++++

( 1 ) OJ No L 356 , 31 . 12 . 1977 .

( 2 ) OJ No C 357 , 31 . 12 . 1983 .

( 3 ) ECSC Treaty Article 78 d ang g ; EAEC Treaty Articles 179a , 180b ; EEC Treaty Articles 205a , 206b .

( 4 ) OJ No C 344 , 31 . 12 . 1982 .

( 5 ) OJ No C 344 , 31 . 12 . 1981 .

( 6 ) OJ No C 287 , 24 . 10 . 1983 .

( 7 ) OJ No C 202 , 5 . 8 . 1982 .

( 8 ) Annual report for the financial year 1982 , paragraph 2.9 , OJ No C 357 , 31 . 12 . 1983 .

( 9 ) OJ No C 357 , 31 . 12 . 1983 , paragraphs 2.4-2.10 .

( 10 ) OJ No C 357 , 31 . 12 . 1983 , paragraphs 2.23 , 2.24 and 2.25 .

( 11 ) See also the annual report for the financial year 1981 , paragraph 11.18 , OJ No C 344 , 31 . 12 . 1982 .

( 12 ) Annual report for the financial year 1982 , paragraphs 2.40 , OJ No C 357 , 31 . 12 . 1983 .

( 13 ) OJ No C 357 , 31 . 12 . 1983 , paragraph 2.31 .

( 14 ) OJ No L 94 , 28 . 4 . 1970 .

( 15 ) OJ No L 60 , 7 . 3 . 1983 and OJ No L 331 , 28 . 11 . 1983 .

( 16 ) OJ No L 356 , 31 . 12 . 1977 .

( 17 ) OJ No C 357 , 31 . 12 . 1983 .

( 18 ) OJ No C 344 , 31 . 12 . 1981 .

( 19 ) OJ No L 336 , 27 . 12 . 1977 , p . 1 .

( 20 ) OJ No C 342 , 31 . 12 . 1981 .

( 21 ) OJ No L 145 , 13 . 6 . 1977 , p . 1 .

( 22 ) OJ No L 58 , 8 . 3 . 1969 , p . 7 .

( 23 ) OJ No L 94 , 28 . 4 . 1970 , p . 13 .

( 24 ) OJ No L 320 , 17 . 11 . 1983 , p . 1 .

( 25 ) The management of the measures financed by means of appropriations entered under Chapter 40 forms the subject of observation in Chapter 6 of this report .

( 26 ) Financial Regulation of 21 December 1977 , OJ No L 356 , 31 . 12 . 1977 .

( 27 ) OJ No L 186 , 16 . 8 . 1972 , p . 1 .

( 28 ) Including 37,1 million ECU entered in Chapter 40 to cover the intervention expenditure of the common organisation of the market in fishery products .

( 29 ) cf . Annual report for the financial year 1982 , paragraph 4.6 , OJ No C 357 , 31 . 12 . 1983 .

( 30 ) OJ No L 56 , 27 . 2 . 1978 , p . 1 .

( 31 ) Commission Regulations Nos 1697/70 , 1823/73 , 380/78 , 3184/83 .

( 32 ) OJ No C 287 , 24 . 10 . 1983 .

( 33 ) OJ No L 216 , 5 . 8 . 1978 , p . 1 .

( 34 ) 1 208 ECU .

( 35 ) OJ NO L 36 , 10 . 2 . 1972 , p . 1 .

( 36 ) OJ No L 172 , 12 . 7 . 1977 , p . 17 .

( 37 ) In its reply to the previous annual report , the Commission announced that in 1983 clearance decisions would be taken in respect of the 1978/1979 accounts . In fact , these decisions were not taken until 8 February 1984 . Their effect on the budget was therefore carried over the financial year 1984 .

( 38 ) OJ No C 232 , 11 . 9 . 1981 .

( 39 ) OJ No L 228 , 20 . 8 . 1976 , p . 17 .

( 40 ) OJ No 30 , 20 . 4 . 1962 , p . 991 .

( 41 ) OJ No 34 , 27 . 2 . 1964 , p . 586 .

( 42 ) OJ No L 117 , 12 . 5 . 1979 , p . 4 .

( 43 ) OJ No L 367 , 31 . 12 . 1980 , p . 87 .

( 44 ) OJ No L 275 , 1 . 11 . 1979 , p . 1 .

( 45 ) OJ No L 51 , 23 . 2 . 1977 , p . 1 .

( 46 ) Regulation No 219/78 ,

OJ No L 35 , 4 . 2 . 1978 , p . 10 ;

Regulation No 1361/78 ,

OJ No L 166 , 23 . 6 . 1978 , p . 9 .

Regulation No 1685/78 ,

OJ No L 197 , 22 . 7 . 1978 , p . 1 ;

Regulation No 3509/80 ,

OJ No L 367 , 31 . 12 . 1980 , p . 87 ;

Regulation No 1096/81 ,

OJ No L 114 , 25 . 4 . 1981 , p . 1 ;

Regulation No 3073/82 ,

OJ No L 325 , 20 . 11 . 1982 , p . 1 ;

Regulation No 3164/82 ,

OJ No L 332 , 27 . 11 . 1982 , p . 1 ;

Regulation No 3397/82 ,

OJ No L 357 , 18 . 12 . 1982 , p . 10 ;

Act concerning the conditions of accession of the Hellenic Republic and the adjustments to the Treaties , OJ No L 291 , 19 . 11 . 1979 .

( 47 ) Belgium , Greece , France , Luxembourg , Netherlands .

( 48 ) OJ No L 114 , 25 . 4 . 1981 , p . 1 .

( 49 ) B1 : Summarised balance sheet ,

B2 : Summarised operating and profits and losses account ,

B3 : Products used before and after investment ,

B4 : Processed / marketed products before and after investment ,

B5 : Prices paid to the producers over the last three years ,

B6 : Operating and profits and losses account by place of investment .

( 50 ) OJ No L 35 , 4 . 2 . 1978 , p . 10 .

( 51 ) OJ No L 197 , 20 . 7 . 1981 , p . 1 .

( 52 ) OJ No L 166 , 23 . 6 . 1978 , p . 11 .

( 53 ) OJ No L 38 , 14 . 2 . 1979 , p . 15 .

( 54 ) OJ No L 38 , 14 . 2 . 1979 , p . 6 .

( 55 ) OJ No L 96 , 23 . 4 . 1972 , p . 15 .

( 56 ) OJ No L 180 , 14 . 7 . 1980 . p . 1 .

( 57 ) OJ No L 236 , 27 . 10 . 1970 , p . 5 .

( 58 ) OJ No L 379 , 31 . 12 . 1981 , p . 5 .

( 59 ) OJ No L 24 , 27 . 1 . 1983 , p . 1 .

( 60 ) OJ No L 24 , 27 . 1 . 1983 , p . 14 .

( 61 ) OJ No L 290 , 22 . 10 . 1983 , p . 1 .

( 62 ) OJ No L 290 , 22 . 10 . 1983 , p . 9 .

( 63 ) OJ No L 290 , 22 . 10 . 1983 , p . 15 .

( 64 ) OJ No L 94 , 28 . 4 . 1970 , p . 13 .

( 65 ) OJ No L 56 , 27 . 2 . 1978 , p . 1 .

( 66 ) OJ No L 320 , 17 . 11 . 1983 , p . 1 .

( 67 ) See Chapter 4 of this report .

( 68 ) OJ No L 73 , 21 . 3 . 1975 , p . 1 .

( 69 ) OJ No L 35 , 9 . 2 . 1979 , p . 1 .

( 70 ) OJ No L 349 , 23 . 12 . 1980 , p . 10 .

( 71 ) OJ No C 336 , 23 . 12 . 1981 , p . 60 .

( 72 ) OJ No C 360 , 31 . 12 . 1983 , p . 1 .

( 73 ) Council Regulation ( EEC ) No 1787/84 of 19 . 6 . 1984 ,

OJ No L 169 , 28 . 6 . 1984 , p . 1 .

( 74 ) OJ No L 284 , 29 . 10 . 1980 , p . 4 .

( 75 ) OJ No L 73 , 19 . 3 . 1983 , p . 6 .

( 76 ) OJ No C 357 , 31 . 12 . 1983 , p . 64 .

( 77 ) OJ No C 344 , 31 . 12 . 1981 , p . 95 .

( 78 ) OJ No C 344 , 31 . 12 . 1981 , pp . 91 , 92 and 232 .

( 79 ) OJ No C 345 , 31 . 12 . 1982 , p . 1 .

( 80 ) In the annual report of the Court for the financial year 1982 , this subject was dealt with in Chapters 6 and 9 ,

OJ No C 357 , 31 . 12 . 1983 , pp . 68 and 88 .

( 81 ) OJ No L 73 , 19 . 3 . 1983 , p . 6 .

( 82 ) OJ No L 60 , 7 . 3 . 1983 , p . 1 .

( 83 ) OJ No L 331 , 28 . 11 . 1983 , p . 1 .

( 84 ) OJ No L 98 , 16 . 4 . 1983 , p . 18 .

( 85 ) OJ No L 375 , 31 . 12 . 1983 , p . 1 .

( 86 ) OJ No L 284 , 29 . 10 . 1980 , p . 4 .

( 87 ) Commission document No SEC ( 81 ) 1140 , paragraph 9 .

( 88 ) OJ No L 337 , 27 . 12 . 1977 .

( 89 ) Having financial responsibility for ESF resources .

( 90 ) OJ No C 38 , 19 . 2 . 1976 .

( 91 ) OJ No C 357 , 31 . 12 . 1983 , paragraph 8.5 .

( 92 ) OJ No L 356 , 31 . 12 . 1977 .

( 93 ) Article 32 ( 2 ) of the Financial Regulation .

( 94 ) See paragraph 9.7-9.8 , 9.11-9.14 , 9.20-9.26 and 9.34-9.30 below .

( 95 ) OJ No C 357 , 31 . 12 . 1983 , paragraphs 8.46 to 8.60 .

( 96 ) Doc . No RS 8/82 ( available form from the Court of Auditors ) .

( 97 ) OJ No L 356 , 31 . 12 . 1977 , Article 88 ( 3 ) .

( 98 ) OJ No C 357 , 31 . 12 . 1983 .

( 99 ) OJ No L 352 , 14 . 12 . 1982 .

( 100 ) Adopted by the Court on 30 . 10 . 1980 ( not published in the OJ ) .

( 101 ) OJ No C 357 , 31 . 12 . 1983 , p . 97 .

( 102 ) OJ No C 342 , 31 . 12 . 1980 , p . 146 .

( 103 ) OJ No C 344 , 31 . 12 . 1981 , p . 15 .

( 104 ) OJ No C 287 , 22 . 10 . 1983 , p . 16 .

( 105 ) OJ No C 342 , 31 . 12 . 1980 , pp . 26 and 27 .

( 106 ) The nine European Schools are : Bergen , Brussels I , Brussels II , Culham , Karlsruhe , Luxembourg , Mol , Munich and Varese .

( 107 ) Except for a few recruited locally , the teachers at the European Schools are detached from their national administrations .

( 108 ) The Court has prepared a special report on these three loan mechanism . See OJ No C 319 , 6 . 12 . 1982 .

( 109 ) For interest rate subsidies which are granted from the operating budget of the ECSC for ECSC loans , see the separate report by the Court for the ECSC's financial year 1983 .

( 110 ) OJ No L 19 , 24 . 1 . 1983 .

( 111 ) OJ No C 357 , 31 . 12 . 1983 .

( 112 ) OJ No C 342 , 31 . 12 . 1980 , p . 206 .

( 113 ) OJ No C 357 , 31 . 12 . 1983 , p . 134 .

( 114 ) OJ No C 344 , 31 . 12 . 1982 , p . 215 .

( 115 ) OJ No L 347 , 22 . 12 . 1980 , p . 37 .

( 116 ) OJ No L 347 , 22 . 12 . 1980 , pp . 43 and 44 .

