­
tation 
of final 
budget 
(%) 
(e) = %(c)/(b) 
99,5 
81,4 
100,0 
77,6 
— 
99,5 
81,2 
Note: C = Commitment; P = Payment. 
12. 12. 90 Official Journal of the European Communities 177 
respects, regrettably similar to those already reported by 
the Court for other countries and further underline the 
need for the Commission, its delegations and beneficiary 
country agencies, to make further efforts to ensure that 
development aid is effectively employed. 
10.5. From 1976, when financial and technical cooper­
ation started, until the end of 1988, the Community 
granted 517 Mio ECU of aid to Bangladesh. The different 
types of aid are summarized in Table 10.2. The following 
points are noteworthy: 
(a) the Community gives more food aid to Bangladesh 
than to any other country. At world market prices, it 
has represented 62 % of the value of all European 
Community aid to Bangladesh. Counterpart funds 
totalling some 64 Mio ECU from the sale of direct 
food aid are to be used for rural development; 
(b) as shown in Table 10.4, commitments for financial 
and technical cooperation project aid totalled 
154 Mio ECU by end 1988, of which 52 Mio ECU 
had been paid. A further 7 Mio ECU of project aid 
was granted under the special programme to combat 
hunger in the world and 2,4 Mio ECU as Community 
participation in storage programmes and early 
warning systems. Of the total project aid of 163 Mio 
Table 10.2 — The Community's assistance to Bangladesch 
from 1976 to 1988 
(Mio ECU) 
Type of aid 
Food aid C1) 
(direct and indirect) 
Financial contributions for food aid de­
liveries 
Projects 
(technical and financial assistance) 
Compensation for loss of export earnings (2) 
Co-financed NGO projects 
Emergency aids 
Total Commitments 
321 
11 
163 
14 
6 
2 
517 
(') Estimated fob-value at world market prices. 
(2) Transfers in respect of 1986 and 1987. ECU, the 7 Mio ECU of special programme aid and 
15 Mio ECU of the financial and technical project aid 
consisted of fertilizer supply operations, with 
counterpart funds allocated to specific development 
projects; 
(c) compensation totalling 13,7 Mio ECU for loss of 
export earnings in the jute and tea industries had been 
paid to the Bangladesh Government by the end of 
1988; 
(d) between 1976 and 1988, commitments to co-finance 
113 non-governmental organization (NGO) projects 
amounted to 5,7 Mio ECU; 
(e) emergency aid of 1,9 Mio ECU was granted in 1987 
and 1988. 
10.6. A mission by the Court in 1981 had found that 
food aid was mainly of benefit to government employees 
and there was no distinct accounting for counterpart 
funds. Implementation of one of the two financial and 
technical cooperation projects which had started was 
seriously delayed and the irrigation potential of the other 
was not being realized. 
10.7. The second Court mission, in January/February 
1989, set out to assess Community food aid and 
emergency aid for the last five years, financial and 
technical cooperation projects since the first visit, 
compensation for loss of export earnings and NGO 
project co-financing. Twelve major projects, involving 
50 % of total commitments and almost 70 % of total 
payments, were visited throughout the country. Six NGO 
co-financed projects (5,3 % of the total number but 
24,6 % of expenditure under this heading) were also 
visited. Grain handling and storage arrangements were 
examined at both the main ports, Chittagong and Chalna, 
and in 10 local storage depots in six districts. Much 
additional documentation, obtained during or after the 
mission, was used in completing the Court's evaluation. 
178 Official Journal of the European Communities 12. 12. 90 
Food aid The public foodgrain distribution system 
Food situation 10.11. As a response to the 1943 Bengal famine when at 
least 1,5 million people died, a system of government 
holding and distribution of stocks of cereals throughout 
the region was established. Since Bangladeshi indepen­
dence in 1971, the government has rapidly expanded the 
system. 
10.8. The official Bangladeshi figures show that cereals 
production is less than demand, the deficit increasing 
from 1,4 Mio tonnes in 1984/85 to an estimated 2,8 Mio 
tonnes in 1988/89. This food gap is filled by aid and 
commercial imports. Estimated production figures are 
used. Needs are calculated on the basis of minimal calorie 
requirements for the whole population, which is es­
timated from the basis of the 1981 census. Donors grant 
food aid in relation to the food gap between estimated 
production and calculated requirements. 
10.9. It is likely that the food gap has been consistently 
overestimated. Over five years to 1988/89, after 'stock 
losses' of 400 000 tonnes (cif-value more than 70 Mio 
ECU), government stocks increased by about 600 000 
tonnes to a level much higher than required, even during 
the 1987/88 emergencies. Moreover, in January 1990, 
after an admittedly exceptional winter rice crop, the 
authorities acknowledged that storage capacity, substan­
tially refurbished and expanded in recent years, was 
inadequate. Nevertheless the poverty of the mass of the 
population is such that much food aid is needed. Subsidized sales from PFDS stocks 
10.12. Average monthly subsidized sales for July to 
November 1988 for categories managed by the Ministry 
of Food were: 
tonnes 
statutory rationing, etc. (public servants) 56 000 
modified rationing (in theory for the poor) 30 000 
essential priorities (army, police, etc.) 11 300 
large employers 3 600 
open market intervention sales (2) 19 500 
flour mills 10 000 
Total 130 400 
10.13. Neither procurement nor sales have much effect 
on free market prices for rice, since the proportion 
handled by the Ministry of Food is small (perhaps 5 % of 
all sales); for wheat such transactions may well have 
rather more influence on the market. The 'ration price' is 
very favourable to recipients. The 'essential priorities' 
price is not published, but is very low. Moreover, 
'essential priorities' recipients are not limited to rationed 
quantities, but simply draw on stocks as required. 
10.10. During 10 years for which comprehensive 
information was obtained (1975/76 to 1984/85) Ban­
gladesh received more than 11 Mio tonnes of food aid 
cereals from all sources. However, only 4,3 Mio tonnes 
(38 %) were distributed for relief and rehabilitation, as 
'food for work', vulnerable groups development and 
short-term 'calamity' aid. The government sold a further 
34 % at subsidized prices, in theory to the poorest rural 
population, although it frequently failed to reach them. 
The rest, 300 000 tonnes per year, was issued at subsidized 
prices mainly to civil servants, the armed forces and 
employees of parastatal organizations. All food aid, 
commercial imports and (limited) local purchases are 
pooled and distributed through the 'public foodgrain 
distribution system' (PFDS). 'Non-monetized' issues from PFDS stocks 
10.14. The Ministry of Relief and Rehabilitation 
manages food for work, the largest single category 
handled by the PFDS. This involved more than 10 million 
man/days in 1987/88, mainly water development and 
rural infrastructure works. 500 000 tonnes of wheat were 
earmarked for food for work in 1988/89. Some 64 % of 
(2) Unusually high because of floods. 
12. 12. 90 Official Journal of the European Communities 179 
food for work, including Community contributions, is 
monitored by the United Nations sponsored World Food 
Programme (WFP). 
10.15. Vulnerable groups' development, also assisted by 
WFP, is managed through local government project 
implementation committees which select destitute women 
to receive a monthly ration of which they consume 
perhaps 30 % and sell the rest. There are associated 
training programmes and savings/credit schemes. The 
1988/89 target was 480 000 women to receive 181 000 
tonnes of wheat. Main sources of supply were WFP 43 %, 
Canada 20% and the government 15%. The Com­
munity aid in this category only became significant after 
the floods and cyclone in 1987 and 1988 when 145 000 
tonnes of emergency assistance were allocated to 
vulnerable groups. 
10.16. Almost all Community food aid, whether direct 
to the Bangladeshi authorities or indirect via WFP is 
stocked and distributed by the PFDS; only the small 
proportion of indirect aid through NGOs is outside the 
system. 
EC direct food aid 
10.17. From 1971 to 1988 Bangladesh has been among 
the largest Community food aid recipients, with more 
than 2,35 Mio tonnes of wheat, 52 000 tonnes of milk 
powder, 36 500 tonnes of butter oil and 8 500 tonnes of 
rapeseed oil. For 1984-88, the period examined by the 
Court's mission, allocations and delivery details are given 
in Table 103 \ the fob-value of the supplies listed was 
almost 109 Mio ECU. Net counterpart funds equivalent 
to some 64 Mio ECU were generated in respect of the 
years 1984-87. 
10.18. Emergency allocations of Community direct 
food aid were made from the programmes for 1987 
(25 000 tonnes wheat) and 1988 (100 000 tonnes wheat 
and 1 800 tonnes rapeseed oil). There was no real 
emergency requirement for importation of food grains, as 
government stores had more than sufficient stocks. 
However, appropriate distribution arrangements were 
not made, so international agencies and non-govern­
mental organizations 'borrowed' from the stocks in order 
to ensure free supply to the population affected by the 
serious flooding. They then requested the 'emergency' 
allocations in order to replenish government stocks. The role of the Bangladeshi authorities 
10.19. The authorities submitted final accounts for 
delivery charges for the years 1986 and 1987 late in 1988 
and they had not been settled at the time of the Court's 
mission. Quantities shown on the Ministry of Food's 
takeover certificates are based on inadequate weighing. 
No insurance claims have ever been lodged by the 
Bangladeshi authorities under the insurance arrange­
ments paid for by the Community, even when marine 
transport losses were firmly established. 
10.20. The Bangladesh Bank account for sales proceeds 
of cereals, butter oil and rapeseed oil was not operated as 
required in the food aid agreements. Counterpart funds 
were instead integrated into the government's con­
solidated funds for use in its annual development 
programme. Withdrawals were thus according to govern­
ment budgetary rules which were at variance with the 
food aid agreements. A September 1985 agreement on 
selection and approval of projects to be financed proved 
unsatisfactory as the executing agencies of the selected 
projects did not supply physical and financial progress 
reports to the Delegation 'as of 31 December until such 
time as the allocated counterpart Taka funds are utilized 
in full'. Neither the Bangladesh Bank nor any other 
government entity had any clear accounting for these 
funds. Prior to 1984, they were reportedly used for 
fertilizer subsidy. Funds generated from 1984 to 1986 
food-aid programmes were used, after about 25 % 
deductions, as government contributions to development 
projects. A new system, applicable to the 1988 and 
subsequent programmes, provides for proper infor­
mation on the generation and utilization of separate 
Community counterpart funds. 
Effectiveness of direct food aid 
10.21. As mentioned above, Bangladesh is probably 
closer to food self-sufficiency than its government 
maintains, at least in terms of effective demand, even 
though many of its poorest citizens are underfed. The 
bulk of food aid fails to reach the poorest people; it goes 
at subsidized prices to the more prosperous urban and 
public sector part of the population and constitutes an 
important source of government revenue. Community 
direct food aid must therefore be regarded as only 
partially reaching the less-favoured Bangladeshis, whilst 
180 Official Journal of the European Communities 12. 12. 90 
Table 10.3 — Food-aid allocations, Bangladesh 
Pro­
gramme 
1984 
1985 
1986 
1987 
1988 
Total 
1984-88 Product 
Common wheat 
Butteroil 
Rape seed oil 
Common wheat 
Rape seed oil 
Common wheat 
Rape seed oil 
Common wheat 
Rape seed oil 
Common wheat 
Rape seed oil 
Common wheat 
Butteroil 
Rape seed oil Quantity (t) 
130 000 (4 lots of 25 000, 1 lot of 30 000) 
1 500 (3 lots of 5001) 
700 
140 000 
(a) 2 lots of 35 000, (b) 2 lots of 35 000) 
1000 
152 000 (4 lots of 38 000) 
1000 
25 000 
150 000 (4 lots of 37 500, in 5 shipments) 
2 000 
150 000 (4 lots of 37 500) 
100 000 (1 lot of 34 000, 2 lots of 33 000) 
2 000 
1800 
847 000 
1 500 
8 500 Fob-
value (') 
(Mio ECU) 
20,4 
3,9 
0,8 
(a) 10,8 
(b) 7,6 
1,1 
16,6 
0,7 
2,7 
15,5 
1,0 
15,5 
10,3 
1,0 
0,9 
• 108,8 Net counterpart 
funds credited 
(Mio ECU) 
(2) 
• ±16,5 
• ±13,5 
• ±15,2 
— 
±18,2 
± 1,0 
— 
— 
1984-1S 
• 64,4 (Mio BDT) 
(3) 
• 
• 417,1 
. 
• 424,2 
• 
• 554,3 
— 
703,5 
37,7 
— 
— 
)87 
±2 136,8 
(') As per the Commission's 'unit prices' for the year of shipment. 
(2) Estimates for the order of magnitude only, based on the following rates of exchange for the taka (BDT) counterpart value: 
12/1983 = 1 ECU = 21,1 BDT 12/1986 = 1 ECU = 32,0 BDT. 
12/1984 = 1 ECU = 18,8 BDT 12/1987 = 1 ECU = 37,9 BDT. 
12/1985 = 1 ECU = 25,3 BDT 12/1986 = 1 ECU = 38,6 BDT. 
(3) Extracted from the Commission's 'presentation notes' for the 1988 programme. 
the enhancement of public sector remuneration would 
not appear to be a valid objective of a food-aid 
programme. Further consideration needs to be given to 
improving the targeting of this aid. 
Indirect food aid via international organizations 52 % was for emergency aid to flood victims and the 
remainder for the national food for work programme for 
land and water development. WFP also received about 
6,3 Mio USD in cash contributions from the Community, 
for marine transport etc. and for distribution costs. The 
total Community contribution to WFP Bangladesh was 
thus over 23 Mio ECU. 
World Food Programme 
10.22. The World Food Programme (WFP) receives 
Community wheat for its projects. The 124 896 tonnes 
allocated in 1984-88 had a fob-value of 16,4 Mio ECU; 10.23. 2 029 tonnes of wheat with a cif-value of over 
350 000 ECU was shortlanded from five shipments in the 
period from April 1985 to January 1988. Community aid 
transport conditions oblige WFP to make insurance 
12. 12. 90 Official Journal of the European Communities 181 
claims and use refunds to purchase replacement products 
for the same operations. Neither the Commission 
departments concerned nor WFP Bangladesh knew 
whether claims had been lodged or refunds obtained and 
if so how they had been used. 
10.24. Community wheat is not directly handled by 
WFP. The Ministry of Food distributes it to local storage 
depots. Quantities earmarked for WFP (but not neces­
sarily the wheat theoretically destined for them) are issued 
under government procedure. Although WFP's super­
intendents found all shipments of good quality on arrival 
in the ports, its monitoring officers observed that poor 
quality wheat was being distributed during 9 % of visits 
to food for work schemes in 1985/86/87 and in 4 % of 
1987/88 visits. Such proportions cannot be attributed to 
deterioration in official storage, so good quality wheat for 
free distribution has been replaced by wheat of a lower 
quality. 
10.25. For food-aid operations prior to the 1986 
programme, WFP was to report to the Commission on 
the quantities of Community aid distributed, the nature 
of beneficiaries and places and methods of distribution. 
This information was not supplied, nor was it available 
from WFP Bangladesh. 
League of Red Cross and Red Crescent Societies, 
Geneva 
10.26. Community aid to the League of Red Cross and 
Red Crescent Societies, Geneva (Licross) and its associate 
the Bangladesh Red Crescent Society (BDRCS) for 1983, 
1985 and 1986 consisted of 180 tonnes of vitaminized 
skimmed-milk powder, 200 tonnes of wheat and 104 
tonnes of rice, with a total fob-value of 268 000 ECU, all 
delivered cif-Chittagong for free distribution. All con­
signments were stated to have been received in full and of 
good quality, but BDRCS had not provided the required 
aid-utilization reports despite reminders from Licross, 
nor had the Commission requested them. However, 
reports prepared and handed over by BDRCS during the 
Court's mission indicate proper use of the aid for relief 
operations. Financing of major projects 
10.27. Table 10.4 lists major projects financed from 
Articles 930 and 958 and from Item 9281 of the budget. 
Effectiveness in terms of principal objectives 
10.28. None of the projects audited have achieved their 
main socio-economic objectives. Community interven­
tions in the cotton and cereals sectors have had no 
discernible effect on production of these crops. The tea 
rehabilitation project did not involve rehabilitation but 
rather normal replacement of equipment and modern­
ization, mainly of foreign private estates; there is no 
evidence that extra employment was generated, nor were 
living conditions of tea-estate labour significantly 
improved. The livestock services development project did 
not improve veterinary and animal husbandry extension 
services; it did not increase the availability of veterinary 
drugs or encourage farmers to buy them; for its draught 
power improvement objective the project was irrelevant. 
Two water management schemes (deep tubewells and the 
small-scale irrigation sector project) are far from 
achieving their original aims of improving small-farmer 
irrigated rice production. A third, Bhola, has increased 
rice production, but there is no evidence of significant 
increase in small-farmers' incomes. The repair and 
reconstruction of the local storage depots for public food 
grain stocks is proceeding without any guarantee of 
future maintenance. 
Unrealistic target dates 
10.29. All the projects have taken much longer to start 
and complete than foreseen: 
(a) the first cotton project was to be completed in 
three years. After eight years only some 70 % has 
been implemented. Cotton II expenditure is 8 % after 
three years; 
(b) cereal seeds II, committed in 1984 to take three years, 
only started three years and three months later; 
182 Official Journal of the European Communities 12. 12. 90 
Table 10.4 — Projects financed by the EEC 
1. Article 930 — Financial and technical assistance (Mio ECU) 
Year 
1976 
1977 
1978 
1980 
1981 
1982 
1983 
1984 
1985 
1987 
1988 Ref. of financing agreement 
NA/... 
ALA/... 
76/03 Barisal irrigation 
77/03 Muhuri irrigation 
78/3-C1 Tea rehabilitation 
79/3-C5 Emergency food grain storage 
80-06/C2 Livestock services development 
80-07/C1 Cotton development 
81-12/C6 Small-scale irrigation sector 
82-02/C1 Cereal seed development 
82-01/C4 Construction of fertilizer godowns 
82-08 Bhola irrigation 
82-31 Supply of fertilizers/Deep tubewells II 
83-27 Improvement of grain storage 
83-35 Cereal seeds II (EEC contribution to Bangladesh-
German-EEC seed development) 
84-21 Rural development programme 
85-04 Cotton development II 
87-2 Flood control and drainage IV 
87-5 Cyclone protection (feasibility and design study) 
87-20 Post flood rehabilitation 
88-8 Roads materials and standards study 
88-15 Thikana operation 
88/16 Rehabilitation of food grain local storage depots 
Total 1976-88 Total 
expected 
cost 
36,8 
46,4 
62,3 
11,7 
11,9 
13,5 
82,0 
8,8 
4,0 
40,2 
152,6 
7,0 
17,0 
37,2. 
5,6 
25,4 
1,9 
6,5 
2,2 
9,5 
15,0 
597,5 EEC grant 
Commit­
ment 
2,8 
5,7 
6,6 
8,0 
4,1 
6,5 
12,0 
3,6 
2,0 
3,0 
15,0 
7,0 
10,0 
25,5 
4,9 
2,1 
1,9 
6,5 
2,2 
9,5 
15,0 
53,9 Payments 
at 
31.12.1988 
2,8 
5,7 
3,0 
8,0 
2,2 
4,5 
2,4 
3,6 
2,0 
1,3 
15,0 
0,5 
0,4 
0,4 
0,1 
— 
51,9 Remaining 
balance 
-0) 
-(') 
3,6(2) 
1,9(2) 
2,0(2) 
9,6(2) 
-(2) 
1,7(2) 
-(2) 
6,5 (2) 
9,6(2) 
25,5 
4,5(2) 
2,1 
1,9(3) 
6,4 
2,2(3) 
9,5(3) 
15,0(3) 
102,0 
2. Article 958 — Special programme to combat hunger in the world 
1983 958/83-BAN1 Food grain production and storage (fertilizer 
supply) 7,0 7,0 7,0 -(2) 
3. Item 9281 — Community participation in storage programmes and early warning systems 
1987 9281/87-BGD1 Rehabilitation and reconstruction of food 
storage depots 2,4 2,4 2,1 0,3 (2) 
Total of projects financed 
Total of projects examined by the 1989 mission 
% of total 1976-88 
% of total 1978-85 163,3 
82,1 
50 
70 61,0 
42,4 
69 
80 
(') Examined by the 1981 mission of the Court. 
(2) Examined by the 1989 mission of the Court. 
(3) Financing agreements not signed as at 31.12.1988. 
12. 12. 90 Official Journal of the European Communities 183 
(c) of tea-project expenditure scheduled to take place 
over five years only 45 % had been incurred within 10 
years and the project is unlikely to be finished even in 
12 years; 
(d) the livestock four-year project remains unfinished 
even after 10 years; 
(e) only about half the physical infrastructure for deep 
tubewells II was completed, although the five-year 
period foreseen had been extended to seven and a half 
years; 
(f) the irrigation works on Bhola are now forecast to be 
some four years late; 
(g) the small-scale irrigation sector project was due for 
completion in 1988, but by then only some 25 % of 
the basic infrastructure was developed. 
10.30. The time schedule for the first two local storage 
depot projects failed to allow for the usual delays in 
arranging for technical assistance. Long delays occurred 
between project appraisal and the start of implemen­
tation. They were mainly due to the government's lengthy 
procedures and disagreements with regard to Community 
financed technical assistance input. Such delays meant 
that some components were no longer appropriate. Tea 
industry rehabilitation was over before the Community 
project really started. For the co-financed cereal seeds II, 
implementation of the EEC component only started when 
the German technical assistance programme was near 
completion. The delay in the supply of imported 
veterinary drugs for the livestock services project meant 
that local production had meanwhile developed and the 
requirement for imported drugs had largely disappeared. 
Underemployment of assets 
10.31. Training facilities in excess of reasonably 
foreseeable requirements, including accommodation, 
have been built with a Community grant at all three 
cotton development project seed multiplication farms. 
Equipment remains unused because of lack of skilled staff 
and because procurement of some necessary ancillary 
equipment had been omitted. An incinerator for the livestock services project was not installed one year after 
delivery, a large incubator was not being used. 
Co-financing with international agencies 
10.32. The Community contributed part of the con­
struction costs of the deep tubewells II project, but, 
because it did so via fertilizer counterpart funds, neither 
the government nor the lead agency, International 
Development Association, treated the Community as a 
partner and, without information, the Commission was 
not even in a position to monitor the progress of works 
and use of funds. 
10.33. For Bhola and the small-scale irrigation sector 
project, the Asian Development Bank administers the 
Community grants. Unused Community advances 
(which totalled some 2,2 Mio ECU at the end of 1988) are 
held by the bank; interest is credited to the project, but 
this has not offset the dollar's fall against the ecu since 
funds were transferred by the Commission. The bank has 
given priority to the sub-projects financed from its own 
loans. 
Co-financing with Member States 
10.34. Community involvement in the first cereal seed 
project came about because of a cut in the FR of 
Germany's aid and was confined to seed purchase. There 
was no effective partnership between the managing 
agency, the FR of Germany's agency for technical 
cooperation and the Commission, even for information 
purposes. There was no improvement for cereal seeds II 
as the same agency did not provide the Commission with 
significant information on its technical assistance pro­
gramme. Tied United Kingdom aid could not finance 
imports of Indian machinery for the tea project, yet when 
the Community agreed to do so, appropriate cooperation 
arrangements with the United Kingdom project manage­
ment were not established. The Commission was not 
supplied with sufficient information on project progress 
to enable adequate supervision, even when, after 1985, the 
project development unit of the Bangladesh Tea Board 
was regularly reporting to the United Kingdom Overseas 
Development Administration. The 1984 project review 
conclusion that United Kingdom capital aid was no 
longer required was not communicated to the Com­
munity at the time. More recently, cooperation has 
improved. For all three projects the Commission should 
have ensured that it received full information from the co-
184 Official Journal of the European Communities 12. 12. 90 
financers and that their components of the projects were 
properly coordinated with those financed by the Commis­
sion. 
The role of the Bangladeshi authorities 
Non-compliance with agreements 
10.35. The cotton sector projects are adversely affected 
by the government's failure to implement measures for 
better marketing, pricing and intervention buying, and to 
repair and maintain the access road to Jagadishpur seed 
multiplication farm. Cereal seed was imported in breach 
of agreed procurement procedures. Restrictions imposed 
on imports hindered implementation of the tea and Bhola 
projects. Reporting obligations have not been met in 
cases such as the cereal seed and tea projects and 
government sources failed to supply information con­
cerning the utilization of counterpart funds from the sale 
of fertilizer imported in connection with deep tubewells II 
and the first local storage depot project. 
10.36. Government funds have not been made available 
as promised. The lack of funds delayed the small-scale 
irrigation sector project in 1983 and a major sub-project 
of the tea project did not even obtain funding approval. 
Other unexplained delays in government procedures may 
also be related to funding difficulties. Use of food-aid 
counterpart funds has been one solution. 
10.37. In the livestock services project revolving funds 
were not operated as agreed, bicycles and motorcycles 
were sold to 'non-field' staff, drug distribution policy was 
inconsistent and there was a general tendency to regard 
the Community grant as concerned only with procure­
ment rather than with the development objectives 
mentioned in the financing agreement. This same attitude 
extends also to construction works and is more or less 
apparent in all Community projects. It may well be 
related to some major donors' practice of commodity aid, 
which does not have the poverty relief or rural develop­
ment focus of Community programmes. 10.38. Land acquisition for the Bhola and food grain 
storage projects has been slow; the latter project was also 
delayed because jetty design was not specified correctly 
(many jetties were, in the end, dropped from the 
construction programme). Many stores were not emptied 
in time for work to start. 
Lack of qualified personnel 
10.39. There has generally been a shortage of suitable 
Bangladeshi staff for project implementation and sustain-
ability. In the small-scale irrigation sector project, the 
lack of the Bangladesh Water Development Board's 
design capacity had to be compensated, after much loss of 
time, by a complement of Community-financed local 
private expertise. Both the cotton and cereal seed 
multiplication farms suffer from a lack of competent 
technical staff. Management and senior technical 
counterparts trained by expatriate technical assistance 
are regularly transferred away from projects as a part of 
normal career progression. Projects lack full-time top 
management. The director of a major project is usually a 
senior civil servant who is, at the same time, responsible 
for departmental duties and perhaps numerous other 
projects. All these elements have serious negative effects 
over the long implementation periods of most agricul­
tural/rural development projects. The Commission 
should continue its efforts to ensure that projects are 
properly staffed and might consider seeking more specific 
undertakings from the Bangladesh Government for 
future projects. 
Government reluctance to use technical assistance 
10.40. It has often taken much time and effort by 
Commission representatives or co-financers to arrange 
with the government for the assignment of expatriate 
technical assistance provided for in the financing 
agreements. Delays were particularly noteworthy in the 
second cotton and cereal seed projects; in the latter the 
implementing agency (Bangladesh Agricultural Develop­
ment Corporation) compounded the selection delay by its 
failure to supply office accommodation and services. The 
small-scale irrigation sector project and the first two local 
storage development projects were also seriously affected. 
12. 12. 90 Official Journal of the European Communities 185 
Lack of cooperation among Bangladeshi 
implementing agencies 
10.41. Cotton development has been hindered by lack 
of cooperation between the Cotton Development Board 
and the Bangladesh Agricultural Research Institute. The 
Bhola and small-scale irrigation sector projects have 
suffered from failures to coordinate the work of such 
agencies as the Bangladesh Agricultural Development 
Corporation, the Bangladesh Water Development Board 
and the Bangladesh Rural Development Board; water 
management projects that include cooperative irrigated 
agriculture development have been particularly prone to 
this type of difficulty. 
Lack of project infrastructure and equipment 
10.42. The cotton projects have been handicapped by 
the failure to keep the road to Jagadishpur seed 
multiplication farm in an adequate state of repair. The 
cereal seed multiplication farms are unable to maintain 
equipment. The Bhola Island flood control and irrigation 
scheme will require major maintenance which the 
Bangladesh Water Development Board may well not be 
capable of providing. Although foreseen in the financing 
agreements, no arrangements have been made for 
maintenance for newly rehabilitated local storage depots. 
The role of the Commission 
Premature decisions to finance 
10.43. Financing for three projects was agreed prema­
turely : 
(a) the decision to grant Community assistance to the 
livestock services project on the assumption that it 
could contribute to the solution of a hypothetical 
draught animal power shortage was premature; 
examination of animal draught practice in Ban­
gladesh was a priori advisable, since potential causes 
of such a shortage might well include lack of forage or 
of credit facilities for animal purchase; (b) the grant for cereal seed II was made without 
information from consultants as to the outcome of 
the first project; 
(c) the Bangladesh Tea Board and the Commission have 
agreed on how to use the remaining half of the tea 
project funds committed in 1978; this involves 
substantial modification of the financing agreement, 
without consulting the Asia and Latin America 
Committee. Moreover, the third international tender 
included machinery for a hypothetical central fac­
tory, itself tributary of an equally hypothetical 
plantation extension. 
Weak monitoring 
10.44. There was no Commission representative in 
Dhaka prior to 1982 and no Delegation there until 1986. 
Monitoring by the Commission's services and its Dhaka 
representatives has been weak, particularly in projects co-
financed with Member State and international agencies. 
A recommendation by a 1984 mission of the Com­
mission's own financial control department that the tea 
project should be abandoned was ignored. In the 
Commission's technical service one person has had the 
responsibility, since mid-1986, for monitoring 65 infra­
structure projects in different countries. He has not 
visited Bangladesh. 
Commission's knowledge of government systems 
10.45. Although at the time of the Court's 1989 mission 
the Dhaka Delegation had a considerable knowledge of 
government procedures and systems, much of it the result 
of recruitment of local staff with public sector experience, 
there remained distinct gaps with regard to financial 
matters. The delegation was unaware that there existed a 
government department specifically responsible for the 
audit of donor-assisted projects which distributes its 
reports to donors. Past oversights related to lack of 
awareness of the Bangladeshi public sector include failure 
to ensure that advances earn interest for projects and 
ignorance of government regulations limiting the level of 
expenditure which can be incurred from revolving funds. 
186 Official Journal of the European Communities 12. 12. 90 
Inappropriate recourse to 'international tenders' Compensation for loss of export earnings 
(Compex) 
10.46. The Community's 'international tender' pro­
cedure provides for supply of goods and equipment either 
from a European Community Member State or from one 
of the aid beneficiary countries. Under this procedure 
fertilizer from Europe for deep tubewells II and for the 
article 958 foodgrain storage project cost 20 % above 
world market price. 10.50. Council Regulation (EEC) No 428/87 Q\ of 9 
February 1987, provides for transfers to be used in the 
sectors where export earnings have been lost, if this might 
alleviate the circumstances which caused the loss; if not, 
then for diversification. Council Regulation (EEC) No 
429/87 (4), of 9 February 1987, subjects transfer payments 
to a recipient State commitment as to the exact way in 
which transferred funds are to be used (projects, 
programmes, actions). 
10.47. For the Bhola irrigation and the livestock 
services development projects motorcycles were needed 
for field staff. Suitable non-Community machines were 
already assembled in Dhaka. The Commission refused to 
waive the Community rules of origin, although European 
motorcycles were either too expensive or unsuitable. As a 
result the EC did not finance motorcycles for Bhola and 
this hindered implementation of the project. The livestock 
services project spent an extra 150 000 ECU to acquire 
European motorcycles without any lasting benefit to 
Community industry. Resupply, financed from sales of 
the Community origin machines, will in any case have to 
consist of locally available non-Community motorcycles. 10.51. Transfers for 1986 and 1987 totalled 9,8 Mio 
ECU for jute and 3,9 Mio ECU for tea. The jute sector 
transfer requests made by the Bangladeshi authorities 
contained only general indications of intended use. 
Projects to be implemented would only absorb about 
4,6 Mio ECU of the 9,8 Mio ECU. 5,2 Mio ECU 
transferred had no identified and agreed use at the time of 
the Court's mission. The tea sector transfer requests were 
also based on general indications as to their use. 
10.48. Although the financing agreement provided for 
procurement of tea machinery on the basis of calls for 
quotations, the Bangladesh authorities were unwilling to 
accept the arrangements proposed by the Commission. 
The latter then decided to adopt the much more onerous 
international tender procedure, quite inappropriate for 
the acquisition of tea machinery, which, for reasons of 
cost and industry custom, was best imported from India. 10.52. Failure to prepare suitable tea or jute projects in 
advance, although the problems of both sectors are well 
known, means that the Compex system will have little 
effect in stabilizing export earnings in the near future. 
There is, in any case, incompatibility between the 
objectives of the system of compensation (remedying the 
effects of instability of export earnings) which would 
imply quick utilization of funds, and the rules and 
procedures for its implementation, which require the 
Commission to ensure that funds will be used for 
appropriate projects, programmes or operations. 
Project autonomy Co-financing with non-governmental 
organizations (NGOs) 
10.49. Many of the problems described above are the 
result of, or aggravated by, the lack of financial and 
administrative autonomy of projects and lack of con­
tinuity of Bangladeshi management. For four years 
Commission representatives have sought to negotiate a 
project structure designed to increase the chances of 
success of a 25,5 Mio ECU rural development project (see 
NA 84-21 in Table 10.4). Only recently have some 
government agencies agreed to accept most of the 
Commission recommendations for the organization of 
this and one other rural development project. There is not 
yet any agreement as to a general system/methodology 
for all future financial and technical cooperation projects. 10.53. The Court's mission selected six of the 113 NGO 
projects co-financed by the Community and European 
NGOs in the period 1976 to 1988. These six projects 
represented Community grant commitments of 1,4 Mio 
ECU, 24,6 % of all commitments for such projects in 
Bangladesh. They were co-financed with NGOs from the 
FR of Germany, Ireland, the Netherlands and the United 
Kingdom (three projects), from appropriations for the 
years 1984, 1985, 1986 and 1987. 
(3) OJ L 43, 13.2.1987, p. 1. 
(4) OJL43, 13.2.1987, p. 3. 
12. 12. 90 Official Journal of the European Communities 187 
10.54. Audit findings were: 
(a) a particularly cost-conscious and well-organized 
Bangladeshi NGO had built schools and teachers' 
accommodation as planned; 
(b) a sound rural credit project did not actually require 
the Community grant for the year of operation it was 
supposed to assist; 
(c) a centre for the paralysed in Dhaka had no separate 
local accounting for a mobility aids project and the 
financial statements of the European co-financing 
NGO were not entirely consistent; 
(d) a literacy project, which wrongly received retrospec­
tive funding, paid its organizers/headquarters staff 
salaries well above Bangladeshi public sector rates 
and did not achieve its development objectives; 
(e) an urban sanitation and water supply project had 
been well executed, though on a much reduced scale, 
by the local branch of a European NGO; expenditure 
was lower than had been claimed and recovery of the 
untransferred surplus Community funds was to be 
considered. Indeed, the reduction of the project was 
sufficient to make the Community grant unneces­
sary; 
(f) wells for drinking water were funded on the basis of a 
very flexible interpretation of the general conditions 
governing Community grants. The European partner 
reported costs some 50 % higher than appeared in the 
records of the Bangladeshi NGO. 
10.55. On the whole, it appeared that the Commission's 
services needed to exercise closer financial supervision of 
the European co-financing NGOs. However, five out of 
six projects were of a type worthy of support, even if two 
of them did not really need it. 
Emergency aids 
10.56. In 1987 and 1988, in response to catastrophic 
situations in parts of Bangladesh, there were three 
allocations of Community aid under Article 950 of the 
budget for a total of 1,9 Mio ECU. 10.57. The 1987 and first 1988 operations give rise to no 
criticism. The second 1988 decision, some eight weeks 
after the initial emergency and mainly for drugs and 
medical teams, was misjudged by the participating 
organizations; no special need for medical supplies 
occurred, so distribution was very slow. Exemption from 
excise duty, obtainable for local purchase of drugs using 
foreign exchange, was not requested, so 45 000 ECU of 
aid became government revenue. 
Conclusion 
10.58. The allocation of more than half a billion ECU 
between 1976 and 1988 to Bangladesh has largely failed to 
achieve the general Community aid objective of improv­
ing the conditions of the least favoured inhabitants of 
developing countries. 
Food aid 
10.59. Less than half of Community direct food aid goes 
to the poorest Bangladeshis, because of the way in which 
the rationing system is biased in favour of urban public 
sector consumers. The Commission should examine ways 
of improving this situation. 
10.60. The Commission should continue its efforts to 
ensure the transparency of counterpart fund operations 
and the effective use of the funds. 
Financing of major projects 
10.61. The least successful type of Community action 
has been projects financed from Chapter 93 of the budget. 
None of the dozen major projects examined had achieved 
its socio-economic objectives and target dates set for 
completion were very unrealistic. Although the majority 
of the projects have not yet been completed, the outcome 
is clear in every case. The importance of fixing realistic 
objectives and targets is underlined; grossly over-
optimistic plans, which fail to take account of local 
circumstances, are unlikely to achieve real development. 
188 Official Journal of the European Communities 12. 12. 90 
10.62. The Commission's monitoring has, on the whole, 
been very weak and remains so with regard to the 
technical content of projects. The Commission's services 
should have incorporated in each project agreement a 
regular review procedure with clear commitment to 
cancellation or formal modification whenever objectives 
were not being achieved or implementation was seriously 
delayed. 10.63. Bangladeshi government agencies have 
frequently failed to observe agreements with the Com­
munity and tend to regard Community projects as simple 
procurement or construction operations. The Commis­
sion should continue to seek more effective cooperation 
with the Bangladeshi authorities. 
12. 12. 90 Official Journal of the European Communities 189 
CHAPTER 11 
Aid to countries in Central and Eastern Europe 
11.0. TABLE OF CONTENTS 
Introduction 
Assistance envisaged by the Communities 
Observations concerning monitoring and control 
Observations concerning counterpart funds Paragraph 
reference 
11.1 —11.3 
11.4 —11.5 
11.6 —11.8 
11.9 —11.14 
INTRODUCTION Further measures of assistance to other countries in 
Eastern and Central Europe are envisaged. 
11.1. With a view to encouraging the process of reform 
in Poland and Hungary by providing aid that would 
permanently transform and open up the economies of 
those countries, the participants at the Western Economic 
Summit decided at a meeting in Paris on 14 and 15 July 
1989 that a joint aid plan coordinated by the Commission 
should be undertaken in support of the economic reform 
of those two countries. 
11.2. In September 1989 the Commission presented an 
'action plan' for the coordination of aid to Poland and 
Hungary C1) known as operation 'Phare'. This multi-
annual action plan provides for measures in the following 
areas: 
(a) agriculture (supplies and restructuring); 11.3. Financial assistance from the Communities is 
provided within this framework and is summarized in the 
following paragraphs. 
ASSISTANCE ENVISAGED BY THE 
COMMUNITIES 
11.4. From the middle of 1989 to June 1990 a number of 
decisions were taken concerning the utilization of 
Community financial instruments (such as EIB loans and 
ECSC assistance), with a view to providing the legal and 
budgetary bases for economic aid to the countries of 
Central and Eastern Europe. The Court notes in this 
context the following essential measures: 
(b) access to markets; 
(c) investment; 
(d) vocational training; 
(e) environment. (a) on 24 July 1989 the Council adopted a Regulation (2) 
containing an emergency measure under which 
Poland will be supplied, free of charge, with 
agricultural produce. The costs of the operation, 
about 130 Mio ECU, were met by the EAGGF 
Guarantee Section from its 1989 budget; 
(b) in addition to food aid, assistance to countries in 
Eastern Europe financed from the general budget for 
(') Doc. COM(89) 470 final. (2) Council Regulation (EEC) No 2247/89 of 24 July 1989,0J L 
216,27.7.1989. 
190 Official Journal of the European Communities 12. 12. 90 
1989 comes to about 7,1 Mio ECU of which about 
6,7 Mio ECU is for aid to Poland and about 0,4 Mio 
ECU for aid to Romania. Table 11.4 gives the details; 
(c) economic aid to the Republic of Hungary and the 
Polish People's Republic for an amount of 300 Mio 
ECU, chargeable to the 1990 budget; in the first 
instance, this aid concerns the areas of agriculture, 
industry, investment, energy, training, environmental 
protection, trade and services (3); 
(d) an EEC guarantee for loans granted by the EIB in 
Poland and Hungary amounting to a maximum of 
1 000 Mio ECU (4); 
(e) medium-term financial assistance for Hungary in the 
form of a loan facility of a maximum amount of 
870 Mio ECU in principle (5): the loan agreement for 
the first loan tranche of 350 Mio ECU was signed on 
30 March 1990; 
(f) an EEC guarantee for the borrowing programme 
contracted by the Community to provide medium-
term financial assistance to Hungary (6); 
(g) additional financial support to Central and Eastern 
Europe for an amount of 200 Mio ECU decided in 
supplementary and amending budget No 2 for the 
1990 financial year (7); 
(h) ECSC loans up to an amount of 200 Mio ECU to 
finance coal and steel investments in Hungary and 
Poland (8); 
(i) participation by the EEC and EIB as shareholders of 
the European Bank for Reconstruction and Develop­
ment; 
(3) Council Regulation (EEC) No 3906/89 of 18 December 
1989, OJ L 375, 23.12.1989. 
(4) Council Decision 90/62/EEC of 12 February 1990, OJ L 42, 
16.2.1990; Article 997 of the general budget for the financial 
year 1990, OJL 24, 29.1.1990. 
(5) Council Decision 90/83/EEC of 22 February 1990, OJ L 58, 
7.3.1990. 
(6) Article 998 of the general budget for the financial year 1990, 
OJL 24, 29.1.1990. 
(7) OJ L 239, 3.9.1990. 
(8) OJ C 122, 18.5.1990. Table 11.1 — Aid to countries in Eastern Europe 1989 
(Mio ECU) 
Item 
9500 
9560 
9900 
9910 Heading 
Aid to disaster victims in de­
veloping and other third coun­
tries 
Humanitarian operations 
(other than emergency aid) for 
third countries 
Operations under commercial 
and economic agreements with 
third countries 
Community aid for the private 
agricultural sector in Poland 
Total Commitments 
0,4 
4,0 
0,7 
2,0 
7,1 
(j) emergency food aid to Poland in 1990, the total costs 
amounting to about 28,8 Mio ECU, in continuation 
of the food aid given in 1989 (9); 
(k) emergency food aid to Romania in 1990, the total 
costs amounting to about 40 Mio ECU and the 
proceeds from the sales in Romania to be deposited in 
a special account pending a decision on their use (10). 
(1) emergency measures for Romania in the field of 
health and in order to provide emergency food 
supplies, amounting to a total of 11,12 Mio ECU and 
chargeable to the 1990 budget (u). 
11.5. From the foregoing, it will appear that decisions as 
to a variety of important measures regarding Community 
support to the countries of Central and Eastern Europe 
have been taken since the middle of 1989. During the first 
half of the financial year 1990, the implementation of the 
measures, with the exception of the food programmes, 
was still in the course of execution. 
(9) Council Regulation (EEC) No 457/90 of 22 February 1990, 
OJ L 48, 24.2.1990. 
(10) Council Regulation (EEC) No 282/90 of 23 January 1990, 
OJ L 31, 2.2.1990; Council Regulation (EEC) No 456/90 of 
22 February 1990, OJ L 48, 24.2.1990. 
(n) Commission Decisions of 22.12.89, 24.12.89 and 19.1.90. 
12. 12. 90 Official Journal of the European Communities 191 
OBSERVATIONS CONCERNING 
MONITORING AND CONTROL 
11.6. In the regulations and decisions concerning EC 
aid to the countries of Central and Eastern Europe there 
are either no provisions concerning management and 
control measures, or those that do exist are inadequate. 
This applies particularly to the use of the aid on the spot in 
the beneficiary countries. It was obviously because of the 
urgent nature of the measures that the Commission 
omitted to lay down any precise procedures on this point. 
However, since neither the details of the Financial 
Regulation that apply to the Member States of the 
European Communities nor the provisions that apply to 
the developing countries cover the question of control, 
appropriate rules must be laid down. 
11.7. At the time, neither the Council of Ministers nor 
the European Parliament noticed this point. In the mean 
time, however, the Parliament, in section 14 of the 
discharge resolution for the financial year 1988 (12), in 
fact called specifically for such rules to be included in 
agreements with non-member countries. 
11.8. It has called on the Commission to make the 
necessary approaches to the beneficiary countries, in 
order to enable the Court to audit the measures that have 
been taken already and to ensure that such rules are 
included in future regulations and decisions. 
OBSERVATIONS CONCERNING 
COUNTERPART FUNDS 
11.9. A counterpart fund has been established, based on 
the proceeds of the sales at market conditions of 
agricultural produce supplied to Poland on the basis of 
the Council Regulation of 24 July 1989. Through that 
fund, managed by the Polish Government and the 
Commission, specific programmes aimed at improving 
the structural situation of the Polish agricultural 
economy are to be financed. The applications for 
(12) OJ L 174, 7.7.1990. financial assistance submitted to the fund were still at the 
processing stage in April 1990 (13). 
11.10. As far as it was able at the time of the report, the 
Court tried to carry out an initial examination of the 
situation regarding aid to Poland. It was apparent that 
the Polish agencies had no previous experience of this 
type of mechanism. Nor were the banks which were 
handling the business in Poland equipped for operations 
of this type. The lack of a reliable accounting system, and 
the fact that in Poland several agencies are responsible for 
the use of the food aid supplied by the EC and for the 
transmission, allocation and subsequent use of the 
counterpart funds, led to delays in this area. The fact that 
the various agencies involved can thus hold up the 
counterpart funds needed by the final beneficiaries raises 
certain questions as to how efficient operations of this 
type are. 
11.11. On the other hand, it is possible to query whether 
the procedures applied by the European Communities so 
far, especially in the budgetary area, are suitable or 
intended to provide a joint response to unusual events and 
emergency situations of this type by all the institutions 
concerned. 
11.12. In the Court's opinion, there are problems of 
coordination amongst the various Western aid donors, 
and within the Commission as well. The Commission 
must ensure that the new unit responsible for coordi­
nation at Directorate-General I has sufficient resources 
and powers to do justice to its task, which is un­
questionably of vital importance if aid is to be provided 
efficiently and if the associated development is to be 
effective. 
11.13. The fact that there was no Commission Deleg­
ation in Poland meant that it was difficult to obtain 
information about the situation in Poland and carry out a 
proper analysis of requirements, which made cooperation 
difficult. The Commission is now establishing a Deleg­
ation in Warsaw. 
11.14. The Court will carry out a review of the 
utilization of counterpart funds in Poland in the second 
half of 1990. 
(13) According to information received (but as yet unverified) by 
the Court from the Polish authorities, the proceeds of the 
sales of food products supplied by the EEC, plus the interest 
earned, amounted on 18 April 1990 to 462 813 Mio Zloty 
(about 40 Mio ECU). 
192 Official Journal of the European Communities 12. 12. 90 
CHAPTER 12 
Loans, borrowings and interest subsidies 
12.0. TABLE OF CONTENTS 
Introduction 
Summary of financial information 
Observations on the balance sheets and revenue and expenditure accounts for 
the NCI and Euratom mechanisms 
Audit of NCI loans in the Member States 
Observations on legality and sound financial management 
Audit of Community lending and borrowing activities Paragraph 
reference 
12.1 — 
12.4 — 
12.6 
12.7 — 
12.9 — 
12.9 — 12.3 
12.5 
12.8 
12.11 
12.11 
INTRODUCTION SUMMARY OF FINANCIAL 
INFORMATION 
12.1. Under the Treaties and other legislative provi­
sions, the Commission of the European Communities is 
empowered to contract borrowings in order to finance 
New Community Instrument (NCI) loans and European 
Atomic Energy Community loans. It enjoys similar 
powers in the case of European Coal and Steel Com­
munity (ECSC) loans and borrowings under the ECSC 
Treaty. The Court of Auditors produces a separate 
report (*) on these activities. 
12.2. As part of the annual budget procedure, the 
budgetary authority includes in the general budget the 
amount of interest subsidies relating to NCI loans and 
loans made by the EIB from its own resources for 
reconstruction measures in the regions of Greece and 
Italy affected by earthquake, and decides whether to 
include the budgetary guarantee for borrowing transac­
tions in the form of token entries. 12.4. Tables 12.1 and 12.2 provide a summary of the 
various borrowing and lending mechanisms and the 
changes in lendings and borrowings during the financial 
year 1989. Table 12.3 provides an analysis for 1989 of the 
budgetary utilization of interest subsidies on loans for 
reconstruction measures in the regions of Greece and 
Italy affected by earthquake. 
12.5. The total volume of lending and borrowing 
operations (including refinancing) is currently running at 
around 3 000 Mio ECU annually. On 31 December 1989 
current borrowing commitments amounted to a round 
total of 16 000 Mio ECU. 
OBSERVATIONS ON THE BALANCE 
SHEETS AND REVENUE AND 
EXPENDITURE ACCOUNTS FOR THE NCI 
AND EURATOM MECHANISMS 
12.3. The Community loans and borrowings are set out 
in the balance sheet of Community assets and liabilities. 
(!) Report (Annex to the 1989 ECSC annual report) on the 
accounting and financial management of the European Coal 
and Steel Community. 12.6. The Court examined the NCI and Euratom 
balance sheets as at 31 December 1989 and the revenue 
and expenditure accounts relating to the two mechanisms 
for the financial year 1989. The management of the 
accounting for that year did not call for any specific 
observations. 
12. 12. 90 Official Journal of the European Communities 193 
Table 12.1 — Principal characteristics of the systems employed in connection with NCI, Euratom, balance of payments, ECSC and EIB loans 
and interest subsidies for new investments, in particular those aimed at creating jobs, as at 31 December 1989 
System 
NCI 
NCI 
earthquake 
EIB 
earthquake 
Euratom 
Balance 
of 
payments 
EIB 
ECSC Legal base 
EEC Treaty 
Article 235; 
Council 
decisions; 
EC budget 
EEC Treaty 
Article 235; 
Council 
decisions; 
EC budget 
EEC Treaty 
Article 130; 
EIB Statute 
Council 
decisions; 
EC budget 
EAEC Treaty 
Article 172; 
Council 
decisions; 
EC budget 
EEC Treaty 
Article 235; 
Council 
Regulation; 
EC budget 
EEC Treaty 
Articles 129 
and 130; 
EIB Statute 
EEC Treaty 
Article 235; 
Council 
decision; 
EC budget 
ECSC Treaty 
Articles 54 
and 56 Source of 
Community borrowings 
contracted by the Commission 
on the financial market 
Commission budgetary 
appropriations 
Commission budgetary 
appropriations 
Community borrowings 
contracted by the Commission 
on the financial market 
Commission budgetary 
appropriations 
Commission budgetary 
appropriations 
EIB own resources 
Commission budgetary 
appropriations 
Community borrowings 
contracted by the Commission 
on the financial market 
Commission budgetary 
appropriations 
Community borrowings 
contracted by the Commission 
on the financial market 
Commission budgetary 
appropriations 
EIB own resources 
Commission budgetary 
appropriations 
Community borrowings 
contracted by the Commission 
on the financial market 
ECSC operating budget intervention 
Loan 
Budgetary guarantee 
Interest subsidy 
Loan 
Budgetary guarantee 
Interest subsidy 
Loan 
Interest subsidy 
Loan 
Budgetary guarantee 
Loan 
Budgetary guarantee 
Loan 
Interest subsidies 
Loan 
Interest subsidy Method of management 
The Commission decides whether 
projects qualify; loans are 
granted and managed by the EIB 
as the agent of the Commission 
and at the latter's risk 
Granted by the Commission, 
paid via the EIB 
The Commission decides whether 
projects qualify; loans are 
granted and managed by the EIB 
as the agent of the Commission 
and at the latter's risk 
Granted as part of the 
Commission decision on 
eligibility, paid via the EIB 
Commission opinion; 
EIB autonomy 
Granted by the Commission by 
way of an opinion; paid via the 
EIB (except for the Kalamata 
project: paid by the 
Commission) 
Loans are granted by the 
Commission and managed by the 
EIB under an agency agreement 
with the Commission 
Loans decisions are taken by the 
Council and the EMCF takes the 
necessary steps to see they are 
managed 
Commission opinion; 
EIB autonomy 
Granted by the Commission, 
paid via the EIB 
Granted and paid by the 
Commission 
Granted and paid by the 
Commission Quantity 
(Mio ECU) 
5 650 0) 
p.m. 
1 000 (2) 
1 000 (3) 
80(3) 
p.m. 
170 (4) 
1 000 (3) 
80(3) 
100 (4) 
130 (5) 
3 000 (•) 
p.m. 
16 000O 
p.m. 
47 672 (6) 
1 000 (2) 
6 727 (7) 
170 
p.a. 
(•) Ceiling set by the Council. 
(2) Interest subsidy on NCI and EIB loans for projects in Ireland and Italy, maximum 1 000 Mio ECU. Ceiling set by the Council and applicable to NCI and 
EIB loans. 
(3) Ceiling set by the Council for the whole operation. It also applies to NCI and EIB loans. 
(4) Interest subsidies for NCI and/or EIB loans. 
(5) Interest subsidies for EIB loans. 
(6) Loans outstanding, including 750 Mio ECU from EIB own resources under NCI IV. 
(7) Claims in respect of loans. 
194 Official Journal of the European Communities 12. 12. 90 
Table 12.2 — Borrowing and lending operations during the financial year 1989 
(Mio ECU) 
System 
Loans: 
NCI 
Euratom 
BP 
ECSC (3) 
Total loans 
Borrowings: 
NCI 
Euratom 
BP 
ECSC (3) 
Total borrowings Claims in respect of loans 
and borrowing commitments 
outstanding as at 31.12.1988 (•) 
At the ECU 
exchange 
rate of 
31.12.1988 
(a) At the ECU 
exchange 
rate of 
31.12.1989 
(b) 
4 775,6 4 711,2 
2 145,3 2 141,8 
2 108,7 2 075,3 
6 831,6 6 939,5 
15 861,2 15 867,8 
5 493,1 5 407,9 
2 164,0 2 150,5 
2 458,7 2 425,3 
6 727,4 6 744,4 
16 843,2 16 728,1 Operations carried 
out in 1989 (2) 
New loans 
or 
borrowings 
(c) Repayment 
or 
amortization 
(d) 
245,9 558,5 
— 204,5 
791,7(6) 812,1 
1 037,6 1 575,1 
521,5 (4) 828,1 
— 205,7 
— 350,0 
913,3 (5) 994,0 
1 434,8 2 377,8 Claims in 
respect of 
loans and 
borrowing 
commitments 
outstanding 
as at 
31.12.1989(2) 
(e) = (b)+(c)-(d) 
4 398,6 
1 937,3 
2 075,3 
6 919,1 
15 330,3 
5 101,3 
1 944,8 
2 075,3 
6 663,7 
15 785,1 
(') The difference between the figures in the two columns gives the amounts of exchange rates changes resulting from the revaluation. 
