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ANNUAL REPORT

CONCERNING THE FINANCIAL YEAR 1979 ACCOMPANIED BY THE REPLIES OF THE INSTITUTIONS TRANSMITTED TO THE AUTHORITIES RESPONSIBLE FOR GIVING DISCHARGE AND TO THE OTHER INSTITUTIONS ON 28 NOVEMBER 1980

IN ACCORDANCE WITH ARTICLE 84 OF THE FINANCIAL REGULATION OF 21 DECEMBER 1977

CONTENTS

*PAGE*

INTRODUCTION*5*

PART I*7*

CHAPTER 1 - GENERAL COMMENTS*7*

CHAPTER 2 - ACCOUNTING MATTERS*21*

CHAPTER 3 - REVENUE*31*

CHAPTER 4 - THE EAGGF GUARANTEE SECTION*44*

CHAPTER 5 - THE EAGGF GUIDANCE SECTION*79*

CHAPTER 6 - THE SOCIAL SECTOR*92*

CHAPTER 7 - THE EUROPEAN REGIONAL DEVELOPMENT FUND*112*

CHAPTER 8 - ENERGY , RESEARCH AND INVESTMENT*125*

CHAPTER 9 - COOPERATION WITH DEVELOPING COUNTRIES AND NON-MEMBER STATES ( TITLE 9 OF THE BUDGET ) *141*

CHAPTER 10 - STAFF EXPENDITURE*157*

CHAPTER 11 - OPERATIONAL EXPENDITURE*171*

CHAPTER 12 - SUMMARIES OF REPORTS ON EXTERNAL BODIES*176*

PART II THE EUROPEAN DEVELOPMENT FUNDS*181*

ANNEX I STATISTICS*209*

ANNEX II REPLIES OF THE EUROPEAN PARLIAMENT*245*

ANNEX III REPLIES OF THE COUNCIL*247*

ANNEX IV REPLIES OF THE COMMISSION*248*

ANNEX V REPLIES OF THE COURT OF JUSTICE*313*

ANNEX VI REPLIES OF THE ECONOMIC AND SOCIAL COMMITTEE*314*

INTRODUCTION

1 . THIS IS THE THIRD ANNUAL REPORT OF THE EUROPEAN COURT OF AUDITORS . THE REPORT COVERS THE 1979 ACCOUNTS ( 1 ) FOR ALL BODIES FOR WHICH THE COURT IS RESPONSIBLE FOR AUDIT EXCEPT FOR THE FINANCIAL OPERATIONS OF THE ECSC , ON WHICH THE COURT REPORTS SEPARATELY . SEPARATE REPORTS ARE ALSO ISSUED BY THE COURT TO THE RELEVANT DISCHARGE AUTHORITIES ON THE ACCOUNTS OF JET ( THE JOINT EUROPEAN TORUS ) , THE EUROPEAN CENTRE FOR THE DEVELOPMENT OF VOCATIONAL TRAINING ( BERLIN ) AND THE EUROPEAN FOUNDATION FOR THE IMPROVEMENT OF LIVING AND WORKING CONDITIONS ( DUBLIN ) THE EUROPEAN SCHOOLS AND THE EURATOM SUPPLY AGENCY . SUMMARIES OF THE COMMENTS MADE BY THE COURT IN ALL THESE REPORTS OTHER THAN JET ARE , HOWEVER , INCLUDED IN CHAPTER 12 OF THIS REPORT . A SUMMARY OF THE JET REPORT IS INCLUDED IN CHAPTER 8 .

PRESENTATION OF THE REPORT

2 . THE ANNUAL REPORT IS PRESENTED IN TWO PARTS . PART I INCLUDES COMMENTS ARISING FROM THE ACCOUNTS OF THE GENERAL BUDGET OF THE COMMUNITIES , INCLUDING THE BUDGETS OF THE EUROPEAN PARLIAMENT , THE COUNCIL , THE COMMISSION , THE COURT OF JUSTICE , THE ECONOMIC AND SOCIAL COMMITTEE , THE OFFICE FOR OFFICIAL PUBLICATIONS AND THE ADMINISTRATIVE BUDGET OF THE ECSC .

3 . PART II OF THE REPORT CONCERNS THE FOUR EUROPEAN DEVELOPMENT FUNDS . THESE FUNDS WHICH PROVIDE AID TO DEVELOPING COUNTRIES ARE MANAGED BY THE COMMISSION BUT DO NOT FORM PART OF THE GENERAL BUDGET OF THE COMMUNITIES .