( 117 ) OJ No C 342 , 31 . 12 . 1980 , pp . 182 and 183 ;

OJ No C 344 , 31 . 12 . 1981 , pp . 148 and 149 ;

OJ No C 344 , 31 . 12 . 1982 , p . 118 .

( 118 ) OJ No L 144 , 2 . 6 . 1981 , p . 1 .

( 119 ) OJ No L 336 , 27 . 12 . 1977 , p . 7 .

( 120 ) OJ No L 58 , 8 . 3 . 1969 , p . 7 .

( 121 ) OJ No L 205 , 13 . 8 . 1979 , p . 19 .

( 122 ) OJ No C 287 , 26 . 10 . 1983 .

( 123 ) OJ No L 180 , 7 . 7 . 1984 , p . 1 .

( 124 ) OJ No C 56 , 29 . 2 . 1984 , p . 4 .

( 125 ) Drucksache 10-1279 of the Deutsche Bundestag of 11 April 1984 .

( 126 ) OJ No L 28 , 4 . 2 . 1971 , p . 15 ; OJ No L 337 , 27 . 12 . 1977 , p . 12 .

( 127 ) In June 1983 the instruments for the reformed ESF , though not formally adopted , had already been agreed in principle by the Council .

( 128 ) See Table VIII.3 annexed to the 12th report on the activities of the ESF _ 1983 .

( 129 ) OJ No L 238 , 30 . 8 . 1978 , p . 20 .

( 130 ) See 12th report on the activities of the ESF _ 1983 , pp . 85 and 86 .

( 131 ) See Article 5 ( 3 ) of Regulation ( EEC ) No 2396/71 ( OJ No L 249 , 10 . 11 . 1971 , p . 54 ) as amended by Regulation ( EEC ) No 2893/77 ( OJ No L 337 , 27 . 12 . 1977 , p . 1 . ) .

COURT OF AUDITORS

CURIA RATIONUM

EF

EK

EG

CE

EC

In accordance with the provisions of the Treaties ( Article 78 f ( 4 ) ECSC ; Article 206 a ( 4 ) EEC ; and Article 180 a ( 4 ) EAEC ) and the Financial Regulation of 21 December 1977 ( Article 83 ) , and the corresponding provisions relating to the European Development Funds , the Court of Auditors of the European Communities , at its meeting on 22 November 1984 , adopted its

ANNUAL REPORT

concerning the financial year 1983

The report , accompanied by the replies of the institutions to the comments of the Court , was transmitted to the authorities responsible for giving discharge and to other institutions on 30 November 1984 .

Marcel MART

( President )

Michael N . MURPHY

Paul GAUDY

Aldo ANGIOI

Pierre LELONG

André MIDDELHOEK

Keld BRIXTOFTE

Lothar HAASE

Stergios VALLAS

Charles J . CAREY

CONTENTS

Annual report on the 1983 accounts

Page

Introduction ... 5

Part I

Chapter 1 _ General matters ... 7

Chapter 2 _ Accounting matters ... 15

Chapter 3 _ Revenue ... 24

Chapter 4 _ European Agricultural Guidance and Guarantee Fund , Guarantee Section ... 30

Chapter 5 _ European Agricultural Guidance and Guarantee Fund , Guidance Section and specific agricultural measures ... 50

Chapter 6 _ Common fisheries policy ... 61

Chapter 7 _ Regional aid expenditure ... 64

Chapter 8 _ Social sector ... 72

Chapter 9 _ Research , energy , etc . ... 80

Chapter 10 _ Cooperation with developing and non-member countries ... 89

Chapter 11 _ Staff expenditure ... 99

Chapter 12 _ Operational expenditure ... 107

Chapter 13 _ External bodies ... 111

Chapter 14 _ Loans , borrowings and interest-rate subsidies ... 113

Part II _ European Development Funds ... 121

ANNEXES

Annex I _ Allocation of responsibilities among Members of the Court of Auditors at 30 November 1984 ... 135

Annex II _ Reports and opinions adopted by the Court of Auditors during the five years to 30 November 1984 ... 137

Annex III _ Financial information relating to the general budget of the European Communities and to the European Development Funds ... 145

Replies of the institutions to the observations of the Court concerning the financial year 1983

Part I

Chapter 1 _ General matters ... 179

Chapter 2 _ Accounting matters ... 186

Chapter 3 _ Revenue ... 190

Chapter 4 _ European Agricultural Guidance and Guarantee Fund , Guarantee Section ... 194

Chapter 5 _ European Agricultural Guidance and Guarantee Fund , Guidance Section and specific agricultural measures ... 202

Chapter 6 _ Common fisheries policy ... 207

Chapter 7 _ Regional aid expenditure ... 207

Chapter 8 _ Social sector ... 211

Chapter 9 _ Research , energy , etc . ... 218

Chapter 10 _ Cooperation with developing and non-member countries ... 223

Chapter 11 _ Staff expenditure ... 232

Chapter 12 _ Operational expenditure ... 235

Chapter 14 _ Loans , borrowings and interest-rate subsidies ... 238

Part II _ European Development Funds ... 240

Annual report on the 1983 accounts

INTRODUCTION

1 . This is the seventh annual report of the European Court of Auditors , which relates to the accounts of the financial year 1983 ( 1 ) . The Commission is required , by the Treaties ( 2 ) and the Financial Regulation ( 3 ) , to draw up a revenue and expenditure account for the Communities for each financial year and a balance sheet as at the end of that year , and to forward them to the Parliament , the Council and the Court of Auditors by 1 June of the following year . These financial statements are used by the Court in drawing up its annual report . The accounts together with the annual report of the Court and the replies of the institutions to the Court's observations , are to be examined by the Parliament and the Council in connection with the discharge to be given by the Parliament to the Commission in accordance with the Treaties ( 4 ) .

2 . In Part I of the report , general matters arising from the Court's work are covered in Chapter 1 . Chapters 2 to 13 relate to the general budget of the Communities . Chapter 14 deals with loans and borrowings operations under the EEC and EAEC Treaties and related interest subsidies financed by the budget .

3 . Part II is concerned with the European Development Funds . These Funds , which provide aid to developing countries , are managed by the Commission but they are financed by specific contributions by the Member States and do not form part of the general budget of the Communities .

( 1 ) Produced in accordance with ECSC Treaty , Article 78f ( 4 ) , EEC Treaty , Article 206a ( 4 ) and EAEC Treaty , Article 180a ( 4 ) , Article 83 of Financial Regulation of 21 December 1977 , OJ No L 356 , 31 . 12 . 1977 , and similar provisions in each of the Financial Regulations for the second , third , fourth and fifth European Development Funds , respectively , Council Decision 64/356/EEC , OJ No 93 , 11 . 6 . 1964 , Council Decision 71/68/EEC , OJ No L 31 , 8 . 2 . 1971 , Council Decision 76/647/EEC , OJ No L 229 , 20 . 8 . 1976 , Council Decision 81/215/EEC , OJ No L 101 , 11 . 4 . 1981 .

( 2 ) ECSC Treaty , Article 78d , EEC Treaty , Article 205a and EAEC Treaty , Article 179a .

( 3 ) Articles 73 to 77 .

( 4 ) ECSC Treaty , Article 78g , EEC Treaty , Article 206b and EAEC Treaty , Article 180b .

4 . Annex I gives the allocation of responsibilities amongst the Members of the Court as at 30 November 1984 and Annex II is a list of all reports and opinions issued by the Court during the five years up to 30 November 1984 .

5 . Summaries and some detailed analyses of financial information relating to the general budget of the Communities and to the European Development Funds are presented in Annex III .

6 . The Court has issued separate reports to the relevant discharged authorities on the 1983 accounts of JET ( the Joint European Torus ) , the European Centre for the Development of Vocational Training ( Berlin ) , the European Foundation for the Improvement of Living and Working Conditions ( Dublin ) and the Euratom Supply Agency , and the 1982 accounts of the European Schools . A summary of the JET report is included in Chapter 9 of this report , and summaries of the comments made by the Court in the reports on the other bodies are included in Chapter 13 . The Court has also made the separate annual report on the accounting for the functional activities of the ECSC and the financial management by the Commission relating thereto , as required by Article 78f ( 5 ) of the ECSC Treaty .

Presentation of Community accounts and annual report of Court of Auditors

7 . The accounts for the financial year 1983 were rendered by the Commission on 30 May 1984 . The Court's comments were sent to the institutions on 13 July 1984 . All the comments contained in this report were sent to the Commission . Relevant extracts of Chapters 1 , 2 , 11 and 12 were also sent to the Parliament , the Council , the Court of Justice and the Economic and Social Committee .

8 . The Financial Regulation provides for each institution to address its reply to the Court by 31 October . In practice , the formal replies are generally preceded by discussions between the institutions and the Court which cover both the Court's comments and draft replies which are provided on an informal basis . These arrangements enable changes to be made , where necessary , in both the comments and the replies , to ensure that the issues would be readily understood by the reader . This is more likely to be achieved if there is a full and confidential exchange of views with the audited body before the report is finalised and made available with the formal reply .

9 . The formal replies were sent by the institutions by 31 October and , after studying them , the Court adopted the final text of the report on 22 November 1984 . The report , accompanied by the replies of the institutions , was sent to the institutions on 30 November 1984 in accordance with Article 84 of the Financial Regulation . Where , in the light of the replies , the Court has felt the need for some clarification to give the reader a better understanding of the issues , this has been provided in the relevant paragraph of the report . The absence of remarks by the Court on the individual replies does not imply that it necessarily agrees with them .

10 . As last year , the replies of the institutions are presented , subject by subject , under the relevant chapter and item heading after the report .

11 . The Court has continued the arrangements introduced last year for the audit of its own accounts . The Member responsible for the examination of a particular subject in other institutions also examines the use of corresponding appropriations in the Court's budget . Any observations arising are included in the relevant chapter of this report and the replies are included with the replies of the other institutions .

Special reports

12 . As mentioned earlier , Annex II is a list of reports and opinions adopted by the Court during the past five years . The Court would mention that , during its examination of the 1983 accounts , it has followed up issues raised in its report on the sound financial management of Community activities adopted on 6 October 1983 in response to the conclusions of the European Council of 18 June 1983 ; observations arising appear in the relevant chapters of this report .

Membership and organisation of the Court

13 . There have been no changes of Membership of the Court since the last annual report was presented . Mr Pierre Lelong , after three years as President , resigned and was succeeded by Mr Marcel Mart on 18 October 1984 . There was also some reallocation of responsibilities among Members at the same time , and the position as at 30 November 1984 is given in Annex I .

Court budget and staff

14 . The Court's expenditure in 1982 , including carry-overs to 1983 , amounted to some 14,1 million ECU , and in 1983 , including carry-overs to 1984 , amounted to some 15,3 million ECU . The main element in these amounts is for salaries and allowances .

15 . The budgets for 1982 and 1983 provided for the following numbers of posts :

* 1982 * 1983

A category staff * 101 * 107

LA category staff * 36 * 36

B category staff * 63 * 63

C category staff * 75 * 78

D category staff * 19 * 19

Total * 294 * 303

PART I

CHAPTER 1

General matters

1.0 . TABLE OF CONTENTS Paragraph reference

General budget of the European Communities 1.1 - 1.14

Accounts for the year ended 31 December 1983 1.1

Utilisation of appropriations 1.2

Year of account and balance sheet questions 1.3 - 1.7

Availability and management of appropriations 1.8 - 1.14

Summary of observations in this report 1.15 - 1.22

Observations in special reports which are relevant for discharge 1.23

Refusal of approval by Financial Controllers 1.24 - 1.25

General budget of the European Communities

Accounts for the year ended 31 December 1983

1.1 . The accounts of the general budget of the European Communities for the year ended 31 December 1983 are contained in a five-volume document ( COM ( 84 ) 219 to 221 ) which was sent by the Commission to the Court of Auditors on 30 May 1984 . Volume V ( COM ( 84 ) 221 ) of the document includes the consolidated revenue and expenditure account and balance sheet . Volume V also provides certain other general summaries showing the outturn for each of the institutions , together with the principles applied in drawing up the accounts .