(2) At the ecu exchange rate of 31.12.1989. 
(3) See separate annual report by the Court. 
(4) Of which 353,9 Mio ECU for refinancing. 
(5) Of which 186,4 Mio ECU for refinancing. 
(6) Of which 91,6 Mio ECU from the writing-down of provisions for loans. 
Table 12.3 — Analysis of budgetary utilization of interest subsidies on loans for reconstruction measures in the regions affected by the Greek 
and Italian earthquakes (Articles 691, 692, 693) 
(Mio ECU) 
For the year 
As carry-overs from previous years 
Appropriations made available again 
Total C 
P 
C 
P 
C 
C 
P Initial 
budget 
(a) 
37,0 
37,0 
— 
— 
— 
37,0 
37,0 Final 
budget 
after SAB 
and transfer 
(b) 
28,4 
28,4 
— 
— 
— 
28,4 
28,4 Implemen­
tation 
(c) 
28,4 
26,6 
— 
— 
— 
28,4 
26,6 Rate of 
implemen­
tation 
of initial 
budget 
(d = c/a) 
76,8 
71,9 
— 
— 
— 
76,8 
71,9 Rate of 
implemen­
tation 
of final 
budget 
(e = c/b) 
100,0 
93,7 
— 
— 
— 
100,0 
93,7 
12. 12. 90 Official Journal of the European Communities 195 
AUDIT OF NCI LOANS IN THE 
MEMBER STATES 
12.7. As the Court noted in its annual report concerning 
the financial year 1988 (2), an agreement concerning 
procedures for the Court's on-the-spot audit of NCI 
lending operations was concluded between the Commis­
sion, the EIB and the Court in June 1989. 
12.8. The Court has to report that it has taken part in 
one audit by the EIB's audit committee and preparations 
for further audits of this kind are under way. 
OBSERVATIONS ON LEGALITY AND 
SOUND FINANCIAL MANAGEMENT 
Audit of Community lending and 
borrowing activities 
12.9. In 1988 and 1989 the Court of Auditors reviewed 
the management of Community lending and borrowing 
(2) Annual report concerning the financial year 1988, OJ C 312, 
12.12.1989, paragraphs 13.7-13.8. operations, paying particular attention to the soundness 
of the financial management and the effectiveness of these 
operations as well as the efficiency of this form of 
Community action. 
12.10. The Court's observations regarding borrowing 
activities were published in the annual report concerning 
the financial year 1988 (3). In addition, on 29 June 1990, 
the Court published a special report on ECSC, Euratom 
and NCI loans and borrowings of the Communities (4), 
which contained the Court's observations and findings 
regarding what are, essentially, the corresponding aspects 
on the lending side. 
12.11. The Commission has already taken certain steps 
on the basis of these two reports, and has agreed to adopt 
further measures, to make the existing regulations more 
transparent and more effective. The specific observations 
contained in the Court's special report have not been 
included here. Nevertheless, the Court wishes to draw the 
discharge authority's attention to the contents of its 
special report (4). It will continue its review of this area as 
part of the programme for the next annual report. 
(3) Annual report concerning the financial year 1988, para­
graphs 13.9-13.20. 
(4) OJC 160,29.6.1990. 
12. 12. 90 Official Journal of the European Communities 197 
PART TWO 
The European Development Funds 
TABLE OF CONTENTS 
Introduction 
Chapter 13 — Financial audit 
Chapter 14 — Examination of projects in Equatorial West Africa Paragraph 
reference 
1 
13.1 
14.1 6 
13.52 
14.31 
INTRODUCTION 
1. The Court is fully aware of the difficult context in 
which development aid is taking place, nevertheless the 
frequency with which it has had to draw attention in its 
annual reports to certain weaknesses in the adminis­
tration of the European Development Funds (EDF) 
illustrates the need for all concerned — the Commission, 
the Member States, Parliament and the beneficiary States 
— learning from past shortcomings, to renew their efforts 
to ensure the effective application of these limited aid 
resources. 3. Granted that there are many differences in the 
economic and social conditions of 69 far-flung countries 
in Africa, the Caribbean and the Pacific (2), and that there 
are few easy solutions to the innumerable difficulties 
which many developing countries have to face, develop­
ment aid could be significantly improved were the 
deficiencies in financial management identified by the 
Court to be rectified. 
4. In any one year the scope of the Court's audit work is 
limited by the resources available to the Court and 
therefore cannot cover the near world-wide extent of the 
European Development Funds' programme. Only a small 
number of beneficiary States can be visited and reported 
upon. Nevertheless, the problems encountered in the 
course of the 1989 audit and covered in this report exist 
elsewhere. 
2. This part of the annual report deals with economic 
cooperation with 66 African, Caribbean and Pacific 
(ACP) States financed, in accordance with the Lome 
Conventions (!), by the Member States outside the 
general budget of the European Communities. The 
Court's observations on financial and technical cooper­
ation with non-ACP States financed from the general 
budget of the European Communities will be found in 
Part one of this volume — Chapter 10 and in paragraphs 
1.96-1.97 of Chapter 1. In addition, in Chapter 2 of 
Part One the Court comments on the operation of 
preferential trading arrangements between the Com­
munity and Third World countries. 
(0 Fourth EDF, OJ L 25, 30.1.1976. 
Fifth EDF, OJ L 347, 22.12.1980. 
Sixth EDF, OJ L 86, 31.3.1986. 5. Bearing in mind that the United Nations target for 
development aid is 0,7 % of the GNP of the developed 
world and that the combined value of bilateral aid from 
Member States and the Community aid does not reach 
0,5 % (3) the utmost care is called for in the adminis­
tration of development aid. In the face of immense need, 
maximum efforts are required to avoid waste or 
inefficiency. 
(2) Three new countries will participate in the Fourth Lome 
Convention which was signed on 15 December 1989 (Haiti, 
Dominican Republic, Namibia). 
(3) 1989 OECD report on development cooperation in the 
1990s. 
198 Official Journal of the European Communities 12. 12. 90 
6. The Court is fully conscious of the considerable 
benefits which have accrued to ACP countries because of 
the devoted services of the Commission and delegations 
and the cooperation of beneficiary States in implementing the Lome Conventions. If positive steps are taken in 
response to the Court's observations and the related 
resolutions of the European Parliament the advantages to 
beneficiary countries can only increase. 
12. 12. 90 Official Journal of the European Communities 1^ 
CrIAPPER13 
^aaa^a^au^ 
130 ^ABL^COFC^CO^TF^T^ 
F^ecutionoftheEloF up to 31 December 1^^ 
Regularity of the accounting for commitments 
Approved estimates 
Advances 
Advances against contracts 
Advances against estimates 
Accounting practices 
Accounting for advances 
Payments made without prior commitments 
^ev^ procedure for semi^direct payments 
Availability of supporting documents 
Accounting corrections 
contract clauses and sound financial management 
contract currencies and payment currencies 
Price revisions 
L^nsuitability of the clause providing for payment ofa^O^advance 
under certain supply contracts 
Performance bonds 
Stabe^ Benin 
Financial statements 
Presentation of the authorizing officers'financial statements 
Balance sheet at31 December 1^ 
counterpart funds 
Rehabilitation and revival plan — counterpart funds 
Final observation Paragraph 
reference 
13.1 
13.5 
13.12 
13.14 
13.15 
13.17 
13.19 
13.19 
13.20 
13.21 
13.23 
13.24 
13.26 
13.26 
13.28 
13.32 
13.36 — 13.4 
— 13.11 
— 13.13 
— 13.18 
— 13.16 
— 13.18 
— 13.25 
13.22 
13.25 
13.38 
13.27 
13.31 
13.35 
13.38 
13.39 — 13.41 
13.45 
13.43 13.42 
13.42 
13.44 
13.45 
13.46 — 13.51 
13.52 
200 Official Journal of the European Communities 12. 12. 90 
EXECUTION OF THE EDF UP TO 
31 DECEMBER 1989 Taking account of the cancellation of commitments 
amounting to 9,4 Mio ECU for the fourth EDF and to 
30 Mio ECU for the fifth EDF, total net commitments in 
1989 reached 1 363,5 Mio ECU. 
13.1. Table 13.1 illustrates the utilization of the fourth, 
fifth and sixth EDFs at 31 December 1989. For the three 
Lome Conventions in operation new payments amounted 
to 1 297 Mio ECU in 1989, i.e.: 
(a) fourth EDF 32,2 Mio ECU; 13.2. Since there was little progress towards the 
completion of the fourth EDF in 1989, the Court repeats 
the recommendation it made in its 1988 annual report 
that the fourth EDF should be closed before the new 
Lome Convention enters into force. 
(b) fifth EDF 240,7 Mio ECU; 
(c) sixth EDF 1 024,1 Mio ECU. 13.3. In terms of cash disbursements the execution of 
the fifth EDF continues to slow down and the pace of 
disbursement is even slower than that experienced in 
relation to the fourth EDF: 79 % instead of 84,6 % after 
nine years. 
New primary commitments were: 
(a) fourth EDF 
(b) fifth EDF 9,8 Mio ECU; 
68,9 Mio ECU; 
(c) sixth EDF 1 324,2 Mio ECU. 13.4. In 1989, 1 024,1 Mio ECU were disbursed for the 
sixth EDF. This includes 338,2 Mio ECU for Stabex, 
98,7 Mio ECU for the special debt programme and 
133,4 Mio ECU for the sectorial import programmes. 
Accordingly, 55 % of the 1989 expenditure related to 
rapid disbursement instruments. At the same time the 
pace of disbursements for the classic type of aid projects 
slowed down to a rate even lower than the rates 
experienced with the fourth and fifth EDFs. At the end of 
Table 13.1 — Use of the fourth, fifth and sixth EDFs at 31 December 1989 
Resources and use 
Initial allocations 
Resources collected 
(including sundry resources and transfers) 
Resources still to be collected from the Member States 
Transfer of resources to other EDFs 
Net resources 
Payments prior to 1989 
1989 payments 
Commitment decisions still to be cleared 
Use 
Balance available for new uses Fourth EDF 
Lome I 
(Expiry: 
1980) 
3 150,0 
3 248,1 
— 
(68,6) 
3 179,5 
2 999,0 
32,2 
104,2 
3 135,4 
44,1 Fifth EDF 
Lome II 
(Expiry: 
1986) 
4 636,0 
4 950,0 (') 
— 
(165,3) 
4 784,7 (!) 
3 422,0 
240,7 
976,6 
4 639,3 
145,4 (Mio ECU) 
Sixth EDF 
Lome III 
(Expiry: 
1990) 
7 500,0 
1 246,3 (2) 
6 672,5 
— 
7 918,8 (2) 
1 277,0 
1 024,1 
3 685,0 
5 986,1 
1 932,7 
(') Of which 5,8 Mio ECU correspond to proceeds from resources of the fifth EDF which were not assigned to the allocation of one of the EDFs in the 
process of implementation at 31 December 1989. 
(2) Of which 3,2 Mio ECU correspond to proceeds from resources of the sixth EDF which were not assigned to the allocation of one of the EDFs in the 
process of implementation at 31 December 1989. 
12. 12. 90 Official Journal of the European Communities 201 
1989 the amount of programmable aid already disbursed 
for the sixth EDF was only 11,4%, excluding special 
import programmes. 
REGULARITY OF THE ACCOUNTING 
FOR COMMITMENTS 0 
13.5. According to Article 18 of the Financial Regu­
lation applicable to the sixth EDF, 'proposals for 
commitments accompanied by the supporting documents 
shall be transmitted to the Financial Controller ... They 
shall be registered by the authorizing officer after 
approval by the Financial Controller'. 
13.6. In practice, however, the commitments are 
systematically dated in the authorizing departments' 
accounts earlier than the date of approval by the 
Financial Controller. This should be looked at in 
conjunction with the following findings, which result 
from an examination of the Commission's files. 
13.7. All contracts concluded and estimates drawn up 
are submitted to the Financial Controller for approval 
only after they have been signed, i.e. made binding. While, 
in view of the widespread geographical nature of EDF 
operations, it is easy to see why the drafts of contracts and 
cost estimates cannot be systematically submitted for the 
Financial Controller's approval, it is nevertheless de­
sirable for the latter to be in a position to decide, in full 
knowledge of the facts, each time there is a derogation 
from the standard general conditions of contract set out 
in the EDF's various specifications. In this respect, the 
scope for derogations should be clearly defined and all of 
them should be justified. 
13.8. It happens that a single commitment covers 
payments made in respect of several contracts or 
estimates, and as a consequence the operations made in 
respect of each contract or estimate cannot be traced in 
the accounts. 
13.9. Very often the amount of the secondary commit­
ments includes a margin above the value of the contract 
amount for a given operation. This practice involves a 
dual risk: 
(a) appropriations may be blocked for no justifiable 
reason; 
(*) Signed agreements correspond to primary commitments in 
the Commission's accounts, whereas contracts and es­
timates made and showing the contractual commitments are 
recorded as secondary commitments. (b) the appropriations thus committed may be used to 
cover expenses outside the authorized contractual 
provisions. 
In order to obviate these risks, the accounting commit­
ments should be strictly limited to the ECU value of the 
contract sums. When necessary they should then be 
updated in order to take account of exchange-rate 
fluctuations and justified price variations. Such a method 
would be more in line with the EDF's Financial 
Regulation and it would give a more faithful reflection of 
reality. 
13.10. Finally, many commitments remain open even 
though all the related contractual services were per­
formed and paid for several years previously. The non-
utilized balances in respect of such commitments may 
amount to significant sums for a single operation, e.g.: 
(Mio ECU) 
Outstanding commitment 
(a) Caribbean Community (Caricom) 
technical assistance 
(fifth EDF — 0,65 Mio ECU) 0,6 
(b) commercial promotion 
(fourth EDF — 3 Mio ECU) 1,3 
(c) foot-and-mouth disease regional control study 
(fourth EDF — 0,45 Mio ECU) 0,2 
(d) oil palm project 
(Congo — 3,2 Mio ECU) 2,8 
13.11. In its replies to the Court's annual report 
concerning the financial year 1988, paragraph 17, the 
Commission stated that a new manual of financial 
procedures was currently being prepared. The Court 
considers that the Commission should not delay any 
further in establishing firm rules that are both consistent 
and clear especially in respect of the accounting for 
commitments. 
APPROVED ESTIMATES 
13.12. An approved estimate is the contractual docu­
ment on the basis of which a public entity in an ACP State 
provides direct labour for an EDF project, using its own 
employees, staff recruited by it and supplies bought by it. 
In many cases the amount of the estimate is finally 
adopted on the basis of a forecast of the means to be 
utilized (labour, raw materials, spare parts, fixed costs for 
using equipment). Many estimates in fact amount to 
support for the country's administration or quasi-public 
structures without guaranteeing the effectiveness of the 
202 Official Journal of the European Communities l^.l^o 
services rendered, ^ince the sums paid out forasingle 
projectoftenamounttose^eralmillionEC^lls,itwouldbe 
desirablefor reimbursements of expenditure in respect of 
estimates to be justified not only by statements and 
documentary evidence in respect of the means deployed 
but also by precise certification in respect of the services 
rendered ^quantity and natures as in the case of work 
contracts, i.e. other than by the imprest holder himself. 
1^.1^. The CAourt has noted in several instances cases 
^here estimates ^ere not approved until long after the 
commencement date of the related projects. It is of the 
opinion thattheC^ommissionser^icesshouldnotagree to 
apply estimates retroactively because of the risk of 
financing ordinary running costs of public bodies 
irrespective ofwork done on particular operations. Any 
estimateco^eringasetperiod should gi^e rise toaspecific 
and distinct commitment in the C^ommission^saccounts 
so that each account would co^er solely those payments 
relatingtoit^suchanaccountingprocedure^ould greatly 
facilitate the task of monitoring the implementation of 
theestimateandtheclearanceofthead^ancesauthorized 
^see paragraph 111^ below^. 
AL^VA^^S 
10.14. An examination of the PL^Fs accounting 
operations repeals that t^o main categories of advances 
granted in respect of the implementation of community 
aid call for observations^ 
^ad^ances paid to contractors in accordance ^ith the 
various general conditions of contracts 
(b) advances granted to imprest account administrators 
responsible for carrying out the work stipulated in the 
estimates. 
Advances against contracts 
13.15. In accordance with the general conditions of 
contract by which they are bound, the successful 
applicants for supply contracts, construction works 
contracts or service contracts may be paid advances, the 
amounts of which vary according to the nature of the 
contract concluded. However, in a certain number of cases, advances exceeding the amount stipulated in the 
general conditions of contract (GCC) were granted. All 
departures from the letter of the general conditions of 
contract ought to be specifically justified. 
l^.lo. Whatever the reasons for not insisting on 
obtainingguaranteesinrespect of advances paid to public 
bodies, or international organizations, advances to 
private operators should only be paid after a bank 
guaranteehas beenlodged. TheCAourfsexamination 
repealed that 10 advances on contracts amounting toa 
total of^7^iioPC^C^had been grantedintheabsenceof 
bank guarantees. 
^^^^^^^^^^^^^^ 
1^.17. Asaproject for^hichanestimatehasbeen 
approved is executed, an advance payment is made to the 
administrator of the imprest account to enable him to 
meet the projects expenses.Subsequently,the imprest 
holder shall request replenishment by the commission of 
the amounts paid by him. In practice, the C^ourt noted 
that on several occasions the procedures for reconstitute 
ingtheinitialad^ance had beenignored,tosuchan extent 
thatsomeadministratorsof advance fundsended up ^ith 
advances ^hich ^ere much higher than the amount 
initially authorized. In certain cases, advances ^ere not 
entered as such in the accounts by the commission. 
13.18. As regards estimates for work implemented in 
successive phases, new advances were granted without 
previous advances having been cleared, and in certain 
cases commitments were closed although some advances 
had still to be justified. Thus, in the case of the sample of 
payments examined, the use that had been made of 
advances totalling 4,3 Mio ECU had still to be justified. 
ACCOUNTING PRACTICES 
Accounting for advances 
13.19. Any advance paid to a contractor even in the case 
of supply contracts should be systematically entered in 
the Commission's accounts as such, so as to make it 
possible to monitor the clearance of the advance and 
guarantee. In this respect, out of the 170 projects 
12. 12. 90 Official Journal of the European Communities 203 
examined, 47 advances totalling 22,4 Mio ECU were not 
entered in the Commission's accounts as such. 
Payments made without prior commitments 
13.20. Administrative delays on the part of the Deleg­
ations as well as on the part of the authorizing 
department, are factors that explain the frequency with 
which payments are made in the absence of a commitment 
authorized beforehand by the Financial Controller. The 
sample of payments examined by the Court revealed that 
80 payment orders totalling 22 Mio ECU had been 
effected without compliance with Articles 18,25 and 27 of 
the Financial Regulation applicable to the sixth EDF. 
The two main ones were the following: 
(a) in mid-October 1988, almost 11,5 Mio ECU were 
paid from the Senegalese paying agent's account, but 
the Financial Controller's approval was not obtained 
until the beginning of December 1988; 
(b) in mid-March 1989,1,9 Mio ECU were paid from the 
Kenyan paying agent's account although the commit­
ment had not been approved by the Financial 
Controller and was not in fact approved until the end 
of the financial year 1989. The amount actually 
owing, moreover, only amounted to 1,69 Mio ECU. 
The other payments did not solely concern operations in 
respect of which the central departments had given a 
general agreement for well-identified projects. For 
example two operations were not finally assigned to 
projects until several months after they had been carried 
out locally with the delegation's agreement. Such findings 
call into question the supervisory and control activities 
carried out vis-a-vis the delegations. 
New procedure for semi-direct payments 
13.21. In the 1988 annual report (2) the Court made 
known its reservations in respect of the new procedure for 
so-called semi-direct payments introduced in certain ACP 
States. The Court has not yet been informed of the 
Commission's evaluation of the new procedure. 
(2) Part Two, paragraphs 15 and 16. The two special features of 
the new semi-direct payment procedure are: 
(a) direct access to Commission bank accounts in Europe by 
the national authorizing officer of the ACP State, and 
(b) no a priori intervention of Financial Controller i.e. visa 
is only given a posteriori. Moreover, the instructions relating to the procedures for 
implementing these semi-direct payments have not yet 
been sent to the Court although Article 14 of the 
Financial Regulation applicable to the sixth EDF 
stipulates that the Commission shall forward (to the 
Court) any rules of procedure drawn up by it in respect of 
financial matters. 
13.22. On the evidence of an examination of a 
significant sample of payments effected in accordance 
with this new procedure, it was noted that: 
(a) over a quarter of the payments concerned were 
entered in the accounts without having been submit­
ted to the Financial Controller for a posteriori 
approval; 
(b) the use of this procedure made it possible to effect 
payments before the Financial Controller had 
approved the related commitments; 
(c) final payments in respect of contract balances were 
effected according to this procedure, before checks 
could be made that all the payments had been settled 
accurately; 
(d) one advance (99 000 ECU) covering 60 % of a 
supplies contract was authorized and paid twice i.e. 
from the central departments and the ACP State 
(Zaire); 
(e) one payment of 74 696,98 ECU effected in accord­
ance with this new procedure was incorrectly 
calculated and paid as interest on late payment on the 
basis of the Zaire interest rates, which varied between 
21 and 34,5 %, whereas the payments had been made 
in Belgian francs. 
In view of the above findings, the Court maintains its 
reservations in respect of the widespread use of semi-
direct payments given the present inadequacies of the 
accounting and internal control systems within the 
Commission. 
Availability of supporting documents 
13.23. In spite of the Court's observations in its last two 
annual reports and the Commission's responses, the 
Court regrets that the operations continue to be executed 
in the absence of essential supporting documents. It 
wishes to draw attention to the necessity for every project 
file (other than those dealt with by decentralized agencies) 
in the authorizing officers' departments to contain all the 
contracts and related documents and provisions with 
financial consequences. All payments should also be 
accompanied by supporting documents, statements and 
records or invoices detailing the nature, quantity and unit 
prices of the goods or services. 
204 Official Journal of the European Communities 12. 12. 90 
Accounting corrections 
13.24. The EDF's accounts contain an excessive 
number of corrective entries (about 1 570 out of a total of 
15 686 in 1989). This error rate of 10 % reflects the lack of 
precise accounting instructions and the inadequacy of the 
programmed validation checks within the Commission's 
computerized accounting system. 
13.25. The vast majority of the accounting corrections 
are processed without the approval of the Financial 
Controller. The Court considers that accounting correc­
tions should be subject to the prior approval of the 
Financial Controller, and comply with the provisions of 
Article 27 of the Financial Regulation applicable to the 
sixth EDF. 
CONTRACT CLAUSES AND SOUND 
FINANCIAL MANAGEMENT 
Contract currencies and payment currencies 
13.26. The provisions of Article 48 of the Financial 
Regulation applicable to the sixth EDF aims, subject to 
various conditions depending on the contracts concerned, 
to protect contractors against exchange risks. This is done 
by the adoption of a fixed conversion rate for payments in 
non-local currencies relating to construction works 
contracts and technical assistance contracts in so far as 
services and supplies originate outside the country 
receiving the aid. This, of course, must be properly 
justified. The part which is paid in local currency 
purchased by the local paying agent with the EEC 
currencies supplied by the EDF guarantees an inflow of 
foreign exchange for the recipient State. According to 
Article 227(2) of the Third Lome Convention such 
assessement is made by the national authorizing officers 
in close collaboration with the Commission's delegate. 
13.27. During its audit, the Court noted numerous cases 
of non-compliance with the regulations. These can be 
summarized as follows: 
(a) rates not foreseen in contracts for the currency of 
payment were used to pay contractors in European 
currencies thus distorting the ECU costs of the operations. For example, in some instances exchange 
losses for the EDF were about 1 % of the payment 
concerned; 
(b) in most cases, the parts payable in local currencies are 
not subject to realistic assessments. For example, 
numerous infrastructure contracts provide for local 
payments of less than 10 %. Moreover, the con­
tractual proportions payable in stipulated currencies 
are not always respected; 
(c) in one case, a project was overcharged by an amount 
of 148 000 ECU (Somalia) as a consequence of the 
incorrect use of the ECU as the contract currency. 
Price revisions 
13.28. The sample of transactions examined by the 
Court revealed weaknesses in regard to the treatment of 
price revisions under three headings, principally: ad­
vances, flat-rate revisions and documentary evidence. 
These lead to the comments outlined in the following 
paragraphs. 
13.29. Advances granted to contractors should be 
excluded from any subsequent price revisions according 
to the general conditions of contracts, in order to ensure 
that contractors do not benefit from undue advantages. 
13.30. No price variation clause should be applied 
either automatically or on a flat-rate basis. All variations 
should be based exclusively on elements linked to the 
services provided under the contract and which can be 
checked. In particular, the base prices and their reference 
indices should be included in the Commission's files. 
13.31. Supporting documents for all price revisions 
should include all the necessary references and explicit 
calculations regarding the amounts of the revisions so 
that the necessary checks can be effectively carried out by 
the authorizing officer. In numerous cases, price revisions 
were accepted without any check whatsoever but simply 
on the basis of a certificate from the contracting engineer. 
For example, in one port construction project (Mozam­
bique) the acceptance of price revisions led to an ECU 
cost increase of over 110 % for cement and galvanized 
steel over two years (April 1987 to March 1989). 
Moreover, under the same contract, on the basis of the 
contractual conversion rate, the contractor received in 
ECUs 95 % of the price revisions linked to the increase in 
local labour costs, although that increase was very largely 
due to the depreciation of the local currency. Sums due by 
way of price revisions in respect of the local costs should 
be paid exclusively in local currency, to avoid the 
12. 12. 90 Official Journal of the European Communities 205 
contractor benefiting from windfall profits arising out of 
the combination of price variation and exchange-rate 
guarantee clauses. In this case the Commission should 
take action to avoid overcharges on the EDF arising from 
the combined effects of price revisions and exchange-rate 
guarantees. 
Unsuitability of the clause providing 
for payment of a 60 % advance under 
certain supply contracts 
13.32. While the provision in the general conditions for 
supply contracts laying down payment of a 60 % advance 
to the successful bidder is appropriate for most cases, 
there are cases as indicated in the following paragraphs 
where these conditions are not appropriate. 
Framework contracts 
13.33. In the context of rehabilitation projects, con­
tracts are made by private treaty with suppliers for 
deliveries of spare parts over a period of up to four years. 
The prices charged are those of the supplier's public price-
lists at the date of delivery without any rebate. On the 
basis of the estimated contract charge, a 60 % advance is 
paid to the contractor on presentation of a bank 
guarantee. The contract, at the same time allows the 
supplier to substitute a new price list at any time during 
the contract period. This bestows on the contractor the 
double benefit of the payment of a substantial advance 
and of price protection. Advances should be limited to 
firm orders. 
Sugar and petroleum products 
13.34. With regard to the supply of petroleum products 
the payment of an advance equivalent to 60 % of the 
estimated total amount of the contract entails advance 
disbursements of several million ECUs whereas delivery 
will take place several months later. Unnecessary 
advances represent a loss of financial earnings. As the 
EDF normally pays the spot price on the date of loading 
there is no justification for the prefinancing of the trader. 
Tendering procedures confined to transport costs have 
little effect on the price obtained by the Commission. 13.35. Where sugar supplies contracts are concerned, 
the practice of paying an advance equivalent to 60 % of 
the amount of the contract ought also to be reconsidered, 
in view of the fact that the successful tenderer can cover 
himself on the forward markets for this product whilst 
committing sums that are considerably less than the value 
of the advance received. 
Performance bonds 
13.36. Performance bonds are a guarantee which can be 
called upon if a contractor defaults. This ensures that all 
work is carried out in accordance with specifications. 
Therefore, the lodging of a performance bond should take 
place prior to the first payment as foreseen by the general 
conditions of contracts. 
13.37. The Commission should check the existence in 
good time and the adequacy of performance bonds. In 
particular it should see that they are: 
(a) available prior to the first payment; 
(b) of a sufficient amount; 
(c) covering the whole work execution and the sub­
sequent guarantee period; and 
(d) sufficiently precise to be effective. 
In addition, every care should be taken to provide for 
their possible extension, so as to avoid cases such as that 
encountered in Senegal, when a performance bond for 
more than 0,5 Mio ECU expired even though inadequate 
work had already been observed. 
13.38. While the general conditions of contract of the 
EDF provide only for the lodging of a performance bond 
for works contracts, the risks incurred under certain 
supply contracts would also justify requiring a security of 
this kind. An adequate performance bond would have 
avoided the situation in Mali, where a sugar contractor 
had his contract rescinded with the consent of the 
national authorizing officer after having had the benefit 
of an advance of 2 Mio ECU for three months. In the 
event, less sugar was finally purchased from another 
trader at a price per tonne some 35 % higher than the 
original agreed price. 
206 Official Journal of the European Communities 12. 12. 90 
STABEX BENIN 
13.39. In July 1988, at the request of the Commission, 
the Benin authorities opened a double signature account 
(national authorizing officer and Commission delegate) 
with the Banque commerciale du Benin (BCB) in which 
the Community Stabex transfers were to be deposited. In 
August 1988, the Commission paid into the account 
around 7 Mio ECU, corresponding to three transfer 
decisions. Some days later, the funds were drawn without 
the signature of the Commission delegate. 
13.40. When, in late January 1989, the delegate was 
finally informed of this he immediately approached the 
national authorizing officer to seek explanation and 
obtain reimbursement. On 16 February 1989, the BCB 
informed the delegate that the special Stabex account now 
showed a credit balance of 2 425 Mio FCFA (6,857 Mio 
ECU) (3). However, as the bank was insolvent (4), the 
funds could neither be transferred to another financial 
institution (e.g. Banque centrale des Etats de l'Afrique de 
l'ouest — BCEAO) nor be used to settle current claims. 
EDF monies were thus reduced to a simple accounting 
entry in the bank's books. 
13.41. The Commission subsequently agreed to assign 
the funds in the bank's books to the discharge of the debts 
owed by State-owned companies to the BCB (5). Thus 
debts from public corporations were replaced in the 
bank's books by a new irrecoverable debt. Until the funds 
are deposited with a solvent financial establishment, the 
real contribution to the Benin economy of the 7 Mio ECU 
of Stabex transfers must be considered to be doubtful or 
even non-existent. 
FINANCIAL STATEMENTS 
Presentation of the authorizing officers' 
financial statements 
13.42. The present layout of the authorizing officers' 
accounts does not provide clear and concise information 
(3) Accounting rate March 1989 = 353,64. 
(4) Decision of the People's Tribunal of Cotonou of 11.7.1989 
declaring insolvency as from 28.2.1989. 
(5) 2 000 Mio FCFA (5,7 Mio ECU) to the benefit of the 
Societe nationale pour 1'industrie des corps gras (Sonicog); 
425 Mio FCFA (1,2 Mio ECU) to the benefit of the Societe 
nationale pour les produits agricoles (Sonapra). with regard to important elements affecting the execution 
of the EDF. These elements are: 
(a) the initial allocation for each EDF broken down in 
accordance with the various aid instruments; 
(b) the successive changes made, during the course of 
execution, to each instrument; 
(c) the revenue collected, according to origin and 
indication of its final allocation; 
(d) the final allocations at 31 December setting out the 
degree of execution of the EDF for each aid 
instrument. 
13.43. Regarding the sixth EDF particularly, the 
statements as presented for the year 1989 do not indicate 
the amount of the sectorial import programmes financed 
under Article 188(1) of the Third Lome Convention even 
though the commitment decisions and the payments 
effected exceed 350 and 200 Mio ECU respectively over 
and above the 307 Mio ECU of the special debt 
programme. The Court considers that the financial 
statements should include sufficient information to allow 
the budgetary authority to reach a conclusion regarding 
the way in which each instrument of financial and 
technical cooperation is used. 
Balance sheet at 31 December 1989 
13.44. This end-year balance sheet shows that a 
considerable effort has been made to include in the 
financial accounts all operations carried out up to 31 
December. However, there are still certain gaps, par­
ticularly in regard to the accounting for receipts, the 
identification of the latest expenditure carried out 
through certain bank accounts and the counterpart funds 
arising out of the various types of EDF aid. The clearance 
of expenditure already effected has not been improved 
either, the amount involved being 67,2 Mio ECU at 31 
December 1989. In this regard the Court notes that 105 
operations amounting to 4,6 Mio ECU effected before 1 
January 1989 (6) had not yet been cleared by 31 December 
1989. Of the total number of transactions in suspense 
40 % related to seven ACP countries only (7). The 
Delegations and the authorizing services of the Commis­
sion should be mindful of the need for the rapid and 
complete clearance of expenditure. 
(6) Annual report 1988, Part Two — paragraph 38 (b) — also 
refers to this problem, OJ C 312, 12.12.1989. 
(7) Kenya, Swaziland, Guinea Conakry, Burkina Faso, Benin, 
Zimbabwe, Niger. 
12. 12. 90 Official Journal of the European Communities 207 
Counterpart funds 13.48. The counterpart funds were specifically to come 
from: 
13.45. About 350 Mio ECU was disbursed for the 
importation and special debt programmes by the end of 
1989. An important feature of this aid is that counterpart 
funds (the local currency equivalent of the ECU 
denominated aid) should be established and used for 
development aid by the beneficiary country. In this 
context it is for the delegations to ensure that the funds are 
established and used as foreseen. However, the Court has 
been unable to get complete and reliable information 
regarding counterpart funds from the Commission. 
Given the amounts involved the Court considers that the 
budget authority should receive, along with the annual 
EDF balance sheets, information in respect of each 
beneficiary country, regarding the establishment of the 
counterpart funds, their use, and the amounts remaining 
available at the end of the financial year. (a) in Ethiopia: 
a programme for the transport 
and distribution of fertilizers 
(b) in Mauritania: 
the sale of agricultural inputs 
(c) in Niger: 
(i) rice marketing 
(ii) the sale on credit of cattle 
(d) in Sudan: 
the institution of 
a system of agricultural credit (Mio ECU) 
2,5 
0,5 
2,0 
0,4 
1A 
7,0 
REHABILITATION AND REVIVAL PLAN 
COUNTERPART FUNDS 13.49. In Ethiopia (2,5 Mio ECU), no checks on the 
counterpart funds were organized. The Ethiopian 
authorities considered that the funds initially paid over 
were meant simply to cover the cost of the transport of the 
fertilizers. No moves to account for the counterpart funds 
were made subsequently. Closer follow-up by the 
delegation would have allowed the situation to be 
rectified in time. In Mauritania, there are no indications 
that specific accounts were kept for the counterpart 
funds, and the delegation was not given any information 
in this respect. Moreover, it appears doubtful whether 
there were any real possibilities of creating counterpart 
funds there. The Court found that: 
13.46. The Rehabilitation and Revival Plan (RRP) to 
assist 10 African countries which suffered worst from 
drought in 1984 and 1985 took effect from January 1986. 
The beneficiary countries were Ethiopia, Mali, Maurit­
ania, Niger, Sudan, Chad, Botswana, Burkina Faso, 
Cape Verde and Somalia. The plan was funded to the 
extent of 75 Mio ECU from the fourth EDF and, to the 
extent of 25 Mio ECU from the fifth EDF. 
13.47. The Court's examination covered the operations 
in favour of Ethiopia, Mauritania, Sudan, Chad, Niger 
and Mali involving a total of 96,4 Mio ECU. Visits were 
made to the first four of these countries. While the 
objectives of the plan were to a large extent, if belatedly, 
achieved, the Court observed a number of deficiencies in 
the operation of the plan and is discussing these with the 
Commission. The Court at this stage wishes to draw 
attention to the situation concerning counterpart funds. (a) the management of the agricultural input stocks left 
much to be desired, due to precarious storage 
conditions, which exposed the fertilizers to harden­
ing, and because the quantities being held in stock 
represented around five years' use; 
(b) the prices at which seeds were sold were between 10 
and 35 % below cost price because of the system of 
subsidies to farmers in force in the country. 
13.50. In both cases, it was clear that the value of 
counterpart funds would diminish rapidly. In Niger, for 
rice marketing support (2,0 Mio ECU), any notion of 
keeping separate accounts for the counterpart funds, into 
which the proceeds of sales would be paid as they took 
place, was illusory, due to the interchangeable nature of 
the commodities delivered. In such a case, it would have 
been preferable to ask for funds to be deposited according 
to a pre-established timetable and to require certified 
accounts to be forwarded from the marketing office. No 
information has been provided on sales of cattle in Niger 
since the technical assistance left in November 1987. Only 
in Sudan (1,6 Mio ECU) was it possible to establish the 
precise situation of the counterpart funds. 
^ Coftieialiournal of the European communities 1^1^^ 
13.^1. The difticulties in following up the counterpart 
funds under the R^.P are due to the ambiguous attitude 
adopted by the commission and the lack of instructions 
to the delegations in this respect. The funds were granted 
suhjectto acceptance bytherecipientsofstrictconditions 
of supervisions but in practiced both the central departs 
ments and the commission delegations have not in all 
cases carried out rigorousfollow^up of the establishment 
and use of counterpart funds.With the multiplication of 
thesefunds generated bv community aid ^food aid^ 
sectoral import programmes^ specialdebt programmed 
supplies andprocurementinthe content of traditional 
pro^ects^ it is time thataclear and realistic policvon 
counterpart funds was drawn up by the community and 
strictlv implemented by the commission. 
PH^ALOBSERVAPTC^ 
13.eo^. Inordertoeliminatesomeoftheaccountingand 
internal control shortcomings described in this chapter 
the C^ourt recommends that the following measures be 
undertaken bv the commissions 
^ the moditication of internal procedures so that the 
Financial C^ontrollercanfully and effectively exercise 
his statutory function particularly before contracts are signed^ before paymentsare made and before anv 
corrections are entered in the accounts^ 
^theestablishmentofadetailedaccountinginstruction 
manualfortheC^ommission^scentralservicesandthe 
delegations covering^^^^^the accounting for 
secondary commitments and advances^ the mainten^ 
anceofcontractcards^thefollow-up of operations in 
suspense and the controls necessarv for the author­
ization and clearance of expenditures 
^ areview of the rules governing the levels of advances 
to be paid in relation to supplv contracts and 
approvedestimatesregardingwork and services to be 
executed by public or semi-public bodies in order to 
avoid that FiOF funds are unnecessarily blocked for 
the sole benefit of contractors^ 
^ the drawing-up and implementation ofaclear and 
realistic policy for counterpart funds^ 
^ the reorganization of the commissions services to 
provided tirstlv^ an effective separation of the 
functions carried out by the authorizing otHcer and 
the accounting ollicerand^secondlv^the establish­
ment of a management control unit within the 
Finance directorate oflOC^VIlL In paragraph 4t^ of 
thesecondpartofitsannualreportforl^^theC^ourt 
has alreadv drawn attention to the need foraclear 
separation of the roles of the authorizing otticer and 
accounting officer. 
12. 12. 90 Official Journal of the European Communities 209 
CHAPTER 14 
Examination of projects in Equatorial West Africa 
14.0. TABLE OF CONTENTS 
Introduction 
Preparation of measures 
Meeting beneficiaries' needs 
Profitability of agri-industrial projects 
Advantages of projects for beneficiary countries 
Commitment on the part of ACP beneficiaries 
Project execution 
Role and cost of technical assistance 
Payment of operating expenses 
Inspection of the use of funds 
Supervision of financial management by the Financial Controller 
Conclusion Paragraph 
reference 
14.1 
14.9 -
14.9 
14.12 
14.14 
14.16 
14.18 
14.18 
14.21 
14.24 
14.26 — 14.8 
- 14.17 
— 14.11 
— 14.13 
— 14.15 
— 14.17 
— 14.28 
— 14.20 
— 14.23 
— 14.25 
— 14.28 
14.29 — 14.31 
INTRODUCTION 
14.1. During 1989, the Court of Auditors examined 31 
development projects, in Equatorial West Africa (Benin, 
Congo, Gabon and Ghana), appropriations for which 
amounted to 276 Mio ECU. 
14.2. The Court's study revealed that, in general, when 
the projects concerned civil engineering works, the 
technical results were satisfactory and the Community 
was able to carry out regular monitoring of the 
implementation (e.g. Brazzaville port, the Dassa-Save 
highway in Benin, Takoradi port in Ghana and the Axim-
Elubo highway in Ghana). However, most of the 
beneficiary States experience great difficulties in ensuring 
minimum maintenance of their road network. In one 
extreme case, in the Congo, maintenance was virtually 
non-existent and there was very serious degradation of 
the main roads (see also paragraph 14.17). 
14.3. Big agri-industry projects (palm oil, forest 
products and rubber plantations) have experienced 
serious problems in their financial management. The problems have been heightened by competition from 
countries with efficient production in the Far East (see 
also paragraphs 14.12 and 14.13). 
14.4. The practical implementation of agricultural 
extension projects (e.g. stock farming and fish breeding) 
and rural credit projects have not always adequately met 
the local populations' needs and funds have, in some 
cases, been used to subsidize the running costs of 
supervisory administrations (see also paragraphs 14.11 
and 14.12). 
14.5. In Ghana, where 2,5 Mio ECU had been ear­
marked for operations to support structural adjustment 
(Pamscad programme), the authorities, two years after 
having submitted a plan of action (Geneva 1987) and 
despite the urgency of the situation, had not been able to 
begin carrying them out. 
14.6. While several project evaluations were made, in 
none of the four countries examined had an independent 
global assessment at programme level been carried put of 
development cooperation under the fifth EDF. One such 
assessment of the effects of European Community aid in 
Benin was, however, being prepared for the Commission 
210 Official Journal of the European Communities 12. 12. 90 
at the end of the financial year 1989 by an Italian 
consultancy firm. 
14.7. At the time of the Court's inspections, utilization 
of the appropriations of the sixth EDF was still low as 
illustrated as follows: 
(%) 
Secon­
dary (i) 
commit- Pay­
ments ments 
Congo (30 June 1989) 1,00 — 
Gabon (30 June 1989) 54,00 32,00 
Benin (30 September 1989) 28,00 11,00 
Ghana (30 September 1989) 11,90 8,60 
As can be seen, just over a year before the Third Lome 
Convention was due to expire and at a time when the 
Stabex funds had, for the most part, been used up, 
implementation of the programmable aid, with the 
exception of Gabon, had barely begun. 
14.8. Similar features were found to exist in each of 
these countries with regard to the implementation of 
Community development cooperation which could be 
said to be characteristic of this region of Africa. In the 
section which follows they are grouped under three 
headings: preparation of measures and project execution. 
PREPARATION OF MEASURES 
Meeting beneficiaries' needs 
14.9. The success of projects depends, in the final 
analysis, on how far they satisfy the beneficiaries' needs. 
It is therefore necessary to take steps to ensure that there 
are no misunderstandings between the beneficiaries and 
the Commission. On several occasions, the Commission 
has committed itself to rural development projects which 
have subsequently suffered serious delays in implemen­
tation or undergone a radical change of direction, or have 
(') See Chapter 13 Financial audit, footnote No 1. even been dropped by the promoters or beneficiaries. This 
was the case with the following projects (2): 
(a) Benin: 
(i) village water projects (4,5 Mio ECU); 
(ii) fish-farming (1,9 Mio ECU); 
(iii) wild-life parks (3,5 Mio ECU); 
(b) Ghana: 
(i) rural loans (8,8 Mio ECU); 
(ii) irrigation (4,8 Mio ECU); 
(iii) non-industrial fishing (6,0 Mio ECU); 
14.10. The fishing project in Ghana, for example, was 
seriously delayed because there was no proper survey of 
needs and there were no agreements in regard to 
implementation. In Benin village water installations were 
abandoned by the beneficiaries partly due to the 
ineffectiveness of the awareness campaign. In several 
cases, the combined pressure of government departments 
in the ACP beneficiaries and the Community budgetary 
authority which wanted to speed up the use of EDF 
appropriations forced the Commission to continue to 
support measures for which there was no great future. 
14.11. In many cases, an examination of the Com­
mission's files reveals a very low level of commitment on 
the part of the administrations in the ACP States at the 
preparatory stage of the projects, when they should, in 
fact, have been drawing the attention of the Commission 
to their needs and to the socio-economic characteristics of 
the sectors to which the Community aid was directed. As 
a result of this, ACP States did not fully discharge their 
responsibilities as required by the Lome Conventions (3). 
(2) Amounts mentioned throughout this chapter are, unless 
otherwise indicated, those of the EDF funding as provided 
under the related financing agreements. 
(3) Article 192(2)(c): 'The ACP States shall be responsible for 
preparing and presenting to the Community the dossiers of 
projects and programmes'. 
12. 12.90 Official Journal of the European Communities 211 
Profitability of agri-industrial projects 
14.12. The main object of the projects to create new 
agricultural or agri-industrial structures, is to achieve 
financially independent operation by the time EDF 
assistance ends. In this connection, the financing 
proposals put forward under Article 220 of the Third 
Lome Convention (also Article 113 of the Second Lome 
Convention) are sometimes too optimistic. Examination 
shows that, once the investment has been completed, the 
profitability and financial self-sufficiency of many of 
these projects are doubtful, if not non-existent. Under 
these conditions, EDF-financed investments can impose 
on the beneficiary States demands for subsidies, which 
have to be taken from the already extremely limited 
national budgetary resources. This phenomenon was 
encountered in the case of the following projects: 
(a) Benin: 
— fish-farming (1,9 Mio ECU); 
(b) Congo: 
— palm-oil production (19,2 Mio ECU); 
(c) Gabon: 
(i) industrialized rubber cultivation (3,6 Mio ECU); 
(ii) village rubber cultivation (2,3 Mio ECU); 
(iii)reafforestation (8,8 Mio ECU); 
(d) Ghana: 
(i) palm oil (8,8 Mio ECU); 
(ii) cattle rearing (3,2 Mio ECU); 
(iii) irrigation (4,8 Mio ECU). 
In Ghana several cases were noted where operating 
deficits were systematically covered by the counterpart 
funds engendered by other Community aid (food aid for 
example). 14.13. Before becoming involved in such projects, the 
Commission should satisfy itself that requests for 
assistance are based on realistic economic and market 
surveys. The viability of these projects would be 
reinforced if they were co-financed with genuine entre­
preneurs, with proven management skills. In the agri-
foodstuffs sector, closer liaison with the Centre for the 
Development of Industry (4) when examining projects 
would appear desirable. 
Advantages of projects for beneficiary 
countries 
14.14. When compared with their needs, the funding 
packages allocated to the ACP countries in the context of 
the agreed indicative programmes are, generally, very 
limited. Financing must therefore be targeted towards 
measures which have clear beneficial effects on develop­
ment. The intention of Lome Conventions is that 
financial cooperation should involve the majority of the 
population in the benefits of development. Nevertheless, 
the Community has spent considerable sums on studies 
and measures with limited impact on the population and 
the outcome of which, from the outset, was particularly 
uncertain: 
(a) Congo and Gabon: 
(i) mining research (8,8 Mio ECU); 
(ii) highway survey in Gabon (3,3 Mio ECU); 
(b) Ghana: 
(i) aid to the Tema food complex (2,0 Mio ECU); 
(ii) rural loans (8,8 Mio ECU). 
14.15. In the case of the survey of iron ore deposits in the 
Upper Ivindo basin (Congo and Gabon), the Commis­
sion allowed itself to be confronted with a fait accompli by 
the European Investment Bank (EIB). In a venture 
capital financing contract concluded with Gabon, the 
EIB had expressly provided for additional EDF contri­
butions in the form of subsidies and special loans, without 
obtaining the EDF Committee's prior approval and 
approximately two years ahead of the conclusion of the 
(4) Article 71, last paragraph, of the Third Lome Convention: 
'The Centre shall act in close cooperation with the ACP 
States, the Member States and also the Commission and the 
Bank within their respective areas of responsibility'. 
212 Official Journal of the European Communities 12. 12. 90 
financing agreements. At its 192nd meeting, the Com­
mittee was unable to give a favourable opinion, because 
the forecasts were unattractive, both from the technical 
point of view (high phosphorus content) and from the 
economic aspect (depressed market prices and difficult 
mining conditions). At the next meeting of the EDF 
Committee (September 1984), the question was, without 
prior notice, put back on the agenda. The earlier decision 
was rescinded and a favourable opinion was given. Most 
of the funds were, in effect, given to the Bureau de 
recherche geologique et miniere (BRGM) which was the 
projects' promoter. The survey did not produce any 
concrete results, but did finance some BRGM services for 
several years. Despite expenditure of 8,8 Mio ECU the 
actual benefit to the two ACP countries concerned 
appears extremely limited. 
Commitment on the part of ACP beneficiaries 
14.16. Article 185(d) of the Third Lome Convention 
stipulates that one of the objectives of financial cooper­
ation shall be to complement the efforts of the ACP States 
and remain in keeping with them. For this reason, most of 
the financing agreements set out the undertakings to be 
given by the beneficiary countries in order to ensure that 
projects and action programmes are properly im­
plemented. When governments fail to respect their 
undertakings, the result may be serious delays to projects, 
as well as the risk that the projects may deteriorate or be 
abandoned once the EDF's role has ceased. This was 
found to be the case with the following: 
(a) delays in project implementation in: 
(i) Benin: 
— cattle-rearing (6,2 Mio ECU); 
(ii) Congo and Gabon: 
— fishing in the Gulf of Guinea (6,7 Mio ECU); 
(iii) Ghana: 
— lending to small and medium-sized enter­
prises (2,9 Mio ECU); 
— rural loans (8,8 Mio ECU); (b) risks to viability of projects: 
(i) Benin: 
— inadequate entrance charges to wild-life 
parks and failure to open official hunting 
areas; 
(ii) Congo: 
— lack of maintenance on the Brazzaville 
drainage system; 
— failure to maintain the Kinkala-Boko road 
(see 14.17 below); 
(iii) Gabon: 
— insufficient State contributions, particularly 
for the construction of a plant for processing 
rubber from the rubber-cultivation projects. 
14.17. In Ghana the authorities were so slow in 
concluding the agreements for implementation of bank­
ing projects that the project for aid to small and medium-
sized enterprises was held up for five years. In the Congo 
the absence of maintenance on the EDF-financed 
Kinkala-Boko road accelerated and aggravated its 
deterioration. As a result it had to be completely rebuilt as 
part of the sixth EDF projects (EDF rural action 
programmes co-financed with Italy, 13 Mio ECU). Since 
it is known that some ACP States can have difficulties in 
honouring their undertakings, the Commission should be 
careful to ensure that adequate regulatory and adminis­
trative measures are taken before financing agreements 
are signed. It should also discourage the beneficiary 
authorities from signing undertakings that they are 
unable to fulfil. 
PROJECT EXECUTION 
Role and cost of technical assistance 
14.18. As regards project implementation, many 
finance agreements provide for the use of European 
12. 12. 90 Official Journal of the European Communities 213 
consultants, which send to the ACP beneficiary countries 
the trained personnel (engineers and managers) which 
they lack. These technical advisers either carry out 
support functions for a limited period or for extended 
periods at particular stages of a project. The beneficiary 
States select the technical advisers under a restricted 
procedure from a shortlist put forward by the Commis­
sion. Usually the technical advisers have a team of local 
staff who are then given practical training by the advisers. 
This is an important part of their function (Article 186(e) 
of the Third Lome Convention) (5). 
14.19. It was not possible to evaluate the technical 
assistance for the projects examined in Congo and 
Gabon, because some had been taken over by other 
sponsors as part of the co-financing (railway and palm-oil 
projects in the Congo and rubber cultivation and 
reafforestation in Gabon), and the other projects were 
still in the initial stages (rural development in the Congo 
and fishing in the Gulf of Guinea in Gabon). However, an 
examination of projects in Benin and Ghana revealed 
three recurring phenomena: 
(a) delays in implementation resulted in a significant 
increase in the cost of technical assistance: 
(i) non-industrial fishing in Ghana (+ 250 %); 
(ii) cattle-rearing in Ghana (+ 112 %); 
(iii) irrigation in Ghana (+ 53 %); 
(b) the service provided by some consultancies was 
inadequate, resulted in poor financial management, 
and even the abandonment of entire parts of projects 
in some cases: 
(i) in Benin: 
— wild-life parks (0,92 Mio ECU): inadequate 
financial management and de facto abandon­
ment of actions in W-park; 
(5) 'Technical assistance shall be provided upon request of the 
ACP State concerned, be of the highest quality but cost-
effective and include arrangements for the rapid training of 
local replacement personnel'. — fish-farming (0,76 Mio ECU): inadequate 
financial management and actions aban­
doned in Nokoue lake; 
— cattle-rearing (1,0Mio ECU): inadequate 
financial management and omission of num­
erous actions foreseen in the financing 
agreement; 
(ii) in Ghana: 
— rural loans (0,63 Mio ECU): long delayed 
tendering procedures added excessive costs 
for the project; 
— irrigation (0,93 Mio ECU): change of con­
sultant on the ground of poor performance 
and abandonment of 97 out of the 200 ha 
foreseen; 
(c) the technical advisers found it difficult to train local 
staff for their teams because the government depart­
ments concerned frequently transferred staff without 
notice. This happened in the following cases: 
(i) in Benin the same projects as in (b) above: 
wild-life parks; 
— fish-farming; 
— cattle-rearing; 
(ii) in Ghana: 
— aid for non-industrial fishing (1,4 Mio ECU); 
— rural loans (as in (b) above). 