4 . CHAPTER 1 OF THE REPORT INCLUDES GENERAL COMMENTS ARISING FROM THE COURT'S WORK AND A SUMMARY OF BUDGETARY AND ACCOUNTING PROBLEMS WHICH HAVE ARISEN IN SEVERAL DIFFERENT SECTORS OF THE BUDGET . FURTHER DETAILS OF THESE PROBLEMS ARE CONTAINED IN THE INDIVIDUAL CHAPTERS DEALING WITH SPECIFIC AREAS OF THE BUDGET .

5 . A STATISTICAL SURVEY OF FINANCIAL INFORMATION RELATING TO THE GENERAL BUDGET OF THE COMMUNITIES AND TO THE EUROPEAN DEVELOPMENT FUNDS IS PRESENTED IN ANNEX I TO THE REPORT .

PRODUCTION OF THE ANNUAL REPORT

6 . THE ANNUAL REPORT OF THE COURT OF AUDITORS IS PRODUCED IN ACCORDANCE WITH ARTICLE 206A OF THE TREATY ESTABLISHING THE EUROPEAN ECONOMIC COMMUNITY AND ARTICLE 83 OF THE FINANCIAL REGULATION ( 2 ) .

7 . IN CONFORMITY WITH THE FINANCIAL REGULATION , THE COURT'S COMMENTS WERE SENT TO THE INSTITUTIONS ON 15 JULY 1980 . THE COMMENTS INCLUDED IN THE WHOLE OF PARTS I AND II WERE SENT TO THE COMMISSION . THOSE INCLUDED IN CHAPTERS 1 , 10 AND 11 OF PARTS I WERE ALSO SENT TO THE EUROPEAN PARLIAMENT , THE COUNCIL , THE COURT OF JUSTICE AND THE ECONOMIC AND SOCIAL COMMITTEE .

8 . THE FINAL TEXT OF THIS REPORT WAS DRAWN UP AFTER THE RECEIPT OF THE REPLIES FROM THE INSTITUTIONS . THESE REPLIES ARE PUBLISHED IN ANNEXES II TO VI . ANY COMMENTS ON THEN MADE BY THE COURT ARE PRINTED IN ITALICS AT THE END OF THE PARAGRAPH OF THE REPORT TO WHICH THEY RELATE .

REMARK OF THE COURT ON THE COMMENT OF THE COMMISSION ON PARAGRAPH 6

THE COMMISSION STILL APPEARS TO BE UNABLE TO ACCEPT THE DIFFERENCE BETWEEN , ON THE ONE HAND , THE OBSERVATIONS OF THE COURT SENT TO THE INSTITUTIONS ON 15 JULY EACH YEAR WHICH ARE DESIGNED TO ELICIT REPLIES AND , ON THE OTHER HAND , THE REPORT OF THE COURT WHICH IS PUBLISHED IN THE OFFICIAL JOURNAL AND IS DRAWN UP IN THE LIGHT OF THOSE REPLIES .

( 1 ) 1978 ACCOUNTS FOR THE EUROPEAN SCHOOLS .

( 2 ) OJ NO L 356 , 31 . 12 . 1977 , P . 20 .

PART I

CHAPTER 1 - GENERAL COMMENTS

SUMMARY OF CONTENTS*PARAGRAPH REFERENCE*

SUMMARY OF PRINCIPAL COMMENTS*1.0*

PRODUCTION OF ACCOUNTS : **

THE INCOME AND EXPENDITURE ACCOUNT OF THE GENERAL BUDGET FOR THE YEAR ENDED 31 DECEMBER 1979*1.1 TO 1.5*

THE ACCOUNTS OF THE FOUR EUROPEAN DEVELOPMENT FUNDS FOR THE YEAR ENDED 31 DECEMBER 1979*1.6*

IMPLEMENTATION OF THE 1979 BUDGET*1.8 TO 1.12*

UNDER-UTILIZATION OF APPROPRIATIONS*1.13 TO 1.25*

APPROPRIATIONS CARRIED FORWARD*1.26 AND 1.27*

ACCOUNTING PROBLEMS IN THE EAGGF GUARANTEE SECTION*1.28 TO 1.31*

BALANCE OF THE YEAR*1.32*

LEGAL DEVELOPMENTS*1.33 AND 1.34*

INTEREST RATE SUBSIDIES*1.35*

MISCELLANEOUS PROBLEMS*1.36 TO 1.40*

ACCOUNTING POLICIES*1.41 TO 1.48*

REPORTS AND OPINIONS PRODUCED BY THE COURT DURING THE YEAR*1.49*

SUMMARY OF PRINCIPAL COMMENTS

*PARAGRAPH REFERENCE*

1.0 . THE PRINCIPAL COMMENTS INCLUDED IN THIS CHAPTER ARE : **

( A ) PROVISIONAL ACCOUNTS ONLY COULD BE PRODUCED BY 1 JUNE FOR THE ACCOUNTS OF THE GENERAL BUDGET AND FOR THE FOUR EUROPEAN DEVELOPMENT FUNDS . *1.2 TO 1.7*