Utilisation of appropriations

1.2 . The total final appropriations for commitment and payment authorised to be charged to the accounts in 1983 amounted to 27 681,0 million ECU and 25 068,8 million ECU respectively . The utilisation of these appropriations by the institutions is shown in Tables 1.1 and 1.2 .

Year of account and balance sheet questions

1.3 . Article 27 of the Financial Regulation ( 1 ) provides that the balance from each financial year shall be entered in the budget of the subsequent financial year on the adoption of an amending budget . No amending budget for the financial year 1982 was adopted and the surplus of 661,5 million ECU available from 1981 was introduced as revenue in Article 301 of the 1983 budget by amending and supplementary budget No 1 for 1983 , which was adopted on 10 February 1983 . The practical effect of bringing the surplus for 1981 to account in 1983 was to reduce the requirement for other revenue for 1983 by a corresponding sum .

Table 1.1 _ Amounts and utilisation , by institution , of appropriations for commitment available in 1983

( Mio ECU )

* * * * Appropriations

* Budget * Final * Commitments

* * * * remaining

Institution * appropriations * appropriations * entered into * * Cancellations

* * * * available

* 1983 * 1983 ( 2 ) * in 1983

* * * * for 1984

( 1 ) * ( 2 ) * ( 3 ) * ( 4 ) * ( 5 ) * ( 6 )

Parliament * 228,0 * 228,0 * 211,5 * 0,4 * 16,1

Council ( 1 ) * 130,5 * 130,5 * 121,4 * 0,4 * 8,7

Commission * 26 128,2 * 27 276,2 * 26 427,2 * 611,6 * 237,4

( of which :

_ non-differentiated appro -

priations * ( 20 509,4 ) * ( 20 529,6 ) * ( 20 383,3 ) * ( _ ) * ( 146,3 )

_ commitment appropria -

tions ) * ( 5 618,8 ) * ( 6 746,6 ) * ( 6 043,9 ) * ( 611,6 ) * ( 91,1 )

Court of Justice * 29,1 * 29,1 * 27,5 * _ * 1,6

Court of Auditors * 17,2 * 17,2 * 15,3 * _ * 1,9

Total * 26 533,0 * 27 681,0 * 26 802,9 * 612,4 * 265,7

( 1 ) Including Economic and Social Committee .

( 2 ) Including 1 141,1 Mio ECU remaining from previous years and 6,9 Mio ECU corresponding to receipts for services performed on behalf of outside bodies ( research and investment ) .

Table 1.2 _ Amounts and utilisation , by institution , of appropriations for payment available in 1983

( Mio ECU )

* A . Appropriations of the financial year 1983 * B . Carry-overs from 1982

* Budget * Final

Institution * * Payments * Carry - * * Carry - * Payments * Carry -

* appropria - * appropria - * * * Cancel - * * * * Cancel -

* * * made in * overs * * overs * made in * overs

* tions * tions * * * lations * * * * lations

* * * 1983 * to 1984 * * from 1982 * 1983 * to 1984

* 1983 * 1983 ( 2 )

( 1 ) * ( 2 ) * ( 3 ) * ( 4 ) * ( 5 ) * ( 6 ) * ( 7 ) * ( 8 ) * ( 9 ) * ( 10 )

Parliament * 228,0 * 228,0 * 182,3 * 29,6 * 16,1 * 36,8 * 32,5 * _ * 4,3

Council ( 1 ) * 130,5 * 130,5 * 109,4 * 12,4 * 8,7 * 8,5 * 7,3 * _ * 1,2

Commission * 24 656,3 * 24 664,0 * 22 769,3 * 1 662,6 * 232,1 * 1 473,2 * 1 169,6 * 7,5 * 296,1

( of which :

_ non-differen -

tiated appro -

priations * ( 20 509,5 ) * ( 20 529,6 ) * ( 19 853,7 ) * ( 529,6 ) * ( 146,3 ) * ( 511,0 ) * ( 420,6 ) * ( _ ) * ( 90,4 )

_ payment appro -

priations ) * ( 4 146,8 ) * ( 4 134,4 ) * ( 2 915,6 ) * ( 1 133,0 ) * ( 85,8 ) * ( 962,2 ) * ( 749,0 ) * ( 7,5 ) * ( 205,7 )

Court of Justice * 29,1 * 29,1 * 25,8 * 1,7 * 1,6 * 1,5 * 1,4 * _ * 0,1

Court of Auditors * 17,2 * 17,2 * 14,8 * 0,5 * 1,9 * 1,0 * 0,6 * _ * 0,4

Total * 25 061,1 * 25 068,8 * 23 101,6 * 1 706,8 * 260,4 * 1 521,0 * 1 211,4 * 7,5 * 302,1

( 1 ) Including Economic and Social Committee .

( 2 ) Including 7,7 Mio ECU corresponding to receipts for services performed on behalf of outside bodies ( research and investment ) .

1.4 . The balance for the financial year 1982 was established when the revenue and expenditure account for that year was drawn up . The account was sent to the Court on 26 May 1983 . Before that happened , however , 675,9 million ECU of the balance were used " on account " to finance the amending and supplementary budget No 1 for 1983 . As the Court stated in paragraph 1.5 of its annual report for the financial year 1982 ( 2 ) , it was unaware of any provision in the relevant legislation for a balance to be used in this way before the actual amount available was determined . The remainder of the balance for 1982 ( 149,3 million ECU ) was introduced as revenue of the 1983 budget in amending and supplementary budget No 2 for 1983 on 24 October 1983 .

1.5 . During the audit of the 1983 accounts , various questions have arisen relating to the regularity of transactions and consequently to the amounts shown as revenue and expenditure in the accounts which are submitted to the discharge authority in accordance with the Treaties ( 3 ) . These cases are described in general in this chapter and in detail in subsequent chapters , and the amounts involved are given in Table 1.3 . Furthermore , in five cases in the social sector ( Title 6 ) involving a total of 1,9 million ECU , cancellations of commitments were brought to account in 1983 even though they were not approved by the Financial Controller until January 1984 ; the statement of commitments does not therefore reflect the real situation with regard to these cases as at 31 December 1983 . In addition , the Court considers that certain cases which it has not been able to quantify ( paragraphs 3.14-3.20 , 3.21-3.23 ) should be evaluated by the Commission .

1.6 . The Court pointed out in its annual report for the financial year 1981 ( 4 ) that the present regulations contain no specific provisions for dealing with amounts relating to irregular transactions which are included in the Community accounts . The Court considers , however , that the discharge authority should take account of these irregularities in the discharge procedure by instructing the Commission , in the resolution accompanying discharge , to adapt the accounts and take the necessary measures ( budgetary or otherwise ) to regularise the situation . Accordingly , the Court is of the opinion that , for the purposes of discharge , adjustments should be made as shown in Table 1.4 .

Table 1.3 _ Summary of quantifiable cases in this report where the Court considers that amounts have been overstated or understated in the revenue and expenditure account

( ECU )

* * Payments against 1983 appropria - * Payments against carry-overs from

* Revenue 1983 * * * Commitments entered into in 1983

* * tions * 1982

Paragraph * Amount * Amount * Amount * Amount * Amount * Amount * Amount * Amount

* understated * overstated * understated * overstated * understated * overstated * understated * overstated

* ( 1 ) * ( 2 ) * ( 3 ) * ( 4 ) * ( 5 ) * ( 6 ) * ( 7 ) * ( 8 )

1.5 * * * * * * * 1 935 408

2.7 * * * * * 88 943

2.8 * * * 12 000 000

2.19 * * * * 152 000 * * * * 152 000

* * * * 1 700 000 * * * * 1 700 000

2.25 * * * 11 457 * * * * 11 457

4.47 - 4.50 * 17 468 066

9.4 ( b ) * * * * * * * * 9 200 000

9.4 ( c ) * * * * * * * 67 000 000

9.4 ( d ) * * * * * * * * 1 400 000

11.8 - 11.10 * * * * * * * * 7 040 781

11.11 - 11.13 * * * * 1 545 318 * * * * 1 545 318

Total * 17 468 066 * * 12 011 457 * 3 397 318 * 88 943 * * 68 946 865 * 21 038 099

Net total * 17 468 066 * * 8 614 139 * * 88 943 * * 47 908 766

1.7 . There are a number of other subjects which the Court , while not formally questioning the regularity , nevertheless considers to be of sufficient significance to be drawn specifically to the attention of the discharge authority ( paragraphs 4.13 , 4.17 , 4.21 - 4.22 , 4.24 , 4.31 ( b ) , 4.35 , 4.46 ) . In particular , the Commission's action in deferring EAGGF Guarantee expenditure of some 825 million ECU to 1984 was contrary to the principle of annuality .

Availability and management of appropriations

1.8 . On 7 June 1984 the Court presented its opinion on the Commission's proposal for a regulation introducing measures to cover budgetary requirements in 1984 given the exhaustion of own resources . In its opinion the Court referred to certain developments in the management of appropriations ; these were particularly marked in 1983 and had significant effects on the financial situation at the end of the financial year with consequent implications for the future . In view of the importance of these matters and the fact that the trends are not readily apparent from the Commission's financial statements , the Court summaries here the main elements . Reference are given to the paragraphs in subsequent chapters where more detailed information can be found .

Table 1.4 _ Advice concerning the amounts on which to give discharge to the Commission for the execution of the general budget of the European Communities for the financial year 1983 ( 1 )

( ECU )

1 . Revenue for 1983

1.1 . Receipts of the financial year * 24 765 506 219,52

Adjustments ( see Table 1.3 , column 1 ) * + 17 468 066,00

* 24 782 974 285,52

1.2 . Carry-overs from 1982 unused and cancelled * 302 061 138,17

Adjustments ( see Table 1.3 , column 5 ) * - 88 943,00

* 301 972 195,17

1.3 . Exchange rate difference * 47 947 118,37

Total 1 ( adjusted revenue ) * 25 132 893 599,06

2 . Expenditure charged to 1983

2.1 . Payments against 1983 appropriations * 23 101 563 603,38

Adjustments ( see Table 1.3 , columns 3 and 4 ) * + 8 614 139,00

* 23 110 177 742,38

2.2 . 1983 appropriations carried over to 1984 * 1 706 775 257,62

2.3 . Earmarked revenue to be repaid * 70 766,37

Total 2 ( adjusted expenditure ) * 24 817 023 766,37

3 . Balance of the financial year 1983

( total 1 minus total 2 ) * 315 869 832,69

4 . Commitments entered into in 1983 * 26 802 911 663,04

Adjustments ( see Table 1.3 , columns 7 and 8 ) * + 47 908 766,00

* 26 850 820 429,04

5 . Payments against carry-overs from 1982 * 1 211 414 977,45

Adjustments ( see Table 1.3 , column 5 ) * + 88 943,00

* 1 211 503 920,45

( 1 ) The adjustments only take account of the cases quantified by the Court and do not necessarily cover all irregularities .

Table 1.5 _ Underutilisation of appropriations for payment

( Mio ECU )

* Carry-overs * Final * * * * Carry -

* from * appropriations * Total * Payments * Cancel - * overs to

Year

* preceding * for current * available * made * lations * following

* year * year * * * * year

1979 * 2 098,9 * 14 488,3 * 16 587,2 * 14 367,1 * 311,5 * 1 908,6 ( 1 )

1980 * 1 869,8 ( 1 ) * 16 233,3 * 18 103,1 * 16 290,4 * 374,9 * 1 437,8 ( 2 )

1981 * 1 435,1 ( 2 ) * 18 441,5 * 19 876,6 * 17 792,8 * 679,7 * 1 404,1

1982 * 1 404,1 * 21 994,3 * 23 398,1 * 20 422,7 * 1 454,7 * 1 5121,0

1983 * 1 521,0 * 25 068,8 * 26 589,8 * 24 313,0 * 562,5 * 1 714,3

( 1 ) Differences are due to transfers .