14.20. These phenomena have two major consequences. 
Substantial EDF sums, paid out by way of development 
cooperation to firms outside the territories of the ACP 
States (e.g. to European consultants) must often be 
increased because of weaknesses in the administrations of 
the beneficiary governments concerned. Thus, even if 
they do receive technical assistance services, the ACP 
countries are unnecessarily deprived of certain monetary 
benefits. Furthermore, the amount of know-how trans­
mitted to local staff is considerably diminished by the 
action of the beneficiary governments themselves. The 
resultant inadequacies of local staff in turn prolong the 
214 Official Journal of the European Communities 12. 12. 90 
presence of technical advisers, reducing still further the 
financial impact of the aid to the ACP country. These 
various effects would probably be attenuated if the 
Community could make more use of local technical 
advisers, even if that were to result in simplification of the 
technical aspects of projects. An approach of this kind 
would also help to counteract the tendency, now found in 
most ACP countries, for members of the managerial and 
professional classes to emigrate. Article 209(3) of the 
Third Lome Convention in fact states that given equal 
competence preference shall be given to ACP States' 
experts, institutions or consultancy firms. 
Payment of operating expenses 
14.21. Article 188(2) of the Third Lome Convention (6) 
specifically prohibits the use of EDF funds to cover 
current administrative, maintenance and operating 
expenses, with only two exceptions: 
(a) certain types of start-up expenditure connected with 
the launching of capital projects; 
(b) temporarily and on a diminishing scale, expenditure 
intended to ensure that full use is made of capital 
projects. 
In both cases, the only measures eligible are back-up 
assistance covering operating costs. In no case must funds 
be used to cover general costs unrelated to direct 
operations. 
14.22. In practice, in the countries examined, it was 
frequently found that the EDF funds were being used to 
pay the running costs of government departments or 
semi-public bodies in conditions which did not fulfil the 
exemption rules laid down in the Lome Conventions. The 
following such cases were noted: 
(a) in Benin, fish breeding, wild-life parks, cattle 
breeding and village water supply projects; 
(b) in the Congo, palm-oil and rural development 
projects; 
(c) in Gabon, the rubber plantation project; 
(6) Article 93(4) of the Second Lome Convention. (d) in Ghana, palm-oil, cattle breeding and credit line 
projects. 
14.23. These practices are resorted to particularly when 
funds are granted to projects using a system of approved 
estimates accounts, partly because the Commission fails 
to properly monitor the settlement of advances. In 
addition, financing agreements may provide for dis­
proportionate overhead expenditure, compared with the 
rest of the funding, when projects are launched. For 
example, in the Congo, expenditure for the State's 
account and other general expenses on the co-financed 
Sanghapalm project amounted to 10,3 Mio ECU, 
compared with Community financing of 19,2 Mio ECU 
(i.e. 54 % of the Community financing). In Benin, the 
operating costs incurred by the Ministry for State Farms 
in the Province of Borgou were met in full by the EDF 
between 1986 and 1989 (1,5 Mio ECU). The tendency for 
such expenditure to be met by the EDF is often reinforced 
by structural adjustment policies implemented in the 
recipient countries, as a result of which government 
departments' operating expenditure is covered less and 
less satisfactorily by budgetary appropriations. Given 
this trend, and in the light of past experience, the 
Community should be particularly vigilant both when 
accepting financing proposals (EDF Committee) and 
when approving the budget of projects or when clearing 
expenditure (Commission delegations and central depart­
ments). 
Inspection of the use of funds 
14.24. Article 223 of the Third Lome Convention (7) 
lays down that spending overruns on the funds provided 
under the financing decisions shall be borne by the 
recipient ACP States. By analogy, expenditure which is 
not eligible under the financing agreements, along with 
assets which are inadequately safeguarded or left unused, 
should be treated in a similar way, especially as they are 
likely to involve the responsibility of the authorizing 
officer, under Article 39 of the sixth EDF Financial 
Regulation. 
14.25. In three out of the four countries examined, 
various cases were discovered in which the authorizing 
officer had approved expenditure which was fruitless or 
not provided for in the financing agreements or had failed 
to take the steps necessary to safeguard or to ensure the 
use of EDF financed assets. For example: 
(a) in Benin, 25 buildings (430 000 ECU) were con­
structed in connection with a wild-life parks' 
(7) Article 117 of the Second Lome Convention. 
12. 12. 90 Official Journal of the European Communities 215 
improvement project, whereas the financing proposal 
provided for only nine buildings; 
(b) in Benin (Borgou cattle-breeding project), the 
Parakou abbattoir, which was entirely financed with 
funds from the third EDF, has never been able to be 
used, because of design faults which require adjust­
ments to buildings and equipment that have never 
been made; 
(c) in the Congo, the disappearance of a vehicle at the end 
of a technical assistance mission, although it was 
supposed to be handed over for use by Brazzaville 
town hall; 
(d) in Ghana, the production of a film demonstrating 
fishing techniques which was never used (176 000 
ECU) and the failure to safeguard fishing material 
worth 683 500 ECU which was in the hands of a 
supplier who had severe problems of solvency; 
(e) in Ghana, an exchange loss of 126 000 ECU during 
the repatriation of 597 000 ECU which were in excess 
of requirements by 30 % because at the time of the 
initial transfer actual needs had not been adequately 
assessed and excess funds were unnecessarily con­
verted into local currency. 
Supervision of financial management by the 
Financial Controller 
14.26. Article 19 of the Financial Regulation applicable 
to the sixth EDF lays down that the Financial Controller 
must, for each new commitment, ensure that the 
principles of sound financial management have been 
applied (8). This is clearly difficult, mainly because of the 
large number of transactions carried out, added to which 
there is the geographical distance involved and the often 
piecemeal nature of the information available. Neverthe­
less, the inadequacies of financial practices are frequently 
obvious, and in these cases the Financial Controller has 
the duty to address the necessary observations to the 
authorizing officer. These observations are equally 
necessary when the Financial Controller intervenes a 
posteriori to approve transactions already carried out 
locally in the ACP countries. 
14.27. In practice, the authorizing officer's files showed 
a number of shortcomings without evidence that these 
had been questioned by the Financial Controller. For 
instance: 
(8) Article 18 of the Financial Regulation applicable to the fifth 
EDF;OJL 101, 11.4.1981. (a) in Benin, payments of around 320 000 ECU were 
made in connection with the fish-breeding project 
without the corresponding commitments having first 
been made; 
(b) in Gabon (Haut Ivindo) payments of 82,7 Mio FCFA 
(237 000 ECU) were made without the commitment 
having first been made; 
(c) in Gabon (regional fisheries project) contracts were 
concluded for 1,3 Mio ECU in connection with a 
financing agreement which cannot be implemented 
without ratification of an international agreement by 
the recipient States; 
(d) in Ghana, contrary to Article 47(1) of the Financial 
Regulation applicable to the fifth EDF a contract was 
denominated in US dollars, which caused an addi­
tional cost of 40 000 ECU; 
(e) in Ghana, 130 000 ECU were committed and paid 
into an imprest account, which was not subject to 
regular clearance procedures. 
14.28. As regards such shortcomings, the Financial 
Controller should adopt a rigorous approach and oblige 
the authorizing officers to improve their financial 
management. 
CONCLUSION 
14.29. In the four countries examined the Court noted 
that some project adjustments as well as difficulties in 
their implementation often involved additional costs. 
This points to the need for more incisive feasibility studies 
and for better coordination with the authorities in the 
beneficiary countries, especially with the services res­
ponsible for project management. 
14.30. As the cost of technical advisors is high it is 
important that the Commission should ensure that the 
services they provide are of the highest quality and that 
time is not wasted through administrative or logistical 
delays. In regard to the transfer of skills to local 
employees, technical assistance is rarely effective even 
though this is one of the reasons for engaging consultants 
in the first place. The more systematic use of consultants 
who are permanently based in the beneficiary country is 
likely to have a greater impact on the local economy. 
^ Ofticial journal of the European Communities 1^1^^ 
l^BouE ^ore rigorous tinancial management by the 
Commission would provide betteriritbrmationre^ardin^ 
the real le^el of advancement of the various projects. It 
would also facilitate the direction of resources to 
genuinely developmental uses rather than usin^ them to 
cover administrative running costs. Through a more 
systematic evaluation of projects and programmes 
advanta^couldhetakenofpaste^periencesothatfunds can be channelled to sectors and operations more 
immediately beneticial to the populations of the ACP 
countries in accordance with the aims of the Lome 
Conventions^ 
Lom^ t^ Arties 1^^ 
12. 12. 90 Official Journal of the European Communities 217 
The Commission's replies to the 
Court of Auditor's observations 
concerning the financial year 1989 
INTRODUCTION 
CONTROLLING AGRICULTURAL 
EXPENDITURE 
0.5. The Court's fears that the rules of agricultural 
discipline may not be observed in the event of un­
favourable trends were not confirmed by the measures it 
examined. The transfers of appropriations in certain 
sectors do not constitute sufficient grounds for such fears. 
0.6. The co-responsibility levies were introduced to 
make producers in the agricultural sector more aware of 
market conditions, to help finance the disposal of 
products and to find more outlets for cereals on intra- and 
extra-Community markets. The receipts are used to cover 
part of the expenditure on export refunds (1989: 31 %). 
When the co-responsibility levy was introduced in 1986, 
the Commission pointed out that this measure alone 
could not restore balance between supply and demand. 
With regard to the set-aside of agricultural land, the 
Commission itself recognized in its report on the first year 
of application of this Community Regulation (COM(89) 
353 final) that the initial results had been rather modest. 
The Commission is also aware that farmers tend to set 
aside the least productive land. 
These results, however, concern the very short period in 
which this entirely new measure has been applied. 
Because of this qualification, a final judgment cannot yet 
be made. 
The comment that the cost per tonne of paying refunds is 
lower is not very relevant in the present context of the 
GATT negotiations. It is true that Regulation No 570/88 concerning the use of 
butter for the manufacture of pastries and other 
foodstuffs is complex, but this is due to the diversity of the 
products and markets concerned and to the structure of 
the sector itself. The Commission has referred these rules 
to the working party responsible for redrafting Com­
munity agricultural legislation with a view to simplifi­
cation. The effectiveness of the Regulation, however, is 
not in question. In addition, the monitoring of this 
measure has been considerably improved. 
In this connection the Commission would point out that it 
has difficulty in distinguishing between a critical analysis 
of the suitability of the means for achieving the objectives, 
and a critical assessment of basic policy decisions. It 
encounters this difficulty at several points in the Court's 
report. 
0.7. The Commission notes that the Court reaches its 
conclusions after examining only two measures. An 
overall assessment of budgetary discipline cannot be 
made on such a basis. It is indeed true that the recent 
world situation has had a moderating effect on agricul­
tural expenditure, but the stabilizers have had a similar 
effect. 
PROBLEMS OF SHARED MANAGEMENT 
0.9. In expressing its fears that the difficulties en­
countered in the management of the Regional Fund 
might affect all the structural Funds, the Court overlooks 
the fact that the reform of the Funds took account of the 
experience and lessons learned in recent years. 
The new measures came into effect only at the beginning 
of the year covered by the Court's report. The Commis­
sion therefore believes that there are not sufficient 
^D Cofticial journal of the European Communities Llnl^ 
empirical tindings on which to baseatirm judgment for 
the future and to assess the success of the reform of the 
other Funds. 
t^O. The Commission does not share the Courfsview 
about the lack of specific objectives and selection criteria 
in the structural Funds. The reform ofthe Funds has led 
toaconcentrationofoperationsintheregionsselectedon 
thebasisofthecriteriaincorporatedinthetiveoh^ectives. 
^Vithregardto thecriticismofthevariousFunds^it 
shouldbepointed out that theaim of theEAC^4lF 
guidance Section is sectoral andthat part of the aid 
granted is not subject to any geographical restriction. 
Social Fund aidisintendedforthe member States^ where 
social security svstems have diltering priorities and ofter 
varying levels of social protection. It is therefore normal 
that the member States applv their own criteria for 
interpreting the measures.This is in no wav contrary to 
the objectives. 
The Commission cannot understand how the Court 
managestocometotheconclusionthattheCommission^s 
regional development measures have been a general 
failure^particularly since atthesametimethe Court 
asserts that it is impossible to evaluate the impact of the 
measures. 
PF^L^EL^RSPAC^ACIE 
0.^. The Court considers that the decision to set time^ 
limits for the implementationofmultiannualcommit^ 
ments is unlikely to alter the tendency to overrunthe 
deadlines. 
This is merely an assumption on the part of the Court. 
The Commission is aware that present behaviour is 
unlikely to change overnight and that observance of this 
provisioncanbeensuredonlvbyclosemonitoring.lt 
believeshoweverthatitisprematuretoexpressconcernat 
this stage 
t^. I^he amendment to Article o^ of the Financial 
regulation wasintendedtoreinforcetheprinciple of 
budget annuality and to ensure that onlv exceptionally wouldappropriationsbecarriedoverfromoneyeartothe 
next — inthecaseofditlerentiatedappropriations.Asthe 
Courtitselfstates^ this aimhas been achieved. Appropri^ 
ations carried over account for no more thanasmall 
percentage ofavailableappropriations. The Commission 
carefullyexaminedeachcasetoensurethattheconditions 
laid down in the Financial regulation were met. It is 
convinced ^see paragraphs!.^ tol.^ that the carry^ 
overs were well founded. 
t^. The Court complains that the Commissionmakes 
relatively generous use of the possibilities ottered by 
Article^of the Financial regulation ^^ of making 
appropriations available again withoutprovidingsuf^ 
ficient evidence of the existence of an exceptional 
situationasrequired hythe Regulation. TheCommission 
does not share this view. Each of its decisions was 
carefully examined^ even ifthis was notmadesufficientlv 
clear in the statement of grounds. It works on the 
principle that this budgetary provision should deal with 
the problem of outstanding liabilitiesfrom the past and 
shouldalsobe seenin thelight of Article 11 of the 
Interinstitutional Agreement. Careful examination of 
each of the cancelled commitments has in fact made it 
possible to bring the problem ofliabilities from the past 
under control. 
In theCommission^sviewtheCourfsrestrictive interpret 
tation of what constitutesaprogramme does not reflect 
the intentions of the legislator. The Commission believes 
thataprogrammeisagroup of operations designed to 
achieve one objective and contained withinasingle legal 
framework. Cancellation would impair the effect of 
Community operations approved bv the legislator and 
financed by the budgetary authoritv.The Commission 
agreeswiththeCourtthattheconcept of programme was 
lessclearasregardstheappropriationscommittedinl^^ 
which were made available again. 
It wasnonetheless possibles in viewof the closelink 
between the various projects^ to appreciate that thev 
could be treated as one coherent programme. 
TheCommissionhasbeenprovedrightbytheoutcome.lt 
reconciled observance of the provisions of the Financial 
regulation seeking to reinforce the principle of budget 
annuality with the explicit wish of the budgetary 
authority tomakefulluse^astar as possibles of the 
appropriations authorized. 
t^d^. In future the Commission will endeavour to spell 
out more clearlv the grounds for its decisions. 
C^ ^o^ Arties 7^ 
12. 12. 90 Official Journal of the European Communities 219 
PART ONE 
General budget of the European Communities 
CHAPTER 1 
Financial audit of the Commission's revenue, operating expenditure 
and general accounts 
THE IMPLEMENTATION OF THE 
BUDGET IN 1989 Budget transparency is guaranteed by the use of a detailed 
nomenclature showing the amount yielded by these 
measures. 
The adoption, presentation and monitoring 
of the budget 
Presentation of the budget The Commission's annual financial report on the 
EAGGF Guarantee Section contains detailed figures for 
receipts from co-responsibility levies and details of how 
they are used. 
1.5. The entry of the cost of collecting own resources as 
negative revenue is based on Article 2(3) of the Council 
Decision of 24 June 1988 on the system of the 
Communities' own resources (88/376/EEC, Euratom) ('). 
1.2 -1.3. The budget is established in accordance with 
the Financial Regulation, which makes no provision for 
the inclusion of the information requested by the Court. 
However, these details are available in the Commission's 
preliminary draft budget and in the revenue and 
expenditure account. Monitoring the implementation of the budget 
1.7. Services provided to outside bodies and author­
izations for corresponding expenditure affect only a small 
proportion of budget headings. 
1.4. In its replies to the Court's reports for 1979, 1982, 
1983 and 1985, the Commission has already explained 
why, when the relevant Community legislation was drawn 
up, it was decided to opt for a system of negative 
expenditure for receipts from co-responsibility levies. The 
co-responsibility levy is an intervention mechanism 
designed to regulate the markets. The method of 
presentation adopted must therefore ensure that receipts 
are actually used in the sector concerned. In these few cases, the Commission's method of 
presentation, whereby revenue collected in the course of 
the year is incorporated in the total of appropriations 
available, is justified by the need to safeguard the 
legibility of the budget. If a separate column were 
included in the table to distinguish between revenue 
(i) OJL 185, 15.7.1988, p. 24. 
220 Official Journal of the European Communities 12. 12. 90 
entered in the budget and revenue established in the 
course of the year, this column would remain blank for 
most of the budget headings. 
However, to take account of the Court's observations, the 
Commission proposes to indicate in a footnote each time 
revenue is included in addition to the appropriations 
entered in the budget, i.e. in the individual items 
concerned and in the budget total. 
1.8. The differences which the Court found between the 
amounts shown in the interim implementation reports 
and the end-of-year report are inevitable. They can occur 
for a variety of reasons, such as changes in the type of 
appropriations involved (differentiated or non-dif­
ferentiated), the inclusion of supplementary and amend­
ing budgets or revenue not entered in the original budget, 
etc. In any case, these differences have only a very 
marginal effect on the evaluation of the implementation 
of the budget. 
1.9. In presenting its cash-flow statement, it is not the 
Commission's intention to describe in a different form the 
implementation of the budget, details of which are given 
elsewhere, but to provide additional information con­
cerning all cash receipts and disbursements. The state­
ment may therefore present a different picture from the 
accounting statements due to movements on non-budget 
accounts and exchange differences, as the accompanying 
note points out. 
1.10. The total amount of appropriations available may 
be broken down into various categories, full details of 
which appear in the statement of the overall budget 
situation produced every month by the Commission's 
accounts departments and again at the end of the 
financial year in Volume II of the revenue and expendi­
ture account. 
The implementation report is not meant to duplicate 
information contained in the overall budget statement, 
but to provide as comprehensive a picture as possible of 
the utilization of the various budget headings. 
The tables in Volume II of the revenue and expenditure 
account, currently being developed in the Sincom system, 
will make a distinction between appropriations carried 
over and appropriations made available again. 
1.11. The Commission has taken note of the Court's 
observations and will adopt a more detailed presentation 
of transfers instead of the present method of showing 
balances. 
1.12. The Commission agrees with the Court's observ­
ations on this matter and will change its presentation as from the 1991 financial year so as to make a distinction 
between the rate of utilization of budget headings before 
and after transfers. 
This additional information will make it easier to monitor 
the impact of transfer procedures on the implementation 
of the budget. Internal studies on this subject have shown 
that transfers have only a very minor overall effect on the 
rate of utilization (less than 4 %), but further information 
will nevertheless be useful for monitoring individual 
budget headings where there are substantial movements. 
1.13. When it is drawn up, Table 7 of Volume II of the 
revenue and expenditure account contains the infor­
mation requested by the Court and shows the amount of 
appropriations which have been cancelled and the 
amount of monetary adjustments which, together with 
payments, explain the variation over the year in the 
amount still to be paid at the end of the previous year. 
Implementation of the new rules on 
budgetary discipline 
Setting time-limits 
1.20. The Commission would point out that the new 
provision in the Financial Regulation on the setting of 
time-limits for implementation relates to differentiated 
appropriations, which by definition cover implemen­
tation of multiannual operations. 
It should be borne in mind that the purpose of the 
requirement to set a time-limit is to avoid a recurrence of 
the phenomenon of 'dormant commitments'. In the past, 
for want of discipline in this matter, when projects were 
not carried out and therefore no payments made, 
commitments could remain in the accounts for an 
unlimited length of time, thereby adding unduly to the 
'cost of the past'. 
1.23. (a) The Commission will see to it that the new 
rules are observed in future. 
(b) Time-limits have been set systematically for 
development projects. The Court can only be referring to 
12. 12. 90 Official Journal of the European Communities 221 
agreements for which negotiations had already been 
completed when the new rule entered into force. 
The Commission will take particular care to see that there 
are no more such cases. 
1.24. The Commission considers that its departments 
must now adjust their practices and follow the specific 
instructions given on this matter to the authorizing 
officers concerned. There is no reason to believe that this 
will not be the case. 
Carry-overs of appropriations 
Carry-overs of appropriations from 1988 to 1989 
Commitment appropriations 
1.28. Article 6(2)(a), first indent, on which the carry­
overs in question are based, states that 'these amounts 
must in principle be committed by 31 March of the 
following year'. While sharing the Court's view on the 
meaning and spirit of this Article, the Commission would 
stress that, since these provisions and procedures are 
entirely new, a certain degree of flexibility is required in 
the first few years of implementation. This is particularly 
true where the new financial rules are being applied at the 
same time as new sectoral regulations, which is the case 
for the structural Funds. The difficulty in applying these 
regulations explains why the 1,9 million ECU carried over 
in Article 554 (former 560) were not utilized until after 31 
March. As regards the carry-over of 0,5 million ECU in 
Article 552, the failure to utilize 0,3 million ECU was due 
to difficulties affecting the implementation of the IMPs in 
certain Member States in 1989. 
1.29. The Financial Regulation stipulates that the 
Commission must take a decision by not later than 15 
February on the commitment appropriations and pay­
ment appropriations to be carried over. In practice, this 
means that, to allow for internal approval procedures, the 
administering departments are asked to provide by 15 
January details of the amounts they think should be 
carried over. However, beyond that date, the accounting 
departments are still engaged on the final checks which 
enable them to correct any anomalies and, in the case of 
Chapter 73, the last secondary entries before the final 
closure of the accounts for the financial year. The Commission regrets that, as a result of this very strict 
timetable, the amount originally earmarked to be carried 
over was subsequently changed. 
Payment appropriations 
1.30. As regards payment appropriations, Article 
6(2)(b) (2) leaves it to the Commission to judge whether or 
not the appropriations provided for in the budget are 
sufficient to cover requirements. This task is particularly 
difficult at the beginning of the financial year, especially 
for budget headings where payments are made as a direct 
response to requests from national authorities, which is 
the case for Articles 554 (former 560) and 580. Moreover, 
at this point in the financial year, it is assumed that the 
commitment appropriations and payment appropri­
ations for the financial year match. 
1.31. The situation described by the Court whereby 
payment appropriations are carried over without being 
related to the commitment appropriations carried over is 
partly explained by the fact that Article 6(2)(b) of the 
Financial Regulation stipulates that the Commission 
must in principle 'use first the appropriations authorized 
for the current financial year and not use the appropri­
ations carried over until the former are exhausted'. As a 
result of this condition, existing commitments for which 
payment appropriations have been carried over are 
sometimes covered by appropriations for the current 
financial year. It is then difficult to establish a link with 
the appropriations carried over. However, the new 
computerized system will allow detailed monitoring of 
individual commitments. 
Carry-overs of appropriations from 1989 to 1990 
Commitment appropriations 
1.33. (a) The failure to use the carry-over in Article 554 
(former 560) was because of delays in setting up the 
(2) Article 6 of the Financial Regulation, which is quoted 
several times in this chapter, has now become Article 7 
following the revision of the Regulation on 13 March 1990. 
222 Official Journal of the European Communities 12. 12. 90 
internal organization to administer this heading which 
concerns all the structural Funds. 
(b) Nearly all the 26 million ECU mentioned (Article 
600) had been authorized on 31 March; for technical 
reasons, the operations were only booked to the accounts 
later. The situation was thus quickly rectified. 
(c) The Commission committed 323 967 ECU. This 
commitment was approved by the Financial Controller 
on Thursday 29 March and booked to the accounts on 
Tuesday 3 April. 
(d) The 921 000 ECU referred to by the Court was to 
cover the costs incurred by Belgium in organizing the 
Uruguay Round. The preliminaries had not quite been 
completed by 31 March and the appropriation carried 
over was blocked in accordance with Article 6(2)(a). The 
commitment was then made against fresh appropriations. 
Payment appropriations 
Appropriations made available again 
1.37. The Commission does not consider that the 
provisions of the Financial Regulation allowing cancelled 
appropriations to be made available again give it the 
power to enter new budgetary authorizations. 
All that the Commission has been granted under the new 
provisions contained in Article 7(6) of the Financial 
Regulation is the discretionary power to re-enter 
authorizations which the budgetary authority itself has 
already given when awarding the appropriations in the 
first place; the arrangement is subject to specific criteria 
and the object is to make the greatest possible use of 
appropriations once they have been authorized. 
General observations 
1.38 -1.39. The Commission takes the view that the 
spirit of Article 6(6) of the Financial Regulation involves 
considering whether measures for which it is proposed to make appropriations available again form part of a set of 
measures with the same aims and objectives and subject to 
the same legal and economic framework. There is also a 
need to check whether the definitive loss of the 
appropriations would impair the impact and value of the 
Community activity concerned as defined by Community 
legislation and quantified by the budgetary authority. If 
this is the case, the measures concerned constitute a 
programme. 
Under Article 6 of the Financial Regulation, commitment 
appropriations may not be made available again when the 
budget for the current financial year contains the funds 
necessary to carry out the programme originally planned; 
in practice, this is unworkable. When the preliminary 
draft budget is drawn up, it is impossible to make any 
sound assumptions about which appropriations will have 
to be cancelled by the time the budget is adopted, and 
even harder to say what appropriations will have to be 
made available again. As the decision to make appropri­
ations available again must be taken by 15 February, i.e. 
right at the beginning of the actual implementation of the 
budget, it follows that it can be assumed at that point that 
the budget adopted will not contain the necessary funds. 
As regards the standard remark in the budget to the effect 
that the appropriations for the current financial year are 
also intended to cover measures still to be instituted, this 
is necessary in order to comply with the rule laid down in 
the Financial Regulation which stipulates that payment 
appropriations carried over may be used only after 
appropriations for the current financial year. 
Appropriations cancelled in 1988 and 
made available again in 1989 
1.40. The fact that a very large proportion of the 
appropriations made available again for the EAGGF 
Guidance Section were actually used shows that the 
Commission's decision was justified and necessary. This 
is not a continuation of the practice of recommitting 
appropriations virtually automatically. 
1.41. The Commission shares the Court's doubts about 
the application of the concept of programmes to the old 
structural Funds legislation. In 1989 it had to apply this 
concept to situations which did not fit in with the precise 
definition of a programme: this explains the difficulties 
referred to by the Court. The reform of the structural 
Funds has clarified the concepts (in particular the CSFs) 
and will make for better application of the rules 
concerned. 
1.42. As the Commission has indicated in its reply to 
paragraphs 1.38 and 1.39, the ESF, where, strictly 
12. 12. 90 Official Journal of the European Communities 223 
speaking, the concept of programmes was unknown 
before 1989, may be regarded as grouping together 
various measures in a way which can be equated with 
programmes. 
Appropriations cancelled in 1989 and 
made available again in 1990 
1.43 -1.45. It is clear that Article 11 of the Interinsti-
tutional Agreement cannot be used as a legal base to make 
appropriations available again. However, it does mean 
that appropriations relating to multiannual programmes 
do not have to lapse definitively, with the following 
alternatives being provided: either the appropriations are 
made available again under the procedure laid down in 
Article 6 of the Financial Regulation or, once they have 
lapsed, a transfer of allocations may be made for the 
relevant amount by raising the ceiling in the financial 
perspective for the following year. Decisions to make 
appropriations available again for the structural Funds 
are therefore taken in a particular context, which cannot 
be defined by the Financial Regulation alone. 
The Commission considers that, in the light of this 
interpretation, the conditions laid down by Article 6 of 
the Financial Regulation were satisfied. 
The structural Funds appropriations: 
— are subject to a series of planning structures ranging 
from the fixing of appropriations for each financial 
year up to 1993 to the setting of schedules for the 
CSFs and the operational programmes, which are the 
main implementing instruments; 
— being set year by year, leave no scope for covering 
commitments other than those planned for each 
financial year in the overall programming. 
As regards the decision on the ESF, the Commission 
would stress that it was careful to take into account the 
prospects for utilization in assessing the amounts which 
should be made available again or re-entered in the 
budget at a later date. 1.46. It was necessary to make appropriations available 
again to achieve the objectives of the old programme, 
'Fission — Management and storage of radioactive 
waste', for which no appropriations were entered in the 
1990 budget. 
1.47. The 47,8 million ECU was made available again in 
order to complete old food aid programmes. This amount 
went entirely towards transport costs. 
1.48. It was necessary to make these amounts available 
again so that calls from the EIB to activate the budget 
guarantee for loans to the Mediterranean countries — 
which are in principle exceptional — would not cause 
another shortage of appropriations and thus delay the 
completion of the financial protocols. 
Conclusions concerning the application of the new 
rules of budgetary discipline 
1.49. The Commission feels that decisive progress has 
been made by the introduction in Article 1 of the 
Financial Regulation of the rule requiring a time-limit for 
implementation to be set for multiannual operations. 
However, in the Commission's view, it is not possible to 
go further than this at legislative level: it is obvious that 
the time-limit for implementation must depend on the 
context in which each multiannual operation has to be 
carried out. The situation must therefore be assessed by 
the authorizing officer on a case-by-case basis, possibly in 
contact with the recipient; it is neither possible nor 
realistic to envisage general framework rules which would 
inevitably be abstract and theoretical. 
As regards the exceeding of time-limits, it is for the 
Commission to assess, again on a case-by-case basis, 
whether the time-limits should be changed or operations 
suspended, where the situation warrants it. 
1.50. The Commission feels that it has applied the rules 
on carry-overs rigorously. 
224 Official Journal of the European Communities 12. 12. 90 
Non-automatic carry-overs account for only a small 
percentage of unused appropriations (commitment 
appropriations excluding EAGGF): 
Non-automatic carry-overs 15,929 Mio ECU 
= = 1,05 %. 
Unused appropriations in 1988 1 516,76 Mio ECU 
1.51 -1.52. The Commission's replies to paragraphs 
1.35 et seq. show that it took a whole series of factors into 
account in its decisions about making appropriations 
available again. They also highlight the difficult situation 
in which the Commission finds itself of having to 
reconcile two contradictory objectives. On the one hand, 
there must be greater rigour in the implementation of the 
budget with stricter application of the principle of 
annuality. On the other hand, the budgetary authority 
has made it quite clear that appropriations which have 
been authorized should be used in full; as a result, the 
allocations entered in the budget tend to be regarded not 
as a ceiling for utilization but as a spending objective. 
Point 11 of the Interinstitutional Agreement illustrates 
this point. The figures bear witness to the Commission's 
efforts to apply greater rigour in this area. In 1989 
appropriations made available again represented only 
38 % of cancelled appropriations and 25 % in 1990. 
To improve the monitoring of appropriations made 
available again, the Commission has adapted its com­
puter applications to make it easier to identify in the 
course of the financial year which cancellations are likely 
to lead to appropriations being made available again. It 
also intends to identify exactly which individual commit­
ments will be covered in the following financial year by 
appropriations made available again. Finally, the 
Commission will, in future, treat appropriations carried 
over and appropriations made available again separately 
in the presentation of the revenue and expenditure 
account. 
Observance of the principle of the 
specificity of the budget 
Global management of food-aid appropriations 
1.55. It is true that appropriations for food aid are 
divided among various budget headings. However, it is 
impossible to ignore the fact that the food-aid programme 
represents a coherent whole which is approved en bloc and 
which is expressed in terms of commitments or forecasts 
of quantities of goods to be delivered. Within the 
legislative framework, the Commission does all it can to 
implement the programme as it has been defined. It would 
be difficult to accept that part of the intended aid should 
not be delivered for purely formal reasons, even though 
the necessary funds were available in the overall 
allocations for this programme. Utilization of appropriations for the 
financial year 
Global rate of utilization of appropriations 
1.57. The Commission confirms that, in future, its 
central accounting system should allow payment against 
commitments to be monitored on the basis of a 
comparison between payments and cancellations of 
commitments on the one hand and a schedule of 
utilization forecasts on the other. 
Identification of low rates of budgetary utilization 
1.62. The Commission is well aware of the under-
utilization of appropriations for the IMPs, which, as it 
explained throughout 1989, was due to difficulties 
encountered in the implementation of these appropri­
ations in certain Member States. The Commission has 
repeatedly urged the Member States concerned to speed 
up the administrative procedures relating to the pro­
grammes. 
As regards the CAP measures, the Commission has the 
following remarks to make: 
(a) Article 380 should not be included in the list of items 
which were underutilized because, out of the total of 
6,7 million ECU in appropriations for this item, 5 
million ECU (75 %) is reserved for the emergency 
veterinary fund, which is only drawn on in the event 
of an epidemic; it is therefore impossible to foresee 
whether these appropriations will be utilized or not. 
(b) In the case of Article 381, underutilization was due to 
the late submission by Member States of applications 
for repayment. 
(c) As regards Article 382 (Inspection in agriculture), a 
large proportion of commitments are concentrated 
on the second half of the financial year and payments 
against these commitments are made during the next 
financial year. 
(d) The main reason for the low rate of utilization of 
appropriations in Article 385 (Statistics) was the 
failure of the Greek programme to progress at the rate 
intended in the Council Decision because of the 
economic restrictions imposed by the Greek Govern­
ment (austerity plan). 
(e) The underutilization of payment appropriations in 
Article 387 (Forestry) resulted from delays in carrying 
out work to protect forests against fires; these delays 
12. 12. 90 Official Journal of the European Communities 225 
were caused by the weather, which, given the seasonal 
nature of the work, can have an enormous influence 
on the rate of progress. 
Out-turn for the year 
1.64. The Commission is aware that, under the Finan­
cial Regulation, the whole of the balance for the financial 
year 1987 — 521,6 million ECU — ought to have been 
entered as revenue in the 1988 budget. However, since the 
budgetary authority included 500,0 million ECU in the 
estimates of revenue for 1988 and 21,6 million ECU for 
1989, the Commission abided by this distribution of the 
balance over two financial years. It would stress, 
however, that appropriate notes on this operation figured 
in the accounts for both 1988 and 1989. 
The Commission did not present a preliminary draft 
supplementary and amending budget in 1988 for the 
remainder of the 1987 balance because of the negligible 
sum involved. 
Compared with the estimated balance of 500 million ECU 
included in the 1988 budget, the remaining surplus of 21 
million ECU would hardly have warranted the initiation 
of a procedure as laborious as the adoption of a 
supplementary and amending budget. 
1.65. The Commission did not enter the 780 million 
ECU in a supplementary and amending budget in 1990 as 
this would have led to the setting of a uniform VAT rate at 
less than the rate laid down in Article 2(4) of the Council 
Decision of 24 June 1988 on the system of the 
Communities' own resources. 
The Commission's interpretation was supported by 
Parliament but challenged by the Council, which has 
referred the matter to the Court of Justice. OBSERVATIONS ON THE LEGALITY AND 
REGULARITY OF OPERATIONS PASSED 
TO THE ACCOUNTS FOR THE YEAR 
Traditional own resources 
Entry into force of Decision 88/376/EEC 
1.66. Pending the entry into force of the new Decision, 
Member States had the right to reimbursement of the cost 
of collecting own resources under the 1970 Decision. 
However, in the absence of the necessary appropriations, 
the Commission was not able to pay the amounts due. 
When the budgetary authority, by adopting the 1988 
budget, showed its willingness to apply the procedure of 
deducting collection costs, the Commission invited the 
Member States to deduct the amounts in question. In 
doing so, the Commission also satisfied the object of the 
legislation in force. As regards the effects on the 
Commission's cash resources, it should be pointed out 
that from February to June the Commission kept the 
collection costs in its accounts. 
The Member States were not able to establish ECSC 
customs duties for 1988 as own resources until 1 February 
1989, the date on which the Decision entered into force. In 
accordance with the relevant regulation, the Member 
States made these amounts available to the Commission 
on the 20th day of the second month following their 
establishment. 
Entering of amounts made available by the 
Member States 
1.67. The Commission's departments make out re­
covery orders as soon as they receive the monthly 
accounting statements of own resources from the 
Member States. Since the Regulation lays down that the 
statements should be sent to the Commission at the same 
time as the own resources are paid into the Commission's 
accounts, it is impossible to make out recovery orders 
before the own resources are made available. In any case, 
no loss of resources can result from the delay in making 
out recovery orders. 
The Commission did not ask Portugal to pay interest 
because the amount involved was less than 200 ECU; the 
cost to the Commission and to Member States of 
collecting small amounts of interest cannot be justified. In 
1990 the Commission asked the United Kingdom to pay 
226 Official Journal of the European Communities 12. 12. 90 
interest. As regards Greece, the Commission is waiting for 
information on interest rates. It will request payment of 
interest as soon as it receives this information. 
Entering of amounts resulting from special agreements 
1.68. During inspection visits, Commission officials 
investigate the accuracy of amounts deducted by Member 
States during the reference period as a result of 
agreements with non-member countries as mentioned by 
the Court. 
The entering of these amounts by the Commission does 
not imply final acceptance; corrections can be made 
following the inspections. 
The intervals at which deductions are made depend on the 
provisions of the various agreements. There would be no 
advantage in standardizing these intervals, in view of the 
negligible amounts deducted. 
On 11 June 1987, the Commission agreed in principle to a 
request for deductions from Italy. Under this agreement, 
the amounts deducted are included in the statements of 
accounts sent to the Commission. 
During a joint inspection in Italy from 23 to 27 April 
1990, the Commission checked the deductions for the 
period from 1979 to 1987. 
In letter No 3602 of 15 June 1990 the Commission asked 
for additional information. 
After receiving and examining the information requested, 
the Commission will, if necessary, carry out an additional 
inspection. The Court will be informed of the findings. 
Frauds and irregularities 
1.69-1.72. The Commission would point out that 
Regulation No 1468/80 amended by Regulation No 
945/87 lays down the rules according to which the 
Member States assist each other and cooperate with the 
Commission so as to establish the solidarity necessary 
within the Community to ensure the correct application of the law on customs and agricultural matters and avoid 
distortions of competition and illicit trade flows which 
could harm the Community economy. 
Under these mutual assistance arrangements, the ex­
change of information relating to operations which are or 
might be contrary to the law on customs and agricultural 
matters covers the following technical details: 
— persons suspected of fraud and irregularities; 
movements of suspected goods; 
— fraudulent or irregular methods and processes. 
The information exchanged is therefore normally con­
cerned with the situation before own resources are 
established. 
Strictly speaking, the scope of the regulation does not 
extend to financial aspects. 
In the annual reports on the establishment and control of 
traditional own resources which national authorities are 
required to send to the Commission under Article 5 of 
Regulation No 2891/77, some Member States have in the 
past transmitted information of a general nature relating 
to cases of fraud affecting these resources. 
However, this type of information was not sufficient for 
the Commission to ascertain that the national authorities 
had taken action in all cases of fraud and irregularity and 
that the own resources involved had been recovered and 
made available to the Commission. 
There is therefore a difference between the kind of 
information concerning fraud and irregularities passed 
on to the Commission under the two regulations. 
Nevertheless, where information resulting from the 
mutual assistance arrangements shows that action taken 
in individual cases of fraud or irregularity has led to or is 
likely to lead to the initiation by the national authorities 
of the procedures for the recovery of own resources, the 
Commission asks the Member States concerned to inform 
it of the result of these procedures. 
12. 12. 90 Official Journal of the European Communities 227 
As this situation was unsatisfactory, new provisions were 
introduced in Regulation No 1552/89. 
1.73. Regulation No 1552/89, which repealed Regu­
lation No 2891/77, lays down new rules, in particular the 
obligation to send the Commission a half-yearly state­
ment of cases of fraud and irregularities involving 
traditional own resources of over 10 000 ECU and to keep 
separate accounts for own resources established but not 
yet recovered. 
The implementation of the new Regulation should make 
good the shortcomings of the previous legislation. 
The Commission is in the process of establishing a 
systematic link between the information at its disposal on 
cases of fraud or irregularity and the entering of own 
resources in the accounts so as to be able to check that 
national authorities have exercised appropriate diligence 
in establishing, entering in the accounts, recovering and 
making available to the Commission the own resources 
involved. 
VA T and GNP own resources and 
miscellaneous revenue 
Management of VAT own resources 
1.74. The Commission has established a system for 
dealing with reservations and points under discussion (see 
also paragraph 1.80). 
The Commission tries to administer its controls, and any 
resulting corrections, in accordance with the relevant 
legislation and, when the legal base cannot provide a clear 
position, in the fairest and most reasonable manner both 
for the Community and for all the Member States. It is 
sometimes necessary to be pragmatic, especially when 
both parties are earnestly seeking an acceptable method 
of calculation, and in the Commission's experience, this 
generally produces the most beneficial and just results. 
The alternative to this approach — earlier recourse to 
legal procedures — does not guarantee better or quicker 
results, and can even result in further delays and in a lower 
recovery of own resources. 1.75. The Court found a number of reservations for 
which no action had been taken by 31 December 1989. 
Since then, the situation has changed considerably. 
According to the Commission's register, eight of the 33 
reservations mentioned by the Court were withdrawn 
when the summary document was produced because the 
Commission accepted the explanations of the Member 
States. Twelve other reservations were withdrawn 
because Member States carried out the requested 
corrections; five reservations have led to infringement 
procedures and three to recovery orders. 
The five remaining reservations concern disputed inter­
pretations of Community legislation or a technical detail 
in the calculation of an element of the VAT base. The 
amount of own resources involved is either very small or 
difficult to estimate. In the latter case it cannot be ruled 
out that the final solution might result in the Commission 
having to repay sums. 
In its replies to the 1988 report, the Commission has 
already pointed out that not all reservations require an 
entry in the accounts or the setting of a time-limit. 
Everything depends on the state of negotiations with the 
Member State concerned. 
1.76. In the case of the collection by Italy of 13 monthly 
VAT payments when only 12 were mentioned in the 
statement, the Commission followed the usual procedure 
which requires it, before making out the recovery order, 
to: 
— establish during the control visit that an infringement 
has pccurred (5 to 7 December 1989) 
— send the control report to the country concerned (30 
January 1990); 
take into account the observations of the country 
concerned (28 May 1990). 
In their observations, the Italian authorities acknowled­
ged the validity of the Commission's arguments. The 
VAT base for 1988 was increased by the amount due and 
the own resources will be paid after the balances have 
been established on 1 December 1990. 
1.77 -1.78. The Commission is pleased with the success 
that it has had in obtaining additional VAT own 
resources of 19,2 million ECU in 1989, resulting from 
228 Official Journal of the European Communities L1L190 
corrections for the yearsl979^8o, many of which were 
only agreed after lengthy negotiations with the Member 
states concerned. 
The Commission did not demand interest because these 
payments, which resulted from corrections, were not 
delayed. Article 10(b) of Regulation No 2892/77 makes 
provision for corrections to statements over several years 
and Article 10(6) of Regulation No 2891/77 sets time-
limits for the payment of own resources resulting from 
corrections. Similar provisions are included in the new 
Regulations Nos 1552/89 and 1553/89. 
In the case referred to by theCourt^reduction in the base 
for the first 1^0 theatre performances^, the French 
authorities produced,at the Commission's request,an 
overall estimate of the compensation due and paid this 
amount as well as the interest on late payment in 198(e 
^Vhen the Commission disputed the calculation, the 
French authorities carriedoutamore detailed survey. 
Lheamounts established by this surveywerechecked and 
acceptedby the Commission during the controlof the 
1987 base and taken into account in the summary 
document of^^une 1989 together with allthe other 
corrections under the third subparagraph of Article 
10^1^ofR.egulation^o ^89^77 ^as amended^. Lhere 
was no reason to apply interest for late payment in this 
case. 
L^. Lhe Commission has taken note of the Court's 
recommendation that it review its procedures for 
recoveringVALresources. 
Lhe method of calculation involves calculating the 
harmonized base forVAL resources fromVAL revenue, 
however, the base can never be found byastraightfor^ 
ward calculationusing national statistics alone. As the 
Court is aware, the figures used come fromavariety of 
sources relating to all kinds of subjects and were 
originally designed to provide information which has 
little todowithindirect taxation.itis therefore inevitable 
that there should be ^disagreements'over the reliability, 
interpretation and,in some cases, the improvement of the 
data. 
nevertheless, the Commission hasconsidered the matter, 
takingintoaccounttheCourt'sobservationsinits annual 
report for 1988 
Lheresultisanew approach, onepractical effect of which 
is the application ofageneral rule that reservations be 
subject toatimedimit. Any reservation expressed asa 
result ofaVATcontrolrelatingtoyearnmustasarule be 
dealt whh by the first wording day of fOecember of year 
n^^. Inhere may ofcourse be exceptions to this rule when 
difficulties arise,inparticulartechnicalproblems con 
nectedwiththecalculationor final interpretationofa 
legal te^t ^Re^overie^ofrreveBueiBteBdedtoo^ecet^e^eBe^l 
L^L Community legislation does notsettimedimitsfor 
the payment ofMember States'contributions to revenue 
intended to balance the budget. LheCommission did not 
therefore ask for interest on the additional payment by 
^pain. 
Lhe amounts entered asVAL revenue in the 1989 budget 
were based on the Council Precision of^]une 1988 on 
the system oftheCommunities'ownresources. however, 
since this Precision did not enter into force until 1 
February 1989,no legal base existed in January 1989for 
the payment to the Commission of the amounts in 
question. Lhe Council Precision of 7 May 198^ still 
applied.in theabsenceofalegal base forpayment on the 
first working day ofl989 in accordance with the fourth 
subparagraph ofArticlelO^of^egulation^o ^891^77, 
thet^nitedKingdompaidatwelfthoftheamountentered 
in the supplementary and amending budget for 1988. As 
soon as the new Precision entered into force, the united 
kingdom correcteditspayment.LheCommissiondidnot 
ask for interest on the arrears because the tlnited 
kingdom had not breached Community legislation. 
EAGGF Guarantee Section 
Management of advances 
1.84. In view of the rules governing the procedure for 
the co-responsibility levy, the solution adopted by the 
Commission was the only one possible. 
Fisheries 
1.85 - 1.86. When preparing the next preliminary draft 
budget, the Commission's departments will examine the 
possibility of making the appropriations for Item 4200 
differentiated appropriations in order to resolve the 
problem mentioned by the Court. 
12. 12. 90 Official Journal of the European Communities 229 
EAGGF Guidance Section Preparation of Community support frameworks 
and technical assistance (heading B 554) 
Repayments to Member States 1.92. The Commission will see to it that such things do 
not occur in future. 
1.87. The Commission will take the Court's remarks 
into account when it comes to adjust the reimbursement 
of expenditure for 1989. 
1.88. In its replies to paragraphs 6.56-6.63 the Commis­
sion explains why it allowed the expenditure in question 
as eligible for a Community contribution. Social area 
ERDF Volume of operations financed by the Social Fund 
in priority regions 
Supporting documents 
1.89. The shortcomings in the transmission to the Court 
of the main supporting documents are connected with 
difficulties experienced by Member States in reorganizing 
procedures for handling these documents and sending 
them to the Commission following the reform of the 
Funds. 1.94. Under transitional provisions adopted as part of 
the reform of the structural Funds, the operation of the 
ESF during the 1989 financial year continued to be 
governed by the old rules, in particular Decision 85/568/ 
EEC. However, the new rules now apply to the 
implementation of the reform and in particular to the 
definition of new objectives and new forms of interven­
tion and to the general objective of concentrating 
structural Funds operations. 
Management of ERDF commitments (heading B 500) 
1.90. The Court repeats the criticism it has made in 
previous years concerning the method of committing 
appropriations for the Regional Fund in annual tranches. 
This criticism mainly concerns Community legislation, 
which is scrupulously implemented by the Commission. 
Both Regulation No 1784/84 and the new Regulation No 
4253/88 explicitly state that budgetary commitments for 
two or more years should, as a general rule, be carried out 
in annual tranches. In Chapter 7 the Commission explains 
in detail the reasons behind this provision. Briefly, the 
idea was to link budgetary commitments as closely as 
possible to actual progress on the ground and in doing so, 
to avoid the creation of dormant commitments which add 
to the cost of the past. At the same time, this would 
prevent appropriations which might be used elsewhere 
from being tied up. 
1.91. The shortcomings referred to by the Court have 
not reappeared, as the necessary changes were made to 
the control measures, in particular concerning the 
approval of commitments. Although the Court's observation is correct, the Commis­
sion would point out that, during the transitional period, 
the slight overrun did not adversely affect the old 
measures and is broadly justified by the need to bring ESF 
operations into line as quickly as possible with the 
objectives of the reform of the Funds and in particular 
with the pursuit of greater concentration. 
Research, energy 
1.95. The Commission has conducted a detailed 
investigation of the 10 Esprit projects referred to by the 
Court. At the time of the inquiry, it felt that the situation 
will not sufficiently clear to enable it close some of these 
files. It has nevertheless taken the necessary measures to 
ensure that all the cases are gradually closed. At the same 
time, it will introduce a system of regular investigation of 
these cases. In the energy sector, the Commission has 
taken into account the Court's observations and has since 
carried out the necessary cancellations. 
230 Official Journal of the European Communities 12. 12. 90 
Operations under Title 9 Overruling of refusals of approval by the 
Financial Controller 
Food aid 1.98. The Financial Regulation requires that the Court 
be informed only of decisions to overrule refusals of 
approval. 
1.96. The Commission tries to make a single commit­
ment for the 'remainders of old programmes'. Because of 
price fluctuations, which can sometimes be quite 
considerable over the lifetime of a programme (one to two 
years), additional commitments may prove necessary. 
However, these commitments always relate to old 
programmes. 
Aid to Bangladesh The withholding of approval is part of the Commission's 
internal preparatory procedures; the Court has the 
possibility of examining such cases during audits of 
individual items of expenditure and revenue. 
OBSERVATIONS ON THE BOOKKEEPING 
AND THE PRESENTATION OF THE 
ACCOUNTS 
1.97. The Court found several cases of operations 
which, in its opinion, were not in accordance with 
Community regulations. The Commission has the 
following comments to make: The balance sheet for the Communities 
The balance sheet for the Commission 
(a) The amendment remained in line with the objective 
set for the project and agreed in the Financing 
Memorandum and only changed the implementing 
procedures. 
(b) The transfer was authorized on the basis of certified 
work orders which had been verified and approved by 
Community technical assistance staff. Goods on lease 
1.100. The Commission is prepared to follow up the 
Court's suggestion and, together with the other insti­
tutions, will examine the possibility of including infor­
mation on goods on lease in the notes to the balance sheet. 
Working capital 
(c) The delay in payment referred to by the Court was the 
result of human error. The Commission will see to it 
that such errors do not occur in future. 
(d) There was an official and firm agreement on a well-
defined sector-by-sector use of the funds, which is 
fully in line with the guidelines for the use of Compex 
funds in the regulation; authorization of the transfers 
on this basis has also ensured a rapid positive effect on 
balance of payments—another major requirement of 
the Compex regulations. 
(e) See the reply to paragraph 10.54. 1.101. (a) With due regard for Community rules, the 
Commission feels that, in its financial management, it 
should take account of the need to ensure that individual 
departments can perform their respective duties. The 
temporary increase in working capital was a pragmatic 
solution which enabled the Publications Office to 
continue operating pending a decision to increase its 
appropriations. The Commission would stress that the 
transfer was made during the same financial year and that 
the principle of the annuality of the budget was therefore 
observed. 
(b) Official Journals are distributed to subscribers in 
most of the Member States by a private firm which 
collects them at the Publications Office, transports them 
by the quickest route to the countries concerned and 
delivers them to postal centres there. This daily routine 
involves regular payment by the contractor of air freight 
12. 12. 90 Official Journal of the European Communities 231 
costs and postage stamps in each country at the time of 
delivery; in particular, the cost of postage should 
normally be borne directly by the Office. The Commis­
sion feels that the amounts which the contractor is obliged 
to pay in advance justify the provision of working capital 
calculated on the basis of the monthly average of the costs 
of despatching the Official Journal. 
When the draft contract was being prepared to cover the 
procedure for sending Official Journals to subscribers, 
the Legal Service asked the Publications Office to include 
a bank guarantee system in order to ensure that the carrier 
correctly fulfilled his contractual obligations. 
If the contractor fails to perform the contract, the 
Publications Office is entitled to call in all or part of the 
guarantee by way of compensation. 
These two arrangements, are therefore a response to quite 
different requirements: 
— on the one hand, the need for the carrier to bear the 
high daily costs on the Office's behalf; 
on the other hand, the need for the Office to cover 
itself against any risk that the contract might not be 
properly performed. 
The working capital therefore has its own raison d'etre 
and is not intended as and does not serve as a means of 
financing the bank guarantee. 
The only link between the two arrangements is that the 
bank guarantee system was introduced at the same time as 
the Office provided the contractor with working capital 
for his daily expenses. 
(c) This advance was granted as compensation for the 
change in the time taken to pay the travel agency's 
invoices from 30 to 60 days. 
The Commission's departments are studying methods of 
managing mission expenses which might result in the 
reduction or even the abolition of this advance. Accounts for operations effected by the 
external Delegations 
1.102. With the establishment of the DAD on 1 January 
1988, the task of administering the budget and accounts 
of the external Delegations, previously the responsibility 
of the AEC and the UEB, was divided between three 
Directorates-General: 
— DG IX-DAD (authorization/management); 
— DG XIX (accounting and cash management); 
— DG XX (financial control). 
On 1 January 1988, the staff of the DAD consisted mainly 
of officials seconded to the AEC and then reinstated in 
DG IX-DAD. 
The DAD endeavoured to organize its new adminis­
tration in keeping with the principle of the separation of 
functions as laid down by the Financial Regulation. 
DAD expenditure from 1988 onwards was entered in the 
Commission's accounts, while expenditure against AEC 
appropriations carried over from 1987 to 1988 was 
entered in the AEC accounts and presented in its balance 
sheet and revenue and expenditure account. 
However, during the transitional period in 1988 and 1989, 
the Commission made use of the AEC's banking network 
to ensure continuity in the administration of Delegations. 
During these years, DAD officials were still acting as the 
accounting officers of the AEC. 
All transactions carried out in 1988 by DAD officials 
acting as accounting officers of the AEC were entered in 
the AEC accounts. 
The system of imprest accounts authorized by the 
Financial Regulation has now been established in all the 
Delegations. Bank accounts for this purpose have been 
opened in the Commission's name and the AEC accounts 
closed. In general, the delegations send in their statements 
within the prescribed time-limits and the backlog in the 
final entries in the accounts has now been virtually 
eliminated. 
232 Official Journal of the European Communities 12. 12. 90 
The Commission's departments are actively seeking a 
solution to the problem of how to regularize the inclusion 
of the AEC's accounts and assets in the general budget. 
1.103-1.105. When the DAD came into being, it set 
up, together with the AEC, a task force on inventories to 
work on transferring the AEC's movable and immovable 
property to the Commission. 
In view of the staff and time available, it was not possible 
to produce an inventory by 1 January 1988. 
Although the Court is correct in saying that the 
Commission's balance sheet at 31 December 1989 does 
not reflect the true situation, the work on an inventory 
which is still under way will produce correct and reliable 
results, since all assets existing at 31 December 1988 will 
be included in the statement of the Commission's assets 
and liabilities. 
1.106 - 1.108. Because of the complexity of transferring 
AEC's activities to the Commission and the necessary 
transitional measures, it has not yet been possible to 
establish a complete and final statement. Such a 
statement is in the process of being drawn up by the 
departments concerned and should be available soon. 
1.109 - 1.110. When the DAD was set up, the Commis­
sion had no computer system capable of dealing with all 
the external Delegations. Moreover, this work had first to 
be organized and distributed among the relevant 
Commission departments. 
In 1988 everything was done manually; in 1989 the DAD 
produced the BCC programme (Budget, Costs, Controls) 
to manage the imprest accounts and headquarters 
expenditure. 
It is true that there were still a number of delays in 1989 
due to the fact that this was still a transitional period and 
that the Commission had to catch up on delays which had 
built up in 1988 and at the beginning of 1989. 
In 1990, the BCC programme was fully operational; in 
March, the first imprests for 1990 were passed on to DG 
XIX for entry in the Sincom accounting system. 
In September 1990 the DAD will create an interface 
between BCC and Sincom in order to avoid duplication of 
data entry. Non-budget accounts 
1.111. The introduction in 1987 of a new computerized 
system for the general accounts made it possible to 
improve the monitoring of the Commission's non-budget 
accounts. This improvement has resulted in a reduction in 
the number of abnormal balances, as the Court has noted. 
Another effect has been that operations of the staff 
accounts are cleared more quickly. The Commission 
intends to continue its efforts in this direction. As regards 
the account referred to by the Court, which is labelled 
'Advances on mission expenses — Brussels' and contains 
the greatest number of 1987 and 1988 operations which 
had not been cleared at the end of 1989 (1,6 % of the total 
number of operations in this account during these two 
financial years), the Commission would point out that 
over half of the outstanding operations were cleared 
during the first half of 1990. 
Unsettled or uncleared operations at budget level 
1.113. (a) The Commission's current account 'Euratom 
Supply Agency' is debited throughout the financial year 
for the amount of expenditure by the Commission on 
behalf of the Agency; it is credited with the amount of the 
subsidy entered in the general budget when the adjusting 
payment order using up the appropriations correspond­
ing to this subsidy is entered in the accounts. Because of 
an oversight, no proposal for commitment or adjusting 
payment order was drawn up by 31 December 1989 and 
the Financial Controller refused to give his approval to 
these documents which were presented to him in January 
1990. At 31 December 1989 the current account therefore 
showed a debit balance corresponding to the amount of 
the subsidy. The budgetary authority agreed that these 
unused appropriations be carried over under Article 
7(1 )(a) of the Financial Regulation; the utilization of the 
appropriations carried over will enable the operation to 
be settled in 1990. 
(b) The authorizing department was unable to settle, 
before the end of the 1989 financial year, provisional 
advances entered in non-budget accounts in 1987 and 
1988 for three buildings rented by the Commission. 
Advances for two buildings were settled during the first 
half of 1990 and the advance for the third building will be 
settled in the second half of 1990. 
(c) The Commission is aware of the anomalies 
mentioned by the Court; computer applications have 
been developed for both accounting and authorization to 
speed up the budgetary clearance of sundry revenue still 
to be entered in the budget. As a result, the balance of 
account 475109 was reduced from 28,7 million ECU to 
12. 12. 90 Official Journal of the European Communities 233 
17,2 million ECU by the end of 1989. The Commission 
intends to continue its efforts to improve this situation. 
The consolidated balance sheet for the 
European Communities 
Reciprocal accounts between the Community institutions 
1.114 -1.117. The institutions keep a very close eye on 
the reciprocal accounts. The discrepancies which exist at 
the end of the year are mainly due to peculiarities in the 
charging of items to the budget, for example in the case of 
certain debts and commitments of the Publications 
Office. For the purposes of the annual closure of the 
accounts, this means that the other institutions must 
complete the closure operations before the Commission. 
The Commission is studying ways of improving the 
reconciliation of the balances of these accounts. 
The keeping of the accounts shown in the 
Commission's balance sheet 
Organization of the general accounts 
1.118. The Commission regrets that it has no internal 
documentation on the general accounts at the moment. 
Over the last few years, priority has been given to the 
modernization of computer applications, as the Court 
itself points out. This effort entails a heavy workload, not 
only for computing departments but even more so for 
accounting departments whose work is very much, if not 
exclusively taken up with defining needs, carrying out 
tests, writing manuals for the users of the systems and 
training these users (both internal and external). 
Since the same officials would also be responsible for 
compiling a manual of accounting procedures, it was 
therefore impossible to begin work before March 1990. 
However, even though these procedures have not yet been 
set out in a manual, they are applied in practice; and even 
if 'to a large extent, the organization of the general 
accounts relies on the individual memories of officials', 
the numerous internal controls on the general accounts 
and on the relation between the general accounts and the 
subsidiary accounts are, in the Commission's view, 
sufficient to guarantee the regularity of its accounting 
system. 
1.119. The vast majority of operations entered in the 
general accounts are based on supporting documents 
originating in clearly identified external departments which give precise details of the operations concerned. 
One of the aims of the manual of procedures currently 
being drawn up is to spell out the way in which some of 
these operations should be treated. Other operations are 
generated by computer interfaces from systems upstream 
according to very detailed rules. The Commission is 
anxious to clarify these operations as far as possible and 
will see to it that they are made more transparent, in 
particular by ensuring that no operation is recorded 
without a supporting document, even when the reason 
behind it is clear (e.g. correction of an error). 
The Commission would add that the new computerized 
system which it uses for the general accounts has been 
designed so that the description of accounting operations 
includes not only the supporting documents on which 
they are based but also the information of various kinds 
fed into the system when the entries are recorded 
(identification of the ledger where the operation is 
entered, analytic codification, etc.). 
Cash accounts 
The banking terms offered to the Commission: 
the return on assets 
1.120. The Commission has opened 65 accounts in 
ECUs or in Community or other currencies with various 
commercial banks. It also has accounts for specific 
purposes, for example cash accounts, accounts with 
central banks and accounts for bilateral co-financing. 
The increase in the number of accounts to 147, which is 
criticized by the Court, was the result of the opening of ad 
hoc accounts, for example for the bilateral co-financing of 
certain development aid measures. 
Moreover, the Commission has engaged independent 
experts to examine the number and the administration of 
the accounts. The first results of this study are expected at 
the beginning of 1991 (see paragraph 1.124). 
1.121. The Commission is constantly striving to 
improve its monitoring of banking terms. To this end, it 
has already initiated internal controls on cash manage­
ment. As a result, negotiations have taken place with 
banks, which, in some cases, have already brought about 
an improvement in the terms offered. Invitations to 
tender have also been issued. In some cases the 
Commission has decided to change bank. In spring 1990 
the Commission's accounting officer sent a circular to 
234 Official Journal of the European Communities 12. 12. 90 
those responsible for bookkeeping setting out the rules of 
procedure which include the procedure to be followed for 
the negotiation and monitoring of banking terms. 
After the Sincom project has been fully introduced into 
cash management and when the results of the study by 
independent experts are available (see paragraph 1.124), 
it will be possible to make a constant and comprehensive 
comparison of the terms offered by banks. 
Meanwhile, the Commission would draw attention to the 
fact that, all in all, the terms it obtains (interest rates, 
commission, value dates, etc.) are generally in line with 
market tendencies. 
1.122. The terms negotiated between the Commission 
and commercial banks are generally fixed for a period of 
several years. Interest rates are most often based on a 
reference rate which is accepted on the money markets 
concerned. Changes to this reference rate and to other 
basic terms are regularly recorded in the files. 
Transfers of funds 
1.123. It is true that the person responsible for transfers 
between the Commission's accounts is authorized to sign 
the payment orders. In practice, however, the rule is that 
payment orders are not signed by the officials responsible 
for transfers. Nevertheless, in order to take account of the 
Court's objections, the Commission will issue detailed 
instructions to ensure that these functions are separated. 
Conclusion regarding cash management 
1.124. The Commission shares the Court's view con­
cerning the need to modernize cash-management instru­
ments. With this in mind, it has already adopted the 
following measures: 
(i) Gradual introduction of the Sincom project aimed at 
more efficient management of the accounts and cash 
resources. 
(ii) A study on the reorganization of the accounting and 
cash-management departments in parallel with the 
introduction of Sincom. 
(iii) A study by independent experts to assess the present 
situation and propose any changes which would help improve the information system and integrate it into 
the Sincom project. 
Operation of imprest accounts in the light of the 
Financial Regulation 
1.125. As has already been pointed out (paragraphs 
1.102 and 18.16), it was necessary to introduce around 80 
imprest accounts in the Delegations during the 1989 
financial year. The staff available were completely taken 
up by this task, so that checks on existing imprest 
accounts, normally carried out on the spot, had to be 
postponed. 
(a) In 1990, on-the-spot checks have been carried out at 
the Paris, Madrid, Lisbon and Washington Offices. 
(b) Since the beginning of 1990, there has been a 
considerable improvement in the time taken by 
Delegations to send supporting documents. 
Moreover, the amount advanced corresponds to 
three months' operating expenditure which, in the 
Commission's view, provides a reasonable margin of 
security, given the technical peculiarities of payment 
systems in non-European countries. 
(c) In most cases it is impractical to set a maximum 
amount per item of expenditure, since the adminis­
trative work involved could not be handled. 
(d) The Commission's internal rules were drawn up in 
accordance with the provisions on imprest accounts 
(Article 49 of the Financial Regulation and Articles 
51 to 59 of the Implementing Rules). 
For practical reasons, the accounting officer may, on 
his own initiative, adapt certain provisions of a purely 
technical nature (Articles 5,6 and 7 of Annex A of the 
provisions relating to imprest accounts). This system 
was adopted with the approval of the Financial 
Controller. The Commission takes the view that it is 
not contrary to the financial rules. 
(e) On 1 January 1988, the former AEC Delegations were 
integrated into the general budget. In accordance 
with the Financial Regulation, this operation re­
quired the introduction of imprest accounts and, 
consequently, the separation of the functions of 
authorizing officer and accounting officer. It took 
some time to appoint suitably qualified persons to 
these posts in all the Delegations. In order to ensure 
that the Delegations functioned smoothly in the 
meantime, the monthly statements were drawn up by 
the delegates themselves. These statements were 
12. 12. 90 Official Journal of the European Communities 235 
entered in the accounts with a view to settlement after 
approval by Financial Control. The principle of the 
separation of functions (authorizing officer and 
accounting officer) is applied to all imprest accounts. 
Accounting officers' guarantee accounts 
1.126. There is generally very little return on the 
Commission's deposit accounts since funds remain in 
these accounts only for short periods. On the other hand, 
the funds in the accounting officers' guarantee accounts 
remain there for long periods. These accounts are 
therefore bound to receive more interest. For this 
reason,the Commission has in the past applied the best 
rates of return on its accounts with commercial banks. 
In 1990 the amount of interest on the guarantee accounts 
will be determined by an invitation to tender by the 
Commission to banks where it keeps accounts in ECUs. The revenue and expenditure account 
1.129. The computer application Sincom (budget 
accounting and expenditure), now used by the Commis­
sion to monitor the implementation of the budget, has 
been gradually introduced during 1990: some of its 
individual applications were available from the beginning 
of the financial year, others were added later in the year 
and the rest will only be completed in the years to come. 
The Commission acknowledges that the programmes 
designed to give the Court access to Sincom for 
consultation purposes were not initially available and 
regrets that the Court has therefore not been able to 
benefit from the improvements which the system has 
brought. However, the Court has continued to receive, as 
in the past, a list of commitments and payments approved 
and all the relevant accounting and supporting docu­
ments. 
Since September 1990 the Court is able to use the 
individual applications developed during the summer 
which give it direct access to the Sincom databases. 
236 Official Journal of the European Communities 12. 12. 90 
CHAPTER 2 
Own resources 
INTRODUCTION CERTIFICATES OF ORIGIN 
Observations 
Introductory remarks concerning the observations 
The Court has voiced a number of criticisms as regards 
the application of the administrative rules governing 
preferential arrangements such as those with GSP and 
ACP countries. In the Commission's opinion, however, 
the Court has not taken sufficient account of the political 
framework within which these arrangements and, 
consequently, the said administrative rules have to 
operate. 
The countries covered by these preferential arrangements 
must issue certificates of origin for the products which 
they export to the Community but their officials do not 
have the same facilities, training and experience as those 
in the Member States. To exercise pressure on developing 
countries with a view to achieving administrative 
perfection or permanent on-the-spot controls would be at 
odds with the aims of the preferential arrangements, 
which are intended to encourage exports of products 
originating in the countries concerned and thus con­
tribute towards the development of their economy. 
Such cooperation has political facets and excessive 
demands on the part of the Community must not be 
allowed to cause friction with our preferential partners. 
Although improvements could still be made to the 
administration of these arrangements, either by the 
Commission staff or by the customs authorities in the 
Member States or by the competent authorities in the 
countries to which preferences have been granted, the 
Commission feels that the present approach represents a 
balanced response to the need to monitor own resources, 
on the one hand, and to maintain harmonious political 
relations with our preferential partners, on the other. 2.17. The Commission has taken note of the Court of 
Auditors' observations, received separately, concerning 
the shortcomings revealed by on-the-spot audits in 
certain beneficiary countries. The points raised coincide 
to a large extent with the findings of the Commission in 
the course of its own inspections. The competent 
Commission departments have replied (or are now 
replying) separately to the Court of Auditors on the 
subject of these reports. 
Provision of information to the control bodies 
2.19. (a) As regards the GSP countries it should be 
pointed out that the great majority of the countries which 
have not provided specimens of their stamps are ACP 
countries and that these 68 countries enjoy more 
favourable treatment under the Lome Convention than 
under the Generalized System of Preferences. For this 
reason they probably see little point in taking the 
necessary steps to qualify for the GSP, even though they 
continue to be potential beneficiaries. 
(b) At 1 October 1990, three ACP countries (Antigua 
and Barbuda, Djibouti and Equatorial Guinea) had still 
not forwarded their stamps. As regards the GSP 
countries, some progress has recently been made, 
particularly in the case of Laos. 
2.20. The specimen stamps are updated whenever 
changes are notified by the beneficiary countries. The 
Commission is also carrying out a complete review of the 
collection of stamps. 
12. 12. 90 Official Journal of the European Communities 237 
Customs controls in the Member States 
2.23. It is true that no Community control parameters 
or rules for physical inspection have been laid down for 
imports, whether qualifying for tariff preferences or not. 
The risks vary, depending on a large number of factors 
other than preferential treatment, and are not necessarily 
the same for, say, one type of goods handled by one port 
as compared with another type of goods imported 
through another port. 
2.24. A new and complete version of the collection of 
stamps is now being prepared, following the introduction 
of the scanner technique for the reproduction of stamps. 
2.25. The Commission has raised the points in question 
with the Committee on Origin and will examine them with 
the Member States. 
2.26. The conclusions to be drawn from the examples 
cited by the Court must take account of the special 
circumstances concerning the possibilities of refusing 
preferential treatment in certain cases: 
— firstly, under the agreements, the rejection of a 
certificate endorsed by the competent authorities of a 
partner country may (unless these authorities have 
agreed) give rise to legal (and political) problems; 
— the rejection of a certificate because of some failure on 
the part of the authorities in the exporting country 
means that preferential treatment is refused without 
the importer having any opportunity to rectify the 
situation (certificates cannot be replaced sub­
sequently and a new certificate cannot be issued if one 
has already been issued for the products in question). 
As regards point (b), the rules state that minor 
discrepancies must not entail the refusal of preferential 
treatment. 
It should also be pointed out that form A used for GSP 
purposes is an international (Unctad) rather than a 
Community form. The GSP countries already claim that 
the Community, by its preoccupation with administrative 
details, is causing them many more problems than the 
other countries which grant preferences (including the 
EFTA countries, which may, moreover, issue replace­
ment certificates for goods exported to the Community!). The Commission has nevertheless taken note of the 
Court's observations, some of which have already been 
discussed with the Member States. 
2.29. The Commission feels that the loophole in 
question has no general significance. It will examine, with 
the Member States, the specific problems which arise in 
this respect. 
2.30. The Commission is familiar with the problem of 
Chinese goods in transit through Hong Kong and 
discussions are still being held with a view to finding a 
solution (the necessary controls would be applied in Hong 
Kong by an official Chinese organization). The Commis­
sion has been informed that, following discussions 
between the Chinese and Hong Kong authorities, it 
should be possible to apply the necessary controls from 1 
January 1991. 
As far as fraud prevention is concerned, the Hong Kong 
authorities usually cooperate most satisfactorily with the 
Community. 
Extent of the verification procedure 
2.33 - 2.34. The Commission has placed on the agenda 
of the Committee on Origin the points relating to the level 
of control exercised by the various customs authorities, 
although the separation of responsibilities between the 
Member States and the Commission must be borne in 
mind. 
2.35. The rules concerning the issue of replacement 
certificates merely state that such certificates must be 
issued at the customs office where the goods are located. 
The Commission will examine the situation in the port of 
Hamburg with the German authorities. 
2.37. The Commission considers that the high per­
centage of certificates which were checked ex post and 
found to relate to ineligible goods shows that the customs 
authorities concerned had accurately identified the 
certificates on which checks were required. 
2.38. The question of parameters for the performance of 
ex post controls has already been raised in the Committee 
on Origin, but no conclusions have been reached (see also 
2.23 above). 
The same applies to the definition of'reasonable doubt'. 
It is not even certain whether a full and objective 
definition of this concept could be produced. There is a 
238 Official Journal of the European Communities 12. 12. 90 
danger that if a definition is given which does not cover all 
the cases in point, it could prove misleading for the 
customs authorities, who would no longer judge each case 
on its merits. 
The Commission will continue to investigate this matter 
with a view to establishing reference criteria. It considers, 
however, that no definition of 'spot checks' is required 
and that, consequently, the distinction between cases for 
spot checks and cases for investigation because of 
'reasonable doubt' does not give rise to any uncertainty. 
Member States' replies: deadlines and contents 
2.39. With effect from 1 March 1990, the deadline for 
the ACP countries and the OCTs is six months (Lome IV). 
For the GSP countries the deadline is six months plus four 
counting from the date of any reminder (which cor­
responds to the certificate's period of validity). The 
Commission is aware of the delays in question and 
contacts the authorities of the beneficiary countries 
concerned whenever such problems are drawn to its 
attention. 
2.40. As regards the slowness of ACP countries to 
provide the results of the controls requested, the fourth 
Lome Convention now makes provision for automatic 
refusal (provisions concerning the rules of origin 
applicable since 1 March 1990), subject to the same 
conditions as apply under the GSP. 
2.42. In view of the numerous problems affecting the 
application of the bilateral agreement with Yugoslavia, 
the Commission has brought strong pressure to bear on 
the Yugoslav Mission. Responsibility for issuing EUR 1 
certificates has thus been withdrawn from the Chambers 
of Commerce and transferred (by the Yugoslav Govern­
ment) to the customs authorities, with effect from 1 June 
1990. It is too early to say whether there has been any 
improvement in the controls applied since that date, but 
some progress seems to have been made with regard to the 
response to requests for ex post checks on certificates 
issued by the Chambers of Commerce in that the latter 
have finally admitted (albeit too late in some cases) that 
the goods in question did not originate in Yugoslavia. 
They have also recently agreed, in the light of information 
received from the Commission, to withdraw some of the 
EUR 1 certificates which they had issued. 
Follow-up by the Member States when there is 
no reply by the deadline 
2.43. If a reply is not received within the prescribed 
deadline, preferential treatment is automatically refused only under the GSP arrangements and (since 1 March 
1990) under the ACP/OCT arrangements, provided that 
the request for ex post checks was based on 'reasonable 
doubt'. At the request of the customs authorities of the 
Member States, the Commission approaches the author­
ities in the country concerned with a view to obtaining a 
reply (or a further reply) within the prescribed deadline. 
2.44. If the request for ex post checks is not based on 
reasonable doubt, i.e. in the case of spot checks, the case 
may indeed be closed and no further action taken if no 
reply is received within the prescribed deadline (pref­
erence thus continues to be granted). 
When asked to deal with a problem, the Commission 
continues its endeavours to obtain a reply from the 
country concerned even beyond the prescribed deadline, 
with a view to resolving the question within three years 
(the period of limitation). It should be pointed out in this 
context, however, that many of the cases submitted to the 
Commission are concerned with imports which occurred 
more than two years previously and that the competent 
authorities of the beneficiary countries are obliged to 
keep export documents only for two years. In practice, 
therefore, it is often difficult, if not impossible, for the 
Commission to resolve such cases. 
Lack of rules concerning deadlines 
The bilateral agreements do not set a deadline for 
answering requests for ex post checks and the Community 
cannot refuse preference if the partner country does not 
acknowledge the invalidity of a certificate duly issued by 
its authorities. In view of the specific problems en­
countered with Yugoslavia the Commission has had to 
make a special effort, which would seem to have borne 
fruit to some extent at least. A similar effort is being made 
in the case of Lebanon, where the situation as regards 
controls is made extremely difficult by the civil war. 
The Commission considers, however, that when the 
'origin' protocols to all these agreements are consolidated 
and, naturally, whenever any new agreements are 
concluded (Gulf countries, Eastern Europe), it must be 
recommended that provision be included for the auto­
matic refusal of preference in cases where no reply is 
received. It should nevertheless be borne in mind that 
such changes would have to be negotiated with the 
partner countries concerned. 
Monitoring of implementation 
2.45. (b) If the customs departments specify, in the 
request for ex post controls, that it is a spot check, the 
authorities to whom the request is addressed know that 
12. 12. 90 Official Journal of the European Communities 239 
they only have to 'forget' to reply and preference will be 
maintained. That is why such details should not be 
explicitly stated on the requests. Obviously, however, 
they should be included in the file kept by the office 
requesting verification, so that it knows what should be 
done if no reply is received. The Commission will raise 
this matter with the Committee on Origin. 
If there are any particular problems with the certificate in 
question, these should always be mentioned in the request 
for verification so that the competent authorities can 
reply to these points and so that no further letters need be 
written because the first reply has been in too general 
terms. 
Refusal to grant preferential treatment 
2.48. The Community cannot apply sanctions to 
beneficiary countries which fail to comply with the rules 
on administrative cooperation. Preferential treatment 
may be refused only in specific cases and even then due 
consideration has to be given to the legal position of the 
importer. The imposition of sanctions on the importers 
themselves is a matter for the national authorities. 
Irregularities 
2.49. The Commission is actively investigating the cases 
listed. The progress made so far is as follows: 
(a) Enquiries are still in progress in the Member States, 
except in France, where they have been completed 
and have resulted in the recovery of the duty evaded. 
(b) In November 1989 visits were made to Las Palmas, 
Banjul and Freetown to improve administrative 
cooperation and resulted in the dismantling of the 
fraudulent organization. The main figure behind this 
organization is now facing prosecution in Las 
Palmas. Formal proof is available for the purposes of 
recovering the duty evaded. 
(c) and (d) The EUR 1 certificates have been ac­
knowledged as invalid by the Yugoslav authorities. 
The Member States concerned have initiated the 
procedure for the recovery of the duties evaded. 
(e) In both the Netherlands and Italy this matter has 
been referred to the Public Prosecutor. (f) Enquiries into this matter are in progress. 
The Commission's management 
2.50. The Commission's replies to these observations 
are set out in paragraphs 2.51 to 2.59 below. 
2.51. The Commission considers that the application of 
mutual assistance measures is the appropriate and proper 
action in this particular case. Other measures with a wider 
scope, such as those suggested by the Court, cannot be 
taken on the basis of the information supplied (which, 
although serious, is not sufficiently detailed) without 
causing serious repercussions at political level. 
2.52. On several occasions, and in particular within the 
Committee on Origin, the Commission has reminded the 
Member States of its position as regards customs stamps 
of which it has not been notified, namely that it does not 
consider certificates bearing such stamps as complying 
with the legislation in force. 
The own resources due in such cases are claimed 
whenever the Commission can definitely establish that 
tariff preferences have been wrongly granted. 
2.53. The Commission does not feel that its endeavours 
in this area have been inadequate and this is borne out by 
the results achieved. It also considers that the marginal 
use of the GSP arrangements by ACP countries and the 
administrative position in the developing countries call 
for some flexibility in how the information in question is 
handled. 
2.54. Contacts have been established between the 
Commission departments concerned with a view to 
improving their communication procedures. 
2.55. The Commission delegations in the beneficiary 
countries also help with the application of the rules of 
origin when requested to do so by these countries or by 
other Commission departments. 
They can only play a subsidiary role, however, because of 
the question of the competence of local officials and the 
many different kinds of export operations as compared 
with the limited number of EDF measures or food-aid 
schemes. 
^40 Cofticialiournal of the European communities LlLl^ 
2.^6. The cumulation procedure centers on exporters 
certain advantages to which thebeneticiary countries 
attach great importance. Inevitable this complicates the 
legislation governing the procedures particularly in the 
case ofthe Generalized system ofRrelerences.lt should 
be pointed out in this connection that^ although an 
improved system was approved for the regional groups 
ings concerned inl^^onlyAsean has completed the 
necessary formalities for implementing suchasystemt^in 
November 1^. 
Lhe differences between the ACm^COCEf cumulation 
procedure and that applicable to certain regional 
groupings of GSR countries derive from the wider 
objectives of the arrangements in question. The dif 
terences between the various preferential schemes could 
besaidtocomplicatethesituationasregardscontrols^but 
they do in fact reflect the political objectives pursued. 
2.^D2.^. Lhe rules on origin for theproducts in 
questionwillbeharmonizedby l^.loiscussionsare 
already under way within the committee on COrigin. 
C^o^^o^ 
2.6^. Lhe community cannot take over from the 
beneficiary countries the task of monitoring the imD 
plementation ofthe rules on origin.Itis therefore obliged 
to operateasystembasedonthe acceptance by these 
countries of the responsibilities laid down in the 
agreements concerned or imposed by virtue of autonomy 
ous arrangements. 2.ei.^ This ^weakness^ in the very principle under­
lying the control mechanisms is inherent in any system 
of preferential treatment. 
^ As already stated^the commission will examine 
jointly with the Member States the scope for improving 
the implementation of the arrangements in question. 
2.62.^ Lhe Generalized System of Preferences 
already contains provision to thisetlect^subjecttocertain 
conditions.Acorresponding amendment to the bilateral 
agreements could be negotiated. 
^ Lhese matters are already being considered within 
the committee on Origin. 
^ commission staff and the competent authorities in 
certainbeneticiary countrieshavealready carriedout 
joint inspectionsforthepurposesoffraudprevention 
^e.g. Singapore^. 
Lheconferment on theGommission of additional powers 
so that it can carry out regular inspections in the 
beneticiary countries^ along the same lines as the own-
resources inspectionscarriedoutin the Member States by 
the competent departments^ would have to be negotiated 
withthepartnercountries.PheFourthLomeGonvention 
represents substantial progress towards the objectives 
outlined by the Gourtmn that it hasformally adopted the 
principle of Gommunity participation in inspections 
carried out in theAC^P countries^ subject to approval by 
the latter. 
12. 12. 90 Official Journal of the European Communities 241 
CHAPTER 3 
The European Agricultural Guidance and Guarantee Fund, 
Guarantee Section (EAGGF-Guarantee) 
Management and budgetary control 
BUDGETARY DISCIPLINE Reporting of quantities 
Out-turn 
3.3 - 3.4. Article 6 of the Council Decision of 24 June 
1988 stipulates that, in order to ensure that the 
agricultural guideline is respected, the Commission must 
establish an early warning system covering each in­
dividual chapter. 3.6-3.8. The Commission regularly takes action to 
improve the reporting system. None the less the proposal 
made by the Court, which the Commission will study 
most carefully, supposes that : 
all the Member States store the quantitative infor­
mation for the purposes of monthly transmission to 
the Commission in their computer systems; 
This method implies: 
— that the chapter estimates must be as accurate as 
possible in order to avoid to the maximum extent the 
need to adjust appropriations during the financial 
year; the computer systems used by the Member States are 
compatible with the Agrex system; 
the Commission is in a position to process the 
quantitative information obtained, which would 
require considerable adaptation of Agrex. 
that all the economy measures defined in Article 6 of 
the Council Decision are implemented when the rate 
of development of actual expenditure risks exceeding 
or exceeds the profile forecast by the early warning 
system; 
that transfers of appropriations when they are 
unavoidable, either because of external factors or 
exceptional circumstances which could not be 
foreseen when the budget was drawn up (epidemics, 
for example), or because it is impossible to implement 
the economy measures referred to above in good time, 
are proposed to the budgetary authority before 
appropriations prove to have been exceeded for the 
chapters concerned. Lastly, changes of this type should not hold up the 
transmission and assessment of the information which 
would make the early warning system inoperative. 
3.10. The Commission has reminded the Member States 
involved of the need to improve their declarations and to 
fulfil their obligations in the matter. 
INTERVENTION STOCKS 
Finally adjustments between chapters in surplus or in 
deficit are provided for in Article 8 of the Council 
Decision and the provisions of Articles 100 and 105 of the 
Financial Regulation. These adjustments must however 
be in keeping with the measures which the Commission 
and, where appropriate, the Council decide to introduce 
under Article 6 in order to ensure that the agricultural 
guideline is respected and must, of course, be within the 
limits of the total amount of appropriations entered in the 
budget. Depreciation of intervention stocks 
3.12. The purpose of the exceptional depreciation of 
alcohol was to depreciate the quantities initially ear­
marked for disposal during 1989 for which appropri­
ations had been entered in the budget. As disposal did not 
242 Official Journal of the European Communities 12. 12. 90 
take place, the appropriations involved were used to 
depreciate the alcohol, which has the same budgetary 
effect. Potential expenditure was thus avoided for the 
following year's budget, which resulted in savings. 
Free distribution of intervention stocks 
Accounting treatment 
3.13. See reply to point 3.22. 
Deprived persons 
3.16-3.17. Valuation of the stocks distributed to 
underprivileged people in the Community at the buying-
in price makes it possible to obtain a clear picture of the 
actual financial effort the Community makes to assist 
them. Valuation must be based on the normal cost of 
supply in the Community, which corresponds to the 
intervention price. 
Eastern European countries 
3.19. The programme of food aid to Poland was 
adopted by emergency procedure on 24 July 1989 at a 
time when the 1989 EAGGF Guarantee budget was 
virtually at an end and the 1990 preliminary draft budget 
was already before the Council. 
The Commission will shortly be reporting on the 
implementation of the programme. 
Developing countries 
3.20-3.21. The budget transparency requirement 
under the present legislation means that food-aid 
operations are entered in the accounts in a way that 
clearly shows the 'refund' part (financed by the EAGGF 
Guarantee Section) and the 'world price' part (financed 
by the food-aid appropriations). If the operations were 
valued at the depreciated book price, the 'refund' 
component would be watered down in the 'other storage 
costs' to the detriment of budget transparency. 
What the Court describes as 'profit' and is entered under 
'other storage costs' under the current accountancy method is composed of the equivalent value of the 'food 
aid' refund charged to Article 292 and of an amount 
corresponding to any difference between the world price 
used when drawing up the budget and the actual world 
price at the time of export. The latter amount may be 
positive or negative depending on the development of the 
world market price. 
As the Court itself comments its criticism is addressed to 
the current legislation which the Commission is applying 
correctly. It is clear, moreover, from the reply to the 
preceding point that the Commission does not share the 
assessment made by the Court from an accountancy point 
of view. 
Recommendation 
3.22. With the exception of the way the emergency 
measure for Eastern European countries was dealt with, 
the Commission is of the opinion that the valuation and 
recording of the free distribution measures are consistent. 
Implementation of programmes in favour of 
deprived persons 
3.23-3.25. In view of the time needed for implementing 
the programmes on the spot and for distribution, the 
Commission has set a final date (31 August) for the 1990 
programme for taking the goods out of intervention. 
FINANCIAL AUDIT IN THE COMMISSION 
Advances to Member States 
3.44. According to the Commission's information, the 
amount to be collected by Belgium in respect of the milk 
superlevy for 1987/88 was 3 million ECU at the end of 
September 1990. 
The Commission has instituted the procedure provided 
for in Article 169 of the Treaty against the Netherlands 
for failing to collect the full amount of this levy. 
12. 12. 90 Official Journal of the European Communities 243 
CHAPTER 4 
The European Agricultural Guidance and Guarantee Fund, 
Guarantee Section (EAGGF-Guarantee): Organization and 
management of markets 
4.1. Subsidies for butter for use in the manufacture of pastry products, 
ice-cream and other foodstuffs 
INTRODUCTION 
4.1.1. The average yearly decrease in non-subsidized 
consumption of butter since 1975 amounts to 2,7 %; the 
decrease in 1989 amounts to 8 %. 
BUDGETARY EXPENDITURE 
4.1.5. Detailed data on the results of this measure can be 
found e.g. in the reports on the intervention measures in 
the milk sector, the last one published being on 1989. 
The Commission does not believe that monthly declar­
ations need to be so detailed. The problem could be solved 
by amalgamating the formulas A, C and D. 
DESIGN OF THE MEASURE 
Complexity 
4.1.7 - 4.1.9. Regulation No 570/88 is the result of two 
years preparatory work involving all concerned parties. 
The structure of the Regulation reflects the requirements 
for improved management and control of Community 
markets and funds as well as the complex characteristics of products, operators and users who can benefit from the 
scheme. Experience obtained during the first two years of 
operation of Regulation (EEC) No 570/88 has shown that 
the scheme has worked satisfactorily. Considerably more 
butter was sold in 1988 and 1989 compared to previous 
years. The structure of the Regulation has not prevented 
this positive development but has contributed to an 
efficient and economic disposal of butter surpluses. 
Furthermore, the control of this costly disposal measure 
has been improved compared with the situation under the 
previous regulations. 
However, the group created by the Commission to 
simplify the agricultural rules is currently reviewing the 
measure. 
Control provisions 
4.1.10-4.1.11. The control provisions, laid down in 
Title IV of Regulation No 570/88 are minimum require­
ments. These improved requirements were established by 
the Commission after controls by its services. Additional 
checks should be carried out by the Member States if 
needed under given circumstances. This is the case for 
control of physical stocks compared to book records and 
for checking of consistency between different accounts 
and records if they are kept separately for operations 
relating to Regulation (EEC) No 570/88. 
In any case, excessive control measures disturbing the use 
of the scheme should be avoided. 
244 Official Journal of the European Communities 12. 12. 90 
The Commission is convinced of the importance of 
analytical checks in certain cases and will definitely 
encourage their use in Commission checks carried out in 
the Member States. 
MANAGEMENT BY THE COMMISSION 
Number of rates 
4.1.14-4.1.15. The reduction of the number of basic 
subsidy rates is at present under consideration in the 
'simplification' group and in the Commission services 
concerned. 
Change of formula 
4.1.16. The Commission envisages merging formula A/ 
C and formula D. The interpretative note of June 1989 
(mentioned by the Court) concerning conditions for the 
acceptance of transfer between different formulas has 
been distributed and discussed in the Management 
Committee. This is considered the best procedure when 
clarification of a concept in a regulation is requested. 
However, this point may also be taken up in the context of 
the review by the 'simplification' group. 
Controls by EAGGF on butter used in a 
Member State other than that where the 
subsidy is paid 
4.1.17-4.1.20. The Court's remarks are valid only in 
respect of traced or concentrated butter which is finally 
incorporated in a Member State other than that in which 
tracing or concentration occurred and in which the 
processing security must be lodged. 
However, the Commission is well aware of the situation 
created by the provisions concerning securities and will 
examine the possibilities of altering the regulations in a 
more satisfactory way. IMPLEMENTATION IN THE 
MEMBER STATES 
Minimum frequency of control visits 
4.1.22. The Commission will follow up this matter 
during its control visits as part of the 1989 clearance of 
accounts procedure. 
Central monitoring of control work 
4.1.23. The Commission is aware of the difficulties 
caused by a decentralization of control services in the 
Member States. By incorporating field visits into its 
controls it attempts to overcome these difficulties. 
Division of control responsibilities, France 
4.1.24-4.1.25. The Commission is well aware of and 
has criticized the situation in France in the past. This 
particular aspect will again be covered in the course of its 
1989 clearance procedure; a control visit is foreseen for 
the second semester of 1990. 
CONCLUSIONS 
4.1.26. Considering the complex realities of the industry 
and target markets, the Commission has attempted, 
through Regulation No 570/88, to ensure an efficient and 
economic disposal of butter surpluses. Bearing in mind 
the high level of aid and the importance of the amounts 
spent, the control requirements included are considered 
to be necessary without being excessive or discouraging 
the use of the scheme. However, the 'simplification' group 
is currently reviewing the measure. 
4.1.27. The Commission will examine the possibilities of 
adapting the Regulation to take into account the specific 
situation created when butter is traded between Member 
States. 
4.1.28. The Commission regularly follows the appli­
cation of the Regulation in the different Member States. 
As part of the 1989 clearance of accounts procedure, 
control visits to Germany, France and Belgium on the 
pastry butter measure are planned in the second semester 
of 1990. 
12. 12. 90 Official Journal of the European Communities 245 
4.2. Premium for maintaining suckler cows 
ANALYSIS OF THE IMPACT OF Impact of the premium on cattle numbers 
THE PREMIUM 
Impact of the premium on income 
4.2.7. The very large size of suckler herds in certain 
regions in Spain to which the Court refers could be an 
exceptional case and is in no way representative of the 
average structure of 'suckler cow' holdings in the 
Community. 
In view of this situation, the Commission feels that it 
would not be appropriate to introduce a maximum 
number of eligible animals under the premium scheme. 
Such a move would affect only a small number of 
holdings in certain parts of the Community; however, it 
would considerably complicate management of the 
scheme and monitoring by the competent national 
authorities and provide an incitement to deflections and 
fraud. 
4.2.8. The premium granted to the producer is a 
standard amount, fixed by a political decision in the 
Council. The amount is not regularly adjusted on the 
basis of specific factors; occasional adjustments are 
prompted by the general situation in the beef sector and 
are not directly linked to trends in market prices and 
production costs. It is therefore not necessary to monitor 
the economic situation of'suckler cow' holdings and keep 
under permanent review the role and impact of the 
premium. 
However, the Commission is able to assess at any time the 
premium's impact of incomes, using the various studies 
and information published by scientific and/or profes­
sional bodies. This information is collected and studied 
by the competent departments. The calculations men­
tioned by the Court at paragraph 4.2.9. and the 
conclusions which it draws from them show how useful 
this procedure is. 
The Commission will nevertheless consider whether the 
Farm Accountancy Data Network (FADN) could in 
future also publish specific information and calculations 
regarding the farming of suckler cows. 4.2.12. As regards the total number of cows in the 
Community, two clear trends can be identified: 
— firstly, a reduction in the number of dairy cows since 
the introduction of milk quotas in 1984; the reduction 
was large in the two to three years after 1984 and is 
currently less pronounced and will continue to be so 
in the future; 
— secondly, a regular and permanent increase in the 
number of suckler cows in the Community, for 
various reasons, including the increase in the 
premium. 
As a result of these two trends, the number of suckler 
cows in the Community has been on the increase for 
several years. Thus, the number of suckler cows as a 
percentage of total cow numbers is as follows: 
in 1983: 18% 
1988: 22% 
1990:25% 
However, the Commission must ensure that the level of 
the premium does not lead to an excessive increase in 
suckler cow numbers, since this would exacerbate the 
difficulties on the beef market and endanger market 
equilibrium in the coming years. 
4.2.13. As regards the statistical surveys on the cattle 
population carried out by Eurostat, which give a general 
indication of suckler cow numbers, the Commission 
would point out that the absence of an exact definition of 
the two types of cow noted by the Court was rectified in 
June 1990 in an amendment to Commission Decision 
73/262/EEC. 
4.2.11. See reply to paragraph 4.2.7. 4.2.14. See reply to paragraphs 4.2.8. and 4.2.12 
246 Official Journal of the European Communities 12. 12. 90 
THE COMMISSION'S ROLE IN 
MANAGEMENT AND SUPERVISION 
Inadequacies in the implementing rules 
The problem of cow identification 
4.2.15. The Commission is certain that all Member 
States will, in the future, be obliged to introduce a system 
for the identification of cows which will serve the 
purposes of a series of measures adopted within the 
framework of the CAP. The Commission is taking an 
active part in the work undertaken at Community level to 
find a reliable identification system. 
Force majeure 
4.2.16 - 4.2.17. As regards the notification of cases of 
force majeure by Member States, the Commission agrees 
with the Court's criticism. It will therefore be examining 
the possibility of improving the frequency and content of 
these notifications; if necessary, it will propose an 
amendment to the rules. 
Supervision by the Commission of the 
Member States' management 
4.2.18. The Commission has a collection of the national 
provisions adopted by the Member States when the 
premium scheme was introduced in the early 1980s. The 
scheme was not substantially changed for a number years 
thereafter, so the Member States did not have to amend 
their provisions. It was only in 1987, and 1989 in 
particular, that amendments to the premium scheme 
called for changes to the national instructions. Certain 
Member States did not fulfil their obligations as referred 
to in Article 6 of Regulation (EEC) No 1244/82. 
However, when an amendment is made, the Commission 
can accept that the Member States send only partial 
information, since it is rarely necessary for national 
provisions to be fully revised. 
Following the extension of the premium to cover small 
milk producers, the Commission has again amended implementing Regulation (EEC) No 1244/82. This 
amendment requires adaptation of national legislation. 
The Commission intends to use this opportunity to ask 
the Member States to provide it with an up-to-date set of 
their national provisions. 
4.2.20. See the reply to paragraph 4.2.18. 
MANAGEMENT AND CONTROL 
OF THE SYSTEM AT THE LEVEL OF THE 
MEMBER STATES 
Instructions for management 
4.2.22. (c) As far as Italy is concerned the Court has 
been informed that the Commission has already brought 
to the attention of the Italian authorities (March 1989) its 
dissatisfaction with control arrangements in this sector. 
Among other points, explicit reference was made to the 
methods for conducting inspection visits and the fact that 
there was no centralized control on creameries or cattle 
movements. The Commission has been informed of 
improvements in control arrangements since then and has 
the situation under review. Furthermore, a financial 
correction in the next clearance of accounts exercise for 
the years 1987 and 1988 is envisaged. In Spain, the control 
of non-delivery of milk is done by checking the breed of 
animals and whether milking equipment is present on the 
farm. The Commission will further investigate this aspect 
during its forthcoming audit in Spain. 
(d) The Commission has already noted this weakness in 
the Greek national instructions and it is addressing a 
number of recommendations to the Member State 
concerned; as far as Spain is concerned, this aspect will be 
examined during the Commission's forthcoming audit. 
Role of the central administration in the 
management of the system 
4.2.23 - 4.2.24. The Commission has already noted this 
weakness in the overall supervision of the implementation 
of the scheme in the regions and the matter has been 
raised with the national authorities. Some improvements 
have been initiated by Greece while the situation is still 
12 12 90 Coflicialiournal of the European Communities 2^7 
under discussion ^ith the Spanish authorities. The 
Commission is following the situation closely to make 
sure that all the proper measures and safeguards ^ill be 
e^entuallyinstalledand operated bythelviemberStatemn 
order to ascertain the proper implementation of the 
scheme in the regions. 
^^^^^no^ 
^.^.(^ Asfarastheidentilicationofanimalsis 
concerned^ see the comment in paragraph ^.2.1^. It 
should also be noted that the latest amendments of the 
Regulation provide for the controls to be done without 
any^arning^ho^e^enin some cases^a4^hour earning 
^ould be acceptable in some member States ^here free 
gra^inganimalsha^etobegatheredinone^tensi^efarms. 
(b) Since it is not possible for all controls on the 
retentionofanimalstobe done at the endof thesis 
month periods the Commission has accepted that these 
controls should he carried out as late as possible in the 
retention period.Lhe Commission has addressed recom^ 
mendations and observations to the member State 
in^ol^ed^ in cases ^here it considered that the controls 
^ere carried out too early in the retention period. 
(e) The Commission is refusing the payment of the 
premiumin all such cases found duringits annual control 
visits to the member State. 
(d) TheCommissionhasalready observed thisproblem 
andisaddressingaletterto the member Stateconcerned. 
(e) Phe intensification of controls by the Italian 
authoritiesfollo^edCommissioninter^ention (February 
19^9) in relation to the disparity between the number of 
paymentsandthenumberofeligibleanimalsaccordingto 
statistics. 
C^^^^^^^^^^^c^^^ 
^.^. I^he introduction of the milk quota system in 
19^4aflectedthe^ariousaspectsofcheckingnon^deli^ery 
of milk.From that year onmt became ^erydifUcultfora 
farmer keeping sucklerco^s to acquireamilk quota and 
commence milk production. Introductionof the quota 
system therefore considerably reduced the risk of an 
applicantfailingto honour hiscommitmentregardingthe 
nondelivery of milk. ^lowe^enitisstillnecessarytocheckthatproducers fulfil 
theirundertakingnottodeli^ermilk.Inordertogi^ethe 
inspection authorities clear guidelines on this aspects the 
Commission adopted Regulation (EEC) No 2079/90 of 
20]uly 1990 toinsertanew provision in Regulation 
(EEC) Nol2^/^2 laying do^n detailed implementing 
rules for the system. 
In futures administrative checks ^ill in^ohBe a com^ 
parison of the list of applicantsfor the premium ^ith the 
listofmilkproducersha^ingareterencequantity for 
milk^^itha^ie^ to checking nondelivery of milk (in the 
case of applications submitted under the scheme referred 
to in Article2of Regulation Nol^7/^0 (specialized 
producers))orto verify the information concerning the 
reference quantity for milk (inthe case of applications 
submitted under the scheme referred to in Article 2a of 
that Regulation (small mill^ producers)). 
The ne^ provision applies to all applications submitted 
by small milk producers and to not less thanlO^of 
applications submitted by specialized producers. 
This point is always examined during Commission 
inspection visits and comments are addressed to member 
States in the cases ^here these controls ^ere not done at 
the appropriate time. 
^V^^^^^^^^^^^^ 
^.^. rude Commission always checks this points and 
where there is no documented explanation of differences 
between thenumbersofanimalsdeclaredandthosefound 
on the spot^ the premium is not paid. 
A^^^^^^^^^ro^^^^^^^ 
^.^^^.^. The Commission is aware of these 
pointsandhas raised theseproblems with the Crreek 
authorities^ ^hicharecurrentlye^aminingthe possibility 
of direct bankpaymentsto the beneficiariesorthemailing 
ofanoticewiththeamountdue^the regularity ofthe2^ 
administrati^efeecharged to the beneficiaries bythe local 
cooperatives is under examination by the Commission. 
248 Official Journal of the European Communities 1212^0 
CtD^CLHSttD^ 
4.^.3^^4.^.3L The Commission considers that the 
information and calculations at the disposal of its 
departments, which come from reliable and neutral 
sources, aresufficient to assess the impact of the premium 
on producers^ incomes. Phe use of such sources is 
widespread and acceptable in all administrative circles. 
In addition, the Commission does not consider it 
appropriate to propose a ceiling on the number of eligible 
animals for specialized producers. The financial resources 
freed by such a move would not be sufficient to increase 
substantially the premium paid to other producers. 
HISTORICAL BACKGROUND 
4.3.1-4.3.5. The co-responsibility arrangements re­
placed from 1986/87 the system of the guarantee 
threshold, which had been introduced in 1982/83. Under 
the latter system, if average cereals production exceeded 
the threshold, the intervention price had to be reduced by 
1 % for every million tonnes in excess of the threshold, up 
to a maximum of 5 %. 
The guarantee threshold for the 1^^^ marketing year 
was exceeded and asaresult the cereals prices for the 
1^^^ marketing year should ha^e been reduced. Since 
the Council was unable to reach an agreement on cereals 
prices, the Commission had to take precautionary 
measures throughout l^^o. 
Lhe main reason forabandoning the systemof linear 
price reductions was the fact that automatic price 
reductions for the following marketing year or years 
wouldha^eledtoane^cessi^eburdenofco^responsibility 
for producers. 
Louring the consultations held on the basis of the Careen 
Paper and the Commissions proposal for a general 
reformofthecommonorganizationof themarketin 
cereals^CCo^^^700^,theCouncildecidedtoreplacethe 
system of guarantee thresholds by the co-responsibility 
le^y.Phe purpose of the le^y is to make farmers more 
awareofmarket realities, tocontribute to the financing of 4.^.3^. Someof theCourCscommentsha^ealready 
been the subject ofanumber of amendments which the 
Commissionhasmadetothedetailedimplementingrules, 
For e^ample,in]unel^^ the provisions concerning the 
pre^entionand penalizing ofirregularitiesandfraud were 
strengthenedmniuly 1^0, the checking operations were 
defined more precisely and additional checks were 
introduced for applications submitted by small milk 
producers. 
Phe Commission identified during its own inspectionsa 
number of the weaknesses pinpointed by the Court and 
has taken the necessary steps to rectify them. Thus, since 
the adoption of regulation ^EEC^ol^2^, men­
tioned bytheCourt,furtheramendmentswereadoptedin 
Commission Regulation ^PEC^o 207^0 of 20 ]uly 
l^O^Cornion^i^^ioo^ 
measures to dispose of surpluses and to create outlets for 
cereals on the internal and external markets tDD 
In addition, across-the-board application of the co-
responsibility levy has been abandoned, since measures 
ha^e been adopted whereby small producers are exempt 
from paying the le^y. 
BUOdEPARY^ECHTIC^ 
4.3.7. Thefigureof23^ calculatedby the Court 
reflects the relation between the amounts in the ^budgeC 
and ^actuaf columns inPable4.3.2,Thiscalculation does 
not take into account the following factors^ 
for the 1986 and 1987 financial years, the budget 
figures also included direct exemptions for small 
producers in Spain and Italy (50 million ECU), 
(]) Commission report to Parliament on the economic impact 
of the co-responsibility levy. 4.3. The co-responsibility system in the common market organization 
for cereals 
12. 12. 90 Official Journal of the European Communities 249 
— as a result of the change in the closing date of the 
financial year for the EAGGF Guarantee Section in 
1987 and the concentration of expenditure at the end 
of the year, part of the appropriations in the 1987 
budget were re-entered in the 1988 budget. 
The direct exemptions applied by the Member States are 
monitored as part of the clearance of accounts oper­
ations. 
THE APPLICATION OF THE SYSTEM 
IN THE MEMBER STATES 
Establishing the levy base 
4.3.9 - 4.3.48. Preliminary comment 
Because the initial system for collecting the levy on cereals 
(Regulation No 2040/86: first processing, intervention 
and exportation) was valid only for the 1986/87 and 
1987/88 marketing years, the Commission decided to base 
the clearance of accounts for 1987 and 1988 on a global 
study of the quantities of cereals in respect of which the 
Member States should collect the co-responsibility levy. 
(With regard to the clearance of accounts, see also the 
reply to paragraph 4.3.61.) 
4.3.10. About 40 % of the cereals produced throughout 
the Community are exempt from payment of the co-
responsibility levy, for a variety of reasons: 
— part of this quantity relates to cereals grown and used 
on the farm (about 40 million tonnes), including 
cereals processed under contract. The Court of 
Justice has on several occasions ruled that such 
exemption is justified; 
— another part relates to cereals grown by small 
producers (about 20 million tonnes). These exemp­
tions have made it possible to differentiate the impact 
of the reduction in cereals prices on the basis of the 
specific situation of certain categories of producers, 
which was one of the main factors in the Council's 
choice for a general reform of the common organiza­
tion of the market in cereals. Checks on individual levy declarations 
4.3.22. (a) The difference in the number of quarterly 
declarations can be explained by the fact that the rules 
under both the 'first processing' and the 'first buyer' 
systems provide that operators may be authorized to pay 
the levy for the entire year in one lump sum if the quantity 
of cereals subject to the co-responsibility levy which they 
process in one marketing year is less than 250 tonnes. 
(c) and (d) It is true that, from the beginning of 1986, 
Italy applied the levy at the first buyer stage rather than at 
the first processing stage. Throughout the 1986/87 
marketing year, the Commission insisted that the Italian 
authorities should comply with the Community rules (see 
also the reply to paragraphs 4.3.51-4.3.58). 
Late returns and late payments 
4.3.25. (c) The Commission intends to make financial 
corrections during the clearance of accounts for 1988 in 
respect of three Member States on account of late 
collection of the levy. As regards late payments, 
Commission Regulation (EEC) No 2712/89 introduced 
interest on arrears for all payments after the imposed 
time-limits. 
(i) The Commission considers that there is no reason to 
make corrections during the clearance of accounts, 
since the French authorities have instituted the 
necessary legal proceedings to recover the amounts 
due. 
(iii) According to French trade circles, 97 % of the sums 
illegally withheld in respect of the 1989/90 marketing 
year were paid over in July 1990. 
Reimbursements of additional 
co-responsibility levy 
4.3.26 - 4.3.29. The Commission was aware that total 
or partial reimbursement of the additional co-respons­
ibility levy would complicate administrative procedures. 