( 2 ) Differences are due to transfers .

statements , the Court summarises here the main elements . References are given to the paragraphs in subsequent chapters where more detailed information can be found .

1.9 . Table 1.5 shows the amount of appropriations for payment which remained unused at the end of each of the last five years , the amounts which were cancelled and the amounts which were carried over to the following year . These unused appropriations related mainly to the structural funds , research and energy , and development aid . The amounts involved reflect over-optimistic assessments of the rate at which Community policies in these areas could be executed and , as a result , Member States were called upon to make available revenue in the form of value added tax that would not in fact be used .

1.10 . On the other hand , Table 1.6 shows that , in the areas covered by differentiated appropriations , there has been a steady build up in the level of commitments entered into each year which has not been matched by payments to liquidate those commitments . Payments during the past five years have , on average , represented only about two thirds of commitments entered into in those years , with the proportion falling somewhat since 1980 . Consequently , at the end of 1983 , outstanding commitments totalled almost 8 900 million ECU ; just over 1 100 million ECU of corresponding payment appropriations were carried forward , leaving a balance of some 7 800 million ECU to be financed out of future Community budgets ( see , for example , paragraphs 7.11-7.16 ) . Against this , the balance of the year 1983 ( some 300 million ECU ) could be used to meet expenditure in 1984 through the medium of an amending budget .

Table 1.6 _ Build-up of outstanding commitments

( differentiated appropriations )

( Mio ECU )

* * * * Cumulative

* Net commit - * * Increase in

* * * * outstanding

* ments en - * Payments * unliquidated

* * * * commit -

Year * tered * made in * commit -

* * * * ments

* into in the * the year * ments du -

* * * * at the end of

* year ( 1 ) * * ring the year

* * * * the year

1977 * * * * 1 802,7

1978 * 1 623,5 * 918,8 * 704,7 * 2 507,4

1979 * 2 797,6 * 1 763,5 * 1 034,1 * 3 541,5

1980 * 3 262,0 * 2 338,2 * 923,8 * 4 465,3

1981 * 3 700,6 * 2 594,6 * 1 106,0 * 5 571,3

1982 * 4 554,9 * 3 032,5 * 1 522,4 * 7 093,7

1983 * 5 466,1 * 3 664,6 * 1 801,5 * 8 895,2

( 1 ) Taking account of cancellations of commitments and , for 1978 , of adjustments of balance due to the EUA variations .

1.11 . In addition , as explained in paragraphs 4.51-4.65 of this report , the management of EAGGF Guarantee Section appropriations in 1983 has resulted in the deferment of expenditure of some 825 million ECU , to which must be added the contingent liability for the disposal of intervention stocks ( 2 800 million ECU ) . At the end of 1983 , therefore , there was a clear and foreseeable need for some 3 600 million ECU , with the possibility that this could be even higher if account is taken of greater potential losses ( which is suggested by 1984 sales results ) on existing intervention stocks . Further more , as shown in paragraph 10.5 , some 500 million ECU will have to be found to finance obligations entered into by 31 December 1983 in the context of food aid , but not covered by 1983 appropriations .

The Commission's replies to paragraphs 1.9 to 1.11 fail to deal with the central issues raised by the Court . The Court's main criticisms were that large amounts of appropriations remained unused at the end of each of the last five years , and that the 1983 accounts do not adequately present the real liabilities of the Community .

The Court recognises that there may be room for debate as to how far the blame for this situation lies with the system ( in particular the Financial Regulation ) , and how far with the way in which the Commission has administered that system .

In its reply to paragraph 1.9 the Commission has laid emphasis on certain technical aspects of the distinction between differentiated and non-differentiated appropriations . These do not in fact answer fundamentally the concerns expressed by the Court .

In reply to paragraphs 1.10 and 1.11 the Commission has questioned whether it is appropriate to consider future liabilities related to the management of the EAGGF Guarantee , notably those arising from the management of intervention stocks , as part of the total liabilities outstanding at 31 December 1983 . The Court fully recognises that the liabilities arising from the accumulation of intervention stocks are not of the same nature as , for example , those arising from commitments entered into in 1983 or earlier years for the structural funds . The fact remains , however , that the level of intervention stocks does represent a contingent liability for future Community budgets , and that it is therefore necessary to include an estimate of this liability in order to give as accurate a picture as possible of the overall position at the end of the financial year .

It seems , therefore , to the Court that there is an urgent need to review the relevant aspects of the Community budgetary system and management and the presentation by the Commission of the overall financial situation .

1.12 . In this context of the clarity of the Communities' financial situation , the Court would also draw attention to the observation it made in paragraph 1.5 of its annual report for the financial year 1980 ( 1 ) and paragraph 1.3 of its annual report for the financial year 1981 . It pointed out then that the system of accelerated payments which had been introduced for Community grants for structural projects did not represent any real speeding up in the execution of Community policies . That change gave the impression of increased Community activity but the only practical effect was to call on Member States to provide revenue for earlier financing of Community assisted projects in the Member States . In spite of the introduction of accelerated payments , which would tend to reduce the trend described in paragraph 1.10 above , the level of outstanding liabilities has continued to grow .

1.13 . The Court also notes that during 1982 and 1983 contributions totalling 162 million ECU were made out of the general budget to the operating budget of the ECSC . Significantly greater amounts remained unused in the ECSC accounts at the end of 1983 and the Court questions whether such contributions , which have added to the already difficult situation of the general budget , were justified .

1.14 . The Court's purpose in drawing attention to this situation is threefold , i.e .

( a ) to show the trend and the overall position at the end of the 1983 financial year which are not readily apparent from the financial statements produced by the Commission ,

( b ) to point out that total net liabilities at the end of 1983 , which will have to be financed by Community revenue during the immediately following years , amount at a minimum to more than 11 000 million ECU and could be even higher , and

( c ) to draw attention to the consequences of the present Community budgetary and accounting systems , and the need to establish arrangements which will give a clear picture of future liabilities while only calling on funds to meet genuine and immediate cash requirements .

Summary of observations in this report

1.15 . The Court's examination of the 1983 accounts and the observations arising therefrom have tended to bear out a number of general comments and suggestions already presented in the report of 6 October 1983 ( 2 ) in response to the conclusion of the European Council of 18 June 1983 . Those of the principal issues which have been developed in this annual report , and the corresponding paragraphs , are

( a ) in the field of the EAGGF Guarantee section :

( i ) that the present budgetary and legislative framework does not serve to control commitments ; this has been referred to in this annual report in paragraphs 4.51-4.62 , and particularly in paragraph 4.56 which refers expressely to paragraphs 2.2.3 and 2.2.6 of the above-mentioned special report ;

( ii ) the deficiencies in the system of decentralised management ( paragraph 4.25-4.26 of this report and 2.2.8-2.2.9 of the special report ) as illustrated by inadequate control of the management of cash resources , by blockages in the changing of expenditure to the budget and by persistent delays in the clearance of the accounts ;

( b ) in the structural funds :

( i ) there is often a lack of clear Community objectives and criteria and consequently a tendency for Community aid to degenerate into a partial reimbursement of national budgetary expenditure ( paragraph 5.18 , 5.25 , 7.17 et seq . ) ;

( ii ) effort is usually concentrated on the establishment of programmes and projects , with insufficient concern for action needed to ensure their fulfilment and the achievement of such objective as are defined ; ( paragraph 5.17 , 5.25 , 8.15-8.16 , 8.24 ) ;

( c ) in the case of food aid and cooperation with certain third countries :

( i ) there are numerous deficeincies in the quality of food aid supplied and the speed of delivery ( paragraphs 10.16 , 10.17 , 10.18 ) ;

( ii ) insufficient account is taken of the real needs of the recipients ( paragraph 10.32 ) .

1.16 . The Court has also noted that subjects dealt with in subsequent chapters of this report reflect a number of problems of a general character , as set out in the following paragraphs . Some of these problems were drawn to attention in paragraph 1.13 of the annual report for the financial year 1982 . The aim of a presentation of this kind is to demonstrate that there appear to be certain fundamental weaknesses which , if remedied , could have beneficial effects in the administration of Community policies in general _ not only in the specific areas giving rise to observations .

1.17 . Control and supervision by the Commission and its services , as well as the budgetary authority , tend to be hampered by the lack of relevant financial and management information . In some cases there is no formal requirement for such information , while in others national administrations and other bodies in the Member States have failed to provide reports and returns on time or at all . The effect is to impair the review and evaluation of Community activities and prevent useful lessons from being drawn when drafting new rules and regulations and planning future activities ( paragraphs 2.38 , 3.10-3.13 , 5.32 , 5.64 , 7.17-7.23 , 7.25 , 7.47 , 8.19-8.24 , 9.10 , 9.21 ) .

1.18 . The Court has also noted important areas where the objectives of Community policies or Community financed activities have not been fully achieved . In some cases this may be due to changed circumstances or other external factors which could not reasonably have been foreseen . But the persistence of similar criticisms can only lead to the conclusion that the experiences of the past are not being drawn upon as they could and should be ( paragraphs 4.63 , 5.32 , 5.64 , 7.17 , 7.25 , 10.19 , 11.16 ) .

1.19 . The arrangements for placing contracts with outside bodies have again given rise to observations . Notwithstanding Title IV of the Financial Regulation , contract which might have been the subject of competitive tendering have been placed by private treaty . In addition , there has not been systematic follow up and evaluation of the performance of the contractors and there appears to be no central service of the Commission responsible for co-ordinating practice or for disseminating the lessons of experience ( paragraphs 8.45-8.49 , 9.4-9.8 , 9.11-9.14 , 9.20-9.22 , 9.23-9.26 , 9.34-38 , 10.26 , 10.37-10.38 , 12.12 , 12.15 ) .

1.20 . In 1983 there was a significant accumulation of activity towards the end of the year . This was sometimes due to delay in producing the necessary regulations or the late approval of programmes . But whatever the reason , such concentration of activity during a short period can adversely affect the examination and control which can be exercised by the Commission ( paragraphs 7.9-7.10 , 8.11-8.13 ) .

1.21 . The Court has noted inconsistencies in the interpretation by the Commission of the stage in the decision making process at which a financial commitment should be recorded in the accounts ( paragraph 9.4 , 10.5 ) .

1.22 . There is a need for harmonisation and improvement in the accounting for value-added tax ( paragraphs 2.18 , 10.7 , 13.7 ( b ) ) .

Observations in special reports which are relevant for discharge

1.23 . Special reports adopted by the Court since its last annual report which are relevant to the discharge for the financial year 1983 are :

( a ) Special report on the operations of the common organisation of the market in sheepmeat :

This report highlights the fact that the system established in 1981 has , until now , in no way contributed to harmonising the real market conditions and that the increased gap between the guaranteed prices ( references prices ) and market prices has had to be made good by rapidly increasing budgetary expenditure .

( b ) Special report on the coordination of Community aids to third countries :

The use of appropriations for development aid could be improved by a better coordination between the departments of the Commission and between the Commission and other aid donors , in particular the Member States .

( c ) Special report on the management of Community development aid funds by the European Investment Bank ( EIB ) :

( i ) the Court , the Commission and the discharge authority have insufficient information on which to base their appraisal of the management of appropriations which is delegated by the Commission to the EIB for development aid programmes ;

( ii ) the level of income received by the EIB and arising from the management of certain appropriations , should be reviewed .

Refusal of approval by Financial Controllers

1.24 . Under the provisions of the Financial Regulation , proposals for the commitment of expenditure and payment orders are subject to the prior approval of the Financial Controller . Such prior approval is also required for contracts with third parties for supplies and services . A refusal of approval can be overruled ( except where the availability of appropriations is in doubt ) by a reasoned decision of the superior authority of the competent institution . The Financial Regulation provides for such cases to be notified to the Court of Auditors every three months .