Regulation (EEC) No 1432/88 was therefore amended in 
December 1988 to authorize the Member States to 
250 Official Journal of the European Communities 12. 12. 90 
provide for the additional levy to be reimbursed by the 
first buyers (Regulation (EEC) No 3858/88). 
For 1989/90, all the Member States except for the United 
Kingdom, Italy and Greece arranged for reimbursement 
to be carried out directly by the operators concerned. 
From the 1990/91 marketing year, the system of 
stabilizers has been adjusted to avoid the need for 
reimbursement (Regulation (EEC) No 201/90). 
PUBLIC ACCOUNTING SYSTEMS 
Exemptions 
On-farm use of cereals for animal feed 
4.3.37. The Commission takes the view that cereals 
which are the subject of contracts containing a 'remere' 
clause must be subject to the co-responsibility levy. It will 
request information from the French authorities about 
this procedure and take any necessary measures. 
In addition, Case 203/89 currently before the Court of 
Justice for a preliminary ruling concerns the question of 
whether sales of cereals later bought back by producers in 
the form of feedingstuffs should be subject to the co-
responsibility levy. 
Aid for small producers of cereals 
4.3.38-4.3.39. In its proposals, the Commission has 
always insisted on the need for a Community definition of 
'small cereals producer'. 
In the context of the 1990/91 price proposals, the 
Commission proposed that this system should eventually 
be replaced by an aid scheme for producers of certain 
arable crops whose incomes are affected by the introduc­
tion of the stabilizers. As a result of the Council's refusal 
to replace the existing system with the new scheme with 
immediate effect, the existing arrangements have been 
maintained and it was decided to apply the new scheme on 
an optional basis for two years. THE COMMISSION'S CENTRAL 
MANAGEMENT 
Monitoring the implementation of the 
measures in the Member States 
4.3.51. The Commission asked the Italian authorities to 
comply with the Community rules in the summer of 1986. 
During the negotiations on the 1987/88 price proposals 
Italy won a derogation. 
For the clearance of accounts, the Commission based its 
calculations for the correction on the Community rules in 
force during the marketing years in question. 
4.3.52. The Commission regrets that certain agricul­
tural organizations have refused to pay the sums collected 
from the producers over to the competent authorities. 
The Commission has informed the French authorities of 
its intention to recuperate the sums wrongfully withheld. 
It has therefore insisted that the national authorities take 
all the legal steps at their disposal to secure the 
recuperation of these sums. 
Most of the levies due for 1989/90 have been paid to the 
EAGGF. 
4.3.53. The Commission does not agree that the set-off 
arrangements have become a permanent feature. 
When the Council adopted the 1990/91 price proposals, it 
also adopted a scheme of aid for small producers of 
certain arable crops. This scheme will eventually be able 
to replace aid to small producers. 
As regards the overrun by three Member States resulting 
from their application of the set-off arrangements, the 
Commission made an adjustment during the clearance of 
accounts. 
The management information system 
4.3.55. The Commission has subdivided the budget 
headings concerning collection of the co-responsibility 
levy on cereals in order to be able to monitor the process 
better. As more details have been added, however, the 
L1L190 COftlcial journal of the European Communities ^1 
Commission departments ha^e had to conclude that it is 
diftlcult to collect specitlcdata^e^en at the le^el of the 
Member States. 
4.3.^6. regulation (FFC^o ^1/90 makes it possible 
to a^oid some of the difficulties ^hich arise from 
reimbursements of the additional co^responsibilityle^y 
and pressure from the trade to determine the definitive 
hardest as soon as possible, ^hen there is not yet enough 
reliable information. 
Filing the detlniti^e hardest in February,^hen most of 
the quantities to be exported during the marketing year 
ha^ebeencommitted, minimizes thedanger that the 
figures might be manipulated. 
dE^ERALCC^CLLlSlC^S 
4.3.^. ^Vhen this measure was introduced in 198^ the 
Commission stressed thatit^ould not be suftlcient on its 
own to restore balance between supply and demand. 
introducingco^responsibilityfortheproducers within the 
marketorganization^asprimarilyseenasthebest^ayto 
make producers aware ofmarket realities and the cost of 
market management. Its introduction has made it 
possible bettertoadaptagriculturalpolicytoCommunity 
and international realities in ^ays^hich do not always 
sho^upinthellgures. 
In addition, the current co^responsibilityle^y system has 
been functioning since 198^. The many amendments 
^hichha^e been made to the rules since then sho^ the 
care ^ith ^hich implementation problems ha^e been 
monitored. 
^hen the co^responsibility system ^asintroduced,the 
Commission ^as aware that it ^ould require a con 
siderableelfort from the Member States, and that the 
sums due could only be collected if the system ^as 
coordinated ^ith existing, equivalent national measures. 
I^he rules ^ere therefore designed ^ith this in mind, so 
that the Member States could make use of existing 
structures ^here^er possible. 
The statistical study carried out during the clearance of 
accountssho^ed that thesums collected for the first marketing year attained the estimated le^el to the usual 
extent for this type of measure. 
The Commission is a^are of the diftlculties inherent in 
complying^iththeceilingtl^edbytheCommunity rules. 
^o^e^er,theMemberStatesconcernedthemsel^esopted 
to apply the system of direct exemption. 
in addition, the entire aid scheme for small cereals 
producers should eventually be replaced by aid to small 
producers of certain arable crops. 
4.3.6t^. The Commission has been continually monitor 
ing the implementation of the coresponsibilityle^y, as 
canbe seen fromthe replies to paragraphs 4.1^ and 
4.3.^. 
4.3.6L From the 1988/89 marketing year(clearance of 
accounts for 1989^, systems audits for collection of the 
le^y from tlrst buyers of cereals ha^e been undertaken in 
all the Member States. For the 1989 clearance of 
accounts, detailed checks are under^ayin Greece, Spain, 
lreland,ltaly,France,BelgiumandlOenmark.lncarrying 
out these checks,the Commission is taking account of 
mostof the Courfs comments inparagraphs 4.19 to 
4148 
4.3.6^. As stated abo^e, the Commission is a^are that 
the differences in the national detlnitions cannot be fully 
explained by the differences in the structures and 
efficiency of farms in the different Member States. For 
this reason in particular, it proposed in 1989 to applya 
Community definition. Since this^asre^ectedby the 
Councll,allthattheCommission^asabletodo^as 
adjust the allocation formula. 
iiowe^er, the Commission is still convinced that a 
Community dellnition^ouldbe more in line ^iththe 
Community character of the CAP. Fhe Council has 
therefore tlnallyacceptedaCommunitydetlnitionforthe 
scheme of aid to small producers of arable crops 
regulation (FFC^ol^4o/9^,^hichis the alternative 
to the scheme for small cereals producers. 
4.3.64. The Commission admits that for the!988/89 
and 1989/9^ marketing years it bo^ed to pressure from 
the producers and frommost of the ministersin the 
Agriculture Council to 11^ the production le^el for the 
purposes ofcalculating the amount of the co-responsP 
bilityle^y in ^o^ember 1988 and COctober 1989 respects 
i^ely,in accordance ^ith the undertaking it made ^hen 
thesystem^asintroduced.ilo^e^er,itshould be pointed 
out that these estimates, based on all the data available at 
the time, herein line ^ith later estimatesfor the harvests 
252 Official Journal of the European Communities 12. 12. 90 
in question. This situation will not arise in future, since 
the definitive harvest will be fixed in February, as 
provided for in Regulation (EEC) No 201/90. 
4.3.65. As stated in the introduction, the additional co-
responsibility levy replaced the linear price reductions 
linked to the guarantee threshold when it became clear 
that the Council was unable to fix cereals prices in 
accordance with the rules. 
Although price reductions are easier to manage on an 
administrative level, the Council rejected this option 
because it is impossible to differentiate the impact to take 
account of farm structures. 
The Commission takes the view that the co-responsibility 
levy collected on the quantities of cereals placed on the 
market, combined with a system of direct aid to certain 
categories of producers to offset its impact on incomes 
from small quantities, is more likely to affect the 
producers responsible for market imbalances. 
Exemption of a large part of production, particularly the 
quantities produced by small producers and those used 
directly on farms, reflects the political will of the Council. 
It does not give rise to discrimination between producers 
or collectors. This has been confirmed by various 
judgments on the matter by the Court of Justice, which 
has tended to extend the exemption for quantities 
General 
It is important to begin by situating the set-aside scheme 
correctly within the context of the common agricultural 
policy: although it is a structural measure to the extent 
that it aims to bring about changes in the production 
structures, at least in the medium term, it is also to be seen 
as a measure accompanying the package of 'stabilizers' 
set up by the Community in the context of its agricultural 
prices and market policy. This dual nature has led to its 
being described as a 'structural stabilizer', and it is 
important to remember that it is not the only such 
measure when considering its actual or potential impact 
on surplus production: the other such measures are 
extensification, conversion (Regulation No 797/85) (not 
yet implemented due to failure of the Council to reach 
agreement), and early retirement (Regulation No 
1096/88). processed under contract. Extending the taxable base 
would have meant collecting the levy on other products 
intended for feedingstuffs, particularly imported prod­
ucts. This would almost certainly have led to a trade 
dispute with the Community's GATT partners. 
4.3.66. The Commission does not share the Court's 
view that the declared objectives of the co-responsibility 
system have not been achieved. 
In addition to having made producers more aware of 
market realities, which has made it possible to adapt the 
agricultural policy, it has generated the funds necessary to 
guarantee the presence of Community products on the 
world market, despite the specific subsidies granted by 
our main competitor in order to corner Community 
markets. Exports of Community products, which have 
actually increased since the co-responsibility levy was 
introduced, has made it possible to arrest the growth of 
intervention stocks of cereals, which fell from 18.5 million 
tonnes at the end of 1985/86 to 11.8 million tonnes at the 
end of 1989/90. 
In addition, besides the adaptation of the system of 
production refunds in 1986, in order to optimize 
industrial utilization of cereals, the Commission pre­
sented to the Council specific proposals to increase the 
quantities of cereals incorporated into compound 
feedingstuffs. 
A structural measure of this nature always requires a 
relatively long period before becoming fully effective: in 
this it differs from measures under a common organiza­
tion of the market which lead to immediate reactions. It 
should also be remembered that structural measures 
require the acceptance by and the agreement of the 
farmer, so that a degree of consensus is necessary before 
they become effective. 
As indicated by the Commission in its report on the first 
year of application of the scheme (COM(89) 353 final), 
the initial impact was modest for a variety of reasons: 
late introduction in Member States; 
— inadequate publicity; 4.4. Observations concerning the application of the set-aside policy in 
the Community 
12. 12. 90 Official Journal of the European Communities 253 
inadequate compensation for loss of income in most 
Member States; 
— budgetary problems in certain Member States; 
Consequently, the Commission acted on two fronts to 
improve the application of the scheme: 
— in a proposal annexed to its report, it proposed to 
improve the rates of part-financing of the costs of the 
scheme and to require Member States to ensure 
adequate publicity. This proposal was adopted on 26 
March 1990 (2); 
— it pressed Member States to improve the premiums so 
as to compensate the loss of income of farmers. This 
has resulted in agreement on improved premiums in 
most Member States for the 1990-91 production year 
(see Table 1). 
Set-aside is administered as an indirect measure under the 
system of Community part-financing which has proved 
an effective way of managing structural measures over 18 
years. The system has been retained following the reform 
of the structural Funds (3). As a result of the dual nature 
of the set-aside scheme referred to above, financing of the 
measure is shared between Guarantee and Guidance; and 
the methods of the Guarantee Section of the EAGGF 
have been applied, unlike other structural measures 
which are administered, as regards financing, by the 
Guidance Section. 
The part-financing approach was instituted by the 
Community in 1972, as it was conscious of the great 
diversity of situations applying on agricultural holdings 
in the Member States and of the impossibility of covering 
each particular case in Community legislation. This 
means that in applying that legislation, the Member 
States have to make detailed provisions, suitable to 
conditions in their countries and regions, which are in 
keeping with the Community regulations. There is an 
ongoing exchange between Member States and the 
Commission through telephone contact, exchanges of 
letters and discussions in the STAR Committee : in fact, 
each monthly meeting of the STAR Committee through­
out 1990 has had set-aside on the agenda. 
Many of the points raised by the Court relate to specific 
matters noted in the course of inspections in the Member 
(2) Regulation (EEC) No 752/90, OJ L 83, 30.3.1990, p. 1. 
(3) Regulation (EEC) No 2052/88. States. The Commission is not in a position to comment 
in detail on such points without knowing the Member 
States' explanations. 
AUDIT FINDINGS 
Problems concerning the reference year 
4.4.13-4.4.14. The problem regarding the reference 
period in Italy appears to be a result of differences 
between the various language versions of Commission 
Regulation No 1272/88, Article 3(1). 
The Commission will undertake, in consultation with the 
Member States in the Committee on Agricultural 
Structures and Rural Development (STAR Committee) 
the appropriate rectification of Regulation No 1272/88 in 
order to ensure that the wording is clear. 
4.4.15. The position about verification of reference year 
data will be checked with the Member States concerned. 
Administrative aspects 
FR of Germany 
4.4.16. The Commission notes the remarks of the Court 
concerning the different requirements of the Lander 
regarding information on the areas of land to be set aside. 
However, attention is drawn to the fact that the Lander do 
not apply the provisions of their own implementation 
measures as approved by the Commission following 
STAR Committee procedures. 
Italy 
4.4.18. The position regarding the cadastral maps in 
Sicily is being checked with the Member State. 
4.4.19. It is true that Italian farmers may choose to enter 
the scheme in some instances following the failure of a 
254 Official Journal of the European Communities 12. 12. 90 
Table 1 — Position regarding set-aside premiums 
following declarations of delegations in STAR Committee, 25 July 1990 
ECUs (Green rate as at 1.1.1990) 
Member State / Region 
UK 
Belgium 
Ireland 
Spain 
Greece 
Italy 
Luxembourg 
France 
Pays-de-la-Loire 
Auvergne 
Languedoc-Roussillon 
Poitou-Charentes 
— Vienne 
— Charente 
— Charente-Maritime 
— Deux-Sevres 
Centre 
— Loire 
— Loir-et-Cher 
— Indre-et-Loire 
— other 
Ile-de-France 
Basse-Normandie 
— Calvados 
— other Present premiums 
254 less-favoured areas 
283 other areas 
«,„ Y less-favoured areas 
290 sandy areas 
414 sandy/silty areas 
210 
210 
103 less-favoured areas 
122 other areas 
173 1 
225 Y irrigated 
302 J 
less-favoured areas 
100 non-irrigated 
200 irrigated 
Other areas 
120 non-irrigated 
250 irrigated 
380 less-favoured areas 
400 other hill farms 
440 plains 
550 Po plain 
217 
265 
223 
223 
315 
315 
369 
315 Proposed premiums 
1990-91 
275 
314 
207 
259 
362 
518 
210 LFA 
242 other 
121 
143 
197 
257 
344 
150 
250 
180 
300 
380 
400 
440 
(600) 
— 
315 
265 
265 
347 
347 
347 
315 
372 
372 
372 
318 
369 
372 
315 
12. 12. 90 Official Journal of the European Communities 255 
Table 2 — Set-aside of arable land — Year: 1989/90 
Member State 
UK 
FRG 
Netherlands 
Belgium 
France 
Ireland 
Spain 
Greece 
Italy 
Luxembourg 
Total Deadline for 
application 
31.8.1989 
Variable (Lander) 
approx. 31.7.1989 
No deadline, all 
year round 
30.9.1989 
31.5.1990 
9.12.1988 
Period between 
1.1.1990 and 
28.2.1990 
15.10.1989 
31.3.1990 
30.9.1989 Amount of aid 
(ECU/ha/year) 
250 less-favoured areas 
280 other areas 
300-600 on the basis of land quality 
700 
170 less-favoured areas in the Ardennes 
230 less-favoured areas in Famenne and 
the Fagnes 
290 sandy areas 
420 sandy/silty areas 
Cat. I 200-300 ' 
Cat. II 230-260 
Cat. Ill 290-410 
Cat. IV 340-480 . by group of regions 
on the basis of gross 
margin and fixed 
inputs 
210 
100 less-favoured areas 
120 other areas 
170 areas less intensively irrigated 
220 areas moderately irrigated 
300 areas intensively irrigated 
Less-favoured areas 
100 non-irrigated 
200 irrigated 
Other areas 
120 non-irrigated 
250 irrigated 
380 mountain and hill farms in less-
favoured areas 
400 hill farms in other areas 
440 other farms of the plains 
550 farms of the Po plain 
220 Land set-aside 
1988/89 
51 567 
165 125 
2 582 
352 
15 707 
1 310 
34 229 
91 617 
6 
362 495 1989/90 
50 321 
57 259 
6 155 
148 
39 702 
382 
18 000 
0) 
250 
220 830 
(2) 
31 
393 078 Total 
101 888 
222 384 
8 737 
500 
55 409 
1 692 
52 229 
250 
312 447 
37 
755 573 
(') Estimation on the basis of unofficial information. 
(2) Provisional: on basis of 1988/89 out-turn, this could be reduced to 130 000 ha approx., which would give a 1989/90 total for the EC of 302 248 ha and a 
two-year total of 664 743 ha. 
(ECU conversion rate = Green rate as at 1.1.1990). 
256 Official Journal of the European Communities 12. 12. 90 
winter crop: this does not necessarily impede the 
attainment of the objectives of set-aside. 
In this situation: 
(i) the farmer must not in any case harvest the crop in 
question: cereals production has therefore been 
diminished, even if only to a small degree as the yield 
would have been low; 
(ii) even though the decision is made on the basis of a bad 
year the five-year contract can normally be expected 
to cover good years as well, so that the potential for 
reducing cereals production is greater than that 
actually achieved in the first year; 
(iii) in the first year, the farmer is effectively penalized for 
his late decision in that he has suffered needless 
expense in sowing in the first place. 
4.4.20. The Commission will examine the adminis­
trative system described, together with the Member State. 
United Kingdom 
4.4.22. As regards proof of tenure, the Commission 
notes that the UK Regulations (Regulation 5 of SI 1988 
No 1352 as amended) give the Minister the right to 
require 'documentary evidence showing the nature of the 
applicant's estate or interest in the holding'. 
The information booklet published by the UK authorities 
and addressed to applicants states (p. 15): 'You may be 
asked to provide documentary evidence of your right to 
farm the land for the following five years'. In many cases, 
tenure would not in any case be in question in view of 
information available under other schemes or based on 
local knowledge of Divisional Office officials. The UK 
suggestion of checking in land registry on a sample basis 
seems an appropriate solution. 
The fact that under the rotational fallow option 
applicants are not required 'to indicate on a map which 
land will be left fallow' should not in itself give rise to 
problems provided the UK applies its own rules: — Regulation 5 (referred to above) requires a map, 
showing external and internal boundaries of the area 
of land to be set-aside and the area of land on which 
arable crops will be grown; and 'a description of the 
intended use or uses of the proposed set-aside area'; 
— the information booklet points out, on page 15, that 
'If you take the rotational fallow option, you must 
notify your Divisional Office annually of the rotation 
pattern each time you make a claim'; 
— the application form, in question 3, provides for 
indication, by field number (the numbers are 
indicated on the map) of the details of the land to be 
set-aside and the various uses thereof, including 
rotational fallow. 
Inspections 
4.4.23. In the Commission's view, the best period for 
carrying out inspections is before the harvest; however, it 
is still technically possible to identify the use of a plot after 
harvest. 
4.4.25. Due to the late start of the measure in these 
countries, the German report and a summary UK report 
were received in July 1990. 
Control problems 
Use of fertilizers, etc. 
4.4.26. It is no doubt difficult to control certain 
conditions of the scheme: however such conditions are 
necessary both to ensure the maintenance of good 
cropping conditions during the period of set aside and in 
the interests of the environment. The Commission cannot 
renounce conditions such as those mentioned by the 
Court in this paragraph and points out that conditions of 
this kind are increasingly necessary, and not only in the 
context of set aside, as the Community seeks to take 
account of the environmental impact of agricultural 
policy. 
12. 12. 90 Official Journal of the European Communities 257 
Plant cover 
4.4.27. Article 4 of Regulation No 1272/88 requires, on 
fallow land, 'the establishment or maintenance of 
appropriate plant cover, for the particular purpose of 
preventing erosion and nitrate leaching; this cover may be 
left in place year-round or ploughed in, depending on soil 
and climatic conditions'. 
The Commission has not defined plant cover at Com­
munity level and does not think it would be appropriate to 
do so. The Commission does not consider that maize 
would normally constitute an appropriate cover vege­
tation, all the more so since it is also unsuitable from the 
point of view of the prevention of erosion. 
Non-agricultural use 
4.4.28. It would not be practical for the Commission to 
attempt to list all the possible non-agricultural uses which 
might be of interest to farmers in the wide variety of 
situations existing in the Community. The Commission 
considers that there is relatively little difficulty in 
determining, on a common-sense basis, whether a usage is 
agricultural or not: furthermore, in a working document 
circulated in the STAR Committee in December 1989, the 
Commission gave an interpretation according to which 
irreversible change of use is excluded, e.g. construction of 
a building, industrial investments. 
The grazing of riding horses is an acceptable use, as there 
is no resulting agricultural product; the same applies to 
the keeping of horses for blood for pharmaceutical 
purposes, which cannot be considered an agricultural 
product in the normal sense; golf courses and artificial 
lakes do not seem to be acceptable since the criterion of 
reversibility would not normally be met. The particular 
case of turf production is also doubtful and this will be 
considered by the Commission in consultation with the 
UK authorities. As regards limitation to environmental 
protection schemes in Germany, the Commission pointed 
out to the German authorities that the Community 
scheme does not contain any such restriction. However, a 
provision was approved in the 'Grundsatze' (principles) 
drawn up at national level whereby the Lander may 
provide for particular forms of set-aside where the 
existing regulations on the protection of nature and of 
waters or on land development so require (Article 2(5). Problems arising during visits on the spot 
4.4.29 - 4.4.32. It is clear that any areas that have not 
been under cultivation in the reference period should be 
excluded, and, hence, that appropriate deductions should 
be made for pathways, drains, canals etc. It is also evident 
that administration of the scheme must be carried out in 
such a way that fields set aside under the scheme can be 
readily identified. 
Sanctions 
4.4.33. In a working document circulated at the STAR 
Committee meeting of December 1989, the Commission 
indicated that 'serious irregularities should particularly 
cover the case of intentional or fraudulent infractions'. 
Reimbursement by the Commission 
4.4.34. The Court cannot claim that by using the 
Guarantee Section's financial rules, the Guidance Section 
would be unable to verify payments. The verification of 
payments takes place at a different moment, i.e. at the 
clearance of accounts. Thus the different procedure 
applied in the case of set-aside does not prevent proper 
monitoring; this has been proven with other schemes, for 
example the non-marketing of milk scheme, which has 
been run under the same procedures as set-aside. 
Commission monitoring 
4.4.35. The Commission is always available to the 
Member States for consultation either bilaterally or 
through the STAR Committee and cannot accept the 
assertion that there has been a lack of appropriate advice. 
Since October 1989, set aside has been put on the agenda 
of each monthly STAR Committee meeting, and the 
Member States have had ample opportunity to discuss 
any problems with the Commission, not to mention the 
frequent bilateral contacts on this subject. 
258 Official Journal of the European Communities 12. 12. 90 
COST EFFECTIVENESS 
Aspects concerning the quality of the 
land set aside 
4.4.36. It is inevitable that farmers will opt to set aside 
initially the least productive arable land. However, a 
farmer opting for rotational fallow or setting aside a high 
proportion of his arable land will not be able to limit the 
set-aside area to the least productive land. It is regrettable 
that national guidelines should emphasize the withdrawal 
of poorer land, although most farmers would be likely to 
arrive at this conclusion unaided. In any case, the 
Commission will take this question up with the Member 
States. 
4.4.37. The setting aside of strips of land at the edges of 
fields, rivers, etc., while affecting less-productive land, 
may also have a certain benefit from an environmental 
point of view. However the systematic setting aside of the 
least fertile parts of fields would not be in keeping with the 
aims of the scheme and the Commission is prepared to 
examine this question with the Member States. 
The use of rotational fallow for set aside 
4.4.38. With regard to areas where rotational fallow is 
practised traditionally, it should be remembered that land 
which was fallow during the reference period does not 
count as arable land for the purpose of set aside. 
Former set-aside scheme in the 
FR of Germany 
4.4.39. The theoretical possibility that some land not 
subject to a common organization of the market may 
have been taken into the Community scheme from the 
prior Land scheme in Lower Saxony will be the subject of 
consultation with the German authorities. Administrative expenses and costs 
4.4.40-4.4.41. The Court's calculations of the cost-
effectiveness of the scheme call for the following 
comments: 
(i) the basis for the administrative cost estimate in the 
UK is not set out and cannot be verified by the 
Commission; 
(ii) it is not clear whether the German authorities have 
also undertaken a calculation of administrative costs 
or whether they have simply confirmed on an intuitive 
basis the figure estimated by the UK; 
(iii) the Court extrapolates the 20 % figure to the 
Community as a whole, apparently without having 
checked whether other Member States, apart from 
Germany, would make a similar estimate; 
(iv) the 20 % estimation is based on a short period of 
practical experience, and this period was one of 
starting up when the average administrative costs 
would naturally be high; 
(v) the Court's use of the Commission's figures allowing 
for a 50 % 'slippage' factor (to take account of 
relatively poor land being withdrawn and possible 
intensification on other land) is likely to result in an 
overstatement of the cost per tonne not produced. 
The Commission deliberately chose a conservative 
figure so as to avoid the danger of overestimating the 
impact of the scheme; 
(vi) while the comparison with the cost of disposing of 
surplus cereals on the world market is interesting, it 
ignores the wider context of a scheme such as set 
aside, which should be viewed not only in the 
perspective of Community surpluses but also in that 
of the Community's relationship with its agricultural 
trading partners. 
CONCLUSIONS AND 
RECOMMENDATIONS 
4.4.42. The Commission itself has acknowledged, in its 
report on the first year of application of the scheme 
(COM(89) 353 final) that the initial results of the scheme 
have been modest. It is also aware, as indicated at 
paragraph 4.4.36 above, that farmers will initially tend to 
LlLl^ C^fiicialiournal of the European Communities ^ 
withdraw from production their less-productive land. 
However the results relate to a verv short period of 
application ofameasure of which farmers ^professional 
organizations^ and administrations had no prior ex­
perience, it would not he reasonable to draw firm 
conclusions about the potential of the measure to achieve 
signiticant reductions in cereals production on the basis 
of the results of onlv the first vear or two of application. 
An objective observer readingAmerican literature on the 
introduction of set aside in the united States and 
comparing it with the tirst period of application in the 
Communitv would tindtheresultsintheCommunitv 
much more encouraging. 
As regards the increase in the area under cereals noted bv 
the Courtmtisevident that that increase could have been 
much greater in the absence of set aside. 
4.4.4^. As acknowledged in the replv ro paragraph 
4.4.^ the Commission is aware that some conditions of 
the scheme are not easv to control. 
TheCommissionispreparedtoconsidertheappropriate-
nessofparticularrulesin the light of practical experienced 
and it would point out that the extensive grazing options 
inparticulan i^ due for reviewbv 30 April 1^1 in 
accordance with Articlela^ of regulation ^Lf^C^o 
4.4.44. The Court's view about the referencevear is 
noted bv the Commission and will be taken into 
consideration.However it should be rememberedthat 
there are also certain advantages in havingareference 
periodtixedinthepastbeforethebeginningofthescheme 
since it prevents anv tendency towards speculationbv 
producers deliberatelv bringing land into arable produce 
tionwithaviewtobenetitingfromthe scheme inthe 
future. 
4.4.45. The Commission endeavours^ through the 
STAR. Committeeprocedure^toensureequal application 
of the scheme throughout the Community and will 
continue todo so.As indicated above^replvto paragraph 
4.4.^ it would not be practical for the Commission to 
attempt to foresee all possible nonagricultural uses^ 
neither would it be appropriate to define strictlv at 
Community level the precise plant cover to be used 
throughout the Communitv.Howeven the Commission 
will examine in partnership with the member States^ 
whether further guidelines are necessarv on these points. 
4.4.4^. The Commission intends to carrvout further 
monitoring ofthe application ofthe scheme. The Court's views on the administration of payments are noted^ 
howeven the Commission would draw attention to the 
special nature of the set-aside schemed as compared with 
traditional structures measures^ in that its aims and 
effects are closelv related to agricultural markets the 
financing of whichis administered bv theC^uarantee 
Section. 
4.4.4A The Commission has alreadv given guidance to 
the member ^tatesonthematterofinfringementsbothin 
the STAR^ Committee and bilaterallv.itwill of course be 
prepared to provide anv further claritication that mav be 
needed InanvevenLapenaltvshouldbeappliedin 
respect of all vearsinwhichanirregularitvhasbeen 
ascertained. 
4.4.48^4.4.49. The Court's views onthe question of 
limiting cereals production on the remainingland and on 
introducingparticularconditions in thecaseof rotational 
fallowwillbeexamined.However theadditionoffurther 
conditions would alsofurthercomplicatetheadminis^ 
trationofthe scheme and the diftacultv of controls which 
is referred to bv the Court in its report. 
4.4.5t^. The wide variation in the level of the premiums 
offered bv the member States to the farmers reflects the 
fact that the losses ofincomeofthe farmers^ which form 
the basis of all calculations^ difterwidelv.As regards the 
recommendation that therates of aid applied bv the 
member States be examined withaview to making the 
scheme more attractive to farmers with high vields^ the 
Commissionhasalreadvundertakenanintensiveexercise 
in this regard with the member States asaresult of which 
improved premiums will be provided for the production 
vearl^O-^lin those IviemberStateswherethepremiums 
were nidged inadequate CfablelL 
The views of the Court on the rates of reimbursement are 
noted^ but the Commission must point out that the 
present improved rates have been set quite recently 
following discussions in the Council and the Parliament. 
4.4.5L TheCommission will examine thesuggestionsof 
the Court. However an increase in the minimum area of 
land to be set aside would run counter to suggestions put 
forwardfromothersourcesto theeffectthatalower 
minimum percentages oratixed number ofhectares in the 
case of verv large holdings^ wouldencourage greater 
participation in the scheme. 
However the Commission notes the Court's suggestion 
and will take the necessarv steps toexclude from set-aside 
contracts which place undue emphasis on parts of fields 
which are unproductive. 
260 Official Journal of the European Communities 12. 12. 90 
CHAPTER 5 
Common policy on fisheries and the sea 
OBSERVATIONS CONCERNING 
BUDGETARY MANAGEMENT 
5.4. The rate of utilization of payment appropriations 
depends on the completion of projects or programmes by 
private beneficiaries or the Member States. There were 
delays in processing requests for payment by the Member 
States. 
Inactive projects 
5.7. Under the old regulations, in particular Regulation 
(EEC) No 2908/83 the beneficiary was allowed two years 
to begin the work from the date on which aid was granted 
by the Commission. This was followed by a period of two 
years for completing the project. Under these circum­
stances it was not possible for the Commission to begin 
procedures for cancelling the project until four years after 
aid had been granted. 
If the time required for the necessary administrative work 
is added to this, project follow-up lasted five years. As a 
result the Commission is making constant efforts to clear 
unfinished projects at regular intervals. 
Under the current regulations the time allowed for 
executing the projects is much more restrictive and strict. 
As a general rule three years is the maximum time allowed 
for completion of a project and the Member State is 
obliged to make a request for payment within six months of completion of the work. Member States are also 
required to provide a list of projects which are behind 
schedule every six months. 
Budget estimates for payment appropriations are thus 
planned with a view to more efficient and complete use of 
appropriations. If certain unacceptable changes are made 
when investment projects are executed, the amount of aid 
allocated is reduced. 
The Commission will take past experience into account 
when drawing up its budget estimates for credit payments 
and it has already moved in this direction when preparing 
the estimates for 1990 and 1991. 
Under the system of joint administration, analysis of the 
reliability of projects is the responsibility of the Member 
States who also have to investigate the profitability of the 
projects. 
In cases where Member States do not comply with certain 
legal provisions the Commission is at present examining 
the possibility of recourse to the Court of Justice. 
5.8. The new system of six-monthly follow-up of 
projects provided for under Regulation No 4028/86 is 
working in a generally satisfactory manner. The Commis­
sion also intends to improve matters by strict monitoring 
of projects mainly by auditing the follow-up systems put 
in place by the Member States. It should thus be possible 
to make national administrations more responsible for 
the administration and supervision of projects. 
12. 12. 90 Official Journal of the European Communities 261 
CHAPTER 6 
The European Agricultural Guidance and Guarantee Fund, 
Guidance Section (EAGGF-Guidance) 
THE SYSTEM OF AID FOR INVESTMENTS 
IN AGRICULTURAL HOLDINGS SET UP 
BY REGULATION (EEC) No 797/85 OF 
12 MARCH 1985 ON IMPROVING THE 
EFFICIENCY OF AGRICULTURAL 
STRUCTURES 
Remarks relating to the regulations This attitude is a result of the development over many 
years of the definition of Community assistance to 
structural measures. In the early stages, on the basis of 
Regulation (EEC) No 17/64, Community assistance took 
the form of aid for individual investment projects decided 
at Commission level and paid directly to beneficiaries. 
From 1964 to 1978, 7500 projects were financed, covering 
all aspects of farm structures from investments in 
holdings to the processing and marketing of agricultural 
products, and even including farm infrastructures. 
During the second stage, from 1972 to 1985, which was 
characterized by the three socio-structural directives of 
the 'Mansholt Plan' (72/159/EEC, 72/160/EEC and 
72/161/EEC), the Community, aware of the wide 
diversity of situations on farms in the nine Member States 
and unable to provide for each particular case in its rules, 
opted for a system of part-financing national aid schemes 
to be implemented in accordance with objectives and 
conditions fixed at Community level. 
Community provisions 
6.12-6.14. The Court's criticism is directed at the 
existing rules. The Commission notes, in particular, that 
the Court finds the objectives of the system of investment 
aid and the conditions for implementing it, as laid down 
in Council Regulation (EEC) No 797/85, are expressed in 
vague and imprecise terms, without defining priorities, 
particularly as regards the type of farms and investments. 
In accordance with Article 39 of the Treaty, the aim of the 
regulations in force is to modernize agricultural holdings 
to increase their competitiveness in the context of the 
rational development of agricultural production at the 
same time as increasing, or at least maintaining, farmers' 
incomes. The second and third enlargements of the Community 
confirmed and increased the need for an approach which 
would take account of the diversity of situations in 12 
Member States. 
In addition, the task of defining the objectives of 
structural measures was further complicated by the need 
to seek a balance between improving the competitiveness 
of farms, adapting production potential to market 
requirements, protecting the environment and furthering 
rural development. Improving the economic performance 
of individual holdings is only useful within the framework 
of a balanced rural development. The criteria for the 
selection of beneficiaries were therefore made less 
stringent, particularly as regards incomes and activities. 
The Commission takes the view that the underlying 
principles behind the objectives and implementing 
conditions are quite clear. The detailed rules, however, 
are not and should not be too narrowly defined in order to 
provide the necessary flexibility in view of the differences 
between the different regions of the Community (see the 
reply to paragraphs 6.15-6.21 and the reply to paragraph 
7.6 of the Court's report for 1986). With regard to the comments in paragraph 6.13, the 
Commission also regrets the Council's failure to take a 
decision on the scheme for the conversion of production 
in line with market requirements, for which it transmitted 
a proposal to the Council and Parliament on 21 October 
1988 COM(88) 553. 
262 Official Journal of the European Communities 12. 12. 90 
Concerning the analysis of the implementation of suitable 
means for achieving the objectives (paragraph 6.14), the 
Commission would refer the Court to its reply to 
paragraphs 6.73-6.75. 
National implementing provisions 
6.16-6.21. Although the Commission recognizes the 
difficulties of implementing Regulation (EEC) No 797/85 
in the Member States, particularly the long delays 
because of the regional structure of legislative com­
petence in certain matters, it is not prepared to consider 
the idea of abandoning the two-stage evaluation pro­
cedure, which involves all the Member States in the 
Committee on Agricultural Structures and Rural De­
velopment (the STAR Committee). 
Experience has shown that the first stage of the 
procedure, the consultation stage, gives an opportunity, 
in a spirit of partnership, for constructive exchanges 
between the Commission departments and their equiv­
alents in the Member States, enabling them to solve the 
main technical problems, particularly those of interpre­
tation, taking account of the points of view of all the 
Member States within the STAR Committee. In this way, 
when a final text, regarding which the government of a 
Member State has made political commitments, is 
subjected to the second stage of the procedure, i.e. put to 
the vote, the STAR Committee can give its opinion in the 
best conditions. Furthermore, as a rule this procedure 
does not slow down the implementation of measures, 
because national rules can be approved (second stage) 
with retroactive effect. 
As for the usefulness of laying down national provisions 
for the implementation of Regulation (EEC) No 797/85, 
the Commission would point out that the Community 
policy on agricultural structures is based on Article 39 of 
the Treaty, which stipulates that account must be taken of 
'the particular nature of agricultural activity, which 
results from the social structure of agriculture and from 
structural and natural disparities between the various 
agricultural regions'. The Community's role is therefore 
confined to defining the objectives and principles of 
granting the aid, while the choice of the form and means 
of implementation in accordance with Community 
criteria is left to the national or regional authorities. 
However, the Community has reserved the right to 
approve the national provisions by means of the above-
mentioned procedure. 
The Commission notes the Court's suggestion in 
paragraph 6.20, but considers it impracticable because of 
the diversity of the situations of agricultural holdings in 
the 12 Member States. 
The Commission is aware of the danger referred to in 
paragraph 6.16 arising from the approval of national 
provisions which are merely reformulations of Com­munity provisions without adding sufficient additional 
explanations. It therefore insists more and more 
frequently within the STAR Committee that national 
texts must be designed in such a way that, on the one 
hand, reference is made wherever possible to the 
provisions of the regulation without repeating them and, 
on the other hand, the national implementing provisions 
provided for in the regulation in formulas such as: 'The 
Member States shall define, shall establish', etc. are set 
forth. 
As regards the specific matter of a model of the 
improvement plan (paragraph 6.18), the Commission 
feels that the framework laid down in Article 2(4) is 
sufficiently precise to ensure harmonized application of 
the aid scheme. In addition, Article 1(2) of Commission 
Decision 86/380/EEC of 11 June 1986 provides for this 
model to be forwarded with the first application for 
reimbursement. Communication in full of the internal 
rules (the national implementing and control provisions, 
administrative instructions and the forms and all other 
documents relating to the administrative implementation 
of the measure) takes place at that stage. 
Specific remarks on the aid for carrying out 
plans to improve agricultural holdings 
Balance between aid requested and appropriations 
available at national level 
6.24-6.27. The Commission shares the Court's con­
cern regarding the failure to apply the compulsory 
investment aid scheme in certain parts of the Community 
because regional funds are exhausted. 
Under the scheme, all applicants who fulfil the conditions 
are entitled to aid, regardless of budget estimates, the 
need for which the Commission is aware of. The 
Commission regularly insists in the STAR Committee on 
the need for Member States to ensure the part-financing 
of the compulsory measures firstly by making realistic 
estimates and then, if difficulties arise, by transferring 
appropriations between budget lines or carrying expendi­
ture forward to the following year. In addition, for 
regions covered by an Objective 1 Community support 
framework, it is now possible for the partnership to 
examine available funds. 
However, the Commission allows the Member States to 
lay down, if necessary, additional conditions for the 
selection of applicants and the implementation of aid 
measures, particularly pursuant to Article 30 of Regu-
12. 12. 90 Official Journal of the European Communities 263 
lation (EEC) No 797/85, provided that such conditions 
do not contradict the objectives of the aid scheme. The 
Commission is able to ascertain this thanks to the STAR 
Committee procedure. 
Form and content of the improvement plans 
6.29-6.32. The Commission fully agrees with the 
Court's opinion that the improvement plan is a key 
element of the aid scheme. Therefore, the Commission 
cannot accept that the plan should be reduced to a 
formality or a 'cover' for ad hoc investments. The 
improvement plan must consist in a coherent and 
balanced set of investments based on the farmer's vision 
of the future of his holding, with a view to improving the 
situation. Since it is aware that farmers in certain regions 
might have difficulty in drawing up such plans, the 
Commission has always invited the Member States to give 
them the necessary assistance while taking into account 
their real opportunities for growth, i.e. without encourag­
ing them to assume an unreasonable burden of debt. 
Furthermore, Member States have generally taken the 
Commission's recommendations into account. The 
number of plans successfully carried out over the years 
shows that the aid scheme is satisfactory. 
Despite the importance of the improvement plan, since it 
is a forecasting tool it can never give more than an 
approximate picture the value of which depends on the 
reliability of the available data and the evaluation 
methods employed. The Commission verifies with the 
Member States that the plan remains an effective and 
adequate instrument and keeps under permanent review, 
particularly within the STAR Committee, ways of 
improving it. However, it feels that there will always be a 
certain margin of evaluation inside which only an opinion 
at local level can be valid, where the people involved have 
direct permanent contact with reality in the field. 
Labour income per man-work unit (MWU) 
6.34. Clearly, determination of the labour income per 
MWU is one of the essential elements in selecting 
applicants, and it should therefore be made as rigorous as 
possible. 
6.35-6.42. Although Regulation (EEC) No 797/85 
gives no definition of the term 'work unit', the Commis­
sion and the Member States have been working with this 
concept since the adoption of Directive 72/159/EEC. The 
Commission has pointed out to the STAR Committee, 
formerly the CPSA, on several occasions, usually when national rules regarding the reference income were 
adapted (this takes place annually and is based on the 
development of the economic situation in each country), 
that since the value of the MWU was used to compare 
labour income with the reference income, i.e. the gross 
wages of full-time non-agricultural workers, it should be 
at the same level as the average working hours of full-time 
non-agricultural workers. Incomes can only be compared 
for equivalent working hours. 
Following the amendment to Regulation (EEC) No 
797/85 by Regulation (EEC) No 1760/87, which inserted 
in Article 15 the idea of 'labour income per MWU', the 
Commission submitted a working document on the 
calculation of man-work units. The document was 
discussed by the Committee. 
In principle, when determining the economic perform­
ance of the holding, labour income is to be calculated 
taking into account all those working on the holding, 
including farm employees. However, the Commission can 
accept that a Member State does not take account of 
employees beyond a certain number of MWUs in order to 
focus more on family farms. The example cited by the 
Court in paragraph 6.35 is one extreme; the other 
extreme, where five people carry out work equivalent to 
two MWUs, also exists. In any event, only subsidies for a 
maximum of two MWUs per holding are eligible. 
Pursuant to Decision 86/360/EEC, the Commission 
received from the Member States, together with their first 
application for reimbursement, the administrative in­
structions including the forms and calculation methods 
for determining labour income. Nevertheless, the Com­
mission recognizes that certain elements needed to 
determine labour income per MWU are difficult to assess, 
such as return on capital, production and the number of 
working hours, and that these elements can affect the 
calculation of the labour income. It was in the Member 
States' interest to encourage use of a calculation method 
for labour income which would ensure payment of the 
normal EAGGF aid rate, rather than the rate reduced by 
20 %. The problem raised by the Court no longer applies 
as a result of the amendment introduced in Regulation 
(EEC) No 3808/89 of 12 December 1989, in which plans 
are treated in the same way whether they aim to increase 
the level of income or simply to maintain it. 
Thus, the labour income is determined solely to ascertain 
the viability of the holding and its capacity to support the 
projected investments. It should not be forgotten that the 
farmer himself must contribute his own funds, something 
he would not be inclined to do if the forecasts showed a 
reduction in his income. 
264 Official Journal of the European Communities 12. 12. 90 
Adequate occupational skill and competence Community reimbursements 
6.44 - 6.45. The Treaty provisions to which the Court 
refers do not seek to achieve harmonization of agricul­
tural vocational training. The Council therefore left it to 
each Member State to define the required level of 
occupational skill and competence. This is done under the 
supervision of the Commission and the other Member 
States through the STAR Committee procedure. 6.55. When reimbursing Italy's expenditure for 1988, 
the EAGGF Guidance Section applied a global deduc­
tion for a certain number of dubious aspects, amounting 
to 36 738 million LIT, or 24,4 million ECU. In view of the 
Court's comment, the Commission will correct the 
amount of eligible expenditure for the Val d'Aosta when 
it regularizes the deduction. 
Keeping of accounts 
6.46-6.50. In view of the difficulties encountered 
regarding the keeping of detailed accounts under 
Directive 72/159/EEC, the system introduced by Regu­
lation (EEC) No 797/85 is less restricting, although it 
provides for the recording of revenue and expenditure 
and the drawing up of an annual balance sheet of assets 
and liabilities, which must be correctly applied. 
Restrictions regarding the milk production sector 6.56 - 6.63. As regards the investment aids granted in 
Spain in 1986 to 1988 and the corresponding EAGGF 
reimbursements, the Commission takes the view that this 
is a transitional adjustment problem as a result of Spain's 
accession in 1986. Spain's situation was quite different to 
that of the other 11 Member States: firstly, the Member 
States of the Community of Ten had experience gained 
from the application of Directive 72/159/EEC which 
enabled them to implement Regulation (EEC) No 797/85 
in six months; secondly, the other new Member State, 
Portugal, did not have the problems encountered due to 
the regionalization of administrative competences in 
Spain and was able to receive considerable support in the 
form of structural assistance immediately on accession 
under the Pedap, and even earlier from pre-accession aid. 
Spain was given two years in which to implement 
regulation (EEC) No 797/85. Clearly, the provisions 
adopted in Spain before accession did not meet the 
requirements of that regulation. However, the Spanish 
authorities informed the Commission that after acces­
sion, once the necessary adjustments had been made to 
the administrative management of the aid, it was applied 
in close compliance with the said regulation. 
6.52 - 6.53. As the Court pointed out, investment aids 
in the dairy sector may be granted provided that they do 
not have the effect of increasing milk production in excess 
of the reference quantity. The Commission notes that, 
when an additional reference quantity is allocated, aid 
can be granted in line with this increase, provided the 
limits laid down in the second subparagraph of Article 
3(3) of Regulation (EEC) No 797/85 are respected. In addition, the Spanish authorities selected, with a view 
to applying for reimbursement, only those recipients who 
met the conditions of the regulation; other parties 
received only national aids reduced by 25 % in relation to 
the Community scheme or restricted to a volume of 
investment of 25 000 ECU, in accordance with Article 
8(2) and (3) of Regulation (EEC) No 797/85. 
In Italy, 95 % of the reference quantity for the 1987/88 
marketing year was allocated, by ministerial decisions of 
2 April 1987 and 11 April 1988, to a single producers' 
group. It was therefore impossible in practice to apply the 
provision regarding compliance with the reference 
quantities to individual holdings. However, it was 
possible to check compliance with quotas at the level of 
the producer groups. In addition, the aids granted in Italy 
complied with the other limits laid down in the above-
mentioned Article 3. The Commission's Decision of 15 December 1988 to 
grant Community part-financing was adopted in this 
context. It concerns provisions prior to accession which 
were repealed by ministerial decree of 1 October 1988. 
Thereafter, the aids were granted in accordance with the 
provisions implementing Regulation (EEC) No 797/85, 
which were approved by Commission Decisions of 26 
July 1988 and 14 April 1989. 
6.54. The situation in Spain is being examined by the 
Commission during 1990. The Commission feels that it was appropriate to assist this 
new Member State, in a stage of adjustment, to benefit 
immediately from the advantages of accession, and it 
accepted the assurances of the Spanish authorities that 
12. 12. 90 Official Journal of the European Communities 265 
applications for reimbursement would be made only for 
eligible cases. It is therefore in contact with the Spanish 
authorities. 
Nature of the aid recipients and the investments 
6.64. In accordance with Article 2 of Regulation (EEC) 
No 797/85, the first condition that a farmer must fulfil to 
be eligible for investment aid is that he must practise 
farming as his main occupation. A farmer is deemed to 
practise farming as his main occupation when he 
dedicates more than half of his working time to farming 
and more than half of his income is earned from farming. 
This, in conjunction with Article 2(1 )(d), which stipulates 
that in less-favoured areas certain Member States are 
authorized to accept improvement plans provided that 
the volume of work on the holding does not require more 
than the equivalent of one man-work unit, leads to the 
conclusion that extreme cases such as those quoted by the 
Court, in particular a very small holding, can be found. 
However, the Commission would stress that such cases, 
like the example of the other extreme given by the Court, 
are exceptional but legal. 
6.66. Investments carried out before the entry into force 
of Regulation (EEC) No 797/85 are not eligible and the 
Member States should have deducted the corresponding 
subsidies from the applications for reimbursement. The 
Commission will ensure that the situation pointed out by 
the Court is regularized. 
Specific remarks relating to aids to 
young farmers 
Installation of young farmers 
6.69-6.70. The Commission shares the Court's 
opinion that the aid for the installation of young farmers 
should not simply formalize a de facto situation. The aid is 
intended to palliate the ageing of the agricultural 
population and to instil the vigour and entrepreneurial 
spirit which will facilitate the adaptation of production 
systems to market constraints. Its objective is therefore to 
make it easier for young farmers to gain access to 
positions of responsibility and to cover the new risk they 
are taking. Regulation (EEC) No 3808/89 amended 
Regulation (EEC) No 797/85 to require each Member 
State to define more precisely the conditions for the 
installation of the young farmer (particularly as a member 
of an association or cooperative) under the supervision of the Commission and the other Member States in the 
STAR Committee procedure. As in the case of investment 
aids, the Commission believes that it is impossible to lay 
down directly applicable Community rules to cover all the 
specific situations; it wishes to allow the necessary 
flexibility and to extend the room for manoeuvre so that 
implementation is better adapted to the variety of 
national and regional situations. 
In particular, the Commission will not approve Com­
munity part-financing if a young farmer setting up as a 
member of an association or cooperative does not have 
the same rights as the other members. 
Occupational skills of the young farmer 
6.71. The Commission believes that any distortions 
which have arisen in Italy in assessing the occupational 
skills of young farmers can be explained by the fact that a 
new scheme had to be implemented in a Member State 
where administrative competence had been devolved to 
the regions. The Commission will increase its vigilance to 
ensure that such situations do not recur. 
With regard to the usefulness of the approval procedure, 
see the reply to paragraphs 6.15-6.21. 
Evaluation of the results of the aid 
6.11 - 6.74. The Commission has carried out surveys in 
the Member States regarding the aids granted in 1986 to 
1989, and the results are still being studied. 
It would stress that evaluating the results of measures is a 
difficult exercise because structural adjustment happens 
very slowly and it is difficult to determine the cause and 
effect relations between a specific measure and one or 
more indicators of structural change. 
Despite these difficulties, the Commission submitted to 
the STAR Committee meeting of 26 September 1990 a 
preliminary report on the first years of application of 
Regulation (EEC) No 797/85, in which it attempts to 
show the effect that the regulation has had on structural 
changes, particularly in comparison with previous 
measures. 
266 Official Journal of the European Communities 12. 12. 90 
Conclusion 
6.75-6.78. The Commission appreciates the Court's 
statement that, from a technical point of view, the 
investments subsidized undoubtedly constitute an im­
provement in the recipient holding's means of produc­
tion. It should be pointed out that the Fund has a sectoral 
objective and it is therefore normal that some aid is 
geographically dispersed. As regards aid intended to 
improve the situation of holdings, it should also be 
pointed out that holdings are numerous and that even a 
good-sized farm is a small or medium-sized enterprise. 
With regard to the Court's comments on the absence of 
the principles underlying the reform of the structural 
Funds, those principles relate to regional assistance to 
economic development, which often involves major 
investments in infrastructure and can therefore be made 
the subject of a programme. The measures provided for in 
Regulation (EEC) No 797/85, which come under 
Objective 5(a), are horizontal measures applicable to a 
large number of farmers who have yet to take investment 
decisions. Naturally, monitoring and evaluation must 
still apply to such measures. 
FORESTRY MEASURES FINANCED BY 
THE GUIDANCE SECTION OF THE EAGGF 
IN THE CONTEXT OF REGULATION (EEC) 
No 269/79 OF 6 FEBRUARY 1979 
The legal framework 
Observations 
6.89. Regulation (EEC) No 269/79 did not create a 
Community forestry policy comparable to, for example, 
the common agricultural policy. The aim of Regulation 
(EEC) No 269/79 is to supplement the common agricul­
tural measures with a special aid scheme for forestry 
measures. Such forestry measures are generally intercon­
nected and can contribute to: 
— the conservation and improvement of the soil, the 
fauna, the flora and the surface and underground 
water balance, and 
— the productivity of agricultural land, by forming 
windbreaks and shelter belts and by affecting local 
water and weather conditions. Approval of the programmes submitted by the Member 
States is based on the objectives fixed in the regulation; 
this does not mean, as the Court fears, that any measure 
with something to do with forestry is accepted. The 
Commission pays close attention to this. 
6.90. Regulation (EEC) No 269/79 is restricted to the 
broad categories of eligible operations and does not 
attempt to lay down in detail specific operations to be 
carried out. The Member States are responsible for 
applying the regulation since, under Article 2, they had 
first to draw up outline programmes and must then ensure 
that the special programmes are compatible with the 
outline programmes. It is therefore up to the Member 
States to take account of the diversity of local situations 
and to determine the sites and working methods to be 
used to ensure that the aid granted under the regulation is 
used to maximum benefit. 
6.92. It is true that the results of the preparatory studies 
for the French outline programme could not be taken into 
account when starting up the special programmes drawn 
up under Regulation (EEC) No 269/79, but they were 
taken into account in the new framework programme 
drawn up under Regulation (EEC) No 2088/85 on the 
IMPs. 
As regards the amount forecast in Italy's outline 
programme, Commission Decision 79/953/EEC of 26 
October 1979 approving the programme stated that 
approval of the outline programme was without prejudice 
to the amount of the financial contribution by the 
EAGGF. 
Subsequently, therefore, the Commission adopted Italian 
special programmes within the limits of the available 
funds as decided by the budgetary authority. 
6.93. Article 6 of the regulation provides that special 
programmes must consist of one or more investment 
projects to be implemented in one or more geographical 
areas. This does not necessarily imply that a smaller 
number of operations is easier to follow and to check. 
The scattering of sites is the natural consequence of the 
fragmentation of many forests. 
The special programmes meet the requirements of areas 
with special difficulties as regards erosion and the water-
holding capacity of the soil, and these problems are taken 
into account when the special programmes are adopted. 
6.94. This type of measure is very difficult to evaluate, 
not only as regards environmental impact, but also as 
12. 12. 90 Official Journal of the European Communities 267 
regards other aspects, such as improvements in forest 
exploitation or the indirect effect on the productivity of 
agricultural land. 
Implementation, monitoring and checking 
of the measures 
State of financial and physical implementation 
6.96. The available annual reports were all brought 
together by the Commission departments in the context 
of the preparations for the negotiations of the forestry 
package for the French IMPs during the first half of 1989. 
The progress of the special programmes which have 
received aid from the EAGGF Guidance Section under 
Regulation (EEC) No 269/79 is as follows: 
— 24 special programmes in France have received aid, 
and 16 of these have been completed; 
— 61 special programmes in Italy have received aid, and 
50 of these have been completed. 
None of the special programmes under Regulation (EEC) 
No 2088/85 had been completed by the end of 1989, 
because the first were not financed until 1987, in the case 
of France, and 1988, in the case of Italy. The number of 
programmes approved at 31 December 1989 was 12 for 
France and 14 for Italy. 
Observations on the implementation of the measure 
6.97. Commitments were cancelled for various reasons, 
in particular the replacement of certain categories of 
operations with less expensive ones, and cases where real 
costs were lower than the estimates. In addition, checks 
showed that some of the expenditure included was not 
eligible for contributions under the EAGGF. For the 
Italian regions of Basilicata, Umbria and Campania, 
planning was not respected and the EAGGF therefore 
accepted only part of the work carried out. These 
cancellations do not call into question the value of what 
has been carried out. 
6.101. The Commission shares the Court's regret that 
the Member States paid less attention to financing 
measures in private forests than in public forests under the special programmes. This does not mean that the 
effectiveness of the measure is in doubt. 
6.102. The situation in Corsica was indeed blocked in 
1985 and 1986 as a result of the creation of Odarc 
(Corsican Regional Agricultural Development Office). 
Odarc was created to strengthen the regionalization 
process in Corsica. There were certain initial difficulties in 
taking over the corresponding functions of Somivac 
(semi-public company responsible for agricultural de­
velopment in Corsica). The situation in Corsica has 
improved since 1987. 
6.103. The Commission must wait for aid applications 
to be submitted. It is also dependent on the speed of work. 
The financing of a special programme in a region cannot 
be held up by delays in another programme. 
As regards the island of Elba and Argentario, the 
operations involve, above all, the reafforestation of areas 
damaged by large fires, for which a measure was 
necessary to re-establish natural conditions. 
6.105. It should be remembered that forestry work is a 
source of additional income for rural communities, which 
enables the population to remain in less-favoured areas 
and protect the environment. This complies perfectly with 
Regulation (EEC) No 269/79, in which forestry is seen as 
able to help provide for a better use of manpower in 
agriculture. 
6.106. The use of small ploughing implements for 
planting does not necessarily give results of poorer 
quality. Often, in certain regions, forestry work must be 
carried out manually because of the soil type. 
6.107. In applying the regulation, the Commission has 
taken account of the great diversity of the forests 
concerned. Soil composition, relief, climate, the variety of 
species, the extent of deterioration of the forest and 
accessibility in particular require detailed knowledge of 
the sites and the local authorities have been permitted to 
define specific operations to meet the objectives laid 
down. 
6.110. The amount of aid (100 u.a./ha) provided for in 
Regulation (EEC) No 269/79 is intended for small-scale 
operations such as the installation of detection towers and 
the creation of water reserves and small access roads. For 
larger-scale operations, Member States have had recourse 
to Regulation (EEC) No 3529/86 since its entry into force. 
268 Official Journal of the European Communities 12. 12. 90 
6.111. Where expenditure has been declared to the 
EAGGF Guidance Section for roads not connected with 
forestry work, such expenditure has not been financed. 
The financing of roads for forestry work cannot be 
refused, even if such roads are used, after construction, 
for other uses. In any case, several uses are concurrent. 
Observations on the monitoring and checking 
At Commission level 
6.114. The Commission considers that the procedures 
followed are sufficient to ensure compliance with the 
regulation: 
(1) The outline programmes were drawn up by the 
Member States and forwarded to the Commission. 
The Commission submitted them as drafts to the 
Standing Committee on Agricultural Structures 
(CPSA), which gave its opinion. Thereafter, the 
Commission approved them on the basis of its own 
criteria. 
(2) The special programmes were forwarded to the 
Commission, which scrutinized them and requested 
explanations and additional information. It then 
submitted the draft special programmes for the 
opinion of the CPSA. Lastly, the Commission 
decided to grant the aid. 
6.116. The applications for aid were given equal 
treatment during scrutiny, and the EAGGF Committee 
was consulted (former Regulation (EEC) No 269/79) or 
informed (IMP procedure). The Commission then 
ensured that the different dossiers received equal 
treatment, regardless of the recipient Member State. 6.117. The Commission takes the view that the checks 
carried out cover not only the financial aspects but also 
information relating to the eligibility of expenditure. 
Conclusion 
6.124. The special programmes were selected fully in 
accordance with the conditions laid down in the existing 
Community rules. 
6.125. The Commission is taking action along the lines 
recommended by the Court. 
GENERAL CONCLUSION 
6.128. The Commission notes that the Court and the 
Commission have, for a number of years, had differing 
views on the approach to be adopted regarding structural 
assistance on agricultural holdings. The Commission 
takes the view that the Court's approach would be 
impracticable because of the diversity of situations which 
arise in a Community with 12 Member States. 
6.129. The reform of the structural Funds strengthened 
the application of the principle of subsidiarity, which 
requires that the Member States should assume greater 
responsibility for the implementation of structural 
measures. As regards structural assistance to agricultural 
holdings, the method adopted in Regulation (EEC) No 
797/85 strikes the Commission as being the best way of 
attaining this objective. It should be remembered that 
farmers are independent economic operators. The general 
rules concerning monitoring and evaluation apply to all 
forms of structural assistance. 
12. 12. 90 Official Journal of the European Communities 269 
CHAPTER 7 
The European Regional Development Fund (ERDF) 
INTRODUCTION 
Preliminary comments 
7.1 - 7.6. While referring to the Commission's activities 
in 1989 to implement the reform of the structural Funds, 
the Court focused its attention in its 1989 report on the 
initial difficulties of starting up and implementing the 
measures launched in the form of programmes under 
Regulations (EEC) No 214/79 and No 1787/84, which 
have since been repealed by the entry into force of the 
reform on 1 January 1989, a year which was basically 
coloured by the introduction of the reform. 
Certainly, the measures launched under the above-
mentioned former Regulations were continued in 1989 
and the consequences of some of the difficulties of 
starting up and implementing them, particularly as 
regards planning, preparation and monitoring, continued 
to be felt throughout that year. However, it should not be 
forgotten that the implementation of the first real attempt 
at launching the programme approach, in Regulation 
(EEC) No 1787/84 on the ERDF, constituted a quali­
tative leap and an innovation. The weaknesses and 
difficulties encountered in implementing the former 
programmes, to which the Court refers, generally arose 
from the innovative nature of the programme approach, 
which required the creation, in the Member States, of an 
appropriate administrative organization, since the Com­
mission cannot, in any case, take the place of the national 
authorities if the measures originally planned are not fully 
realized. 
Aware of these weaknesses, the Commission has done 
everything in its power, in the light of the experience 
gained in the implementation of the programme ap­
proach, to remedy the situation in the preparation and 
implementation of the reform, one of the basic objectives 
of which has been to improve the effectiveness of the 
actions of the structural Funds. 
In 1989, therefore, there was a considerable effort to plan 
the strategy of structural development and coordination of the different financial instruments. This effort was 
carried out by the Commission in close collaboration with 
all of the national authorities concerned and resulted in 
the adoption of the Community support frameworks 
which define, in particular, the objectives and priorities of 
structural measures. At the same time, the partnership 
was set up, giving greater responsibilities to national 
authorities in the management of structural assistance 
and the evaluation and monitoring which appeared 
explicitly in the texts of the regulations for the first time 
and which should guarantee, within the framework of the 
partnership, better preparation and monitoring of the 
realization of ERDF assistance. 
It is, of course, too early to be able fully to evaluate the 
impact of the reform on the effectiveness of the ERDF's 
operations. However, as the Court stresses, it is clear that 
the reform of the structural Funds is not in itself sufficient 
to ensure its success. Success will also depend on the 
Commission's vigilance, in close cooperation with the 
national authorities concerned, during the implemen­
tation of the new rules. 
Diversification of the types of ERDF activity 
7.7-7.13. Although the programme approach was 
introduced by Regulation (EEC) No 214/79 on the 
ERDF in the form of specific 'non-quota' Community 
measures, that first attempt was very limited in scope 
because of the rules themselves. 
The first real attempt to launch the programme approach 
came with Regulation (EEC) No 1787/84 on the ERDF. 
The main objective of that regulation was to improve the 
planning of structural development by gradually and at 
least partially replacing the fragmentation caused by the 
reimbursement of national aid for a host of individual, 
often very small-scale projects, with part-financing of 
programmes. 
270 Official Journal of the European Communities 12. 12. 90 
In the mean time, as the Court points out, this approach 
has become more or less universal in the context of the 
reform in order to ensure, particularly, that the oper­
ations of the ERDF are more effective. 
Implementation of the 1989 budget 
7.14-7.19. As regards implementation of the 1989 
budget, the Court notes the high utilization of both 
commitment and payment appropriations but points out 
that this state of affairs only partially reflects the exact 
state of the Commission's financial obligations as regards 
commitments and the actual progress of measures, as 
regards payments. 
As regards commitments, the Commission will address 
the question of what form it can give to the estimated 
financial implications which will arise in coming years 
from the legal obligations it contracts when it approves 
the financial envelopes for the programmes. 
As regards payments, it is clear that, in a system of 
advance payments such as that provided for in the rules, 
the flow of ERDF funds and therefore the uptake of 
payment appropriations is by definition always ahead of 
the physical progress of the measures. 
With regard to the fact that all the ERDF appropriations 
are grouped together under one single budget heading, 
the Commission would point out that the presentation 
which it adopted in the past met the requirements of 
flexible management. In addition, the rules did not 
provide any means of foreseeing the appropriation 
requirements of the different types of measure. 
Furthermore, the presentation of the appropriations 
under one budget heading does not preclude effective 
control of the implementation of the budget, since the 
Commission is able to provide an a posteriori breakdown 
of how the appropriations were allocated. However, to 
respond to the concern for greater transparency, the 
Commission has since adapted the comments on the 
budget to give an indicative breakdown of appropriations 
by objective in the preliminary draft budget for 1991. 
Lastly, regarding the 1988 appropriations made available 
again for 1989, the Commission would refer to its replies 
to Chapter 1. EXAMINATION OF DIVERSIFICATION 
Management and implementation of 
diversification 
System of commitment and payment (7.20 — 7.37) 
7.20-7.25. The Court's comments on the system of 
commitment and payment are mainly concerned with the 
provisions themselves, in both the former ERDF 
Regulation (EEC) No 1787/84 and the new Council 
Regulation (EEC) No 4253/88, which applies to all three 
structural Funds. 
Those provisions stipulate explicitly that budget commit­
ments for measures lasting two years or more are, as a 
rule, to be made out in annual instalments and that the 
commitment of subsequent instalments is based on the 
financing plan showing the annual expenditure envisaged 
for the measure and on the progress made in its 
implementation, payments being closely linked to 
commitments and to the utilization rate. The system of 
commitment and payment applied by the Commission 
constitutes a coherent whole in accordance with the 
abovementioned rules. 
In the financial settlement of ERDF assistance, the 
Commission has complied scrupulously with the said 
rules, while allowing itself to be guided by a permanent 
concern for effectiveness at the level of both the detailed 
rules for the application of those provisions and the 
internal management procedures, which fall within the 
Commission's competence. 
It is true that, as the Court pointed out, the rules 
governing the commitment and payment system imply on 
the accounting level that budget commitments do not 
reflect the total level of legal obligations taken on by the 
Commission when it approves the financial envelopes for 
the programmes. 
These legal obligations nevertheless exist and, as already 
said above, the Commission is prepared to act on the 
Court's concern and will be examining the question of 
what form it can give to the estimated financial 
implications which will arise in coming years from the 
legal obligations it incurs. 
7.26-7.28. The Commission shares the Court's view 
that the current commitment and payment system can 
12. 12. 90 Official Journal of the European Communities 271 
function correctly only if the Member States make an 
effort to adapt in line with the characteristics of that 
system. 
The difficulties to which the Court refers, encountered in 
the past by certain Member States in isolated cases of 
measures launched under the former Regulation (EEC) 
No 1787/84 on the ERDF, are not due to the commitment 
and payment system but to the characteristics of certain 
national structures which, at the time when the pro­
gramme approach was being launched, had not yet been 
adjusted, or had not been properly adjusted, to the 
requirements of managing the programmes. 
These difficulties have since been alleviated considerably. 
For example, the financing plan which accompanies each 
programme on which, under the rules, implementation of 
the system of commitment and payment is based, 
represents the planning, which by definition is only a 
forecast, of actual expenditure, i.e. the payments which 
the Commission and the national and regional authorities 
intend to make each year under the part-financing 
arrangements for the implementation of the programme; 
part-financing therefore takes place at the level of actual 
expenditure. However, it is inevitable in all planning, 
which is by nature an estimate, that actual expenditure 
will differ from the amount forecast and this has, in some 
cases, led to the initial financing plan being revised. 
Such difficulties, where they continue to exist, should be 
solved as the Court suggests during the implementation of 
the new rules, and particularly within the framework of 
the introduction, in the context of the partnership, of the 
strengthened monitoring arrangements provided for in 
the new rules, but also as part of the scrutiny of national 
control systems being carried out by the Commission 
pursuant to Article 23(1) of Regulation (EEC) No 
4253/88. 
As stated above, it is understood that actual realization of 
structural operations is the responsibility of the Member 
States, who must therefore organize themselves so as to 
avoid any delay in utilizing the ERDF funds placed at 
their disposal in advance under the advance payment 
arrangements, which are expressly designed to speed up 
the operations. 
7.29. Since it shares the Court's concern for trans­
parency, the Commission will henceforth indicate the 
future financial commitments arising from the legal 
obligations it has incurred. In addition, as the Court has 
said, the Commission will ensure, in particular by means 
of the strengthened monitoring arrangements provided for in the new rules, that the Member States eliminate the 
difficulties remaining at national level in the implemen­
tation of the commitment and payment system. 
7.30-7.31. The Commission shares the Court's con­
cern for transparency and therefore its desire to see the 
progress of operations in real terms reflected in the 
implementation of the budget, i.e. utilization of both 
commitment and payment appropriations. 
Scrupulous application of the rules and the prompt 
implementation of appropriations are not in themselves 
sufficient to ensure the effectiveness of the structural 
measures undertaken. If the reform is to succeed, actual 
implementation of the measures is of utmost importance, 
and this requires permanent monitoring of implemen­
tation. 
As already stated above, in the logic of the current system 
of commitment and payment, commitment in the budget 
of new instalments and the subsequent payment of further 
advances is linked to the progress made in implementing 
the financing plan, while the only way of measuring the 
progress made in real terms is to compare actual 
expenditure with the forecast expenditure shown in the 
financing plan. 
The current system itself therefore guarantees the link 
between utilization of the appropriations and the 
progress of operations in real terms. However, as already 
indicated, the rules governing the advance payment 
system necessarily imply that budget commitments and 
the settlement of those commitments take place before 
real progress is made in the physical operations. 
7.32 - 7.36. The new rules should further strengthen the 
abovementioned link. Information on the actual progress 
of operations is now not only collected at the level of the 
monitoring committees provided for under the new rules 
but must be supplied in the annual progress report which 
must be presented as one of the conditions for the closure 
of the accounts for each annual instalment. 
The link which is thereby ensured between the financial 
data and the information on actual implementation 
should make it possible to take greater account of real 
progress in the field, not only when each annual 
instalment is closed but also when the advances are paid 
so that, where necessary, advances can be reduced or even 
blocked. 
With regard, in particular, to the difficulties caused by 
abnormally long delays which have occurred in the past in 
certain cases between the payment of advances by the 
Commission and the actual receipt of the funds by the 
bodies concerned and which have sometimes reduced the 
advance to a reimbursement of expenditure already 
incurred, such difficulties should not be attributed to the 
272 Official Journal of the European Communities 12. 12. 90 
system of commitments and payments but, as the Court 
states, to the characteristics of certain national adminis­
trative structures. Where such difficulties continue to 
exist, therefore, they too should be solved within the 
framework of the introduction, in the context of the 
partnership, of the strengthened monitoring arrange­
ments provided for in the new rules. 
7.37. As stated by the Court, the new rules should 
further strengthen the link between the financial data 
supplied in support of applications for payment and the 
actual results of the operations. 
The allocation of ERDF resources 
7.38. Although the proportion of ERDF resources 
allocated to Community initiative programmes in 1989 
was less than 15 %, it should be noted that the allocation 
of ERDF resources referred to in Article 12 of Regulation 
(EEC) No 2052/88 is purely indicative and served as a 
basis for planning the whole of the period covered by the 
doubling of the resources of the structural Funds. In 
addition, the last subparagraph of Article 3(2) of Council 
Regulation (EEC) No 4254/88 on the ERDF stipulates 
only that the Commission's initiatives are normally to be 
financed from that part of the Fund's commitment 
appropriations which is not the subject of the indicative 
allocation. 
Non-quota measures, programmes of Community 
interest and national programmes of Community interest 
(7.39 — 7.49) 
The programmes examined by the Court were launched 
under Regulation (EEC) No 1787/84 and some of the 
non-quota measures under an even earlier Regulation, 
namely Regulation (EEC) No 214/79. 
Although, as stated above, the difficulties in starting up 
these programmes and the weaknesses in their implemen­
tation were taken into account during the preparation 
and implementation of the reform, the Commission 
wishes to give a detailed reply to the Court's comments 
which will serve as an illustration. Since the Court's 
comments were more or less the same for the three types 
of programme mentioned, the observations below are 
valid for all of the programmes launched under the old 
rules. They are followed by specific comments which, by 
way of example, either give further details of the 
administrative, legal or technical difficulties inherent in 
setting up the programme approach, or clarify certain of 
the Court's comments. 7.39 - 7.46. A number of programmes launched under 
the old rules suffered significant initial delays in their 
implementation as a result of the Member States' 
difficulty in setting up an administrative organization 
which would meet the requirements of the implemen­
tation of the programme approach. 
The delays in committing subsequent instalments were 
caused by the delay in starting up the programmes, which 
was exacerbated by the delays in physical implemen­
tation, since the Member State did not always manage to 
spend the funds placed at its disposal in the form of 
advance payments by the Commission. The delay in the 
transmission of the data supporting the applications for 
payment should also be noted, as such delays usually 
resulted in delayed commitments. 
It should also be noted that in many cases where the 
decision to grant aid was taken at the end of a year, the 
Member States had generally provided in their schedule 
for a first instalment in the year in which they drew up and 
sent to the Commission their aid application and their 
first version of the programme. This appears as a delay of 
one year, since the Member States made little use of the 
facility offered them in Article 25(2) of Regulation (EEC) 
No 1787/84 on the ERDF, under which expenditure was 
eligible which was incurred from the twelfth month 
preceding the date on which the Commission received the 
application for aid. Some of these programmes were the 
subject of long negotiations and some of the measures 
they included were new enough for the Member States 
(who were not yet implementing them on their own 
budget) to wait for the Commission's formal decision 
before taking action and updating or even enacting the 
legislation needed for their implementation. 
The problems encountered, whether administrative, legal 
or technical, were generally solved over time but caused 
delays which could sometimes be made up only slowly. 
Nevertheless, in certain cases, as the Court states, enough 
progress was made to enable the Commission simul­
taneously to commit two instalments, thereby reducing 
the delay with regard to the schedule. 
The experience thus gained should be of value in the 
implementation of the reform, which provides that the 
greater part of ERDF assistance should be used for 
programmes. 
7.47. As an illustration of implementation problems, 
the delay which occurred in the case of the European 
development pole in Luxembourg was due to difficulties 
in equipping the sites, which meant that businesses could 
12. 12. 90 Official Journal of the European Communities 273 
not move onto them immediately, and to the fact that 
payments of investment aids are phased according to 
progress in implementing the measure for which the aid 
was granted. 
It should be pointed out that the rate of implementation 
of an instalment to be achieved before the following 
instalment could be committed was lowered from 70 to 
60 % not to make it easier to use up appropriations, as the 
Court suggests, but to speed up payment of ERDF 
advances and therefore the physical implementation of 
the measure, in view of the delays in the transmission of 
Community funds within the national payment channels. 
7.48. With regard to the integrated approaches, the 
NPCIs are subject to the same rules whether they are 
autonomous or part of an IDO or an IMP and the delay 
noted by the Court is always due to the same reasons, i.e. 
delays in implementation in the field or in the transmis­
sion of financial implementation data. For detailed 
comments on the IMPs, the Commission, like the Court, 
would refer to the special report on IMPs and the 
Commission's replies. 
7.49. With regard to the conclusions which can be 
drawn as to the actual implementation of measures by 
examining the payment of advances, the Commission has 
already noted that under the new rules the financial data 
supplied in support of applications for payment are 
assessed in conjunction with the information on actual 
implementation ascertained by monitoring and given in 
the annual progress reports which must now be presented 
as a condition for the closure of accounts for each annual 
instalment payable for programmes. 
ERDF financing in 1989 
7.50. It is quite normal that a large amount was 
allocated to individual projects in 1989. Provision was 
explicitly made for the financing of this type of 
intervention in the transitional provisions for bridging the 
gap between the the old and new arrangements in 
Article 15(4) of Regulation (EEC) No 2052/88 and 
Article 33(5) of Regulation (EEC) No 4253/88. 
The Commission, in collaboration with the national 
authorities, was able to establish the operational 
programmes to be financed only after the relevant 
Community support frameworks had been adopted. In 
this context, it should be noted that the new rules provide 
for the allocation of ERDF assistance to infrastructure 
and industrial projects only on condition that they are of a 
certain scale. 
7.52. With regard to the fact that certain Member States 
received allocations in excess of their indicative quotas in 
1989, as noted by the Court, the Commission would point 
out that the allocation made in accordance with Article 12(6) is purely indicative and provided the basis for 
planning over the period covered by the doubling of the 
resources of the structural Funds. 
7.53. In the case of Greece (Objective 1) and Spain 
(Objective 2), the respective governments were unable to 
give their agreement before the beginning of the 1990 
financial year. 
With regard to Objective 5(b), no CSFs were approved in 
1989 because of the late date on which the plans were 
presented (28 October 1989). 
7.54-7.56. With regard to compliance with the es­
timates in the Community support frameworks, the 
Commission would point out, firstly, that such compli­
ance depends on the submission of applications for 
assistance by the Member States and, secondly, as stated 
above, that compliance with the estimates has to be 
assessed over a five-year period. 
France submitted its first Objective 1 operational 
programme on 4 December 1989. Since the other 
operational programmes were submitted in 1990, the 
Commission could not adopt them in 1989. In the same 
context, it is true that the commitments for two Spanish 
operational programmes were deliberately delayed from 
December 1989 to January 1990, chiefly because of the 
need to adjust the allocation of commitments among the 
Member States. 
7.57. The Commission did not pay the maximum 
advances provided for in the regulations, thereby making 
use of the authority bestowed on it by Article 21(2) of 
Regulation (EEC) No 4253/88 to assess progress. 
Conclusion concerning financial management 
7.58-7.60. With regard to the estimated expenditure 
arising from the legal obligations which it incurs, the 
Commission will, as stated above, respond to the Court's 
concern for transparency by indicating in future those 
legal obligations it has contracted in respect of which 
financial commitments have not yet been entered in the 
budget. 
As regards transparency in the application of the system 
of commitment and payment, as stated in paragraphs 
7.32 to 7.37 above and indicated by the Court itself, the 
new rules should strengthen the link established by the 
current system between budget commitments and pay­
ments on the one hand and actual progress in the 
implementation of the measures on the other, particularly 
through the collection of information on physical 
274 Official Journal of the European Communities 12. 12. 90 
progress by the monitoring committees and the annual 
progress reports which must be submitted as a condition 
for the closure of accounts for the annual instalments. 
Selection of types of measures in ERDF management 
7.61-7.62. The new rules, which replaced the rules 
governing the operations referred to by the Court from 1 
January 1989, specify the four forms of financing which 
ERDF assistance must now take. Which of the four forms 
is to be used in each case is negotiated, in accordance with 
their respective characteristics as defined by the said rules, 
within the framework of the partnership, and included in 
the Community support frameworks. 
This being the case, it should be made clear that the 
regulations introducing Community programmes include 
a description of measures which are eligible under the 
objective in question. In addition, in the case of the STAR 
and Valoren programmes, the Commission produced a 
guide stating its views on how these programmes should 
be drawn up. Within the framework laid down, the 
Member States put forward programmes showing how 
these measures should be applied to the area concerned. 
The programmes are negotiated with the Commission, 
which ensures that they comply with both the letter and 
the spirit of the regulation and ascertains that the 
proposed measures are both financially and technically 
feasible. 
The Community has for many years been dealing with 
crisis situations which do not last for the duration of a 
regulation. The measures which it proposes are often 
innovative. It therefore follows that although they are 
necessary they are difficult to implement and it is 
sometimes several years before their effects are felt. In this 
context, the Commission has decided to continue certain 
measures, originally launched as non-quota measures, 
within the framework of Community programmes. 
7.63. The same is true of certain measures launched in 
the form of NPCIs under former Regulation (EEC) No 
1787/84 which supplemented projects in respect of which 
the ERDF had previously only been able grant assistance 
on an individual basis. This shows in hindsight the 
interest of those individual projects: 
— The road element in the Auvergne NPCI represents a 
considerable proportion of the total ERDF assistance 
to that programme. It should be remembered that 
when the programme was being prepared, in 1985 and 
1986, the authorities of all the areas covering the 
Massif Central, particularly Auvergne, were anxious 
to lessen the economic isolation of that part of 
France. Since its creation, the ERDF had already granted considerable assistance to projects for road 
improvements. However, the Massif Central chose to 
take advantage of the NPCIs for Auvergne, Lim­
ousin, Tarn-Aveyron and Lozere to further assist 
these infrastructures (which were still top priority at 
the time) by including them in its programmes, 
without neglecting pure economic development 
measures. This was therefore a considerable improve­
ment in that those measures were grouped in an 
overall programme designed to open up the Massif 
Central. 
— The situation is identical in the case of the roads 
NPCI in Ireland, which makes it possible, by 
financing stretches not covered by projects, to create a 
homogeneous network planned over a number of 
years. 
— As regards the project to redevelop an MMRA site in 
Belgium, although a audit by the Court showed 
inadequate management of the accounts, the situ­
ation has since been rectified and the work carried out 
under the project was terminated in February 1984, 
with eligible expenditure of only 157 million ECU 
from a total of 439 million ECU spent on the project. 
Further development of the site was resumed under 
the NPCI-EDP, taking account of the new context 
created by the international dimension of the EDPs. 
7.64. The European business and innovation centres 
were designed as a public instrument at the service of 
regional development policy. Their objective is to ensure 
that opportunities which arise and can be used by local 
entrepreneurs are exploited and turned into small and 
medium-sized enterprises, which would not happen if 
purely commercial considerations were paramount. 
The organizational structure and the activities under­
taken by such centres must be seen as a partnership 
between the private and public sectors, the aim of which is 
to support local economic development through a more 
effective combination of the efforts of the operators 
involved in the creation of innovative businesses and the 
redeployment of existing businesses. 
Although such centres should be self-financing in the long 
term, this objective cannot be given priority over their 
chief function as a regional development instrument. 
12. 12. 90 Official Journal of the European Communities 275 
Methods of applying the principle 
of diversification 
Preparation and appraisal of measures (7.65 — 7.82) 
The Court's comments on appraisal and monitoring are 
linked to the shortcomings of the regulations, which the 
new rules should rectify, particularly as regards assess­
ment and monitoring. The Commission will therefore 
restrict itself to giving the information which follows. 
7.65-7.69. Since the reform, programmes have con­
tained a lot of statistical and qualitative data which make 
it possible to make an evaluation beforehand. Objective 
financial and physical indicators have been determined 
and indicators of impact are being prepared. 
The technical assistance provided for in these pro­
grammes will be used, inter alia, for monitoring and 
assessment at all stages. In certain cases, this aid will also 
cover the monitoring of programmes throughout the 
implementation period: physical and financial aspects 
and economic impact analyses. 
7.70 - 7.72. With regard to the assessment of effects on 
the development of tourism or on the environment during 
the preparation of ERDF assistance, there has been a 
greater awareness of environmental matters in recent 
years, which has led to certain projects being postponed 
and others being abandoned. 
As for the Valoren regulation, and particularly its 
application in the Irish programme, the Commission 
would point out that the difficulties did not arise from an 
ecological problem but from internal difficulties involv­
ing the restructuring of the authority responsible for the 
measure. The Commission took on an outside consultant 
to check the viability of the measures which still remained 
to be implemented for the whole programme, including 
the peat project. The Irish authorities recently presented a 
revised programme drawn up with the aid of the same 
consultant. 
Monitoring of operations 
7.73-7.74. With regard to the measures launched 
under former Regulation (EEC) No 1787/84, the 
Commission too regrets that the Member States have not 
always been able to send it the two-yearly reports on the implementation of regional development programmes 
and the periodic reports (every two and a half years) on 
the progress made in implementing the programmes. 
The implementation, within the framework of the 
partnership, of the monitoring expressly provided for in 
the new rules should rectify this situation. 
7.75 - 7.78. The existence of the monitoring commit­
tees, originally set up on the Commission's initiative, was 
not confirmed in the rules until Regulation (EEC) No 
4253/88 was adopted as part of the reform. Article 25 of 
that Regulation defines their role, their composition and 
their powers, particularly as regards amendments to 
programme schedules. 
In the case of the programmes adopted before 1989, the 
absence of any binding Community legislation did not 
prevent the creation, albeit sometimes difficult, of these 
committees, nor did it prevent them from fulfilling their 
role. 
Experience has shown that the monitoring committees, 
by bringing together the persons and bodies most directly 
involved in the implementation of the programmes, make 
it possible to identify and examine the problems 
encountered and to put forward alternative solutions to 
rectify any negative aspects. The Commission's rep­
resentatives participate in the committees to stimulate the 
process. 
7.79. With regard to the four budgetary commitment 
operations referred to by the Court, the steps taken since 
the incidents in question, in particular concerning the 
time when Financial Control approves commitments, will 
guarantee that such cases are not repeated. 
7.80. The Commission will study the case of certain 
BICs referred to by the Court. 
7.81 - 7.83. Where checks are concerned, the Commis­
sion itself, during its inspection visits in the Member 
States, has sometimes found an absence of adequate 
verification of the financial data concerning public 
expenditure certified by the Member States in support of 
their applications for payment. This weakness in the 
national structures will receive particular attention 
during monitoring and during the scrutiny of national 
control systems undertaken by the Commission under 
Article 23(1) of Regulation (EEC) No 4253/88. These 
provisions oblige the Member States to strengthen their 
own arrangements for verifying the use of Community 
funds. 
276 Official Journal of the European Communities 12. 12. 90 
In this context, the Commission is fully in agreement with 
the Court's view regarding the need to strengthen on-the-
spot Community audits and will examine the means of 
achieving this. 
Attainment of the objectives 
of diversification 
Meeting regional needs 
7.84 - 7.86. As already stated in the introduction, the 
Commission is aware of the weaknesses of the regional 
development programmes used in the application of 
former Regulation (EEC) No 1787/84 and has had new 
requirements introduced with regard to the planning of 
structural development strategy for the purposes of 
implementing the reform of the structural Funds. Those 
requirements have led to the adoption of Community 
support frameworks fixing priorities for ERDF assist­
ance. 
7.87. This being the case, the Commission feels that it 
was its duty, when implementing former Regulation 
(EEC) No 1787/84, to ensure that its decisions were suited 
to the specific situation of each case put before it. 
Thus, in Belgium, at the request of that Member State and 
after having examined the reasons given, the Commission 
agreed to substitute the area of Arlon for that of 
Aubange. A large enterprise was located in Arlon which 
created 425 jobs, almost half of the jobs created on the 
Belgian side of the EDP. 
In Ireland in 1988-89, in view of the economic crisis the 
country was going through, the government decided on 
an across-the-board cut in the funds allocated to all public 
services in order to free the resources needed to reduce the 
national debt. In 1989 the Commission and Ireland 
prepared a revised version of the roads NPCI including 
additional measures and higher rates of aid provided for 
in the new rules governing the Funds. The programme has 
been supplemented by the programme on peripherality, 
which includes a substantial section on road infrastruc­
tures and makes it possible to take into account certain 
measures which could not previously have been im­
plemented. The Irish Government has undertaken to 
allocate the necessary resources and the Commission has 
provided for strict monitoring of the programme to 
ensure that this is done. 
At Estrela in Portugal, the Commission felt it was not 
desirable to require the Portuguese authorities to incur 
the additional costs and technical difficulties involved in 
installing two change-over switches for the sole purpose 
of separating subscribers in the eligible areas from those 
in Lisbon, which does not qualify. 7.88. In the Commission's view, the examples cited by 
the Court do not call into question the suitability of the 
measures to meet the needs of the regions. 
— In Auvergne, for example, spa tourism, which used to 
be a considerable asset to the economy, is currently in 
crisis because of recent competition from the spa-type 
tourist facilities developing along the Mediterranean 
coast and from 'health' tourism. In addition, studies 
on spa tourism recently carried out in France show 
that Auvergne's position and strategy are a handicap 
as regards the expansion of spa tourism for the year 
2000. 
The region is therefore wondering whether it should 
make these investments or not, and this is the reason 
for the rather low rate of progress of the measure 
provided for in the NPCI. The next meeting of the 
monitoring committee, scheduled for the end of 1990, 
should consider, if necessary, the transfer of ERDF 
appropriations from this measure to others in the 
same subprogramme. 
— The cost of energy charged to different categories of 
users is an important tool for acting on the economy, 
generally in the hands of the national authorities, and 
bears little relation to real production costs. The chief 
objective of the Community's actions in the field of 
energy is to reduce its dependence on imported oil and 
to improve the security of its supplies by making 
better use of local resources. The less-favoured 
regions are not in a position to exploit their energy 
potential fully; the Valoren programme was designed 
to increase the production level of those regions and 
encourage the spread of new technologies, since these 
two aspects create jobs. 
It is therefore not just a question of lowering the cost 
of energy production, but rather of exploiting local 
resources, in compliance with Community policy on 
the environment, thereby allowing the less-favoured 
regions also to benefit from the economic advantages 
of reduced dependence on oil. 
7.89. The Commission decision was to carry out a 
preparatory study for an IDO in the northern part of the 
Massif Central, i.e. an area including parts of Limousin 
and Auvergne. At the request of the French authorities, 
the draft final report was split into two parts, one for 
Auvergne and one for Limousin. This way of carrying out 
the work was no longer in conformity with the Com­
mission's decision, and this was one of the reasons for its 
reluctance to pay the balance of the study. The study 
nevertheless contributed to the preparation of the two 
IDOs for Auvergne and Limousin. 
LLLl^ Cotliciallournal of the European Communities ^77 
CoozdBu^oBofB^^Bze^BdB^e^BeBto^ 
e^ee^veBe^^.^^7.^^ 
The Commission ^vould point out the considerable 
improvements achieved with the nevB rules and their 
implementation with regard to coordination and evalu^ 
ation, and has the following specific comments to make, 
A^-A^. TheC^ommissionisawareofthedifnculties 
of implementing the integrated approach but believes in 
its etlectiveness and has proposed that it should be 
managed under strict conditions,Tothat end, Article 13 
of^eguiation^E^^o^^^specifiestheconditions 
which mustbefulnlled for the implementationof the 
integrated approach. 
A^. Aregionisnotal^vayshomogeneousanddiversiti^ 
cation of measures by area is one way of taking better 
account of actual conditions,With regard to one of the 
examples given by the Court, namely the two l^PCIs for 
Abruzzi, the commission ispleasedthatthe physical 
implementation of similar operationsshould be managed 
by the same body,as this in itself avoids the danger of 
duplication of effort, 
The^FCIincludedinthel^Pandthesecond^PCI^ere 
coordinated with particular care,^ith regard to services 
to Slv^^^he links were explicitly cited inthe second 
^PCI,whichistinancingtheinvestments,whiletheI^lP 
^FCl is linancing the operational links. 
As tar as ^BlC^s in general are concerned, they are 
geographically distributed in accordance ^vithaglobal 
strategyforthev^holecountry and fundingis linked with 
measuresin theregionalprogrammesas soonas the 
PBICshavecompletedatrialperiod, as^vasthecasewith 
the I^P^rCl in Apulia 
Lastly, the development of data^processing and teleD 
matics services provided for in the STA.P. programme in 
theareaofValVibratav^ithassistanceofabout^million 
^CL^cannot becompared vBithaprqject concerning 
internally generateddevelopmentinagroupofcom^ 
munesnearValVihrata with assistance of t^,eo4 million 
^C^U 
A^. ^^or the othere^amples given by the Court, the 
Commissionhas the right todecide that certainmeasures 
^of which it has already been informed and which have 
been examined sufticientlytobe sure of afavourable 
response^should beincludedinprogrammes oncon^ 
ditionthatcertaintechnicaladjustmentsaremade,sothat 
the ^vhole programme is not delayed. In the case of the 
roads l^PCl,offour projects in respect of v^hich aid v^as 
also granted under the transport programme, the rate of 
aid for three ^vill, after scrutiny, be limited to the^O^o 
ceiling specitied in the decisions approving the transport 
programme, I^heC^ommissionincluded these measures in 
the programme so that their implementation ^vould not 
be unduly delayed, ^vhilereservingtheright,inagreement with the national authorities, to amend the programme if 
the outcome of the consultations so warranted. 
A^-A^tU. Phe Commission is a^vare that the 
creation of certain management structures to ensure 
coordination between central and regional authorities at 
national level sometimes poses delicate problems for 
member States to solve. This has led the Commission to 
insist that management and control structures should be 
clearly describedinthenewprogrammessubmittedbythe 
member States under the new rules. 
As regards the STAR, programme in Italy, the Commis^ 
sion would point out that the programme is managed by 
the monitoringcommittee, ^vhich is made up of the 
ministry for the ^lezzogiorno, the A.genzia per la 
promozione dello sviluppo del Iviezzogiorno and the 
Cl^SIS ^the body responsible for monitoring and 
assessment of the programmed 
A^O^^A^t^l. With regard to assessment, the C^ommis^ 
sion has already launchedameasure funding studies and 
seminars on assessment of the CSFs, In addition, 
assessment ofCbjectivesland^b^isalreadyunderway, 
^0^. As for the level of synergy between the various 
measures included inaprogramme, the ditlerence in the 
envisaged measures does not necessarily run counter to 
the requirements ofthe different areas within the region. 
Fore^ample,threeofthefourinfrastructurescoveredby 
the Auvergnel^PCI are situated in an area of the region 
^the departments of Cantal and HauteDLoire^ ^vhose 
developmentsuttersfromnaturalhandicapsinrelationto 
the northern area ^Allier and Puy^de^Toome^The only 
infrastructuresituatedinthelatterareaistheonev^iththe 
lowest overall cost of the four. This choice is quite in line 
with the level of priority of the different measures in the 
programme because in relatively developed areas the 
ERL^F gives preference to economicmeasuresfocused on 
SIvUEs and tourism. 
A^t^-^.i08. AlloftheC^SFscontainaclauseonthe 
phnciple of additionalitycontirming the member States^ 
undertaking to respect that principle and stating that the 
Commission ^vill periodically verify its application 
throughout implementation. 
TheCommissionhascarriedoutaveritication exercise in 
the member States, The objective v^as to study the 
administrative procedures in force in the member States 
for ensuring compliance with the additionality required 
mentandtoprovidetheC^ommission^vithiigureson 
278 Official Journal of the European Communities 12. 12. 90 
expenditure eligible for assistance from the structural 
Funds in the regions covered by the objectives. 
When the Commission receives this information, it will be 
able to carry out the first ex ante assessment of the 
application of the principle. The findings will be discussed 
with the Member States. Where additionality has not 
been respected, the reasons will have to be identified and 
solutions found. 
At the end of the implementation period of the CSFs, an 
ex post assessment will be carried out. 
CONCLUSIONS 
7.109-7.112. The Commission is pleased that the 
Court, in its conclusion, nevertheless emphasizes the 
positive aspects of the diversification of the methods of 
Community assistance introduced, in the form of the 
programme approach, by former Regulation (EEC) No 
1787/84, in particular as regards the concertation and 
collaboration between the Community authorities and 
the different national bodies involved. 
7.113-7.115. The Commission, aware of the weak­
nesses, particularly as regards the planning of the 
objectives, evaluation and monitoring, has itself drawn 
conclusions from the experience gained and proposed 
provisions, in the context of the reform, particularly 
regarding the planning of structural development strategy 
and the definition of priorities for ERDF assistance, and 
regarding coordination, assessment and monitoring, 
which should rectify the shortcomings of the past, which 
were mainly due to the innovative nature of the 
programme approach and the problems associated with 
adjusting organization at national level. 
7.116-7.121. The Member States remain responsible 
for actual implementation of ERDF assistance, and they 
must organize themselves better to avoid certain delays 
which have arisen in the past. In this respect also, the 
introduction of monitoring arrangements, within the 
framework of the partnership, should lead to greater 
vigilance in the Member States regarding the actual 
implementation of structural assistance. The Commission has also carried out measures to inform 
the Member States about implementation of the reform. 
In addition to the specific reports which the Funds have to 
present to the European Parliament and the Economic 
and Social Committee, the Commission must produce an 
annual report on application of the reform. 
In this context, the Commission agrees with the Court 
that the greater responsibility entrusted to the Member 
States in the management of structural assistance requires 
not only strengthened monitoring but also strengthened 
control at Community level. 
7.122. . As indicated above, the Commission shares the 
Court's concern regarding transparency in budgetary and 
financial management. 
With regard to the budgetary nomenclature, as men­
tioned above, the Commission has adapted the comments 
on the budget as the Court wished show an indicative 
breakdown of appropriations by objective in the pre­
liminary draft budget. 
As regards recording of the estimated financial impli­
cations arising in future years from its legal obligations, 
the Commission shares the Court's concern and will, as 
stated above, be examining the most appropriate ways of 
showing the legal obligations which have not yet been 
converted into budget commitments. 
With regard to the financial settlement of ERDF 
assistance proper, the new rules should help strengthen 
the link which the Court would like to see between 
budgetary commitments and payments on the one hand 
and the actual progress of operations on the other, 
particularly by means of the collection by the monitoring 
committees of information on the physical progress of 
measures and through the annual progress reports which 
must be presented as a condition for the closure of 
accounts for each annual instalment. 
7.123. Lastly, as stated above, the Commission shares 
the Court's view that the reform of the Funds does not in 
itself contain any guarantee of success. This will also 
depend on the vigilance of the Commission, in close 
cooperation with the national authorities involved in the 
implementation of the new rules. 
12. 12. 90 Official Journal of the European Communities 279 
CHAPTER 8 
The European Social Fund (ESF) 
PRELIMINARY REMARK 
The Court's criticisms relate to the management of the 
ESF between 1984 and 1989, a period during which the 
number of projects rose from 2 700 to approximately 
12 000 per year. The ESF endeavoured to keep up with 
the increase in the number of these projects and also to 
take account of their diversity when implementing 
management guidelines by setting out in detail the 
conditions and content/type of each project. However, 
the increase in the sheer number ultimately brought about 
a new system of management, that which came with the 
1988 reform. 
Unlike the previous rules, the new ones introduced by the 
1988 reform feature new facets which, in particular, 
include: 
— fixing of a restricted number of objectives which, as 
regards the ESF, is a marked contrast with the long 
list of priority actions set out in the management 
guidelines drawn up yearly prior to 1989; 
— replacement of a project-based approach by a 
programme-based approach the anticipated effect of 
which will be to bring down the number of files to be 
dealt with at the Community level to approximately 
400; 
— clear definition of the complementary nature of 
Community action and particularly that of the ESF in 
relation to the corresponding national action (prin­
ciple of subsidiarity). 
With this latter principle, it is henceforth established 
unambiguously that ESF-financed action, particularly 
that relating to Objective 3 (fight against long-term 
unemployment) and Objective 2 (restructuring), is to be 
considered an integral part of the overall employment 
policy measures of the Member States. 
In its reply to the Special report No 1/1988 on the 
Community and national procedures and systems concerning the management of the ESF (see OJ C 126, 
16.5.1988, p. 1), the Commission had already recognized 
the limits of the previous rules and had at the same time 
pencilled in the principles which it felt should provide the 
basis of the new rules being prepared. In addition, the 
Commission had drawn the Court's attention to the fact 
that several improvements had already been made to the 
management of the ESF, particularly as regards the 
quality of budgetary implementation and the use of 
financial resources. 
The Commission is convinced that the reform of the 
Funds and the management improvements which it will 
attempt to introduce constantly will satisfy the criticisms 
of the Court concerning a context governed by provisions 
which are no longer in force. 
Lastly, the Commission stresses that when assessing the 
ESF's action due account should be taken of the fact that 
Community resources in the field covered by the Court's 
report represents only an approximate average of 4 % of 
the total expenditure by the 12 Member States on 
vocational training. It thus becomes clearer that the ESF 
can only provide a small contribution to the fight waged 
by the Member States against unemployment. 
COMMUNITY MEASURES IN THE FIELD 
OF LONG-TERM UNEMPLOYMENT 
Introduction 
8.8. A typology of costs per person and per hour has 
recently been instituted by the Commission pursuant to 
Article 3(3) of Regulation No 4255/88. This typology will 
make it possible to analyse any major discrepancy in 
relation to the average value. 
280 Official Journal of the European Communities 12. 12. 90 
Observations on the planning procedures 
The fight against long-term unemployment 
as a political objective 
8.14. The Commission does not share the Court's view. 
Although the means available in 1982 to define long-term 
unemployment were far more restricted than is the case at 
present, the Commission did take account of studies on 
the problem, e.g. those mentioned in the Commission 
memorandum COM (84) 484 final. 
The benefit of hindsight shows that the criteria selected in 
the decision proved to be those which were appropriate to 
the employment situation at the time (young people, most 
of whom are long-term unemployed, adults particularly 
vulnerable to long-term unemployment: women, hand­
icapped persons, migrant persons). Moreover, this 
decision marked the introduction of the concept of long-
term unemployment. 
8.15. The tangible means of attaining these objectives 
were set out in operational terms in the context of the 
reform of the funds. 
Details of the guidelines for the management 
of the ESF concerning the long-term unemployed 
8.17. Article 6 of Council Decision 83/516/EEC set out 
the procedure for adopting guidelines, a procedure which 
the Commission has always followed. Furthermore, the 
ESF budget represents only a very small percentage of the 
expenditure of the Community as a whole on employ­
ment, and the Community rules request the ESF to 
intervene on every type of action and on all categories of 
persons unemployed or those faced with the risk of 
unemployment. This generates a situation of imbalance 
between sums requested and the ESF's actual financial 
possibilities. 
The management guidelines were substantially modified 
by the Commission as from the 1986 financial year. As 
regards the statutory objectives, it established sub-
objectives (priorities) which, combined with the financial 
criteria (75 % for young persons, 44,5 % for absolute 
priority regions) led to major re-grading of priorities as is 
reflected in the budgetary distribution. 
The priorities for the 1986 financial year were drawn up 
on the basis of the preliminary management results for the 
1984 financial year and were confirmed by subsequent 
results. 8.18. (a) The programme-based approach was in­
stituted in the context of the reform of the structural 
Funds; it could not be envisaged during the annual 
renewal of the management guidelines. 
It should be noted that the selection of projects on the 
basis of different priority levels had already ceased to be 
applicable under Council Decision 516/83/EEC. 
(b) and (c) Under the old rules, assessment of ESF 
measures was undertaken when the final payment was 
requested; however cursory this assessment may have 
been, it nevertheless covered the essential — rate of 
placement after training — which permitted an assess­
ment of the effectiveness of the measures financed. 
(d) The Commission has sought an improvement of the 
impact of management of the ESF by: 
(i) concentrating ESF appropriations in the most 
disadvantaged regions as set out in Article 7 of 
Council Decision 83/516/EEC, this being a statutory 
requirement and which the Commission has gradu­
ally being implementing; 
(ii) increasing the minimum duration of training which is 
to some extent an objective criterion for measuring 
the effectiveness of training; 
(iii) introducing motivation and orientation to perso­
nalize measures in favour of the long-term un­
employed and thus to provide them with the most 
appropriate training. 
8.19. (a) The improvement of the impact of ESF 
appropriations, with a view to better management of ESF 
resources, has resulted in restricting the possibilities of 
participation for the less efficient promoters. 
(b) The criterion of improving employment prospects 
was introduced in the 1987-89 guidelines. 
(c) Long-term unemployment is only the result of 
various situations in which certain persons or categories 
find themselves: depressed areas, women having left the 
labour market for a certain length of time, the physically 
handicapped, migrants, etc. This is why long-term 
unemployment cannot be tackled by any global ap­
proach : each situation must be considered apart and this 
prompts the creation of a number of priorities. 
12. 12. 90 Official Journal of the European Communities 281 
Community statistics on long-term unemployment 
8.20-8.24. The Court's observations as regards the 
availability of statistics on long-term unemployment, 
particularly at regional level, are correct. 
Although there is no foreseeable hope of a more detailed 
regional distribution of statistics on long-term unemploy­
ment, the overhauling of the Community labour force 
survey scheduled for 1992 should appreciably increase the 
reliability of the results at NUTS II level. 
The technical preparation of this overhauling is currently 
coming to an end in the working parties, and the 
Commission will forward to the Council at the start of 
1991 the draft regulation for the surveys as from 1992. 
Policy analyses 
Analyses concerning all the factors on which 
Community measures have a bearing 
8.26 - 8.27. In 1989, the Misep correspondents set up an 
Evaluations Working Party to look into approaches to, 
and results of, evaluations of national employment 
measures. Six Member States agreed to participate in this 
working party which held three meetings. Officials from 
the European Social Fund participated in some of these 
meetings when necessary. A report was published in 
September 1989. It is envisaged to continue this work in 
1991. 
8.28. (a) It would not appear to be the SOEC's task to 
draw conclusions as to what action should be taken. 
(b) The programme of work the Commission had 
entrusted to the outside consultant did not specifically 
relate to long-term unemployed persons nor to the 
assessment of measures currently being implemented. 
(d) The rules governing the structural Funds resulting 
from the 1988 reform provide a suitable legal framework 
for the development of structured analyses of the long-
term unemployment problem. 
The results of action taken, even if not of a global nature, 
have resulted in improvement of ESF management as 
regards certain sectors of the public. 8.29. The Commission has used the various Community 
studies and syntheses on long-term unemployment to 
draw up management guidelines. 
Evaluation of ESF assistance 
8.30 - 8.31. See reply to paragraph 8.18. 
The examination of effectiveness took place in the context 
of the request for final payment. The substantial 
improvement in the outlook for stable jobs produced an 
effect which was measurable in time; it has permitted 
average placement rates of 60 to 70 % to be achieved. 
8.32. In fulfilling its contract, the outside consultant 
had the advantage of being able to draw on the experience 
gained from identical or similar projects implemented in 
previous years in order to assess the placement rates 
achieved. 
Coordination 
8.33 - 8.35. The Commission will seek the best level of 
coordination possible as regards evaluation of long-term 
unemployment in conjunction with outside organizations 
such as the Cedefop; moreover, this is explicitly provided 
for in the reform of the structural Funds on which the 
Commission has aligned its internal structures, par­
ticularly by setting up a coordination unit. 
Furthermore, the Commission has taken account of the 
results of studies on ways of combating poverty in order 
to draw up its guidelines as regards long-term unemploy­
ment, particularly by introducing the motivation and 
orientation stages. The same is true of the LEDA results 
on local employment, as illustrated by the Commission 
Decision of 4 May 1988 on management guidelines (OJ L 
143, 10.10.1988, point 3.3). 
Measures concerning the long-term unemployed in the 
second programme to combat poverty 
8.36. (a) Evaluating poverty gives rise to several 
theoretical and methodological debates in each of the 
Member States. In the second European programme, the 
Commission has encouraged work to harmonize statis­
tical definitions and to make national data comparable. 
282 Official Journal of the European Communities 12. 12. 90 
Following this work, the Commission established for the 
whole of the Community comparable statistical estimates 
of poverty in terms of income, which will be attached to 
the final report on the programme to be submitted to the 
Council at the end of 1990. These efforts will be pursued 
throughout the new programme (1989-94) adopted by the 
Council (18 July 1989). 
(b) With a limited budget, the aim of the second 
programme was to foster innovation in the methods of 
dealing with the poor rather than proposing policies and 
general measures. 
This initial option led to a dissipation of efforts and the 
risk of a lack of consistency in the programme as a whole. 
As regards the long-term unemployed and the other 
target groups envisaged by the programme, this second 
programme has made progress possible with locating 
know-how and sound practice; the final report on the 
programme will therefore provide details and figures on 
the measures undertaken, and the way in which they have 
helped to understand and improve the policies pursued in 
this field. In addition, the lessons of this programme have 
prompted a switch in the new Community programme 
towards priority backing of a more restricted number of 
projects, but of a more significant scale and range, while 
respecting the general principle of partnership which 
ensures overall consistency within the programme. 
Observations on the implementation 
procedures at the ESF 
Criteria for granting assistance in relation 
to the long-term unemployed 
8.37. The Commission should not be taken to task over 
the definitions used internally, for it can apply them with 
the flexibility needed to ensure equality of treatment 
between Member States which have different legislative 
systems. 