1.25 . The Court has been informed that , in relation to 1983 , refusals of approval by Financial Controllers were overruled on 10 occasions by the Commission , on three occasions by the Parliament ( one of these decisions was subsequently modified ) and on two occasions by the Court of Auditors . The other institutions have informed the Court that none of the decisions of the Financial Controller was overruled during 1983 .

CHAPTER 2

Accounting matters

2.0 . TABLE OF CONTENTS Paragraph reference

Introduction 2.1 - 2.3

Summary of main financial information 2.4

Parliament 2.5 - 2.10

Cash deficit 2.5 - 2.7

Advances to be settled and expenditure to be charged 2.8

Monitoring of " sundry accounts receivable " and " sundry accounts payable " 2.9

Imprest accounts 2.10

Council 2.11 - 2.13

Financial Regulation 2.11 - 2.13

Commission 2.14 - 2.24

Reconcilation of bank accounts 2.14 - 2.15

Accounts with Treasuries of Member States 2.16

Recoverable taxes and duties 2.17 - 2.19

Principle of consistency of accounting methods 2.20 - 2.24

Court of Auditors 2.25

Economic and Social Committee 2.26 - 2.30

Financial Regulation 2.26 - 2.28

Bank accounts 2.29 - 2.30

Balance sheet and revenue and expenditure account of the Communities 2.31 - 2.38

Fixed assests 2.32 - 2.33

Stocks 2.34

Adjustment of contra accounts of Community institutions and bodies 2.35 - 2.37

Accounting principles and methods 2.38

Introduction

2.1 This chapter is concerned , on the one hand , with questions relating to the general accounts and , on the other , with the results of the examination of the balance sheets of the Community institutions ( Parliament , Council , Commission , Court of Justice , Court of Auditors , Economic and Social Committee and the Joint Research Centre at Ispra ) , along with the ( consolidated ) balance sheet of the Communities as at 31 December 1983 . The results of the examination of the revenue and expenditure account relating to the implementation of the budget are set out in Chapter 3 to 14 .

2.2 . In principle this chapter only contains observations which have an important bearing on the balance sheet of one of the institutions or which are of general significance ( other observation are communicated directly , in writing , to the departments concerned ) .

2.3 . As part of its work of auditing the balance sheets , the Court carried out spot checks at the cash offices of individual Community institutions and certain Community bodies . The results of these checks were brought to the attention , where necessary , of the appropriate authorities at the institutions and Community bodies concerned so that they could adopt the appropriate corrective measures .

Summary of main financial information

2.4 . Tables 2.1 and 2.2 summarise the balance sheets and revenue and expenditure accounts of the institutions and the ( consolidated ) balance sheet and revenue and expenditure account of the Communities .

Table 2.1 _ Balance sheet of the Community Institutions and bodies and ( consolidate ) balance sheet of the Communities at 31 December 1983

( Mio ECU )

Assets

* * * * * * Economic

* * * * * * * Office for * * Consoli -

* * * * * * and * * Joint

* * * Commis - * Court of * Court of * * Official * * dated

Balance-sheet items * Parliament * Council * * * * Social * * Research

* * * sion * Justice * Auditors * * Publica - * * balance

* * * * * * Com - * * Centre

* * * * * * * tions * * sheet

* * * * * * mittee

Fixed assets :

Tangibles * 20,5 * 8,4 * 47,8 * 3,6 * 0,9 * 2,1 * _ * 288,2 * 371,7

Loans granted * _ * _ * 9 182,5 * _ * _ * _ * _ * _ * 9 182,4

Other fixed assets * 0,4 * 0,5 * 71,1 * 0,1 * _ * 0,2 * _ * _ * 69,2

Inventories * 0,5 * 0,7 * 2,1 * 0,1 * _ * _ * _ * 24,1 * 27,6

Current assets :

Recievable from Member

States * _ * _ * 7,2 * _ * _ * _ * _ * _ * 7,2

Advances to Member States * _ * _ * 126,7 * _ * _ * _ * _ * _ * 126,7

Institutions * 0,4 * 1,4 * 68,6 * _ * _ * _ * _ * _ * 1,5

Community bodies * _ * _ * 94,3 * _ * _ * _ * 5,0 * _ * 44,1

Sundry accounts receivable * 4,6 * 0,2 * 53,4 * _ * 0,1 * 0,1 * 1,1 * 10,0 * 61,9

Expenditure to be charge * 8,4 * _ * 1,7 * _ * _ * _ * _ * 0,1 * 10,2

Cash accounts :

Fixed-term deposit accounts

( less than 12 months ) * _ * _ * 28,0 * _ * _ * _ * 2,0 * 16,8 * 46,9

Securities portfolio * _ * _ * 1,7 * _ * _ * _ * _ * _ * 1,7

Accounts with Treasuries * _ * _ * 1 923,4 * _ * _ * _ * _ * _ * 1 923,4

Current accounts * 41,5 * 4,6 * 1 245,8 * 5,0 * 1,0 * 1,1 * 1,9 * 52,4 * 1 353,4

Imprest accounts * 0,9 * _ * 12,0 * _ * _ * _ * _ * _ * 12,9

Cash in hand * _ * 0,1 * 0,1 * _ * _ * _ * _ * _ * 0,2

Prepaid expenses * _ * 0,1 * 166,6 * _ * _ * _ * _ * _ * 166,6

Total * 77,2 * 16,0 * 13 033,0 * 8,8 * 2,0 * 3,5 * 10,0 * 391,6 * 13 407,6

Commitments not included in

the balance sheet * _ * _ * 7 883,9 * _ * _ * _ * _ * _ * 7 883,9

Parliament

Cash deficit

2.5 . In its special report on the Members' Cash Office ( 1 ) , the Court drew attention to numerous administrative irregularities , including the cashing of two cheques for a total of approximately BFR 4,1 million circumstances during 1981 . The Court informed the President of the European Parliament of these matter in April 1982 . In the conclusion to its report , the Court called upon the Parliament to look into the transactions in question , to recover the missing sums and to establish who was responsible , paying particular attention to an examination of the positions of the accountant , the administrator of the imprest accounts and the Financial Controller in the light of the relevant regulations . After a detailed examination of the situation , the Parliament was obliged to enter the sum of BFR 4,1 million in the accounts under the heading " Expenditure to be charges " as a " cash deficit " and , in addition , to institute disciplinary proceedings against the persons who held the

( Mio ECU )

Liabilities

* * * * * * Economic * Office for * * Consoli -

* * * Commis - * Court of * Court of * and Social * Offical * * dated

Balanced-sheet Items * Parliament * Council * * * * * * Research

* * * sion * Justice * Auditors * Com - * Publica - * * balance

* * * * * * * * Centre

* * * * * * mitte * tions

Fixed capital :

Own capital * 21,0 * 9,2 * 266,1 * 3,7 * 0,9 * 2,1 * _ 312,2 * 615,4

Surplus for 1983 * _ * _ 307,1 * _ * _ * _ * _ * _ * 307,1

Unallocated surplus from

lending and borrowing

operations * _ * _ * 6,3 * _ * _ * _ * _ * _ * 6,3

Long-term debts :

Loans raised * _ * _ * 9 558,6 * _ * _ * _ * _ * _ * 9 558,6

Short-term debts :

Payable to Member States * _ * _ 12,6 * _ * _ * _ * _ * _ * 12,7

Community bodies * _ * _ * 2,2 * _ * _ * _ * 9,4 * 55,2 8,7

Appropriations for the year

to be carried over * _ * _ * 1 706,8 * _ * _ * _ * _ * _ * 1 706,8

Earlier appropriations

to be carried over * _ * _ * 7,5 * _ * _ * _ * _ * * _ * 7,5

Sundry accounts payable * 0,2 * 188,2 * 0,1 * 0,1 * _ * _ * _ * 0,4 * 6,8 * 195,8

Revenue still to be entered * 0,2 * _ * 32,1 * 0,1 * _ * _ * 0,2 * 1,2 * 33,8

Revenue to be recovered * 0,2 * _ * 43,1 * _ * _ * _ * _ * 7,7 * 43,3

Payments in hand * 0,1 * 0,4 * 687,7 * _ * 0,2 * _ * _ * 8,5 * 969,9

Inter-Institutional accounts * 55,7 * 6,2 * _ * 4,9 * 0,8 * 1,4 * _ * _ * _

Accrued expenses * _ * _ * 214,7 * _ * _ * _ * _ * _ * 214,7

Total * 77,2 * 16,0 * 13 033,0 * 8,8 * 2,0 * 3,5 * 10,0 * 391,6 * 13407,6

Commitments not included in

the balance sheet * _ * _ * 7 883,9 * _ * _ * _ * _ * _ * 7 883,9

Table 2.2 _ Revenue and expenditure account of the Community Institutions and bodies and ( consolidated ) revenue and expenditure account of the Communities for 1983

( Mio ECU )

* * * * * * Economic * Office

* * * Commis * Court * Court * * * Consoli -

* * * * * * and * for Official * dated

Sector * Parliament * Council * sion * of * of * Social * Publica -

* * * ( 1 ) * Justice * Auditors * * * account

* * * * * * Committee * tions

A . Actual Revenue :

Own resources * * * 22 982,7 * * * * * 22 982,7

Financial contributions * * 217,7 * * * * * 217,7

Surpluses available * * * 1 299,9 * * * * * 1 299,9

Other revenue * 19,1 * 10,2 * 226,6 * 3,8 * 2,1 * 2,4 * 1,0 * 265,2

Total revenue * 19,1 * 10,2 * 24 726,9 * 3,8 * 2,1 * 2,4 * 1,0 * 24 765,5

B . Expenditure :

Staff * ( a ) * 132,9 * 63,3 * 483,9 * 20,8 * 13,0 * 14,7 * 9,6 * 738,2

* ( b ) * 13,8 * 0,4 * 6,6 * 0,1 * 0,1 * _ * 0,2 * 21,2

* ( c ) * 146,7 * 63,7 * 490,5 * 20,9 * 13,1 * 14,7 * 9,8 759,4

Administration ( a ) * 49,4 * 24,3 * 188,1 * 4,9 * 1,8 * 7,0 * 5,5 * 281,0

* ( b ) * 15,7 * 11,6 * 48,6 * 1,6 * 0,5 * 0,4 * 0,9 * 79,3

* ( c ) * 65,1 * 35,9 * 236,7 * 6,5 * 2,3 * 7,4 * 6,4 * 360,3

Agricultural * ( a ) * * * 15 786,7 * * * * * 15 785,7

market guarantees * ( b ) * * * 0,1 * * * * * 0,1

* ( c ) * * * 15 785,8 * * * * * 15 785,8

Agricultural * ( a ) * * * 513,7 * * * * * 513,7

structures * ( b ) * * * 131,5 * * * * * 131,5

* ( c ) * * * 645,2 * * * * * 645,2

Fisheries policy * ( a ) * * * 31,9 * * * * * 31,9

* ( b ) * * * 12,5 * * * * * 12,5

* ( c ) * * * 44,4 * * * * * 44,4

Regional policy * ( a ) * * * 2 265,5 * * * * * 2 265,5

* ( b ) * * * 115,2 * * * * * 115,2

* ( c ) * * * 2 380,7 * * * * * 2 380,7

Social policy * ( a ) * * * 801,0 * * * * * 801,0

* ( b ) * * * 617,7 * * * * * 617,7

* ( c ) * * * 1 418,7 * * * * * 1 418,7

Research * ( a ) * * * 1 216,2 * * * * * 1 216,2

energy etc . ( 1 ) * ( b ) * * * 166,7 * * * * * 166,7

* ( c ) * * * 1 382,9 * * * * * 1 382,9

Repayments to * ( a ) * * * 950,6 * * * * * 950,6

Member States * ( b ) * * * 99,5 * * * * * 99,5

* ( c ) * * * 1 050,1 * * * * * 1 050,1

Cooperation with

non-member coun - * ( a ) * * * 517,8 * * * * * 517,8

tries * ( b ) * * * 463,1 * * * * * 463,1

* ( c ) * * * 980,9 * * * * * 980,9

Total expenditures * ( a ) * 182,3 * 87,6 * 22 754,4 * * 25,7 * 14,8 * 21,7 * 15,1 * 23 101,6

* ( c ) * 211,8 * 99,6 * 24 415,9 * 27,4 * 15,4 * 22,1 * 24 808,4

C . Outturn for the year 1983 ( A - B ) * -42,9

D . Cancellation of appropriation carried over from previous year * 302,1

Exchange differences for the year 1983 * 48,0

Revenue carmarked to be repaid * -0,1

E . Balance for the year 1983 ( C + D ) * 307,1

Notes : ( a ) Payments against appropriations for the year 1983 .

( b ) Appropriations for the year carried over to 1984 .

( c ) Total ( a + b ) = expenditure charged to the financial year .

( 1 ) Including the Joint Research Centre .

posts of administrator of the imprest accounts and accountant at the time of the irregularities in question .

2.6 . The disciplinary proceedings against these persons were concluded in February 1984 , and in May disciplinary action ( downgrading ) was taken with regard to the the person who held the post of accountant at the time of the irregularities in question : this person has since instituted legal proceedings at the Court of Justice with a view to having this sanction overturned . In addition , Parliament , acting on the recommendation of the Committee on Budgetary Control and its rapporteur , voted in plenary session to give the accountant discharge for the exercise of this duties during the financial year 1981 , but reserved the right to look at the matter again in connection with the discharge for the financial year 1982 .

2.7 . The Court wishes to make the following observations :

( a ) Two years have passed and no valid supporting documents have yet been produced to justify the utilisation of the BFR 4,1 million . Parliament has therefore been obliged since 1982 to enter this sum in the balance sheet as an asset under " Expenditure to be charged " ( 1 ) .

( b ) In accordance with Article 70 of the Financial Regulation , any cash or bank shortage may be recovered :

( i ) from an insurance policy taken out in the name of accounting officers or imprest account administrators ;

( ii ) and / or from a guarantee account into which a special allowance granted to officials holding such appointments is paid .

The Court invites the Parliament to take all necessary measures to ensure that the deficiency in this case is recovered from either or both of these sources before any payment is made to the officials concerned out of the funds standing in their names .

Advances to be settled and expenditure to be charged

2.8 . The Court has already had occasion , in its annual report for the financial year 1982 ( 4 ) , to draw attention to the large amount of advances to be settled and expenditure to be charged , which , at the time , amounted to 7 million ECU . By 31 December 1983 , this sum had risen to more than 12 million ECU . Most of this expenditure was accounted for by the imprest accounts :

( a ) approximately 7 million ECU was accounted for by the imprest account " all members " meetings " ;

( b ) approximately 3,9 million ECU was accounted for the imprest account " mission expenses " .

Although the figures for 1983 are not comparable to those for 1982 ( the closing of the accounts for 1983 took place considerably earlier , so that the expenditure to be charged was artificially inflated ) , it nevertheless appears that the measures for procedural improvement alluded to by Parliament in its answers to the Court's observations on the financial year 1982 need to be implemented urgently .

Monitoring of " sundry accounts receivable "

and " sundry accounts payable "

2.9 . The " sundry accounts receivable " and " sundry accounts payable " accounts contain numerous old sums which have yet to be settled . The progress achieved in clearing some of the accounts must be continued and all the other accounts must now be cleared , as Parliament has undertaken to do .

Imprest accounts

2.10 . Parliament has adopted a series of measures with a view to improving the procedures currently in force . However , in the case of some imprest accounts the adjustments have still not been carried out in the manner and within the deadlines prescribed . In addition , as there has never been a detailed reconcillation between the main accounts and the imprest account for mission expenses , it is not possible to arrive at a judgment regarding the sum entered in the balance sheet ( 3,9 million ECU see paragraph 2.8 ) . The Court recommends that Parliament should continue its efforts .

Council

Financial Regulation

2.11 . Amounts receivable ( some 8 000 ECU ) were entered in the accounts in 1983 as revenue before the sums in question had actually been received , which took place in 1984 . This procedure is clearly an infringement of Article 5 of the Financial Regulation , according to which the revenue of a given financial year must be entered in the accounts on the basis of the amounts collected during that financial year .

2.12 . Contrary to Article 42 of the Financial Regulation , payment orders for cash advances paid to the Economic and Social Committee ( approximately 17,8 million ECU ) are made without the prior approval of the Financial Controller . The payments in question are therefore irregular .

2.13 . The Court pointed out in its annual report for the financial year 1982 ( 1 ) that the travel expenses of the representatives to the Council were reimbursed in cash and without the prior approval of the Financial Controller . This practice , which is at odds with the stipulations of the Financial Regulation , continued in 1983 .

Commission

Reconcillation of bank accounts

2.14 . The Court investigated 43 bank accounts , selected from the Commission's main accounts , and checked the number of reconcillations between the balance of the account as indicated in the general accounts and the balance given in the bank statements . The Court established that , for 1983 and for these 43 bank accounts , there were 161 reconcillations ; this figure includes , on the one hand , the 43 reconcillations carried out by 31 December 1983 and , on the other hand , reconcillations which were carried out simultaneously for several successive months . In the case of 32 of the 43 bank accounts , two reconcillation were in fact carried out during the financial year , the first usually in August and the second in November . This inadequacy in the number of checks explains why the reconcillations for all the bank accounts together included old transactions , for which no supporting documents had been provided , amounting to approximately 79 000 ECU .

2.15 . The Court once again recommends that the Commission should take the appropriate steps to see that adequate checks are applied to banking transactions .

Accounts with Treasuries of Member States

2.16 . The advances under the terms of the EAGGF Guarantee Section for January 1984 , which would normally have been paid in December 1983 , were not paid until January 1984 . If the Commission had paid over these advances in December 1983 , the Community balance sheet would have been altered as follows :

( a ) The balance of the account " Advances to Member States " would have been 1 904 million ECU higher and the balances of the accounts with the Treasuries of the Member States would have been correspondingly lower .

( b ) The balance for the financial year would have fallen by 2,2 million ECU , corresponding to exchange rate losses ( not actually realised ) in connection with the revaluation of these advances at the ECU exchange rate for 31 December .

Recoverable taxes and duties

2.17 . The recovarable taxes and duties ( mainly value added tax _ VAT ) are charged by the Commission to the same budget headings , and usually the same commitments , as the corresponding purchases and services rendered . They are subsequently claimed back from the Member States on the basis of documentation which is kept separate from the main accounts . Sums in course of recovery are generally entered in the accounts at the end of the financial year in a suspense account on the asset and liability sides of the balance sheet . Once they have been refunded , these sums may be re-utilised .

2.18 . This procedures has numerous weaknesses ( 2 ) :

( a ) Monitoring on the basis of documentation which is separate from the main accounts makes it impossible to ensure that the recoverable taxes and duties have been fully refunded . The sum of approximately 152 000 ECU , for example , which largely represented taxes and duties for the last quarter of 1982 , was not included in the refund applications ;

( b ) The balance of recoverable taxes and duties entered in the balance sheet as at 31 December 1983 under a suspense account did not corre -

( i ) the sum of approximately 375 000 ECU was entered twice on the asset side of the balance sheet , under " Recoverable taxes and duties for procurement at Petten " and under the suspense account " Recoverable VAT receipts " :

( ii ) the sum of approximately 1,7 million ECU was not entered in the balance sheet as at 31 December 1983 under the " Recoverable VAT receipts " suspense account because the corresponding applications for refund had not been made .

( c ) Refund applications are sent to the Member States once a year only , which means that more than a year may elapse before certain sums are repaid . These delays are partly caused by the stringent conditions which some Member States impose on refund applications .

2.19 . The Court recommends that the Commission should review all its procedures for the recovery of taxes and duties . One solution , which has already been adopted by certain Community bodies , would consist of ensuring that :

( a ) all invoices involving recoverable taxes and duties are charged to the budget net of tax ;

( b ) VAT and other recoverable taxes and duties are correctly entered under a " Recoverable VAT " account ;

( c ) refund applications are regularly sent to the appropriate authorities in the Member States ;

( d ) refunds are made by the Member States within a reasonable period of time .

Principle of consistency of accounting methods

2.20 . During the process of final settlement of the financial year 1983 for the press and information offices and external delegations , which was carried out in March 1984 , it was established that , in the case of one budgetary heading managed by DG IX , the ceiling for appropriations had been exceeded by approximately 243 000 ECU , which led the Financial Controller , on 3 May 1984 , to refuse to give his approval . The Commission decided , on 23 May 1984 , to overrule this refusal and to charge spending in excess of the budgetary appropriations during 1983 to extra-budgetary accounts ( " advances " accounts ) which were entered in the balance sheet of the Commission as as at 31 December 1983 .

2.21 . Entering advances under extra-budgetary accounts is a perfectly normal procedure . In this particular case , however , it resulted in changes in the accounting methods which were implemented retroactively and which were used exclusively for the purpose of solving the problem of spending in excess of the budgetary appropriations . The Commission cannot treat recoverable expenditure as an advance to be entered in an extra-budgetary account at one moment and expenditure for the financial year at another .

2.22 . In addition , the Commission has also introduced changes in the book-keeping methods used for the NCI and Euratom loans and borrowings :

( a ) In accordance with the Court's recommendations ( 11 ) , the balance of issue expenses as at 31 December 1982 and the issue expenses arising from new borrowings , for which the related loans are granted without loan disbursement premiums , are gradually written off . The issue costs of other borrowings and the corresponding disbursement premiums are included directly in the results for the financial year .

( b ) The pro rata proportion of accrued profits from the redemption of bonds at maturity corresponding to the financial year in question is no longer included in the surplus for the financial year , which is , moreover , more in line with the principle of prudence in accounting methods .

2.23 . Both of these changes of method were implemented retroactively and the effects of the changes are summarised in the note to Table 14.2 . The change of method regarding the Euratom issue costs was not , however , uniformly applied during the 1983 financial year , so that the results for Euratom borrowing and loan operations were understated by about 22 000 ECU .

2.24 . The Court must remind the Commission once again of the importance of the basic principle of consistency of accounting methods . This basic principle in no way excludes the possibility of procedural changes intended to improve the presentation of the financial information , provided that such changes are implemented consistently and in all cases .

Court of Auditors

2.25 . Payments under Article 140 ( amounting to about 11 000 ECU ) were made by the Commission on behalf of the Court . This amount was credited to the Commission's link account by debiting the " Expenditure to be charged " account . This operation , which corresponds to a payment , was carried out in the absence of adequate appropriations . What is more , these payments were entered in the balance sheet as " expenditure to be charged " and not as " expenditure paid in excess of appropriations " , as the Court had previously recommended in a similar case ( 12 ) . This payment in excess of the available appropriations could have been avoided if the necessary funds had been transfered to the account at the right time .

Economic and Social Committee

Financial Regulation

2.26 . Article 5 of the Financial Regulation states that the revenue of a financial year shall be entered in the accounts for the financial year on the basis of the amounts collected during the financial year , whilst the expenditure of a financial year shall be entered in the accounts for that year on the basis of the expenditure for which authorisation reached the Financial Controller not later than 31 December and for which payment was effected by the Accounting Officer not later than the following 15 January . These principles have not always been respected , as the following examples show :

( a ) bank interest ( amounting to approximately 20 000 ECU ) credited with a 31 December 1983 value date was entered in the accounts as revenue for the financial year 1984 ;

( b ) expenditure ( amounting to approximately 80 000 ECU ) was charged to the financial year 1983 although the corresponding payment orders were not received by the Financial Controller until January 1984 .