In the case of France, the reduction was justified and has 
not been contested. Furthermore, the checks on long-
term unemployment are continuing and will be continued 
because of the importance of Objective 3 of the reform. 
8.38. This is another definition which is internal and 
which is applied as a function of the market of the specific Member States and which can be adjusted in order to 
ensure equality of treatment between Member States 
which are more or less developed economically speaking. 
On the grounds of legitimate confidence, a request for 
final payment should be made when the training measure 
has been carried out in accordance with the forecasts. 
However, in the event of a promotor's results as regards 
employment not being satisfactory his request for aid 
would not be approved for the following financial year. 
8.39. See reply to paragraph 8.19 (c). 
General criteria of eligibility 
8.40 - 8.41. Depreciation was accepted within the limits 
laid out by national legislation. Depreciation expenditure 
by public bodies had been accepted provided it was 
calculated using identical methods in order to ensure 
equality of treatment. 
Observations on the appraisal, monitoring 
and follow-up procedures 
8.42-8.43. The Commission considers that manage­
ment based on statistical methods and on cross-checked 
estimates verified by sample is the only way of managing 
requests which involve two to three million recipients of 
vocational training or employment measures. 
8.44 - 8.45. The list referred to by the Court is intended 
simply as an aid to the official examining the file. The 
official is called upon to give his opinion on the file as a 
whole as regards eligibility for aid and level of priority. 
8.46 - 8.47. As regards inadequacy of the controls, the 
Commission refers to the comments in the Court's Special 
Report on Community and national procedures and 
systems concerning the management of the ESF (see 
paragraphs 3.22-3.25). 
As for the mission reports, these usually mention only 
problems which have cropped up. Whatever the case may 
be, one of the purposes of these missions was precisely to 
check that the criteria for the granting of aid had been 
duly taken into account. 
8.48. The follow-up system had in fact proved im­
possible to install effectively. The Commission is 
12. 12. 90 Official Journal of the European Communities 283 
currently preparing a computerized follow-up system 
which will make it possible to have details of the 
programmes and measures financed by the ESF. 
The impact of ESF intervention 
8.51. The Court confirms the problems involved in 
obtaining quantifiable information. 
8.52. (a) - (b) The Community's action related to a far 
higher number of long-term unemployed than the 
percentages given suggest. In actual fact, a great many 
young people are long-term unemployed, not to mention 
the disadvantaged categories. 
(c) The Member States had not developed a specific 
long-term unemployment policy. The Community's 
action has nevertheless drawn attention to the problem 
and prompted specific national action targeted at the 
long-term unemployed. 
(d) Lower than average placement rates have been 
accepted for the long-term unemployed because of the 
specific characteristics of this category. 
(e) It is precisely because the long-term unemployed 
vary substantially as regards the origin of their unemploy­
ment that the guidelines take account of differentiated 
target groups which enables measures to be tailored to the 
needs of these groups. 
(f) Aids for starting work amounted to very little in 
terms of value added as regards the quality of vocational 
training, whence the low priority given to this type of 
action. 
Conclusion on the new Fund 
8.53. The Commission has taken account of the 
substantial corpus of results to hand on long-term 
unemployment and also of figures on employment quoted 
in the requests for final payment. This has enabled it to 
decide on more effective measures to fight against this 
type of unemployment in the ESF management guidelines 
(OJ C 45, 24.2.1989). However, the reform of the Funds 
would make the information in question available 
systematically. 
8.54. (a) Comparable statistics on long-term un­
employment at the NUTS III level are no longer necessary in the context of the new Fund as long-term 
unemployed persons are eligible throughout the Euro­
pean Community. 
(b) The Commission now has increased resources to 
assess policies on long-term unemployment. 
8.55. There is a Community concept of long-term 
unemployment. As there are differences of application in 
national laws, the Commission is endeavouring to 
interprete them in such a way as to ensure observance of 
this Community definition. 
8.56. The Commission is setting up management, 
follow-up, evaluation and monitoring systems in the 
context of the new Fund, which should obviate the 
difficulties encountered up to now. 
ESF MEASURES RELATING TO THE 
RESTRUCTURING OF INDUSTRIAL 
ENTERPRISES 
Introduction 
8.57 - 8.64. The Commission has always endeavoured 
to implement ESF measures to support industrial 
enterprises facing restructuring problems by taking its 
lead from the criteria of economic effectiveness men­
tioned by the Court in its report, and in line with its 
resolve to make this action an instrument for rejuvenating 
production, technology and organization of enterprises 
rather than a mere stopgap to cope with critical 
employment situations. Nevertheless, the underlying 
feature of the project-based approach in force since 1984 
is today the main obstacle to the economic effectiveness of 
these measures in overall terms. 
Observations on the implementation 
of ESF measures concerning the 
restructuring of companies 
8.65 - 8.66. The huge variety in requests for aid relating 
to restructuring projects in industrial enterprises is the 
result of rules which did not at the outset limit access to 
ESF intervention by criteria relating to the scale of the 
projects, the nature of the body responsible or the 
284 Official Journal of the European Communities 12. 12. 90 
production sector in which the ESF's aid was applied for. 
Some files did not identify — at the time of the request for 
aid — the companies referred to. In such cases, this 
involved requests from public authorities whose main 
concern was to circumscribe a problem within a 
particular zone or region with a view to then carrying out 
the necessary measures with ESF aid. Such files in a way 
heralded the move away from the mere project towards 
something more like the programmes envisaged by the 
1988 structural Fund reform. 
8.67. Files which group requests for aid by several 
companies had shortcomings which were identical to 
those which characterized most of the requests for 
assistance drawn up under the old rules. The so-called 
grouped files were a set of individual projects in which 
each promoter of an action was quoted by name and 
could not be replaced if unforeseen circumstances 
prompted him to withdraw from his original project, 
which resulted in the immediate cancellation of the 
commitment. From this point of view, too, the level of 
non-implementation of measures does not therefore 
appear to be directly related to restructuring but rather to 
the system of individual projects irrespective of whether 
or not they are grouped into a single application for aid. 
8.68. The rules which have emerged from the redrafting 
of the 1983 texts do not exclude possible cases of 
restructuring. This is why the Commission has approved 
applications for assistance which relate to restructuring 
not only when these involve redundancies and reconver­
sion, but also when an increase in the level of skills was 
accompanied by the quest for better productivity through 
economies of scale and the creation (or expansion) of new 
production units. 
8.69. Information on the kind and number of staff 
affected by restructuring is generally included in the files 
concerned. There may, however, be instances where this 
information was not included in the files because it 
proved impossible to insert it as part of a group dispatch 
of several files or because it is given in other files from the 
same company. Whatever the case may be, no decision on 
approval is taken until this information has been 
submitted by the Member State and examined by the 
Commission's departments. 
The reference date to be considered for calculating the 
percentage which determines eligibility is generally the 
starting date envisaged for ESF measures. It can, 
however, be taken on a case-by-case basis if its relevance 
depends on the type and procedural aspects of the 
restructuring envisaged. 8.70. As regards the minimum duration of training, 
stipulated in the guidelines as 200 hours, the Commission 
acknowledges that there may have been cases in which 
this rule was not stringently and systematically applied 
when the measures were implemented. According to the 
Commission, this shortcoming is characteristic of the 
project-based management procedure which the reform 
has now scrapped. 
As for the Court's other observations concerning the 
duration of 200 hours, the Commission confirms that 
under the previous guidelines training could be spread 
over more than a year and could also consist — in clearly 
specified cases — of bringing the workers concerned up to 
the required level. The scale of such measures varies as a 
function of the trainees' level. 
8.71. It is generally considered that when a company is 
undergoing restructuring in the conditions set out by the 
guidelines the training of its personnel has been made 
necessary by this restructuring. 
8.72. As the Court points out, this situation is not 
peculiar to industrial restructuring. The administration of 
the ESF has on several occasions taken the matter up in 
the past few years with the administrations of certain 
Member States whose national contribution had not been 
paid on time to the bodies concerned. The Commission is 
examining what measures are appropriate in order to 
prevent such situations — which are quite frequent in 
certain Member States — from arising in the future. In 
addition, it is bringing constant pressure to bear on the 
national administrations concerned. 
Aspects relating to the size and the nature of 
companies receiving ESF assistance 
8.73. In the management of the ESF, the Commission 
has always abided by the principle of bridging the gap 
which habitually exists between the SMEs and the big 
companies as regards their scope for action, by en­
deavouring to steer the national public authorities at all 
levels — and particularly at the regional level — towards 
an active role in informing the SMEs and to pool their 
requirements in group applications for assistance or as 
'framework programmes' to be submitted to the ESF. 
The grouping of SMEs into 'consortiums' or by 
categories covering all or part of an economic sector at a 
given territorial level — regional or subregional — has 
also been favoured. 
8.74-8.75. Rather than reverting to a system of 
calculation based on so-called real costs, the Commission 
has turned in the context of the new Fund to a system of 
'standard costs' by type of training. The deviations of 
these standard costs in relation to the expenditure 
12. 12. 90 Official Journal of the European Communities 285 
itemized will be used to determine whether a request for 
final payment involves excessive sums. This method could 
also be applied when the application for payment is 
drawn up in respect of the company's internal costs. 
8.76. State-owned companies engaged in production 
activities represent a general problem which goes further 
than just the activities financed by the ESF. This problem 
is currently being examined. 
8.77. When subcontracting and other forms of inter­
mediaries come into it and become part of the scene, it is 
because they play a role on the market. The fact is that 
these intermediaries — which admittedly introduce an 
additional element of cost which it is essential to reduce — 
do not always correspond necessarily to situations of 
abuse. In particular, it is the Commission's view that the 
Community structural Funds and, in this context, the 
ESF itself, should avoid trying to operate without any 
involvement of intermediaries and seeking a direct 
relation with the final users of their financing throughout 
the Community. 
As regards the ESF, the experiment had been conducted 
in a limited but significant way up until 1978, when the 
last pilot experiments were financed. With the 1988 
reform, the problem is tackled by adopting a programme-
based approach, each programme being entrusted for its 
implementation to a responsible body which thus acts as 
intermediary between the administration of the Member 
State and the Community administration on the one hand 
and the host of bodies which contribute to the implemen­
tation of the programme on the other. 
In this way, the function of intermediary will no doubt be 
conducted in a much more rational, comprehensive and 
responsible way vis-a-vis the public authorities and in 
particular vis-a-vis the Community administration. 
Nevertheless, this approach certainly has its cost which 
will not necessarily be small but which — in the 
Commission's view—will certainly be more justified than 
other costs (even lower ones) related to other forms of 
organization and to the action of other intermediaries. 
Observations concerning the charging of 
certain categories of expenditure to the ESF 
8.78. Without denying the worthwhile nature of 
training actions undertaken within companies, it is 
common knowledge that this type of training tradition­
ally raises problems of identification of expenditure in the 
accounts — those of the companies — designed and kept 
not to better cater for questions likely to arise concerning 
the cost of training measures, but to satisfy the requirements of a production activity. With the 1988 
reform, this problem has been dealt with as regards the 
ESF by establishing a typology of standard costs which 
can be used as references for the evaluation of the cost of 
the different training measures undertaken. 
Trainees' incomes 
8.80-8.83. Operators know that the income paid to 
trainees and the salaries paid to the teaching staff 
generally account for the bulk of the costs of carrying out 
vocational training measures. Training carried out in the 
context of company restructuring is thus no exception to 
this general rule. 
The Commission accepts the different methods used to 
calculate trainees' incomes provided that these calcu­
lations are in conformity with the guidelines set out in the 
manual of procedures, these guidelines being an extract of 
a meeting held in 1985 with the representatives of the 
administrations of the Member States. 
Increased costs in respect of overtime and night-work are 
admissible if properly justified. 
Expenditure on the preparation of training courses 
8.84 - 8.86. The preparation of courses generally never 
exceeds 10 or 15 % of the total cost of any measure. 
Purchases of external training are compatible with the 
authorization of preparation costs. The specific feature in 
this case is the comparatively low level of costs. 
Other expenditure concerning industrial 
restructuring measures 
8.87 - 8.89. The salaries of teaching and administrative 
staff are calculated on a pro rata basis in the same way as 
the cost of the energy used. The Member States have the 
obligation to carry out spot checks as necessary and to 
certify to the Commission the accuracy of the details and 
figures entered opposite the items of expenditure set out 
in the requests for final payment. 
Under the new rules brought in by the 1988 reform, 
Community action will be made more incisive and 
effective as a result of the introduction of a programme-
based approach (smaller number of files to handle) and 
286 Official Journal of the European Communities 12. 12. 90 
the efficient application of a sample-based checking 
system, these two aspects of the reform being closely 
interrelated. 
As regards depreciation, the same general comment can 
be made by the Commission. On this subject, it should be 
pointed out that in view of the complexity and the 
implications involved, depreciation should be calculated 
in accordance with national legislation. 
As regards the future, the new rules no longer make 
explicit provision for depreciation as such in eligible 
expenditure (see Art. 1, Regulation No 4255/88). 
Income deriving from the measures 
8.90. The Court's observation concerning the taking 
into account of revenue deriving from the sale of 
commodities produced by trainees elicited from the 
Commission comments in reply similar to those already 
made under paragraphs 8.88-8.90, particularly as regards 
the exercising of the checking function and its sharing 
between Member States and the Commission. 
The ESF as an instrument of the 
Community's industrial policy 
8.91. The Commission acknowledges that the improve­
ment in its computer system may represent advantages in 
the management of the ESF, particularly in order to have 
a better knowledge of precisely how much, region by 
region, is allocated to social measures to accompany 
restructuring, and not only in terms of commitment but 
also in terms of money actually paid out. 
8.92-8.96. The new rules resulting from the 1988 
reform will fulfil the need for a national or regional 
reference framework in order to better assess the 
effectiveness of the various measures accompanying 
industrial restructuring plans. The approach based on 
plans and programmes backed up by Community support 
frameworks should enable ESF measures to have the 
necessary reference framework. Conclusion 
In its replies to Special report No 1 /88 from the Court (*), 
the Commission had envisaged certain commitments and 
particularly to provide itself with a compendium to serve 
as an internal reference document for the interpretation 
of the rules and criteria for managing the ESF. By 
confirming this commitment, the Commission envisages 
supplementing this compendium by inserting a definition 
of the concept of restructuring and accompanying this 
definition with a typology of cases. 
In this compendium, certain definitions may be based on 
national texts and procedures. This would be one way for 
the Commission to draw on the experience of the Member 
States. 
As regards the restructuring plans, the Commission 
intends asking Member States to ascertain whether such a 
document exists. 
On the question of costs, the Commission points out that 
it is in the process of developing a scale of standard costs 
by Member State and level of qualification, to be used as a 
reference document to assess any divergences in the 
requests for final payment. These divergences will have to 
be duly justified in order to be accepted. 
As regards the cost of training provided and the results of 
this training in terms of improvement in the technical 
and/or salary grading, the Commission points out the 
reform of the structural Funds gives it the wherewithal 
and the legal framework to carry out effective checks and 
assessments. 
The Commission lastly refers to the replies it gave 
previously and in particular to paragraphs 8.70 (mi­
nimum training duration), 8.65-8.67 (processing of files), 
8.77 (subcontracting). 
(*) Special report No 1/88 on the Community and national 
procedures and systems for management of the ESF (see OJ 
C 126, 16.5.1988, p. 1). 
12. 12. 90 Official Journal of the European Communities 287 
CHAPTER 9 
Expenditure on research and investment 
JOINT RESEARCH CENTRE 
The Commission notes that in its examination of progress 
made up to the end of 1989 in implementation of some key 
elements of the restructuring plan for the JRC decided in 
1988, the Court has concentrated its observations on 
those JRC activities which are related to work in support 
of the Commission and to third-party work. While, as the 
Court itself indicates, these activities are important 
elements in the reform of the JRC, it should nevertheless 
be recalled that both financially and scientifically the 
main task of the JRC still remains the execution of 
specific research programmes under the framework 
programme. 
Introduction 
9.6. As the Court states, the Council endorsed the 
Commission's proposals for 'A new outlook for the Joint 
Research Centre' by its resolution of 29 June 1988, and 
adopted legislation on the specific research programmes 
in October 1988. The new internal structure dividing the 
JRC into institutes was decided in November 1988. It was 
only in May 1989 that the Council consolidated the legal 
basis for Community-related work for third parties, and 
as remarked by the Court (paragraph 9.59.), the Council 
regulation on an early retirement scheme was decided in 
July 1989. 
Mid-term evaluation 
9.8-9.10. The draft report, covering the period up to 
the end of 1989, describes the JRC still in a process of 
evolution towards its new objectives, and illustrates the 
situation little more than a year after the most thorough 
restructuring that it has undergone. The Commission notes that the Court has appreciated the 
time necessary to achieve the arrangements foreseen in 
the restructuring. 
As mentioned by the Court, in parallel with the Court's 
audit, a panel of senior industrialists has performed an 
evaluation of the JRC at mid-term, as required by the 
Council decisions on the specific research programmes. 
While the Court agrees with the evaluation panel's views 
on recommendations for the future, it does not com­
pletely share the conclusions of the evaluation panel. In 
its report the panel states that 'since this reorganization 
requires deep cultural changes, it is by definition a process 
that requires time' and it has noted that 'from a limited 
number of customers who were questioned, scientific 
quality, value for money, speed of response and quality of 
reporting were highly praised'. 
The Commission underlines the significant role payed by 
the Board of Governors in the overall management of the 
Centre, and notably its scrutiny of all budgetary and 
financial matters through a specific subcommittee on 
'Staff and Finance'. 
A new outlook for the JRC 
9.14. In the case of work for third parties, the JRC has 
had to adapt to a completely new situation quite different 
from its original role. Moreover, the debate about its 
future role is not yet over. The new situation has 
necessitated a gradual transition in several stages, since 
the JRC was unable to draw on any relevant experience 
within the Commission. Its ability to adapt and the speed 
of reaction of the market in the running-in period were no 
doubt overestimated. 
As for specific programmes, expenditures were dis­
tributed over the four-year period, showing an under­
spending in 1988 (3 %), and as described by the Court, a 
certain overspending in 1989 (3,6 % according to the 
published accounts). The Commission considers that for 
multi-annual decisions, it is the result at the end of the 
multi-annual period which counts; annual figures have 
288 Official Journal of the European Communities 12. 12. 90 
more of a planning nature. It will ensure that a balance is 
reached for the four-year period. The 1991 preliminary 
draft budget has been prepared in that way. 
The restructuring of the JRC into nine 
institutes 
9.15. While agreeing with the Court on the essential 
objectives of the autonomy and accountability of the 
institutes — a plan which is well under way bearing in 
mind the fact that the institutes were only created in 
November 1988 — the Commission considers that this 
autonomy should develop within an overall coherent 
frame, i.e. a JRC acting as a service of the Commission. 
9.16. The 1989 budget was not broken down to institute 
level as it was set up early in 1988 at a time when the new 
organization of the JRC was not yet established. On the 
contrary, when the distribution of credits was performed 
in January 1989 the institute structure was followed, the 
JRC management during the year received periodic 
reports on the commitments institute by institute, and the 
final accounts for 1989 contained a graphical represen­
tation of expenditure by the institutes. 
9.17. The Commission fully agrees with the Court with 
regard to the accountability of the institutes. Measures 
are already being implemented, aiming at a greater 
financial autonomy of the institutes by the end of 1990. 
The JRC intends to decentralize appropriation commit­
ment, payment and movement operations for each of the 
Ispra institutes. To ensure that decentralization is 
operative as of January 1991 training courses have been 
organized, an analysis of the administrative channels has 
been carried out and the forms used for the various 
operations are being revised. This process of decentral­
ization, which started in early 1990, is being organized in 
close collaboration with the financial control depart­
ments ; it reflects the concerns expressed by the Court in 
paragraph 9.81. 
9.18. As mentioned in paragraph 9.17, the strengthen­
ing of the administration and financial support to the 
institutes at the Ispra site shall be pursued at the expense 
of the central administration services. Work in support of the Commission 
9.23. The Commission believes that the JRC's success in 
this area is due to the quality of the work performed 
rather than the financial arrangements, which place funds 
for work in support of the Commission in the research 
budget. The volume of annual expenditure by the 
Commission on consulting and advisory services is of 
greater magnitude than the work requested from the JRC. 
This fact should guarantee that the various Commission 
Directorates-General only request work from the JRC if 
they feel that the Centre is best fitted to fulfil their 
requirements. The fact that the funds available are 
comparatively scarce in relation to demand means that a 
selection is made, guaranteeing the best use of resources. 
The regrouping of all credits pertaining to S/T activities 
together in the same chapter contributes to greater 
transparency and allows better choice between competing 
projects. 
9.24. While the multi-annual agreements describe an 
outline for the work, the execution is described by the 
relevant Directorates-General in more detail by annual 
work schedules and follow-up meetings. Detailed annual 
reports are sent to customer DGs describing the work 
performed during the period and status meetings 
conducted. 
Within the framework of Title VII of the Financial 
Regulation and the 1988-92 financial perspectives, which 
both require the grouping together of all research 
appropriations, every effort is made to ensure that user 
Directorates-General are able to bid for the services they 
require from the JRC at bi-annual inter-DG meetings. 
This ensures transparency and agreed priorities, and is a 
forum where grievances can be aired. 
Conclusion on work in support of the Commission 
9.25. The Commission understands the Court's ap­
proach but, once again, underlines the budgetary 
constraints which dominate this type of work, as shown in 
paragraph 9.24 above. Within these limits, the JRC will 
follow the customer/contractor principle as closely as 
possible. 
Work for third parties 
9.26. The Commission is aware that the commercial 
approach advocated by the panel of experts is a challenge 
which the JRC must meet by carrying out work for third 
parties. This challenge will be all the more difficult in that 
12. 12. 90 Official Journal of the European Communities 289 
this type of activity reflects a completely new approach 
for the Commission, and JRC cannot rely on experience 
already acquired by other Commission departments. 
What do the targets mean? 
9.29. The Commission interprets the meaning of the 
target figure differently from the Court. It considers that 
the will of Council and Parliament, when this new type of 
work was discussed, was to verify the JRC's ability to earn 
contracts for outside third-party work in a competitive 
environment, on the strength of its reputation and the 
quality of work performed. The research conducted may 
take several years, and as the Court itself recognizes there 
may be -a considerable discrepancy in the early years 
between contracts concluded and work carried out. In the 
current running-in phase, the value of the contracts 
concluded and being performed gives a more accurate 
idea of performance. 
The amount invoiced will not reflect the amount of work 
carried out for third parties until this discrepancy 
disappears in the normal course of events and a more even 
pattern emerges. 
9.30. In view of this, the JRC has based its figures on the 
value of contracts concluded. Also, one as yet unsigned 
contract but for which there was a firm letter of intent 
committing a reliable partner was included in the values 
quoted; this intent has since been realized in the form of a 
contract. The amount was in fact quoted by the JRC. 
Achievements to the end of 1989 at the global level 
9.32 - 9.37. The Commission considers that the target 
for third-party work activities for 1989 should be only 
considered as an intermediate milestone; a definite 
judgement on performance should be passed when results 
are available for the entire period 1988-91. The value of 
intermediate milestones has also been brought into 
question by the delay in obtaining the legal framework for 
this type of activities. 
932. The figure of 6,67 million ECU (amounts invoiced 
at the end of 1989) reflects the results assessment method 
selected by the Court. According to the Commission's 
criteria the amount is 15,7 million ECU. 
9.35. These receipts are, as the Court rightly states, 
unconnected with research, but they are nevertheless receipts from third parties. That is why they were shown 
in the accounts as such even though their application was 
different. 
Achievements at institute level 
9.37. It is true that so large a demand involving 
equipment and consumables had not been anticipated, 
and on noting this trend, the JRC, in agreement with the 
Board of Governors, suggested raising the target from 
52 Mio ECU to 58 Mio ECU. 
The figure of 52 Mio ECU is the only reference figure 
given in the Council's guidelines. The amount of 47,1 Mio 
ECU is an indicative element of the JRC's internal 
budgetary schedule. Moreover, it is not a target figure for 
reimbursements but rather a planned volume of turnover 
intended to show the political authorities the JRC's 
ability to attract clients in an open market, in line with the 
policy guidelines of the Council Resolution of 29 June 
1988. 
The order book at 31 December 1989 
9.38. The results obtained so far show that the running-
in period has turned out longer than planned. This is 
because the JRC has had to contend with a completely 
new situation. The reorganization has been carried out in 
stages, pragmatically. It was necessary to have an 
appropriate legal basis for this type of new activity, 
namely the Council Decision of 3 May 1989, and then to 
draw up rules of procedure following a period of 
observation of the operation of activities for third parties. 
Reconciliation of the JRC and the Court's measurement 
of performance 
9.40. The Commission would refer back to the answer 
given to paragraphs 9.32-9.37 and again emphasize that 
the assessment of the JRC's performance in relation to the 
Council guidelines on work for third parties cannot be 
reduced to an account of cash received for such work. 
290 Official Journal of the European Communities 12. 12. 90 
Pricing of work for third parties 
9.42. The under-recoveries of some contracts were due 
to calculation methods used in the Petten establishment 
before new instructions by the Director-General of the 
JRC were implemented in October 1989. 
Accounting for work for third parties 
9.46 (a) Since the implementation of internal regu­
lations, the Board of Governors, both in its sub­
committee on Staff and Finance and at its plenary 
sessions, has closely scrutinized the evolution of third-
party work as well as its execution. 
9.46 (b) - 9.47. The present accounting system, which 
predates the launching of work for third parties, was not 
designed for commercial data. It does not allow an 
immediate comparison to be made between the cost of 
performing a contract and the price invoiced as it records 
costs on an annual basis. The Commission has decided to 
rectify this state of affairs by asking a specialist firm to 
establish an additional system so that such comparisons 
can be made. This system will come into operation in the 
second half of 1990. 
Marketing 
9.48. The JRC's marketing strategy will be reinforced 
with a view to expanding the work carried out for third 
parties. The JRC has already set in motion the procedure 
for recruiting a marketing officer responsible for 
monitoring and coordinating the work of the Institutes in 
this area. With regard to internal organization, the JRC 
does continue to follow the strategy of maintaining an 
equilibrium between centralized marketing at the level of 
the Directorate-General and decentralized marketing at 
the level of the institutes. 
Budgetary problems 
9.52. The JRC — like other research centres performing 
work for third parties — does adjust possible deficits of a 
temporary nature against the plans by keeping a similarly 
temporary level of under-staffing, through its recruitment 
policy. 9.54 (b) No human resources present in the Centre sit 
idle awaiting new contracts, but are usefully engaged on 
other JRC tasks. 
(c) This imbalance is rectified in the preliminary draft 
budget for 1991 within the overall ceiling of 700 Mio 
ECU. 
(d) It would probably have been better to allow for a 
longer running-in period because of the difficulty of 
introducing a system based on a commercial philosophy 
in a public administration with a rather different 
approach. 
(e) The preliminary draft budget for 1991 clearly shows 
the strategy pursued with regard to the JRC and the 
rigorous budgetary management applied. For example, 
with regard to staff expenditure not covered by receipts 
from third parties, at the end of the financial year the JRC 
cancels the corresponding advances on staff appropri­
ations. 
Personnel policy 
The Commission attaches the greatest importance to the 
new staff policy for the JRC which was outlined in the 
Commission's original proposal for 'A new outlook for 
the Joint Research Centre'. 
9.55. During 1989, the JRC recruited 107 agents. The 
creation of the institutes has led to noticeable internal 
mobility. It is true that few staff have resigned, partly 
because mobility of research staff elsewhere is not 
confirmed. On the other hand, in 1990 this phenomenon 
has become increasingly evident and numerous candi­
dates (some 20 %) have refused to sign contracts due to 
unfavourable employment conditions (five years dur­
ation and uncompetitive remuneration). 
9.56. The schemes described by the Court were general 
schemes applicable to the staff of the Community 
institutions and not particularly motivated by the needs 
of the JRC nor tailored to the JRC's specific require­
ments. Some of the JRC staff have left the services under 
these schemes. 
9.57. This operation was intended to allow recruitment 
of Spanish and Portuguese staff and the 92 temporary 
agents who had left up to the end of 1989 comprised 2 Bs, 
86 Cs and 4 Ds. 
The Commission is continuing its efforts to recruit 
Spanish and Portuguese staff, whose numbers rose from 
61 at the end of 1989 to 74 in June 1990 (46 Spanish staff 
12. 12. 90 Official Journal of the European Communities 291 
and 28 Portuguese staff). A breakdown into the various 
grades shows that recruiting these members of staff has 
resulted in an 'upgrading' relative to the staff disengaged: 
31 As, 18 Bs and 25 Cs. The JRC Board of Governors has carefully analysed the 
situation and proposed such schemes for the future. 
In addition it should be noted that the scientific vitality of 
the JRC depends not only on the statutory staff but to an 
increasing degree on the influx on a strictly temporary 
basis of scientific visitors, research fellows and seconded 
staff from the Member States. Furthermore, the author­
ities in Spain and Portugal, in view of the expansion of 
their national scientific research, prefer to see their 
scientists under these schemes rather than being drained 
away to the JRC on longer term employment. 
9.58. It is recalled that since 1974 the Commission has 
not authorized any further recruitment of officials. 
Temporary staff with the requisite 15 years experience 
and 55 years of age needed for early retirement were only 
found among previous establishment agents and local 
agents who were converted to temporary staff on 
30 October 1976. All these categories became C-grade 
staff, some subsequently succeeded in competitions and 
became B grades. In consequence, the measure had more 
effect on rejuvenating the staff rather than on recruiting 
scientists. 9.63. Recruitment of specialists for a number of 
branches of research is proving more difficult and lengthy 
than expected. New more satisfactory procedures for 
recruitment have been introduced (see also reply to 
paragraph 9.55). 
9.64. The authorized staff complement in 1989 and 1990 
was 1 760 S/T and 420 administrative. That 2 180 figure 
does not include the staff of the Financial Controller, 
accountancy and medical service, nor does it include the 
80 staff transferred to DG IX during the second half of 
1989. Since the transfer to DG IX was only completed in 
November 1989, the June figures used in the Court's 
report still include 42 persons in the process of being 
transferred. The JRC administrative staff as such 
(excluding the 42) has not exceeded the authorized ceiling 
of 420 administrative staff. The 2 180 total staff figure has 
not been reached at any time. 
Each year the JRC requests the regularization of several 
adjustments between S/T and administrative posts when a 
stable situation of some years standing has developed. 
9.59 - 9.60. The non-voluntary component of Council 
Regulation No 1857/89 has induced several voluntary 
candidatures, who came forward as they preferred to 
spare themselves the unpleasant situation of being 
selected by the JRC management for an early retirement. Steps have been taken to reduce the number of 
auxiliaries; as indicated in Table 9.7 of the Court's report 
the total number of auxiliaries fell from 130 to 124 
between June and December 1989. 
9.61. The Court's figures reflect the situation at the time 
of the Commission's decision (29 January 1990). Between 
then and the actual implementation of the 'disengage­
ment' exercise (28 February 1990), one A-grade official 
was invalided out and one B-grade official withdrew his/ 
her application. The officials in question were replaced by 
officials on the reserve list (one B and one C), giving a 
final total of 37 As (including 34 S/T), 52 Bs (including 45 
S/T) and 11 Cs (including 18 S/T). 
The Commission underlines the role that the B-grade 
scientific-technical staff plays in the scientific quality of 
the Centre. 9.65. Ninety one S/T agents out of 107 were recruited in 
1989; other arrivals have been: 
Grantholders 
Students 
Detached staff 
Visiting scientists 1988 
135 
93 
— 
58 
286 1989 
125 
123 
18 
67 
333 (0 
9.62. The effect on age distribution will be seen when the 
100 departures are replaced by young recruits. Five per 
cent (100 out of 2 000) is very small and a longer early 
retirement scheme would be needed to show a true change 
in the staff age structure. (') These figures, which allow a comparison to be made with 
1988, are different from the ones shown in the 1989 annual 
report in which a new presentation was adopted compared 
with 1988. The 1989 report gives average figures in terms of 
man-years and excludes the 123 students in the column 
above. 
^ COtlicial journal of the European Communities nlnl^ 
Effectively lu temporary staff ^vere recruited for three 
vearsduration^Thesethree^yearnon^rene^vablecontracts 
did not prove practicable. Phev have been valued 
negativelvbv thepanelof industrialists which^vasin 
charge of the midterm evaluation.Lhevtelt that this 
political arrangement underestimated grossly the difD 
liculty of attractingvoung scientists with suchshort^term 
period contracts. Industry would not do it. Cother 
measures have beentakento secure the requisite staff 
mobility. 
9.66. E^periencehassho^vn that ascientist of good 
levels after spendinglOrol^years in the laboratorv^can 
becomeane^cellentadministrator^sometimesbetterthan 
administrative specialists recruited from the outside ^vho 
have not always given the hoped-for results. 
Lhe Commission agrees ^vith the Court on the need for 
marketing specialists and there are recruitment nroD 
cedures underlay. 
CoBch^o^on^e^o^el 
9.67. Lhe Commission considers that the measures 
taken to date mav not vet have entirely solved the 
problems mentioned by the Court, ^io^veven these 
measureshaveallov^edtherecruitmentofvoung staff 
^vith the desired protile and in this ^vay the age structure 
and the spectrum of competence have already been 
improved.Lhe Commissions together ^vith the Board of 
Covernors^ considers that the efforts alreadv begun 
should be pursued in the vears to come. 
Concerningthe administration side^the]^Cwill set upa 
management etliciencv unit as described in the replies to 
paragraphs^.76^.79belo^v. 
^^^^^^^^^^ 
9.6^9.70. Theinformation given to theCourtin early 
199t^ by theconsultants consisted ofageneralvie^v of the 
conceptofthesystem^ratherthanadetailedaccountofits 
potential.Lhe^gro^vth^of the applications could not be 
reported upon in detail so earlv in the implementation 
phased but it should be noted that the systemis extremely 
flexible so as to be able to cope ^vith most of the future 
demands. 
IviACS^villdeliberatelvstartasasimplesystem^sothatit 
v^ill be quicklvavailable^during its use it ^vill be further e^tended^ t^crebvprofitingfromitstle^ibleconcept^ and 
taking into account recommendations received such as 
those of the Court. 
Lhesystem^vasdemonstrated to the Council Budget 
Committeein]unel99^andisduetocomeintooperation 
later this year. 
9.7L As wellas allocatingcosts tocostcentresand 
research projects the system providesanumber of other 
facilities for the da^to^day management of the ]^.Cmts 
institutes and their units. Further facilities can be added 
as experience dictates. 
9.7^.^ AsrecommendedbytheCourt^thenewsvstem 
allocs for comparisons in general and differences 
between real costs and budget can be established. 
^ Thematerialcostsofthe^C^ quoted bytheCourt^ 
such as accountings tinancial controls canteens^ medical 
services^ etc. arenot part ofthe]P.Cbudget^norare these 
services being run bviPC personnel. 
^ Provision has been made to compare inside data 
with that from the outside to identify excessive costsmn 
line ^vith the recommendations of the Court. 
9.7^. TheCommissionagrees^iththeCourfsviewthat 
areliable system of chargingpersonnel time to projects is 
necessarv^butpointsoutthatthiscannotbeconsideredas 
part of^viACS itself being simplvasourceofdata.lt is 
clear^asv^ithotherdatafedintothesystem^thataccuracy 
is essential to the svstem^s usefulness. Steps have been 
takentoimprovethesvstemofcharging staff timeto 
projects in order to harmonize the frequency with which 
timesheets are tilled in. 
9.7^. The Commission agrees ^vith the Courfsvie^v on 
management training andaprogramme of user training 
by the contractor hasbeen included inthe implement 
tation schedule from the beginning. 
CE^^^o^^ 
9.76 9.79. TheCommissionfullyagreesontheneedto 
keep a constant v^atch on ^vavs of achieving cost 
reductions. Increased steps have been taken and^^c^ 
scrutiny of e^openditureiscarried out^ notablvinthe 
general services being performed. This is linked with the 
LILL^ Ofticialiournal of the European Communities ^ 
institution of an improved customer^contractor relatione 
ship between the general services and the institutes, and 
results areimplemented through the]^Msproposed 
1^1 budget, whereproposede^openditureforthe^eans 
of e^ecution^ehapter are lower in real terms than in the 
current yearns budget. 
These efforts continue^in view of the recommendations 
by theCourtandfollowing discussions with the Board of 
governors, the IRChas decided to set upamanagement 
efneiency unit under its responsibility. 
C^^^o^o^^^ 
^.^. TheCommissionfullyagreeswiththeobservation 
by the Court that not all the steps towardsa^new^l^C 
have yet been completely implemented, Asforeseenfrom 
theoutsetandrecognizedbyotherevaluatorsoftheiR-C, 
this process by its very nature requires some time. 
^L The Commission agrees withthe Court onthe 
essential objectives of the autonomy and accountability 
oftheinstitutes.Aplanwhiehiswellunderway,bearing 
in mind the tact that the institutes were only created in 
November l^^,will give in particular greater tinancial 
autonomy to theinstitutesby theendof 1^0, ihe 
strengthening of theadministrationandfinancialsupport 
to the institutes at the Ispra site shall be pursued at the 
expense of the central administration services. 
^.^. The Commission understands the Courfs apD 
preach but underlines the budgetary contraints that also 
dominate the execution of work in support of the 
Commission.^ithin these limits, the ]^.Cwill apply the 
customer^contractor relationship as closely as possible. 
^.^. The Commission considers that the target tigure 
for third^party work activities in 1^^ served merely for 
internal planning and should only be looked upon as an 
intermediate milestone^adetinite judgment of perform­
ance should be made when results are available for the 
entireperiodl^^l for which Council has setatarget. 
Therunning-inperiodhasproved to belonger than 
planned,but the Commission intendstomaintain its 
efforts and take appropriate steps to bring about a 
situation as close as possible to the Council guidelines. 
I^he volume of work for third parties has picked up to 
somee^tent.Theestablishmentofan additional accounts 
ing system ^ACS^ in the second halfof 1^0 should 
allow a comparison to be made between the cost of performingacontractforathirdpartyandthe price 
invoiced, thus helping to improve the administration of 
work for third parties. 
Phe reinforcement of the iPCEs marketing strategy 
shouldhelpe^pandthework carried outtbrthird parties. 
ThelR.C has already set in motion a procedure for 
recruitingamarketingofticer to monitor and coordinate 
the work of the institutes in this area. 
^Vithregard to the budgetary rigourwith which activities 
for third parties are administered, the preliminary draft 
hudgetforl^lclearlyshowsthestrategypursned.lnthe 
case ofstaffe^penditure not covered by receipts from 
third parties at the end of the tinancialyear the ^R.C 
cancels the corresponding advances on staffapproprP 
ations. 
^.^. PheCommissionattachesthegreatestimportance 
tothenewstatfpolicyforthelP.Cwhichwasoutlinedina 
series of points in the Commission^soriginal proposal 5A 
new outlook for the ioint research Centred 
It considers that the measures taken to date may not yet 
have entirely solved the personnel problems, however, 
these measures have allowedthe recruitment of young 
statfwiththedesiredprotileandinthisway theage 
structure and the spectrum of competence have already 
been improved. 
TheCommission,togetherwith the Board of Crovernors, 
considers that the efforts already begun should be 
pursued inthe years to come.l^ew, more satisfactory 
procedures for recruitment have been introduced in the 
meanwhile. 
^.^. The Commission agrees with the Court that the 
fullest advantage should be taken of the potential of the 
management accounting system.fhe system when tirst 
described tothe Court was still ataconceptual stage. 
Later developments of the system, which includeabuilt^ 
incapability for growth, has allowed it to take into 
account the CourCsrecommendations.l^he operational 
implementation of this system is expected to start in the 
second half of l^u 
^.^. InviewoftherecommendationsbytheCourt,and 
following discussions with the Board of Covernors, the 
^Chas decided to set upamanagementefticiency unit 
under its responsibility. 
294 Official Journal of the European Communities 12. 12. 90 
JOINT EUROPEAN TORUS 
9.87-9.92. The Commission shares the Court's view 
that a decision on the life of the JET project should be 
reached as rapidly as possible. The Council Decision 
concerning the 1990-94 framework programme stated 
that 'the Council could decide, in the light of the 
evaluation (by the fusion programme evaluation board, which reports to the Commission), to prolong the JET 
Joint Undertaking'. 
Following a positive opinion from the Board on this 
matter, the Commission intends to transmit a proposal to 
the Council as soon as practicable. This proposal to 
amend Article 19 of the statutes of the JET Joint 
Undertaking, which governs the duration of the Joint 
Undertaking, is already agreed by the JET Council. 
12. 12. 90 Official Journal of the European Communities 295 
CHAPTER 10 
Cooperation with developing countries 
AID TO BANGLADESH 
Overall remark 
As a general observation, the Commission would like to 
emphasize that the report gives an overly negative view of 
EC's comparatively recent and rapidly expanding and 
improving development cooperation programme and 
activities with Bangladesh. 
Introduction 
10.5. (a) Absolute figures should be related to size of 
population (112 million) and poverty dimension (more 
than half of the population below poverty-line). 
(b) The Commission would like to draw attention to the 
fact that EC disbursement figures on project aid are 
comparable with those of many other donors as well as 
with overall disbursement figures for development 
investments in Bangladesh. 
Food aid 
Food situation 
10.8. The food production situation in the country is 
being monitored very closely by both government and 
donors. 
10.9. As far as the overestimation of the food gap is 
concerned, the Commission underlines that the consistent policy of the government of Bangladesh over the last 
years is to build up and maintain food security stocks in 
the country of the order of 1,2 to 1,5 million tonnes 
particularly during the more vulnerable post-monsoon 
season. Events and experience have encouraged the 
Government of Bangladesh to continue this policy: it was 
largely because of these stocks that a famine could be 
avoided during the 1987 and 1988 floods. Donors have in 
the mean time agreed to assist the government to study 
the very complex and politically very sensitive problem of 
optimal food security stocks in the country. The study is 
ongoing (July 1990) and the Commission considers that 
any statement questioning food security stock levels is 
therefore premature. 
The decentralized storage capacity in the PFDS is 
approximately 1,2 million tonnes; more centrally located 
silos/warehouses provide another 0,6 million tonnes of 
storage capacity. It is not surprising that as result of the 
above policy, storage capacity has increasingly come 
under pressure during recent years and that the Govern­
ment of Bangladesh is trying to expand it (with donors 
support). 
All donors have accepted a food gap of the order of 1,5 to 
2,5 million tonnes per year as a basic justification for their 
food aid. While there are positive signs that this gap may 
slowly be closing, the Commission shares the view of the 
most important food aid donor (Usaid) that it will take at 
least until the end of the 1990s before the country could be 
self-sufficient in cereals (not to speak about other 
commodities e.g. edible oil, vegetables, etc). 
10.10 -10.12. It is correct to state that the PFDS has 
had too important a bias in the past towards urban areas 
including better-off sections of the urban population; this 
bias has been reduced significantly and continues to be 
reduced (e.g. introduction of 'rural rationing' to replace 
biased 'modified rationing' distribution outlet in April 
1989; acceptance by the government to implement 
recommendations of the joint government-donors' task 
force on 'Strengthening institutions for food-assisted 
development'). 
296 Official Journal of the European Communities 12. 12. 90 
Improvements in the PFDS — a system which may not be 
perfect but which is effective in preventing famines — 
have come about largely under pressure of donors 
(including EEC) which have continued to support the 
system despite its weaknesses. Changing the course of a 
highly sensitive and vulnerable food-security system is a 
gradual long-term exercise which requires great caution. 
The gradual turnaround of the PFDS in the right 
direction as well as the important role which the EC and 
other major food-aid donors have played in this is 
because they were prepared to stay in and support the 
system. 
Subsidized sales from PFDS stocks 
10.13. Marginal intervention sales/purchases may 
significantly influence the market as they should be 
compared not with total market demand/supply but with 
excess market supply or demand. 
EC direct food aid 
10.18. EEC emergency food aid in 1987 and 1988 has 
supported an effective food security system which is based 
on maintaining a certain level of food security stocks in 
the country, and on mobilizing and replenishing these 
stocks in case of emergencies. During emergencies, as 
during the 1987 and 1988 floods, issues from the PFDS 
increase very significantly. Emergency replenishments of 
these stocks over and above the normal food-aid arrivals 
are therefore necessary and requested by the government. 
If stocks fell to dangerously low levels this could give rise 
to panic commercial imports by the government. 
The mobilization and replenishment of existing in-
country stocks of food in case of emergencies is the only 
guarantee for immediate action and impact; mobilizing 
(emergency) food aid from the EC to Bangladesh takes in 
any case a minimum of eight to 12 weeks. The role of the Bangladeshi authorities 
10.19. Claims have been processed in the mean time 
(December 1989). Weighing problems do exist in the 
ports because of lack of equipment, supervision, qualified 
staff and proper management. The appointment of an EC 
monitor in 1989 should minimize errors and leakages. A 
separate EC project is being processed to improve 
discharging efficiency for foodgrains in ports. 
10.20. Counterpart funds from food aid have con­
stituted and are likely to constitute an important source of 
finance for the country's development programme and 
investments. 
As the Court points out, moreover, a new counterpart 
funds management system introduced in 1988 will show 
clearly how these funds are generated and used. 
Effectiveness of direct food aid 
10.21. EC food aid is primarily given to help the 
government to close on overall food gap; a substantial 
gap exists and will continue to exist in the future. This is 
confirmed and acknowledged by all donors as well as by 
an independent study undertaken by the Commission in 
1990. The government essentially closes this gap by 
selectively selling and distributing food through its public 
food distribution system (PFDS). The sales and distri­
bution priorities in the PFDS are clearly an autonomous 
government prerogative. The bulk of EC food aid has 
been sold through the PFDS which has helped to prevent 
food prices from rising and has improved the overall 
availability of food and food security, including for the 
poorest. 
An increasing portion of EC food aid has been distributed 
free under the vulnerable group development/food for 
work programmes which are targeting the poorest. While 
the PFDS has proven to be effective in the past, 
particularly in the case of emergencies, it is acknowledged 
that the system has had too important a bias towards the 
urban areas. The biases and privileges in the system have 
however been significantly reduced as a result of EC and 
other donors' pressures and willingness to continue to 
support changes of the system in the right direction. EC 
food aid to Bangladesh aims at improving overall food 
security; subsidized sales of food within a country's 
national food distribution system contribute to this, i.e. 
they are a means to achieve this. The Commission can 
12. 12. 90 Official Journal of the European Communities 297 
therefore not accept that 'enhancement of public sector 
remuneration would not appear to be a valid objective of 
a food-aid programme.' 
Indirect food aid via international organizations 
World Food Programme 
10.23. Since 1989 the Commission has received an 
overall report, at meeetings of the Committee on Food 
Aid Policies and Programmes, concerning product losses 
incurred by the WFP and the amounts claimed from 
insurance companies. Insurance payouts go into the 
WFP's general funds and are used to purchase replace­
ment products where losses are substantial (it is not 
economic to purchase and ship very small quantities). 
10.24. It should be emphasized that EC food-aid 
consignments once delivered are physically integrated 
within the total flow and stocks of cereals distributed or 
sold through the 'public food distribution system'. The 
allocation of EC food aid in support of FFW/VGD 
distribution programmes in certain areas does not imply 
therefore that EC wheat is physically earmarked and 
channelled to those areas. 
10.25. Despite the wording of the Official Letters prior 
to 1986, it was agreed between the Commission and the 
World Food Programme that the reporting to the 
Committee on Food Aid Policies and Programmes on the 
programme's operations fulfilled the Commission's 
information need. 
Financing of major projects 
Effectiveness in terms of principal objectives 
10.28. The Commission cannot agree with the Court's 
comments. The Commission was often in a delicate 
position during its initial period of involvement in 
Bangladesh preferring to co-finance projects developed 
and financed by more experienced donors in order to acquire experience rather than entering and/or develop­
ing projects and programmes on its own with the risk of 
making major mistakes. 
The Commission accepts that the cereal seeds projects 
have not yet fully attained their objectives. However the 
recent promising increases in cereal production are 
attributed to an expansion of irrigated agriculture 
combined with the introduction of HYV-seeds, to which 
the EC co-financed cereals projects have directly 
contributed through supply of seeds and developing the 
seed-specific infrastructure and equipment base of the 
sole responsible government agency (BADC). 
The Commission would like to underline the longer-term 
sector development context of the cotton projects. The 
cotton sector in Bangladesh is still at a pilot development 
stage with the EC as its main supporter so far; the project 
is basically helping the Government and the country to 
confirm if possible the potential for cotton-growing in 
Bangladesh by developing a necessary institutional 
framework and providing the sector with a critical mass 
of knowledge and experience, infrastructure and equip­
ment. As knowledge and experience evolve (both from 
successes and failures), a dialogue on key issues facing the 
development of the sector continues with the Govern­
ment of Bangladesh. 
With regard to tea rehabilitation, the project set out to 
provide the sector with the necessary resources to make 
highly needed replacement investments possible. During 
implementation, however, the emergence of competitive 
supplier credit anticipated some of these requirements. 
None the less there remained a need for EC-financed 
equipment and infrastructure which continued to be the 
main part of the project. In 1989 the Commission and the 
government agreed on a revision of the financing 
agreement which, among others, also permitted a further 
strengthening of the labour welfare component under the 
ODA-financed part of the project. 
Investments in the expansion of irrigation are generally 
considered to be the main stimulus for agricultural 
development and food production in Bangladesh. 
Because of the highly constrained and skewed landowner-
ship situation in Bangladesh — which is one of the main 
reasons for the country's underdevelopment — it is 
probably correct to state that not all irrigation schemes 
and investments have had the expected effect on small-
298 Official Journal of the European Communities 12. 12. 90 
holder agricultural production; larger farmers are often 
better placed to 'valorize' the irrigation potential than 
smaller ones. This problem has always been a concern for 
the EC. Facts and figures are however lacking and 
difficult and sensitive to obtain. The Community's (and 
other donors') continued concern about this is now 
increasingly shared by the Government of Bangladesh, 
confirmed by its agreement to specific socio-economic 
impact studies by the Commission on irrigation schemes 
(e.g. Bhola and SSISP). 
The EC livestock services development project has 
provided many veterinary services extension outlets with 
necessary veterinary tools and equipment which have 
improved their extension service capacity. 
Local storage depots have been rehabilitated and 
improved with the explicit agreement that they are 
registered in the books of the Public Works Department 
(PWD), which in the present situation is the only 
guarantee that they can qualify for regular maintenance; 
knowing the constraints and deficiencies of PWD 
maintenance however donors involved in rehabilitation 
of storage depots (FAO, the Netherlands, EC) are 
conducting a parallel dialogue with the Government of 
Bangladesh to arrive at a better system and solution for 
maintenance of food storage depots, which will probably 
require a separate assistance package (being explored also 
by the EC in conjunction with the Netherlands). 
Unrealistic target dates 
10.29-10.30. While it cannot be denied that the 
implementation of projects has frequently taken much 
longer than planned, the major problems of delays have 
usually occurred before the start of the project (negoti­
ation and approval of Financing Agreement, and 
recruitment and fielding of technical assistance); this is 
largely due to the administrative procedures of the 
Bangladeshi aid administration and the rules and 
regulations which have to be respected by the Com­
mission. 
Implementation of projects is expected to improve 
significantly as a result of a new project structure and 
management modalities agreed with government in 1988. 
(For more details, see paragraph 10.39). Underemployment of assets 
10.31. Lack of skilled staff is not necessarily a reason for 
not supplying necessary equipment — the arrival of the 
equipment makes it possible to train staff in the use of it; 
technical assistance and increasingly also suppliers are 
assisting in this. Ancillary equipment has subsequently 
been procured. 
Co-financing with international agencies 
10.32. See paragraph 10.28. 
10.33. Community advances held by the Asian De­
velopment Bank (ADB) in respect of the Bhola and small-
scale irrigation projects were further drawn down and 
utilized within the context of the project. Latest figures 
and outstanding advances amount to approximately 1,1 
Mio ECU fully in line with expected project disburse­
ments. It is expected that both projects will be completed 
and funds used by the end of June 1991. 
Regular and fully transparent financial reporting from 
ADB to the Community on EC-ADB co-financed 
projects has been operating satisfactorily over the last two 
years. 
Co-financing with Member States 
10.34. See paragraph 10.28. 
The role of the Bangladeshi authorities 
Non-compliance with agreements 
10.35-10.38. While agreements between the Com­
munity and the government are made ex ante in the 
interest of the project-to-be and should therefore be 
respected, it is correct to state that there have been 
occasions that they have not been adhered to. The main 
reasons for this include: 
12. 12. 90 Official Journal of the European Communities 299 
— Weak, absent, ad hoc management from the re­
sponsible government project authorities. 
Unanticipated institutional, operational, legal or 
financial obstacles which crop up during implemen­
tation. 
Experience has shown that some pressure from the donor 
combined with understanding, pragmatism and flexibility 
are the only way to achieve progress. 
Lack of qualified personnel 
10.39. Since 1988 all new EC financed projects in 
Bangladesh provide for implementation through a special 
and functionally autonomous 'project implementation 
unit' (PIU). PIUs will be set up for each project and will be 
manned by qualified Bangladeshi staff on a full-time basis 
for the whole duration of the project. European technical 
assistance is recruited to strengthen not only the technical 
but also the management capacity of the PIU. The 
Commission therefore considers that it has already put in 
place a more effective system. 
Government reluctance to use technical assistance 
10.40. The government's caution regarding the use of 
technical assistance is better understood when one takes 
into account that: 
— 90 % of development investments and activities in 
Bangladesh are financed by donors or international 
financing agencies, all of which insist on (often 
intensive) use of technical assistance; 
— not all technical assistance recruited by donors has 
proven to be performing according to expectations. 
Lack of cooperation among Bangladeshi 
implementing agencies 
10.41. Weak institutions and a lack of cooperation 
between institutions do indeed cause difficulties in 
Bangladesh as in most developing countries. Building 
better and more efficient institutions is however a longterm process. Donor-assisted projects often offer 
opportunities to also study, discuss and gradually 
improve institutional arrangements. 
Lack of project infrastructure and equipment 
10.42. Repairs and maintenance of public sector 
equipment and infrastructure are highly constrained 
because of lack of resources and weak management. The 
problem is being tackled from different angles: 
— IMF and World Bank are helping the government 
with improving internal resource mobilization and a 
more orthodox budget discipline (macroeconomic 
management); 
— the government is privatizing a lot of its projects 
(including their infrastructure and equipment), 
particularly in the water-irrigation agricultural 
sector; 
— improved maintenance management systems (includ­
ing preventive maintenance) are being introduced in 
many sectors often under pressure and with assistance 
of donors (including the EC). 
Moreover, the Government of Bangladesh has recently 
agreed with the EC, the Netherlans and World Bank to 
gradually increase its allocations for maintenance to 
BWDB during the next 10 years within the context of the 
BWDB systems rehabilitation project. This project is 
intended to considerably strengthen the capacity of 
BWDB in the field of maintenance. 
Maintenance of local storage depots — see comments on 
same criticism raised under paragraph 10.28. 
The role of the Commission 
Premature decisions to finance 
10.43. With regard to the claim that premature 
decisions were taken, it should be pointed out that all 
decisions were taken on the basis of prevailing knowledge 
300 Official Journal of the European Communities 12. 12. 90 
and understanding at the time of taking the decision and 
after agreement of the Bangladeshi authorities. 
The use of the remaining funds in the tea project was 
considered to be in line with the objectives of the tea 
rehabilitation project and Financing Agreement, and 
only amending implementation arrangements. 
Weak monitoring 
10.44. As regards monitoring, the report confirms the 
deficiencies in staff and back-up support (both at HQ and 
in-country). While the situation may not yet be perfect it 
has gradually improved. 
Commission's knowledge of government system 
10.45. The Commission would like to underline the 
complexity as well as the frequent changes of the 
Government of Bangladesh procedures and systems and 
to reiterate the lack of adequate manpower (acknow­
ledged by the Court's report) to be informed. 
Advances paid by the EC are usually transferred to 
special foreign exchange accounts with the Bangladesh 
(Central) Bank on which no interest is paid as a general 
rule. 
Inappropriate recourse to 'international tenders' 
10.46 -10.48. The rules of the EC and the Government 
of Bangladesh applying to tenders are very strict and 
difficult to waive. In the case of the Bhola project EC rules 
of origin were waived, however, and locally assembled 
non-Community machines were procured. 
Project autonomy 
10.49. There is now an agreement in principle between 
the EC and the Government of Bangladesh on a new and 
more efficient structure and management modalities for 
EC-supported projects (see comments on paragraph 
10.39). Compensation for loss of export earnings 
(Compex) 
10.50 -10.52. Jute Compex transfers have been made 
on the basis of sector strategic uses for the funds, the 
details of which have been worked out with advice from 
Community technical assistance after the transfers were 
made; this has permitted a rapid positive balance of 
payments effect. 
Co-financing with non-governmental 
organizations (NGOs) 
10.53 - 10.55. The shortcomings noted by the mission 
on the part of the European NGOs and their local 
partners in budget and co-financing contract manage­
ment reflect a regular weakness of action by NGOs, which 
are geared more to pragmatic and efficient implemen­
tation methods than to adhering closely to monitoring 
arrangements. The Commission is fully aware of the 
problem and acknowledges that the Court's criticisms are 
well-founded. It is endeavouring in its relations with the 
NGOs to persuade them to adopt more transparent and 
more professional management methods. 
As part of its efforts to evaluate Community cooperation 
projects more effectively, the Commission has also, in 
recent years, stepped up its evaluation of NGO oper­
ations. The Commission departments intend from now 
on to strengthen where possible the financial monitoring 
of NGO operations to which Community funds have 
been allocated, either through the NGOs themselves or, 
where necessary and if appropriate, by bringing in 
independent auditors. 
Emergency aids 
10.56 -10.57. A certain degree of 'misjudgment' in 
emergency situations is unavoidable. At the time the 
Commission took its decision in 1988 (i.e. on 7 October 
1988), approximately 700 000 cases of diarrohea had 
already been reported and there was a fear of an outbreak 
of other water-borne diseases. An Undro report of 
20 October 1988 continued to point to the urgent need for 
medicines. The scale of the subsequent epidemic was 
lower than had been expected and consequently distri­
bution was relatively low. In the case of one NGO, where 
only a part of the medicines were distributed, the 
Commission only reimbursed the cost of that part of the 
medicines distributed. 
12. 12. 90 Official Journal of the European Communities 301 
In the past it has been impossible to recuperate excise duty 
on imported but locally purchased items. A practical 
solution is being worked out and will be negotiated with 
the Government of Bangladesh for the future. 
Conclusions 
10.58 -10.63. While EC aid to Bangladesh may not 
always have been successful in fully attaining its 
objectives, the Commission is of the opinion that there is 
no justification for the Court's statement that cooper­
ation has largely failed. The Commission considers that 
(a) the indirect, gradual, long-term and sector impact 
and effects of EC development cooperation activities; 
(b) the overall context in which EC development co­
operation is taking place; and 
(c) the experience gained and the efforts and improve­
ments made in the process of developing and 
implementing a comparatively recent but rapidly 
growing cooperation 
permit a more positive conclusion. 
It is acknowledged that: 
— limited EC knowledge and experience in Bangladesh 
during the initial years has, at times, led to formulat­
ing objectives optimistically; — a cautious co-financing strategy has often reduced 
flexibility and room for action and adjustment later 
on; 
— aid-assisted development in Bangladesh is highly 
constrained by a heavy and complex bureaucracy. 
Significant improvements however have been achieved in 
all these fields: objectives are based on an increasing 
knowledge and understanding of the country and the 
problems and opportunities it faces; co-financing is 
increasingly considered for important self-contained co-
financing packages only which the Commission usually 
helps to identify and appraise; recent agreements with the 
government on food aid, project aid and Compex have 
greatly improved transparency and implementation 
management. Commission staff resources at both HQ 
and the Delegation have been strengthened which has 
enabled improved monitoring and closer management of 
EC-Bangladesh cooperation. 
A final overall remark. 
No donor will disagree with the fact that supporting and 
achieving real development in Bangladesh particularly in 
favour of the least privileged people is very difficult and 
certainly not just a question of technical content and 
monitoring or of cancellation of commitments or 
agreements, or formal modification of objectives. It is, 
because of the dimension of poverty and under­
development, also and particularly a question of being 
able to accept partial success or failure; of continuing the 
search for new and better solutions; of promoting and 
accepting gradual change; of patience and flexibility; of 
trying to understand; of being prepared to learn from 
failures and criticism; but most important it is a question 
of continued commitment and dialogue. 
302 Official Journal of the European Communities 12. 12. 90 
CHAPTER 11 
Aid to countries in Central and Eastern Europe 
OBSERVATIONS CONCERNING 
MONITORING AND CONTROL OBSERVATIONS CONCERNING 
COUNTERPART FUNDS 
11.6-11.7. The 1990 budget has a heading specifically 
for economic assistance to countries in Central and 
Eastern Europe. Aid from this heading (B 996) is granted 
under framework agreements between the Commission 
and the governments of the recipient countries, which 
provide inter alia for the control and monitoring by the 
Commission of the use of the funds made available to 
these countries as assistance for economic restructuring. 
11.8. The framework agreements also provide for 
auditing by the Court. 11.9. Since this was grant aid to Poland, the Commis­
sion decided to restrict its part in management of the 
counterpart funds to a right of veto over the use of the 
money; otherwise, the day-to-day management is under­
taken by the Polish authorities. 
11.10. The Commission agrees with the Court's com­
ments about the lack of machinery or institutions in 
Poland to enable counterpart funds to be properly 
administered from the outset. 
It does feel, however, that matters are improving thanks 
to political and economic developments in Poland and 
technical assistance supplied by the Community. The 
delays in granting funds to loan applicants noted by the 
Court in spring 1990 had given way by July to a lack of 
money to keep pace with applications, so that lending had 
to be suspended pending fresh payments into the Fund. 
12. 12. 90 Official Journal of the European Communities 303 
CHAPTER 12 
Loans, borrowings and interest subsidies 
OBSERVATIONS ON LEGALITY AND SOUND FINANCIAL 
MANAGEMENT 
Audit of Community lending and borrowing activities 
12.9—12.11. Over the 1990 financial year the Commission has been putting into effect the 
measures to which it committed itself on the basis of the Court's comments and 
recommendations in its annual report on the financial year 1988 and its special report of 29 June 
1990. The Commission agrees with the Court about the importance of updating working 
methods to keep up with rapidly changing and increasingly complex financial techniques, and 
will continue to aim for maximum efficiency in management, subject to the constraints imposed 
by the operating rules of the financial markets. 
12. 12. 90 Official Journal of the European Communities 305 
PART TWO 
The European Development Funds 
CHAPTER 13 
Financial audit 
EXECUTION OF THE EDF UP TO 
31 DECEMBER 1989 
13.2. The Commission intends to close the fourth EDF 
by 31 December 1990, before the new Lome Convention 
enters into force. Project closures since September 1989 
total 101, leaving 343 still open. In order to ensure that the 
balance unexpended at project closure is immediately 
available, the Commission took a decision on 26 July 
1990 to transfer outstanding sums totalling 
47 663 600,01 ECU to the sixth EDF. The Commission 
would stress that it is following the Court's and 
Parliament's recommendations. 
13.3. Despite the progress made in 1989, the absorption 
rate of programmed aid under Lome II remains a matter 
of concern. About 340 million ECU of the gap between 
approvals and disbursements under Lome II relates to 
agricultural and rural development projects and pro­
grammes. The greater share of this sector in Lome II 
(33,6 %) as compared with Lome I (28,9 %) taken in 
conjunction with its relatively slow disbursement profile 
goes a long way to explaining the slower implementation 
of Lome II as compared with Lome I. 
13.4. The relatively low rate of disbursements for Lome 
III can be explained by the shift in priorities fixed by the 
Convention, in particular concerning rural development 
programmes. These programmes take more time to 
prepare and have a time horizon that is longer than the 
traditional projects in the sectors of transport and 
communication, energy or industry. Nonetheless, 1989 
showed an improvement in the rate of payment versus 
secondary commitments, which went up from 49 % in 
1987 to 57 % by the end of 1989. This shows that 
payments tend to respond more quickly to commitments. While the type of project does significantly affect the rate 
of disbursement, there are nevertheless other causes of 
delay which need to be carefully analysed and corrected. 
In this connection the Commission has undertaken to 
carry out a joint study with the ACP countries of 
implementation procedures liable to delay the conversion 
of primary commitments (financing agreements) into the 
secondary commitments (contracts, estimates, etc.) which 
give rise to actual payments. 
Separately from the study, the Commission is currently 
engaged in a country-by-country review of the reasons for 
delay and the ways in which various bottlenecks could be 
removed. 
REGULARITY OF THE ACCOUNTING 
FOR COMMITMENTS 
13.6. For each contract or estimate, whether it is signed 
by the national authorizing officer of an ACP State or a 
Commission authorizing officer, a commitment proposal 
is submitted to the financial controller for his endorse­
ment before anything is recorded in the accounts. 
It is true that the date of the secondary commitment 
registered in the current accounting system is that on 
which the commitment document is prepared rather than 
the date on which it is countersigned by Financial 
Control, but this will be rectified in the new computerized 
accounting system to be introduced in 1991. 
306 Official Journal of the European Communities 12. 12. 90 
13.7. The Commission would point out that new 
conditions of contract applying to works, supply and 
service contracts for all ACP States will shortly be coming 
into force. The standardization of terms for all ACP 
States should produce greater transparency in contract 
clauses and better management of contracts. 
Derogations from these clauses will have to be approved 
in principle beforehand by the central Commission 
departments concerned, including Financial Control. 
Detailed instructions and standard contracts are cur­
rently being prepared, and this should close the loophole 
identified by the Court. 
13.8. The rule is that each contract or estimate gives rise 
to a single commitment. However, for practical reasons 
commitments may group several contracts, for example 
in the case of training aid projects and microprojects, and 
in exceptional cases where one supplier has won several 
small lots within the same tender, without affecting the 
quality of financial control of these contracts. 
13.9. For works, supply and service contracts the 
commitments entered in the accounts do indeed include a 
margin intended to cover contingencies such as failure to 
match quantities assumed in price schedules, fluctuations 
resulting from price revision or transport costs not 
provided for in supply contracts. The margin is also 
intended to cover minor adjustments approved by the 
national authorizing officer in accordance with Article 
227(5)(a) of the third Lome Convention. 
This system has been in force for many years and has 
proved effective, having the additional advantage that the 
performance of contracts need not be suspended or 
delayed for purely administrative reasons. Naturally, the 
size of the margin will depend on the scale and duration of 
the work, the risk of currency fluctuations etc., so as not 
to freeze funds unnecessarily. To improve transparency, 
we will again draw attention to the rules and ask the 
delegations to itemize the calculation of the margin. 
Additional expenditure not covered by the contract terms 
of course requires a rider, and a corresponding sup­
plementary commitment. 
13.10. The Commission is very careful about the closure 
of commitments and has set up machinery to enable it to 
monitor the performance of contracts. Three types of measure are possible: 
(a) when a contract is implemented the Commission 
delegate must indicate on the control sheet ac­
companying each payment the point when the 
contract can be closed; 
(b) when drafting his annual report, the delegate is also 
required to indicate which of the current projects can 
be closed by agreement with the national authorizing 
officer; 
(c) at headquarters, lists of projects are issued periodi­
cally in order to draw the attention of the officials 
concerned to those which can be closed. 
In spite of the existence of this machinery there have been 
failures to close some projects within a reasonable period, 
particularly where the authorities in the recipient country 
fail to act on a proposal to close the account, or delay in 
handing over the final financial documents needed to 
clear the advances. Where resources are otherwise 
adequate such delays have rarely led to the freezing of 
funds. 
13.11. The Commission is continuing to press on with 
the major task of drafting a manual of financial 
procedures but the work has been somewhat delayed, 
partly due to a lack of resources and partly because of the 
forthcoming introduction of new general conditions of 
contract for works, supply and service contracts and the 
switch to the OLAS computerized accounting system, 
which call for substantial changes to the existing 
instructions. 
For this reason work on the instructions not requiring 
radical change has been speeded up and these should be 
ready for distribution shortly. 
APPROVED ESTIMATES 
13.12. Regarding contracts carried out by direct labour, 
the Manual of Instructions lays down detailed guidance 
on this point (paragraph 4.2 in Part 4 of Chapter VI), 
specifying that supporting documents accompanying 
payment orders must include confirmation by the 
nlnl^ Official journal of the European Communities o^7 
imprestholder that the contract has been performed 
^services rendered etc^ The loelegations verity these 
documents and retain them in accordance with points 
of the instructions^The check therefore does not take 
placeatheadquarters^whichsimpl^recei^esthesummary 
list of expenditurecertifiedbythe delegate to accompany 
the paymentorder for reimbursement ofexpenditure, 
Howevenboththe Commission headquarters andthe 
Courtha^eaccesstoallthedocumentswhencarryingout 
on-the-spot inspections. 
13.13. It is true that estimates signed by the national 
authorizingotlicers often arrive latedespite frequent 
reminders to the authorities concerned in the recipient 
countries.E^enthoughthe estimates are appro^edb^ 
otlicials of the LarectorateDoleneral for lOe^elopment 
before formal presentation, the Commission agrees with 
the Court that, in accordance with the Manual of 
Procedures,theyshouldhe presented earlyenoughto 
allow commitment before the start ofoperations. The 
attention ofdelegates will be drawn once againto the 
importance of compliance with this rule. 
.fhe Commission also agrees that where^erpossible there 
should heaseparatecommitmentforeachestimate,in the 
interests of greater management accountability. T^xcep^ 
tionstothisruleareallowedonacase^by^casebasiswhere 
project implementation dictates it. 
AL^VA^CES 
^^^^^^^^^^^^^^ 
13.1^. TheCommissioniscarefultoseethatthelimiton 
advances provided for in the general conditions of 
contract is complied with. Howe^er,the rule does not 
apply in e^ery case, notably for short seminars or 
meetings, where the bulk of expenditure is incurred ^ery 
rapidly. 
^tew general conditions ofcontract will shortly enterinto 
force, and will lead to a harmonization of the rules 
concerning advances. A^s noted abo^e,allderogations 
fromthegeneralconditionsmustbeapprovedinprinciple 
b^ headquarters tsee paragraphia.^. 13.16. Inthecontextof financial implementationof 
contracts the Commission grants contractors ^whether 
legal or natural persons^certain facilities including cash 
advances provided they are secured by bank guarantees 
put up in the form stipulated by the Commission. 
However, derogationsfrom thisrulema^be allowed 
wherethe advances are paidtopublicbodies or non^ 
governmental organizations ^dC^. 
^Vhere an individual expert incurs substantial expends 
tureimmediatelyfollowingthesigningofthecontract,he 
recei^esadown^payment rather than an advance, since 
this corresponds to initiation of performance of the 
contract, evidence of which must first be produced. 
experience todate is that these rulesareproperl^ applied 
and have not occasioned any difficulties. 
B^^o^^^^^^^ 
13.1^-13.1^. The section of theManual of Instruct 
tions concerning the administration of imprest accounts 
was revised andsupplementedin 1^7.I^hesub^ectis also 
discussed and reviewed at each delegates^meeting,the 
most recent ofwhich took place at the end of April 1^0. 
Thus theCommissionisawareoftheproblems which can 
arise, especiallywiththeimplementationofruralprojects, 
which account for considerable amounts of mone^ 
administered b^ this method. 
While the Commission departments concerned, and 
particularly the L^elegations, do their best to ensure 
compliancewiththerulesgoverningtheadministrationof 
imprest accounts, nevertheless, in spite of these efforts, 
the authorities in the recipient countries are not always 
strict enough in their bookkeeping, and this is the source 
of the anomalies detected by the Court. 
In this area, therefore, the Commission,while standing 
firm on the principles, does take account of local 
circumstances and the progress of operations on the 
ground. 
In any case, where no evidence is produced to accountfor 
advances the Commission automatically recovers the 
sumsbywithholdingaportionofsubsequentpaymentsto 
Lhe recipient country. 
regarding the sum of^,^ million ^ECL^ mentioned by the 
Court, commitments are not yet closed and the CommisD 
308 Official Journal of the European Communities 12. 12. 90 
sion is carefully monitoring their recording and the 
settlement of advances. 
ACCOUNTING PRACTICES 
Accounting for advances 
13.19. The advances referred to by the Court have 
generally been granted under supply contracts. These 
disbursements, against production of a bank guarantee, 
are not in fact treated as advances for accounting 
pruposes because they are not progressively recovered as 
in the case of advances under works or service contracts, 
or where performance is carried out direct. 
Thus the bookkeeping entries relating to such recovery do 
not apply to supply contracts, and therefore the 
Commission treats them as actual disbursements. 
So far this more flexible management practice has not 
been faulted, and where the contractor fails to perform, 
action by the Commission takes the form of mobilization 
of the bank guarantee, and a revenue order endorsed by 
Financial Control is issued against the debtor. It is 
returned to the accounting officer for execution and 
recorded in his accounts and those of the authorizing 
officer. 
The Commission considers that this procedure is more in 
keeping with the type of operation concerned and quite 
adequate for the purposes of monitoring. Only with 
complex supply contracts does the Commission monitor 
advances in the same way as for works contracts. 
Payments made without prior commitments 
13.20. Where there has been a need for immediate 
action in urgent cases, it is true that local payments have 
been made before the Financial Controller has approved 
the secondary commitment. 
However, the Commission would point out that in 
accordance with Article 17 of the sixth EDF Financial Regulation, which provides that all measures which may 
give rise to expenditure payable by the EDF must be 
preceded by a proposal for commitment of expenditure 
by the authorizing officer, the local payments to which the 
Court refers related to operations on which the Commis­
sion or the authorizing officer had already taken a 
decision at the primary level, that decision itself having 
received advance approval from Financial Control. 
The Commission therefore considers that Articles 18, 25 
and 27 of the Financial Regulation have been complied 
with. Delegations are in any case routinely reminded that 
such expenditure must be covered by a secondary 
commitment. 
Nevertheless, the Manual of Instructions (Part III, 
Chapter 3.3.2.) makes it clear that: 
'Absence of notification of the (secondary) commit­
ment is in no sense a sufficient reason for suspending 
endorsement of the initial payment dossier, since the 
notification is an internal administrative measure 
which cannot be relied upon against the holder of a 
contract or estimate. 
The delegate may therefore endorse payment orders 
without waiting for notification of the maximum 
amount committed. It is the delegate's endorsement of 
a contract or estimate that renders it binding; the 
subsequent notification does not add anything to the 
decision-making process. It informs the national 
authorizing officer of the amount committed by the 
Commission over and above the amount of the 
contract in order to cover expenditure arising from the 
operation of the price variation clause, quantity 
overruns and minor adjustments. 
Except where a single payment is involved, absence of 
notification of the commitment is not therefore a 
reason for suspending endorsement and thus blocking 
the payment procedure.' 
The 11,5 million ECU payment in Senegal was for a 
quick-disbursing oil import operation to help a debt-
burdened country. When the financing decision was 
adopted in September 1988, it was decided to pay the full 
foreign-currency contract price to the Senegalese treasury 
account operated jointly with the Delegation, rather than 
to the supplier, to avoid disrupting the payment 
arrangements usual in this trade. 
The operations were entered in the accounts afterwards. 
12. 12. 90 Official Journal of the European Communities 309 
In the case of Kenya the difference between the 1,9 million 
ECU actually paid and the 1,6 million ECU advance 
provided for in the financing decision adopted on 9 
August 1988 was due to the fact that by the time the funds 
were called in March 1989, i.e. seven months after the 
decision, the government had already launched the 
operation and had 80 % of the measures actually under 
way. The sum called for by the national authorizing 
officer was approved, being less than the 80 % of the 
project budget which can be granted for micro-projects in 
accordance with the rules for this type of operation. It is 
true that the accounting commitment, endorsed by 
Financial Control, was not made until the end of the 1989 
financial year. 
The late assignment of two other operations to the 
projects was due not to carelessness by Commission 
headquarters staff but to their desire to have these 
operations, which had been initiated by the Delegations, 
assigned in accordance with orthodox financial practice. 
In the light of comments by the supervisory authorities, 
however, the Commission is willing to consider ways of 
reconciling the decentralization called for in the Lome 
Convention and the financial regulations, and the rights 
of the contracting parties, with sound financial manage­
ment. 
New procedure for semi-direct payments 
13.21. One of the guiding principles of the EDF is 
decentralization, reflecting not only the need for speed 
and flexibility the fact that it is under joint management 
by the European Community and the ACP States. 
For many years the principle has applied to payments in 
ACP currencies, via the system of paying agents. 
A pilot scheme under way in four countries extends 
decentralization to payments in European currencies or 
ECU authorized by the national authorizing officers 
there. The reasoning behind it is twofold: 
— to save time, by putting the headquarters stage after 
payment, rather than before; this speeds up payments 
by an estimated 20 days in all; 
— to relieve the burden on headquarters staff, who are 
having to cope with a growing workload without a 
corresponding increase in numbers. The Delegations concerned received detailed instructions 
for implementation of the new procedure, which has now 
been the subject of two evaluations by the departments 
concerned. 
While it seems to be achieving its main objective, the 
speeding up of locally-authorized foreign currency 
payments, the study nevertheless revealed the need for 
improvements in the working standards of the staff 
assigned to the task before the procedure is introduced 
elsewhere. 
With this end in view it has been agreed with Financial 
Control: 
— to issue clear, detailed instructions to staff in the 
Delegations (and in ACP administrations); 
— to review the cash management system in order to 
provide watertight safeguards for control of the 
money in the main EDF bank accounts. 
The matter is under review and appropriate instructions 
will be issued as soon as possible and transmitted to the 
Court. 
13.22. The anomalies detected by the Court were noted 
by the Commission in the course of the first trial run. 
They were essentially the result of errors at start-up; these 
have since been corrected and steps taken to ensure that 
they do not recur. 
Availability of supporting documents 
13.23. The Commission would reiterate what it has said 
in previous financial years, to wit that it endeavours to 
comply with the Court's requirements while taking 
account of the EDF's decentralized style of adminis­
tration. This means that some papers have to be kept in 
the Delegations' files for management purposes, and 
must be verified on the spot, not at Commission 
headquarters. Naturally, these papers are available for 
inspection by the supervisory authorities. 
310 Official Journal of the European Communities 12. 12. 90 
Accounting corrections 
13.24 - 13.25. Most of the corrective entries arise from 
simple coding errors picked up in the course of internal 
checks, when the authorizing officer's accounts are 
compared with those of the accounting officer. 
These non-substantive corrections do not require en­
dorsement by Financial Control. Corrections to take 
account of a change of assignment, commitment or 
project, on the other hand, must systematically be 
presented to Financial Control for endorsement when the 
documents previously endorsed were incorrect. 
CONTRACT CLAUSES AND SOUND 
FINANCIAL MANAGEMENT 
Contract currencies and payment currencies 
13.26-13.27. The chief authorizing officer issued a 
circular dated 5 February 1990 on the implementation of 
Article 48 of the sixth EDF Financial Regulation, 
reminding Delegations and headquarters staff of the 
importance of complying with basic rules on service 
contracts, including price revision. 
The same instructions apply by analogy to works 
contracts. The Court's comments echo earlier findings by 
the Commission; on that occasion an appropriate 
reminder was sent out and has led. to an improvement. 
In accordance with Article 227(2) of the Lome Conven­
tion it is the responsibility of the national authorizing 
officer, in close collaboration with the delegate, to assess 
the proportion of contracts payable in local currency. 
This is done, accordingly, at the contract negotiation 
stage, and reflects the specific circumstances of that 
contract or country. 
In practice, the national authorizing officer, as signatory 
to the contract, assesses the proportion payable in local currency, subject to the approval of the delegate, who 
checks that the rule has been correctly applied. 
Price revisions 
13.28 -13.30. The Commission shares the Court's 
concern about the handling of price revisions. Attention 
has repeatedly been drawn to the detailed rules in the 
Manual of Instructions and comments are made in 
specific cases if necessary. In particular, the instructions 
stipulate that advances must be discounted before the 
price revision formula is applied, pursuant to Article 71 of 
the general conditions of contract. 
Likewise, service contracts may not be revised during the 
first year of implementation. 
13.31. The Commission considers that it is essentially 
up to the Delegations to ensure proper application of the 
price revision clause, since they have at their disposal the 
information about market prices, statements, advances 
etc. to carry out the necessary verification in liaison with 
the project supervisor. 
The Commission is forced in this connection to rely on the 
vigilance of project advisers, since it is physically 
impossible to insist that all statements be accompanied by 
every single supporting document used in their compi­
lation. Naturally, headquarters officials check that the 
formula has been properly applied to the contract terms 
and in accordance with the basic rules. Spot checks are 
also carried out, and in this case all documents needed for 
detailed inspection are requisitioned. 
It is true that in the case of Port of Beira in Mozambique 
the contractor has been compensated for the increase in 
local labour costs. Initially, the compensation was paid 
according to the local currency/foreign currency split set 
out in the contract, i.e. 5 %/95 %. However this was due 
to a misinterpretation of the supervisor. 
Following consultations with the Commission, the 
contractor now receives payment for price revision in the 
currency in which the actual increase has taken place. The 
contractor is not satisfied with this solution and may well 
take the issue to arbitration. However, the principle set 
out in the Court of Auditors' report is being followed, i.e. 
sums due by the way of price revisions in respect of the 
local costs are paid exclusively in local currency. 
12. 12. 90 Official Journal of the European Communities 311 
Unsuitability of the clause providing for 
payment of a 60% advance under certain 
supply contracts 
13.32 -13.35. The Commission's experience to date 
with these contracts has been that the advantage for the 
bidder of having 60 % of the contract amount available at 
the start plays its role and reduces overall prices. 
Nevertheless, in view of the importance of these contracts 
and in the light of certain problems which it has 
uncovered, the Commission is studying the pros and cons 
of alternatives to the existing payment terms; it will 
inform the Court of its conclusions. 
Performance bonds 
13.36 -13.37. The Commission is already applying the 
Court's recommendations and is very careful on this 
point. Some time ago, in the light of problems which had 
arisen with mobilization, it drew up a standard form of 
bank guarantee valid for works, supply and service 
contracts. 
Similarly, to guard against loss of the originals of bank 
guarantees and to ensure their continuing validity, the 
Commission has instructed delegates to keep a register 
which will enable it to see that the authorities concerned 
call for extensions in time. 
13.38. The Commission has the possibility to require 
performance bonds for supply contracts, if they consider 
it necessary. In the case of Mali, it was certainly an error 
not to have done so. In the mean time, for all contracts of 
this kind a performance bond is required. 
STABEX BENIN 
13.39. The misappropriation of the 7 million ECU 
representing the 1986-87 transfers is a black mark for the 
management of Lome III Stabex transfers. It should be 
said, however, that this is the sole instance of misap­
propriation of transfers, which are placed in an account 
intended to ensure full transparency and scrutiny by the 
Commission. 13.40 -13.41. The Commission did agree to an amount 
equivalent to the disbursements being used to discharge 
the debts of public corporations in the cotton and oilseed 
sectors (Sonapra and Sonicog). 
Obviously, it did not regard this as a satisfactory 
transaction, but since it was the lesser evil and the only 
realistic solution it was forced to accept it. 
FINANCIAL STATEMENTS 
Presentation of the authorizing officer's 
financial statements 
13.42 (a) - (b) The initial allocations and successive 
changes can be obtained from the tables of receipts for 
each EDF in the accounts to 31 December 1989, in 
conjunction with the footnotes to those tables. Neverthe­
less for the accounts to 31 December 1990, a separate 
table will be provided giving this information in a more 
easily accessible form. 
(c) Information about the origin of revenue is to be 
found in the document setting out the financial state­
ments presented by the accounting officer and the 
management account. This account also contains a table 
showing the allocation of the funds. 
(d) The accounts to 31 December 1989 included new 
summary pages for each EDF which gave a clear 
indication of the totals of allocations, primary and 
secondary commitments, and payments for each of the 
major instruments totalled separately for the ACP States 
and the overseas countries and territories (OCTs). 
This will be further improved upon in the accounts to 
31 December 1990, so as to include a clear division 
between programmable and non-programmable aid, 
highlighting smaller instruments such as emergency aid, 
and aid to refugees. 
13.43. The accounts of the sixth EDF clearly distinguish 
the special debt programme of 307 million ECU which is 
executed by means of general and sectoral import 
programmes. 
312 Official Journal of the European Communities 12. 12. 90 
This does not of course preclude any ACP State from 
requesting that other import programmes, not directly 
connected with the special debt programme, be financed 
from within its existing indicative programme. 
As there is no fixed limit or allocation in the Lome III 
Convention for this type of programme, the Commission 
considers that it is not necessary to make a separate 
accounting line for these import programmes. 
Nevertheless, the overall coordination and control of the 
global situation on import programmes is maintained by 
a specific service within DG VIII, and appropriate 
statistics will become possible with the introduction of a 
new computerized accounting system in 1991. 
The situation will be similar in the seventh EDF, in which 
a specific amount of 1 150 million ECU is defined for 
structural adjustment, and will therefore require a 
separate accounting line; nevertheless, the indicative 
programmes for each ACP State may also include limited 
amounts for structural adjustment support (Article 281 (e) 
of the Lome IV Convention) which for accounting 
purposes cannot be treated separately from the indicative 
programmes. 
Balance sheet at 31 December 1989 
13.44. In order that the financial accounts could include 
all operations carried out to 31 December 1989, paying 
agents and Delegations were asked to send in the 
information before the books were closed on 19 January 
1990. Despite every effort, some information was still 
missing at that date, so a number of operations from the 
financial year 1989 have had to be entered in the 1990 
accounts. 
Counterpart funds 
13.45. It should be made clear that counterpart funds 
do not belong to the Commission in the same way as the 
aid money it dispenses. 
From the outset the countries receiving these funds have 
tended to consider that the money is now theirs and they 
do not have to acccount for the way in which it is used. The increasing amounts involved and the difficulty of 
keeping track of utilization have prompted the Commis­
sion to tighten up the rules (joint management) regarding 
establishment and use of this money. 
There has been some resistance on the part of the 
recipients to the introduction of these new rules. 
Reflecting this, the information provided by the countries 
concerned has been sporadic and incomplete and the 
Commission has been unable so far to draw up a full 
statement of counterpart funds for inclusion in the annual 
balance sheets. The Commission departments concerned 
are currently devoting considerable attention to this 
problem, however, and will keep the Budget Authority 
and the Court of Auditors informed. 
13.51. In many countries considerable progress has 
been and is being made. Also, since the introduction of 
the import programmes the Commission has been 
carefully studying its policy on counterpart funds in the 
light of experience. 
Among other things, it has drafted a document which is 
due to be discussed shortly at Community level with a 
view to the issuing of detailed instructions regarding the 
establishment, use, management and monitoring of 
counterpart funds. 
FINAL OBSERVATION 
13.52 (a) The Commission considers that the measures 
it has taken on its own initiative, as described in the 
answers to paragraphs 13.6, 13.7 and 13.24-13.25 should 
do something to allay the Court's concern. 
(b) As noted in paragraph 13.11, the Commission is 
continuing preparation of the manual of procedures, 
taking into account the inevitable constraints of such a 
task and the changes shortly to be introduced under the 
new Lome Convention and associated regulations. 
(c) The new general conditions to be introduced shortly 
for works, supply and service contracts should normalize 
and standardize the rules on payment of advances. 
LlLl^ Official journal of the European Communities oH^ 
^ The Commission departments concerned are 
undertakingathoroughreviewof the wholeissueof 
counterpart funds^ThelOelegations will shortly be sent 
detailed instructions on the management of these funds 
^see paragraphia!^ 
^ The Commission considered the question of 
ettective separation of the functions of the authorizing 
officer and the accounting officerunderparagraph 40 of its repl^ to the Courts report for l^^^COlC^l^ 
l^l^l^^p^^,^o^even it is willing to give the 
matter more detailed consideration. 
As things stands increased resources ^ould do more to 
improve management control in ]oC VIIFs tinance 
directorate than the setting up of a ne^ unit. Hie 
Commission is doing what it can to remedy matters. 
314 Official Journal of the European Communities 12. 12. 90 
CHAPTER 14 
Examination of projects in Equatorial West Africa 
General comment 
The Court's finding that in general civil engineering 
projects were carried out satisfactorily whereas rural 
development and agricultural problems more often ran 
into problems is borne out by the Commission's own 
experience. Indeed, all development organizations have 
found that rural operations are by far the most complex 
and difficult to implement. 
That in itself accounts for many of the problems noted by 
the Court. 
In most ACP States the period under review was one of 
fundamental reform (structural adjustment). The reforms 
are steps in the right direction and the adjustments they 
necessitated in various operations are consequently, in 
our view, appropriate and indeed desirable. 
INTRODUCTION 
14.2. See comments on the lack of maintenance of roads 
in paragraphs 14.16-14.17. 
14.3. The Twifo oil palm plantation and the Twifo 
Smallholder oil palm plantation projects have been 
supported since 1977 with fourth, fifth and sixth EDF 
funds, and have proved successful, with production 
doubling during this period to 11 000 tonnes in 1989. It is 
hoped that the projects will move into self-sufficiency and 
commercial operation. 
The Court's comments on competition from the Far East 
presumably refer to the current glut in the palm-oil 
market in West Africa due to the import of cheap oils from South-East Asia. This is clearly beyond the control 
of the project management. 
14.4. The Commission is aware of these problems and is 
trying to limit the funds being used for running costs. See 
paragraphs 14.22-14.23. 
14.5. The 'Pamscad' programme, which is implemented 
under World Bank supervision, ran into delays due to 
internal difficulties within the Ghanaian administration, 
but is now back on course, with supplies of phar­
maceuticals, agricultural machinery and vehicles now on 
their way to Ghana. 
14.7 (i) At 30 April 1990 the commitment rate for the 
sixth EDF indicative programme in Benin (including the 
special debt programme) was 99 % and the disbursement 
rate 31 %, both above the average for the other ACP 
States despite the country's social and political problems. 
(ii) As far as the slowness in secondary commitments 
and payments for the Congo are concerned, the national 
indicative programme represented a total break with 
previous Community activities in the country. One year 
later secondary commitments were 31,8 %, and it is 
expected that payments will follow a similar upward 
curve. 
(m) The revision of the Ghanaian indicative pro­
gramme is still blocked pending the settlement of a 
prolonged dispute between the Ghanaian authorities and 
a European company which built a road in Ghana under 
EDF funding. Negotiations are currently under way 
between the parties concerned. 
12. 12. 90 Official Journal of the European Communities 315 
PREPARATION OF MEASURES decided to reallocate part of the funds into the 
rehabilitation of oil palm mills, and the rest of the 
funds have returned to the National Indicative 
Programme. 
Meeting beneficiaries' needs 
14.9 -14.10. The Commission is fully aware of the need 
to ensure that the beneficiaries' needs are satisfied, and 
takes care to examine this aspect during the preliminary 
phase of every project funded. It accepts, however, that 
delays or changes of direction do occur in projects, 
although these are more usually the result of the executive 
capacity of the local administration. (ii) The Weija irrigation pilot project has, indeed, 
brought about disappointing results, as it has not 
been possible to establish the irrigated lands 
which were to supply vegetables to the Accra 
metropolitan area. The main cause for this was 
that the assumptions initially made about veget­
able production and marketing were proved 
invalid; other causes include high costs for water 
and maintenance, and difficulties in project 
management with an excessive number of person­
nel currently employed by the government on the 
scheme. 
As regards the specific projects listed in paragraph 14.9. 
and commented further upon in paragraph 14.10.: 
(a) Benin: 
(i) There was insufficient backing for the extension 
component but this was not the only reason for 
the abandonment of a number of pumps. Other 
factors such as pump design, availability of spare 
parts and the effects of the economic downturn 
on the cash resources of the communities 
concerned also affected project viability. (iii) In the case of this project, which involved the 
opening of a credit line to the Agricultural 
Development Bank, the needs of the beneficiaries 
were evaluated on several occasions before the 
launching of the project. This had to be done 
because of the rapidly changing economic con­
ditions in Ghana under the ERP (economic 
recovery programme). After the project was 
approved, the changes continued, and the needs 
of the beneficiaries evolved accordingly. As a 
consequence of this, the project experienced 
delays of implementation, but was finally carried 
out in a satisfactory way: all the available credits 
have been granted to small fisheries firms, and 
repayments are being at present collected; the 
project is in the process of being closed with 
positive results. 
(ii) The project was suspended, and a reorientation 
proposed in 1987/88 to overcome the difficulties 
mentioned. 14.11. See paragraphs 14.16-14.17. 
(iii) Here there were delays, but these did not stem 
from any lack of consultation on the Com­
mission's part. See paragraph 14.19. (b)(i). 
(b) Ghana: 
(i) The rural credit scheme was conceived on the 
basis of a first successful credit line under Lome I, 
and in the light of the Ghanaian situation before 
the economic recovery programme. The radical 
change of economic conditions brought about by 
this programme reduced the need for special 
credits for inputs by smallholders, as foreign 
exchange became readily available. It was then Profitability of agri-industrial projects 
14.12 -14.13. The Commission agrees that financial 
independence is an important aim at the end of agri-
industrial projects, but does not agree that its financing 
proposals are too optimistic, as the projected economic 
rate of return is calculated for all projects on the basis of 
the least favourable assumptions available. Even these 
figures can, of course, be rendered invalid by exception­
ally long delays or other unforeseen economic factors 
outside the control of the project. 
Although the Commission agrees in principle that the 
viability of projects is reinforced when they are co-
financed with genuine entrepreneurs, such entrepreneurs 
are not always easy to find. 
316 Official Journal of the European Communities 12. 12. 90 
The Commission already maintains close relations with 
the Centre for the Development of Industry, and is well 
aware of its potentialities. Advantages of projects for 
beneficiary countries 
As regards the specific projects mentioned in paragraph 
14.12.: 14.14. The Commission has the following comments 
regarding the examples chosen by the Court: 
(a) Benin: 
(a) Congo and Gabon: 
See comments under paragraphs 14.9-14.10 (a)(ii). 
(b) Congo: 
The EIB carried out the economic evaluation of the 
project and concluded that, taking everything into 
consideration, it is viable under risk-capital con­
ditions. 
(c) Gabon: 
(i) - (ii) The Commission was only a small partner in 
the cofinanced industrial rubber project 
(7 %). Once this project is under way, the 
village rubber cultivation will be of un­
doubted value, increasing both the through­
put of the industrial plant and the income of 
the workers, who also do the village cultiv­
ation with their families. 
(iii) The reafforestation project was approved as 
an experiment in a country with extremely 
high unit costs but an equally great need for 
environmental conservation. Steps are cur­
rently being taken to ensure that this project, 
and the lessons learnt from it, are integrated 
into an overall forestry plan being drawn up 
by IBRD. 
(d) Ghana: 
The Commission has endeavoured, whenever this is 
possible, to promote the evolution of certain 
Ghanaian State enterprises into commercial com­
panies. Such has been the case for the cattle-rearing 
project at Aveyime, and for the palm-oil project at 
Twifo. However, there is still considerable resistance 
against the introduction of a market economy, and 
this must be taken into account. 
As regards operating deficits being covered by counter­
part funds, see paragraphs 14.22-14.23(d). (i) The mining research was financed under the 
Second Lome Convention and would seem to be 
fully in accordance with Articles 133, paragraph 1 
(c) and 135, paragraph 1 (c) on regional cooper­
ation, i.e. research into the economic potential 
and natural resources of the ACP States con­
cerned. 
(ii) The highway survey in Gabon was designed 
during the First Lome Convention to judge the 
economic feasibility of linking the economic 
capital — Port Gentil — by land with the rest of 
the country. This proved to be not viable but was 
a necessary research. 
(b) Ghana: 
There are no grounds for thinking that the outcome 
of support for these two measures was uncertain from 
the outset. In the case of the rural loans in particular, 
the failure of the project was essentially due to 
changes in the country's economy. 
14.15. When the project was appraised and then 
presented by the EIB departments concerned to the 
decision-making bodies, it was expected that it would be 
presented to the Commission more or less simul­
taneously ; the three-month gap allowed for reflected the 
fact that the EIB can present projects before invitations to 
tender have been issued whereas the Commission prefers 
to do so once the bids have been opened. In the event the 
considerable difference between the bids received and the 
estimates, essentially affecting the work to be financed by 
the Commission, meant that more time was needed to 
work out the Congo side of operations, and this was the 
reason for the two-year gap in the signing of the contracts. 
However, the EIB did not give effect to its contract until 
the Commission had approved the project and signed the 
contracts and the financing agreement; the first disburse­
ment was on 14 May 1985. 
12. 12. 90 Official Journal of the European Communities 317 
The results of the survey were admittedly negative, since 
the expected low-phosphorus deposits were not found. At 
the time, however, its validity was accepted by all the 
decision-making bodies concerned and on the strength of 
it Gabon was persuaded that it must give up hope of 
working a deposit which it had regarded as a priority for 
20 years. 
Commitment on the part of 
ACP beneficiaries 
14.16-14.17. The Commission is aware of the dif­
ficulties which many recipient governments experience in 
respecting their commitments, and therefore adopts a 
realistic attitude towards them; indeed, this was taken 
into account in the negotiation of the Lome III and IV 
Conventions. The Court's recommendations that care be 
taken to ensure the drawing up of adequate regulatory 
and administrative measures are understood, but the 
existence of regulations will have little or no effect on the 
government's ability, for example, to pay for road 
maintenance. 
As regards the project examples given: 
(a) (i) Benin: 
Here the Commission accepts the Court's view 
that the government failed to respect its under­
takings. 
(ii) Congo and Gabon: 
No concrete action for fisheries development in 
the Gulf of Guinea could be undertaken because, 
as noted by the Court in paragraph 14.27(d), the 
ratification processes required by the financing 
agreement had not been completed. 
(iii)Ghana: see paragraphs 14.9- 14.10(b)(i). 
(b) (i) Entrance charges to the country's wild-life parks 
are being reviewed. The Government is currently 
discussing the opening of some hunting areas 
with various parties who might be interested in 
operating them. 
(ii) The Commission is aware of a failure to respect 
obligations with regard to the maintenance of the 
drainage system and has been pursuing the 
matter. (iii) As stated in point 14.12.(c), the Commission was 
only a small partner in this project. As far as the 
Commission contribution is concerned, the 
Government's undertakings were fully respected. 
PROJECT EXECUTION 
Role and cost of technical assistance 
14.19. 
(a) (i) In the case of the credit lines to the ADB (fishing 
credits) the initial project had to be substantially 
modified, and this could only be done with 
expanded technical assistance. 
(ii) - (iii)The same argument applies to the Aveyime cattle 
ranch and to the Weija irrigation project. 
(b) (i) Benin: 
The task of the consultancies was to provide 
technical management for the projects; financial 
management was the responsibility of the 
government department, with the consultancies 
simply asked to provide back-up. The disruption 
noted by the Court was the result of a rapid 
turnover of local staff. The national authorizing 
officer, indeed, subsequently asked for financing 
for technical assistance to work under him in 
order to remedy the situation, and improvements 
have since been made. 
(ii) Ghana: 
— the long delays in tendering procedures were 
not only due to the consultant, but were also 
the result of the major economic readjust­
ment in Ghana. See paragraphs 14.9-
14.10(b)(i). At the time that the rural loans 
were first proposed, foreign exchange was 
unobtainable in Ghana; the subsequent 
availability of foreign exchange directly 
influenced the requirements of the project 
and delayed the tender. 
— whilst it is true that the consultant had to be 
changed, it was the government's changing 
318 Official Journal of the European Communities 12. 12. 90 
requirements for this project which led to the 
abandonment of almost half of the acreage 
foreseen rather than any action by the 
consultant. 
(c) The transfer of staff between government depart­
ments is regrettably a regular occurrence; the 
Commission nevertheless endeavours to persuade 
recipient organizations and governments to limit staff 
transfers as far as possible. 
14.20. The Commission is aware of the problems posed 
by foreign technical assistance and has systematically 
promoted the participation of local expertise whenever 
this is possible, in accordance with government policy. 
However, in many cases, the government itself wishes the 
presence of expatriates. 
Payment of operating expenses 
14.22 - 14.23. The tendency for money to be used to 
cover certain operating costs is a direct consequence of 
the budgetary and cash problems affecting these coun­
tries. 
The new Lome Convention has in fact been modified in 
the light of these problems, and now provides for the 
financing of various budget items in the interest of the 
country's financial recovery. 
The Commission does not therefore agree that EDF 
funds have been used in any way in contradiction with the 
Lome Convention. 
As certain ACP States became progressively less able to 
cover their own recurrent costs, the donors in general 
have increased their contribution. At the same time, 
constraints have been introduced to reduce the need for 
intervention; stricter budgetary control, a brake on new 
civil service recruitment, etc. 
(a) For instance, the stockfarming section of the Carder 
in Borgou Province received logistical and operating 
assistance (not covering wage costs) to enable it to 
carry out its responsibilities under the EDF-financed 
Borgou stockfarming project. (b) Based on the project cost and financing plan of the 
Sanghapalm project, the Court has concluded that 
the Community has financed expenditure 'for the 
State's account' and 'other general expenses'. The 
Bank's contribution is in fact being used to co-finance 
technical assistance, plantations, oil mill and refinery 
as was foreseen in the Bank's report (financing 
proposal) of September 1988 to the Article 22 
Committee. Furthermore, it should be pointed out 
that the expenditure item 'for the State's account' 
refers to investment expenditures and not overhead 
expenditures or recurrent costs. Details will be 
supplied to the Court in due course. 
(c) Payments to Hevegab in Gabon, both in the 
industrial programme and the village cultivation one, 
are solely on the basis of services provided. 
(d) In Ghana, as it is normal practice to use counterpart 
funds to pay the government's local contribution 
towards EDF projects, most running expenses were 
covered by this method. The Commission has no 
objection to this in principle. 
Regarding the monitoring of the settlement of advances 
under approved estimates, see paragraphs 13.17-13.18. 
Inspection of the use of funds 
14.25. 
(a) The financing proposal was subsequently modified by 
the terms of the financing agreement, which only laid 
down a limit of 1 190 000 ECU for all works, and 
835 000 ECU for materials. These limits were 
respected. 
(b) It is true that there are design problems with the 
Parakou abattoir, but the adjustments necessary to 
make it operational are being studied and specific 
proposals are expected to be put forward shortly. 
(c) The Commission has been following up the matter 
referred to with the consultant concerned. 
(d) The film was produced under a contract signed by the 
national authorizing officer, but confiscated by the 
Ghanaian security services for reasons they refused to 
divulge; this could not possibly have been foreseen at 
the time the contract was signed. 
12. 12. 90 Official Journal of the European Communities 319 
The question of the fishing material is being actively 
followed up by the delegation in Ghana. The local 
company is continuing to produce nets from the raw 
nylon yarn provided, but at a slow pace; negotiations 
have also commenced with companies in neighbour­
ing ACP States with a view to a more speedy 
completion of the work. 
(e) This transfer concerned emergency aid to victims of 
drought and made possible the distribution of 
approximatively 10 700 tonnes of rice and 11 850 
tonnes of other foodstuffs. 
The original cost estimate for this project was 2 Mio 
ECU, but it was finally completed at a cost of only 
1,4 Mio ECU. As the foreign currency supplied by the 
EDF was put into a form of local counterpart fund to 
further the impact of the aid, the excess currency 
eventually had to be returned to Europe, which gave 
rise to an exchange rate loss due to local devaluation. 
Nevertheless, the fact remains that: supervision arrangements, and it has therefore issued 
instructions that a copy of each observation must be 
retained in the authorizing officer's file. 
This also applies to observations having given rise to 
correspondence at a higher administrative level, which 
have not been entered on the standard forms. 
The Commission would draw attention to the fact that 
the Financial Controller allows the Court to inspect his 
files on projects to be examined by the Court on the spot; 
these files contain all observations made by Financial 
Control concerning each project. 
(a) - (b) These points have been treated in general in the 
Commission's reply to paragraph 13.20. 
the overall cost of the project was considerably 
less than the original estimate; 
it was not possible to estimate the total cost any 
more accurately in advance, given the emergency 
situation. 
Supervision of financial management by the 
Financial Controller (c) The financing agreement stipulates that no 
concrete action will be undertaken in a country 
which has not ratified the Convention. In this 
case contracts were only concluded in countries 
which had ratified accordingly. To advance 
preparation of the project as far as possible once 
ratification processes were well under way, the 
Commission awarded a technical assistance 
contract after competitive tendering but no 
works or supplies contracts will be awarded until 
the Convention is in effect. 
14.26 - 14.28. The Court takes the absence of observ­
ations by the Financial Controller in the authorizing 
officer's and accounting officer's files to mean that he 
should take a more rigorous approach to the management 
shortcomings he notes. 
In the Commission's view this criticism should take into 
account the fact that observations by Financial Control 
are generally made on standard forms which the 
controller sends with the disputed file to the authorizing 
officer. The latter notes on the form the action he has 
taken in response to the observations and returns the 
document to the controller, who examines it and, if he 
considers the measures satisfactory, files it with the rest of 
the project papers. Since the form used is specifically 
intended for return to Financial Control, that is why it is 
not in the authorizing officer's files. 
However, the Commission is aware that these observ­
ations are important for the Court, particularly as they 
are evidence of the proper functioning of the internal (d) Following a derogation granted by the Commis­
sion to the rules of origin of supplies, this 
contract was drawn up with a non-EC or ACP 
supplier, who insisted that it be denominated in 
US dollars. 
Such derogations are granted from time to time 
by the Commission when the amounts involved 
are reasonable, and the goods are unavailable 
from EC or ACP suppliers. 
(e) Due to foreign exchange shortages in Ghana 
between 1984 and 1989 a technical assistance 
team was granted two advances totalling 130 000 
ECU which were deposited into a bank account 
in Togo in order to purchase miscellaneous 
o^O Onlcial journal of the European Communities l^Ll^ 
equipment unavailable in Chana for the lives^ 
took development pro^ect.The equipment has 
now allbeen purchased, andthe account has 
beenreducedalmosttozero.Theaccountis 
moreover subject to an annual external audit. 
CC^CLHSIC^S 
^.^. TheCommissionagreesinprinciplewiththe 
Courfscomments,but in practice is oftenobliged to 
reconcile the desirability of pertect preparation with the 
need to avoid delay in starting the projects. 
^.^0. The Commission recognizes the importance of 
high quality in technical assistance. This is why it 
regularlyuses the ^doubleen^elope^ system in evaluating 
technical assistance tendersinaccordance with Article 
^ll^l^ofthethirdLomeCon^ention.Thissystemlirst 
e^aluatesthequalityoftheservicesof^eredbeforelooking 
atprices.Asregardsdelays,itisevidentthatthesemusthe 
kept toaminimum, although theymost often arise from 
problems with the local administration. As stated in paragraphl4,^rhe Commission makes 
e^ery etforttoensurethatlocalconsultantsareused 
whereverpossibletbrtechnicalassistanceinpreterenceto 
European consultants, nevertheless, the recipient 
government itselfoften specifically requests expatriate 
consultants. 
Phe Commission is also fully aware of the importance of 
the transter of skills by European consultants to local 
employees, and systematically foreseesthetrainingof 
counterparts in all technical assistance contracts. 
^.^L Although, due to a lack of personnel, the 
tinancial management of the PL^F cannot always be as 
thorough as would be desirable, the Commission is 
nevertheless fully intbrmed about the level of advanced 
mentofits projects. The vastma^orityofits resources are 
indeeddirectedtowardsdevelopmentaluses,withasmall 
percentage for administrative running costs where this is 
seentobenecessary, A.llprqjectsareevaluatedona 
systematic si^monthly basis ^although this system was 
not yet in operation in Benin at the time of the Courts 
visitduetostaffshortages^andcorrecti^emeasurestaken 
whenrequired^thesechecksarecomplementedby^^^ 
evaluations onathematic basis byaspecializedevalu^ 
ationunitwhichregularly draws up reports summarizing 
the lessons leamt for the future.