2.27 . Disbursements for the travel and subsistence expenses of the Members of the Economic and Social Committee ( approximately 2,8 million ECU ) , which are carried out by the cash office ( which is not an imprest account within the meaning of Article 49 of the Financial Regulation ) , are irregular , since the payment orders in question do not receive the prior approval of the Financial Controller . The Economic and Social Committee ought to create an imprest account for this purpose , as laid down in Article 49 of the Financial Regulation .

2.28 . The Court calls upon the Economic and Social Committee to review all the above-mentioned procedures and bring them into line with the relevant regulations .

Bank accounts

2.29 . Certain payments effected between 1 and 15 January 1984 were rightly considered , in accordance with Article 5 of the Financial Regulation , to be items of expenditure for the financial year 1983 . These sums , however , were wrongly deducted from the bank account balances on 31 December 1983 , with the result that the balances of these bank accounts were understated by 77 000 ECU . The same observation was addressed to the Commission in the Court's previous annual report for the financial year 1982 ( 13 ) .

2.30 . Whenever it found itself with a cash surplus during the financial year 1983 , the Economic and Social Committee trans ferred such surpluses to a deposit account . The corresponding cash movements , however , were not entered correctly in the accounts : sums placed in a deposit account were entered under current accounts . The Court must repeat that all transactions carried out during a given financial year must be entered correctly in the accounts for that year .

Balance sheet and revenue and expenditure account of the Communities

2.31 . The balance sheet and revenue and expenditure account of the Communities result from the consolidation of the balance sheets and revenue and expenditure accounts of the Community institutions and bodies set out in Tables 2.1 and 2.2 . The preceding observations therefore all have a bearing on the balance sheet of the Communities . In addition , the Community balance sheet calls for a series of general remarks .

Fixed Assets

2.32 . The fixed assets set out in the various balance sheets are not based on uniform valuation criteria . The value of the fixed assets corresponds in some cases to the insured value and in other cases to the value in the permanent inventory , without any checks having been made to ensure that the permanent inventory reflects reality . The ECU exchange rate used for calculating the value of the fixed assets corresponds in some cases to the historic exchange rate ( the rate at the date of acquisition ) and in others to the ECU exchange rate on 31 December .

2.33 . The Court pointed out in last year's annual report ( 1 ) that the Community institutions and bodies ought to carry out regular checks to ensure that the permanent inventories , in which the fixed assets in the possession of the institutions and bodies are entered , agree with the actual situation regarding fixed assets . This observation still holds , since the institutions and bodies have not yet completed this work .

Stocks

2.34 . As a result of various observations by the Court ( 2 ) , the Community institutions and bodies , with the exception of the Economic and Social Committee , enter the value of their stocks in their balance sheet as at 31 December 1983 . The sums set out in the accounts , however , were established according to widely differing monitoring ( permanent inventory or physical stock-taking at the end of the financial year ) and valuation principles ( acquisition cost or replacement cost ) .

Adjustment of contra accounts of Community institutions and bodies

2.35 . The Court has already drawn attention on several occasions ( 3 ) to the need to reconcile and adjust the contra accounts held by the Community institutions and bodies before the end of the financial year in order to ensure that the balances agree . Reconciliation of this kind makes it possible to correct any anomalies and prepare the consolidated accounts on a satisfactory basis . All Community institutions and bodies must therefore endeavour to forward the relevant supporting documents to the institutions concerned as soon as possible and , in any case , well before the accounts are closed . During the year under review there was , once again , a lack of agreement between the accounts of several Community institutions and bodies .

2.36 . The Community institutions and bodies paid over advances to the Office for Official Publications in order to provide it with the working capital necessary to meet its printing costs . The amount of these advances had to be increased in November 1983 in order to keep up with price rises . These advances must be recorded in the general accounts and must also be entered in the balance sheet . The Court of Justice , however , is the only institution which has accounted for such advances correctly .

2.37 . The Commission's balance sheet contains established claims amounting to 7,6 million ECU which are also entered , for the same amount , in the balance sheet of the Joint Research Centre at Ispra . The balance of a provident fund is also entered in both balance sheets . The Court calls upon the Commission to review and clarify the areas of responsibility of its departments in order to ensure that such duplication of entries is avoided in future .

Accounting principles and methods

2.38 . The preceding observations show that there is a need to lay down uniform accounting principles and methods applicable to all the Community institutions and bodies . In the Court's opinion , it is the responsibility of the Commission , as part of its task of preparing the Community balance sheet , to decide , in consultation with the other institutions , the procedure to adopt in order to establish these principles and methods .

CHAPTER 3

Revenue

3.0 . TABLE OF CONTENTS Paragraph reference

Introduction 3.1 - 3.2

Summary of financial information 3.3 - 3.5

Recording and recovering revenue due 3.6 - 3.9

Fraud and irregularities 3.10 - 3.13

Difficulties in application of VAT own resources system 3.14 - 3.20

Valuation of goods for customs purposes 3.21 - 3.23

Methods of valuation 3.22

Practical cases 3.23

Introduction

3.1 . This chapter relates to own resources and certain miscellaneous revenues of the European Communities included in " Revenue " of the general budget . It does not cover revenues for either the European Development Fund or the European Coal and Steel Community ( which is the subject of a separate report by the Court ) . Nor is it concerned with income from co-responsibility levies , this being treated as negative expenditure ; contributions by certain Member States to European research programmes ; or pension , tax and other deductions from staff remuneration .

3.2 . The revenue under consideration consists , for the most part , of the own resources allocated to the Communities by Council Decision 70/243/ECSC , EEC , Euratom of 21 April 1970 ( 14 ) , that is to say , Common Customs Tariff duties ; agricultural levies , including sugar and isoglucose production and storage levies ; and value added tax ( VAT ) not exceeding 1 % of a uniform Community-wide basis of assessment . Exceptionally , Greece continues to pay a financial contribution in lieu of VAT , based on its gross national product , in accordance with Article 4 ( 2 ) of the aforementioned decision and pending the introduction in that Member State of the common system for this tax .

Summary of financial information

3.3 . The general budget revenue of the Communities for 1982 and 1983 is set out in Table 3.1 . The 1983 original budget was amended during the year by amending and supplementary budgets Nos 1 and 2 ( 15 ) . These reduced the estimates of customs duties and agricultural levies by 4,5 % and 5,3 % respectively because of stagnation of trade and other changes in market situations . They also increased the VAT own resources rate to 0,9980 % to offset these reductions and to meet the net increase in expenditure estimates which was mainly in respect of EAGGF , Guarantee Section . Actual revenue compares closely with the final estimates , though the trend for customs duties and agricultural levies to decrease continues .

3.4 . Article 27 of the Financial Regulation of 21 December 1977 ( 16 ) states that the balance from each financial year shall be entered in an amending budget of the subsequent financial year . Exceptionally , no amending budget was adopted during 1982 . The figure of 1 486,7 million ECU shown in the table as " balances from previous years " therefore consists of 825,2 million ECU being the surplus from 1982 , together with the surplus of 661,5 million ECU from 1981 , as authorised by amending and supplementary budget No 1 for the financial year 1983 ( see also paragraph 1.4 of this report ) .

Table 3.1 _ Revenue 1982 and 1983

( Mio ECU )

* * 1983

* 1982

Type of revenue * actual

* * Original * Final * Actual

* revenue

* * budget * budget * revenue

Customs duties * 6 815,3 * 7 574,5 * 7 234,6 * 6 988,6

Agricultural levies * 1 522,0 * 1 558,5 * 1 475,4 * 1 347,1

Sugar and isoglucose levies * 705,8 * 1 013,2 * 958,6 * 948,0

VAT own resources * 12 000,5 * 11 052,4 * 13 691,0 * 13 699,0

Financial contribution ( GNP ) * 197,0 * 175,1 * 216,9 * 217,7

Sub-total * 21 240,6 * 21 373,7 * 23 576,5 * 23 200,4

Adjustment of 1982 VAT own resources * - 141,9 * p.m . * - 256,6 * - 256,6

Adjustment of 1981 VAT own resources * 60,9 * p.m . * 24,2 * 26,8

Adjustment of 1980 VAT own resources * 4,6 * p.m . * 34,2 * 35,6

Adjustment of 1979 VAT own resources * _ * p.m . * 7,4 * 7,3

Miscellaneous revenue * 263,2 * 184,7 * 188,7 * 265,3

Balances from previous years * _ * p.m . * 1 486,7 * 1 486,7

Total * 21 427,4 * 21 558,4 * 25 061,1 * 24 765,5

3.5 . In paragraph 3.11 of its annual report on the financial year 1982 ( 17 ) , the Court drew attention to the length of time which is taken to finalise accounting for each year's VAT own resources . Table 3.1 details the adjustments carried out in 1983 , for each of the years back to 1979 . Further adjustments will need to be made for the matters referred to in paragraph 3.14 to 3.20 .

Recording and recovering revenue due

3.6 . In paragraph 3.43 of its annual report on the financial year 1980 ( 18 ) , the Court criticised the Commission's system for recording and recovering revenue due . The Commission's Financial Controller has also commented on its inadequacies in his reports drawn up pursuant to Article 24 ( 3 ) of the Financial Regulation . 3.7 . The Commission has accepted the need to improve the system , and in particular to remedy the principal problems which had been identified : failures to issue recovery orders ; lack of identification of due date or amount ; reliance on manual records for outstanding items ; delays in recovery ; differences of opinion between authorising officer , legal service , and DG XIX on establishment of debt .

3.8 . Some progress has been made , thus :

( a ) the Commission's internal instructions were amended concerning the collection of fines imposed by the Commission , particularly those subject to appeal before the Court of Justice , by including the need to obtain guarantees and interest ;

( b ) a special department within DG XIX to pursue the recovery of revenue commenced operations in mid-1983 ; and

( c ) by December 1983 DG XIX had programmed a new computerised system of accounting for revenue , redesigned the recovery order form , and formulated detailed amendments to the Commission's internal operating instructions . 3.9 . The Court notes however that despite the comments in its annual report for the financial year 1980 , neither the revised recovery order form nor the new accounting system was expected to be in use before mid-1984 ; nor had the Commission adopted the amendments to the instructions . The Court regrets the delay in bringing these changes into effect .

Fraud and irregularities

3.10 . Under Council Regulation ( EEC , Euratom , ECSC ) No 2891/77 of 19 December 1977 ( 19 ) , it is the responsibility of each Member State to establish , collect and make available all own resources due in accordance with its own provisions laid down by law , regulation or administrative action . The amounts so established are to be made available to the Community , and the Member States are required to take all requisite measures to this effect , except where , for reasons of force majeure , these amounts have not been collected .

3.11 . As the Court has stated in previous annual reports , the procedures for notification to the Commission of fraud or irregularities committed in respect of own resources are less precise than for those in the EAGGF . Certain Member States have taken the view that , where judicial proceedings have been commenced in respect of fraud or irregularity cases , sums of potential own resources should not be established or made available until the final outcome of the proceedings , which may take several years . Even when notification of cases is given in the reports made by the Member States under Article 17 , paragraph 3 of Regulation No 2891/77 , this does not imply that any accounting record is made either in the Member State or the Commission ; indeed , the details given in the reports are frequently insufficient . The Commission does not have direct responsibility for establishing own resources and the potential own resources that may arise from such cases are therefore not a present recorded in the Community accounts , nor is the total amount under consideration known . Nevertheless , the Court adheres to the view expressed in its study of the financial systems of the European Communities ( 20 ) that the Commission should recognise its responsibilities for ensuring that it receives all that is due , and should be given information sufficient for this purpose .

3.12 . That the delays in establishing own resources can be material is illustrated by the following examples :

( a ) Legal proceedings concerning transactions first questioned in July 1975 had not been completed by end 1983 . About 8,25 million ECU own resources is involved ; none of which is yet included in Community accounts .

( b ) Investigations started in July 1980 led to the amount of 0,5 million ECU being made available to the Communities in January 1984 .

( c ) Transactions occuring in the period from May to October 1980 , were fraudulently described so as to evade payment of levy . The amount of 5,1 million ECU was established and made available to the Commission during 1983 only after legal proceedings had been completed .

( d ) Levies evaded during 1979 and 1980 were the subject of a settlement totalling 3,9 million ECU . Money has been made available to the Communities only as collected from the trader concerned . The first two instalments totalling 2,4 million ECU were credited during 1983 . The Commission has processed a recovery order for a balance of 2,0 million ECU which appears in the Community accounts as an outstanding debtor as at 31 December 1983 .

3.13 . The Court is of the opinion that the accounts and other financial records of the Communities should be as complete and informative as possible , and should contain entries of all known or potential claims so that the settlement of all outstanding cases can be monitored . It also considers that rules should be adopted to require that the full amount of own resources evaded be made available to the Commission timeously .

Difficulties in application of VAT own resources system

3.14 . The Sixth Council VAT Directive of May 1977 ( 21 ) foresaw a transitional period during which existing national laws on turnover taxes would be gradually adapted . It identified as the Community objective the eventual harmonisation of the taxable base so that own resources might be collected in a uniform manner in all the Member States . The Directive authorised during this transitional period many specified variations to the norm , for most of which financial adjustments to the VAT taxable base would be calculated for the purposes of own resources .

3.15 . The Directive gave the Commission the task of advising on certain specific aspects . Article 34 also required it to send to the Council , on 1 January 1982 , a report on the application of the common VAT system , and thereafter every two years . The first such report was made on 14 September 1983 . Inter alia , this commented on several of the fiscal " difficulties " that have been encountered either through the lack of provision in the Directive , or through varied interpretations of its provisions . The report regarded these difficulties as flaws in the system , though it emphasised that otherwise it was operating satisfactorily . It indicated that there had been a measure of progress in identifying these areas of difficulty and the problems therein , resolution of which must be regarded as a long-term exercise .

3.16 . In addition to these responsibilities as set out in the Sixth Directive , the Commission has responsibility under Article 12 of Regulation ( EEC , Euratom , ECSC ) No 2892/77 for ensuring that the data used and the operations undertaken to centralise the assessment basis and to determine the total net VAT revenue collected were correct . For this purpose , it examines each annual summary account forwarded by the Member States under Article 10 of the above-mentioned Regulation . Furthermore , under Article 169 of the EEC Treaty , if the Commission considers that a Member State has failed to fulfil an obligation under this Treaty , it shall deliver a reasoned opinion on the matter to the Member State , and may ultimately bring the matter before the Court of Justice .

3.17 . The Commission's Financial Controller , in his 10th report as at 15 May 1983 to the Commission under Article 24 of the Financial Regulation , noted in respect of VAT own resources that delays in initiating Article 169 proceedings mean that considerable time elapses before Member States regularise their position and this has an impact on own resources . He noted that it was becoming increasingly difficult to recover own resources , and that many cases of own resources were due since 1979 , the first year in which the Commission reserved its position on own resources .

3.18 . The Commission has started formal infringement procedures in respect of 23 of the fiscal " difficulties " mentioned in paragraph 3.15 above . By 31 December 1983 only 11 of these had been the subject of reasoned opinions and five of actions before the Court of Justice .

3.19 . Not all of these difficulties have a direct effect on own resources due . The Court notes , however , that several have been identified as having such an effect , by the Commission in its reports on its controls on the VAT own resources summary accounts for 1979 and subsequent years ; but , to 31 December 1983 , recovery action for any own resources that might be due had not been taken . The Court has questioned the Commission on these matters . In answer , the Commission has stated that :

( a ) it considers its rights to recovery are safeguarded by the inclusion of a reminder in the annual reports on each of the Member States' annual summary accounts that these problems remain unresolved ; and

( b ) it is unable to either determine or estimate the amounts at issue , except in such broad terms that would be unacceptable for accounting purposes . This is because only the Member States have at their disposal the information necessary for such calculations .

3.20 . The Court is concerned that these matters have not been resolved more quickly . It considers that , meantime , the Commission should include in the Communities' financial records a notation of all instances where sums are potentially or possibly due , and should seek to obtain estimates of the amounts involved as soon as possible .

Valuation of goods for customs purposes

3.21 . Council Regulation ( EEC ) No 1224/80 of 28 May 1980 ( 22 ) brought into effect a change agreed during the GATT Tokyo Round of the valuation system of goods for customs purposes . It replaced the notional concept of " normal price " with a more universally accepted code of valuation upon the " transaction " or " invoice " , i.e . on the price actually paid or payable for the goods when sold for export to the country of importation . This has been applied by the customs authorities of the Member States since 1 July 1980 .

Methods of valuation

3.22 . The Regulation foresees the " transaction " method as being that to be applied in most cases . If this is impracticable , it allows five other methods to be considered sequentially . The only statistics on this aspect made available to the Court indicate that , while most dutiable activities were valued on the " transaction " basis , the variation between the Member States over the use of the six methods is considerable ( for example , see Table 3.2 ) . The Court has asked the Commission to comment on these variations , and what might be their financial effect on own resources .

( 1 ) OJ No L 134 , 31 . 5 . 1980 , p . 1 .

Table 3.2 _ Customs valuation in respect of the " transaction " method

* Percentage of total valuations

Member State * for which " transaction " method

* applied

Ireland * 90,0

France * 92,0

United Kingdom * 93,6

Denmark * 95,0

FR of Germany * 95,7

Greece * 96,0

Netherlands * 97,1

Luxembourg * 97,9

Belgium * 98,9

Italy * 99,3

Practical cases

3.23 . The text of the GATT Code Agreement , and its implementation in the Communities by Regulation No 1224/80 , set out the basic principles for applying the new code . Questions of detailed interpretation continue to arise . A Customs Valuation Committee ( CVC ) was established by Articles 17 and 18 of the Regulation . Interpretations recommended by the CVC are not binding on the national customs administrations , but they are widely accepted as guidelines , aiming at uniform treatment . This attitude was confirmed in practice during the Court's audit visits to Member States , where it was found that recommendations of the CVC were , in general , implemented . The Court has examined a number of outstanding matters , for example :

( a ) Goods imported under special customs procedures ( Article 20 ) : The Community directive on warehousing ( Council Directive 69/74/EEC ( 23 ) ) allows Member States of set the time of valuation either as the time of deposit in the warehouse or time of removal from warehouse . This can influence the level of valuation and therefore of own resources , as it is possible that in the intervening period between deposit and removal the value of the goods may have changed ( e.g . ageing of alcohol or similar goods , a middleman awaiting market changes , deterioration of the product due to external influences ) .

( b ) Internal transport costs : Article 15 , paragraph I of the basic Regulation No 1224/80 states :

" The customs value of imported goods shall not include the cost of transport after importation into the customs " territory of the Community provided that such cost is distinguished from the price actually paid or payable for the imported goods " .

In practice , this provision is difficult to operate on a fair basis when documentary evidence of the actual freight charges within the Community is not available to the importer . Thus if the invoice price is calculated cif or " free house " , a supplier may well wish to guard his actual freight cost secret from the purchaser as part of his commercial policy . The internal freight costs in such circumstances can only be estimated at the discretion of the declarant or of the customs' authorities . Pragmatic solutions appear to have been adopted in some Member States which do not necessarily lead to the same result . For example , one State allows a " reasonable " estimate of freight costs in the Community , and another _ particularly with roadborne traffic _ allows only officially fixed minimum flat-rates ;

( c ) In principles , the EEC Common Customs Tariff applies only to physical goods . At present , therefore , " application software " passed in hard form ( cassette or disc ) is valued at its transaction value which would normally include a considerable element for intellectual content and " knowhow " . However , if passed by telecommunication means , or if part of an overall contract for services , neither customs nor VAT is chargeable .

The Court has asked the Commission for its views on these matters , together with its assessment of the potential consequences for own resources .

CHAPTER 4

European Agricultural Guidance and Guarantee Fund , Guarantee Section

4.0 . TABLE OF CONTENTS Paragraph reference

Introduction 4.1 - 4.2

Summary of financial Information 4.3

Comments on the budgetary management 4.4 - 4.35

Presentation of the accounts and balance sheet 4.4 - 4.7

Slight change in the 1983 bedgetary nomenclature 4.4

Nomenclature not adapted to entry of revenue in the accounts 4.5

Development of implementation nomenclature 4.6

Inadequacies in the balance sheet 4.7

Fixing the level of appropriations 4.8 - 4.12

Amending and supplementary budget inadequate and late 4.9

Late transfers of appropriations 4.10

Consequences of delays in the procedures 4.11

Adjustments due to inadequate estimates 4.12

Global implementation of the budget 4.13 - 4.17

Cautions management of the monthly advances 4.13 - 4.14

Uncertainty concerning recoveries in respect of the clearance of the 1976/77 accounts 4.15 - 4.17

Detailed budgetary management 4.18 - 4.22

Disruptions in the entering in the accounts of operations managed by the Member States 4.18 - 4.20

Unsuitability of the EAGGF , Guarantee Section rules for the management of multiannual operations financed from deductions 4.21 - 4.22

Management of cash position 4.23 - 4.26

Differences in cash position between Member States 4.23 - 4.24

Weaknesses in the system of cash management 4.25 - 4.26

Public storage 4.27 - 4.35

Developments in respect of public storage 4.27 - 4.28

Analysis of information on storage 4.29 - 4.30

Incomplete presentation in the accounts of information on public storage 4.31 - 4.35

Observations on the various levels of control 4.36 - 4.50

Control of frauds and irregularities 4.37 - 4.39

No common concept of irregularities 4.37

Commission's activity in 1983 4.38 - 4.39

Controls related to the clearance of the accounts 4.40 - 4.46

Financial effect of the clearance decisions 4.40 - 4.42

Content of clearance decisions 4.43 - 4.46

Checks by the Financial Controller 4.47 - 4.50

Attitude of reservations 4.48

Overruling the refusal of approval by the Financial Controller 4.49 - 4.50

Conclusions 4.51 - 4.65

Unsuitability of the present budgetary and legislative framework for the control of commitments 4.51 - 4.62

Expenditure linked with Council decisions 4.55 - 4.56

Expenditure committed by the Commissions 4.57 - 4.62

Growth of expenditure which had been artificially restrained in 1983 4.63 - 4.65

Introduction

4.1 . In 1983 , the management of the EAGGF , Guarantee Section remained governed by Council Regulation ( EEC ) No 729/70 of 21 April 1970 ( 24 ) which , together with the provisions of the Financial Regulation , forms a legislative framework which is more specific than the rules of the general budget . However , in Commission Regulation ( EEC ) No 3184/83 of 31 October 1983 ( 25 ) an important amendment was introduced which mainly concerns the financing of costs arising from public stocks in intervention .

4.2 . Regulation No 729/70 organises budgetary management at two levels , that of global management and that of detailed management , completed by the clearance of the accounts :

( a ) The global budgetary management is carried out within the framework of the total appropriations of the Guarantee Section , entered under Titles 1 and 2 of the operational part of the budget and under Chapter 40 on the common organisation of the market in fishery products ( 26 ) . Within the limits of these appropriations , the Commission decides upon advances to be granted to the Member States in their national currency , sets aside the corresponding appropriations in ECU by a provisional global commitment and effects the payment by transfer to the account opened for this purpose on behalf of the Commission at the national treasury or other financial institution . The financial resources thus made available to the Member States enable them to ensure that payment is made by the paying agencies of the expenditure financed by the Guarantee Section , in accordance with regulations and management decisions applicable to each common market organisation .

( b ) The detailed budgetary management is based on the statements sent in each month by the Member States , broken down by type of expenditure , according to the budgetary nomenclature . This expenditure , converted into ECU , is then committed by chapter , article and item within two months following receipt of the statements , and is also charged as a payment , in general within the same period . The necessary adjustments between the chapters and the articles are subject , within the Guarantee Section , to a special transfer procedure , provided for in Article 101 o