( B ) APPROPRIATIONS AMOUNTING TO 30 MEUA WERE TRANSFERRED FROM THE 1978 TO THE 1979 BUDGET IN EXCESS OF THE FINAL APPROPRIATIONS APPROVED BY THE BUDGETARY AUTHORITIES . *1.10 AND 1.11*

( C ) THE BUDGET FOR DIFFERENTIATED PAYMENT APPROPRIATIONS WAS SIGNIFICANTLY IN EXCESS OF THE AMOUNT WHICH COULD BE UTILIZED IN THE YEAR . 1 095 MEUA CARRIED FORWARD TO 1980 WAS THEREFORE FINANCED OUT OF REVENUE FOR 1979 , ALTHOUGH IT WILL NOT BE PAID UNTIL 1980 . *1.18 TO 1.22*

( D ) UNAUTHORIZED CARRY-OVERS WERE INCLUDED IN THE ACCOUNTS OF THE EUROPEAN PARLIAMENT . *1.27*

( E ) THE BALANCE OF THE YEAR IS MATERIALLY MIS-STATED . *1.32*

( F ) SIGNIFICANT DELAYS ARE STILL EXPERIENCED IN CLOSURE OF ACCOUNTS . *1.36*

( G ) OMISSIONS FROM ACCOUNTING REGULATIONS . *1.37 TO 1.40*

PRODUCTION OF ACCOUNTS

I

THE INCOME AND EXPENDITURE ACCOUNT OF THE GENERAL BUDGET FOR THE YEAR ENDED 31 DECEMBER 1979

II

THE ACCOUNTS OF THE FOUR EUROPEAN DEVELOPMENT FUNDS FOR THE YEAR ENDED 31 DECEMBER 1979

1.1 . A STATEMENT ENTITLED " THE INCOME AND EXPENDITURE ACCOUNT OF THE GENERAL BUDGET FOR THE YEAR ENDED 31 DECEMBER 1979 " IS SHOWN ON PAGE 288 OF VOLUME II OF THE " REVENUE AND EXPENDITURE ACCOUNTS AND BALANCE SHEETS RELATING TO THE IMPLEMENTATION OF THE BUDGET FOR THE FINANCIAL YEAR 1979 " , DOCUMENT COM(80 ) 233 , PRODUCED BY THE COMMISSION ON 1 JUNE 1980 . THESE ACCOUNTS WERE AMENDED IN DOCUMENT COM(80 ) 565 FR , " ADJUSTMENTS TO THE REVENUE AND EXPENDITURE ACCOUNTS AND BALANCE SHEETS 1979 " , WHICH WAS SENT TO THE COURT BY THE COMMISSION ON 20 OCTOBER 1980 . THE AMENDED ACCOUNTS SHOW THE BALANCE OF THE YEAR AS 455 906 430,98 EUA , BEING A SURPLUS TO BE CARRIED FORWARD TO 1980 . ALL COMMENTS ON THE GENERAL BUDGET WHICH ARE INCLUDED IN THIS REPORT ARE RELATED TO THE FINANCIAL INFORMATION PRESENTED IN THE AMENDED ACCOUNTS AS IDENTIFIED ABOVE . A RECONCILIATION OF THE ORIGINAL AND THE AMENDED ACCOUNTS IS SHOWN IN PARAGRAPH 1.4 .

PROVISIONAL ACCOUNTS PRODUCED ON 1 JUNE 1980

1.2 . IN ACCORDANCE WITH ARTICLE 6 ( 3 ) OF THE FINANCIAL REGULATION ( 1 ) THE COMMISSION MUST SUBMIT TO THE COUNCIL AND FORWARD TO THE EUROPEAN PARLIAMENT BY 21 APRIL THE REQUESTS FOR NON-AUTOMATIC CARRY-OVER OF APPROPRIATIONS TO THE FOLLOWING FINANCIAL YEAR WHICH HAVE BEEN DULY MADE BY ALL THE INSTITUTIONS . ON RECEIVING THE REQUEST THE COUNCIL MUST CONSULT THE EUROPEAN PARLIAMENT , WHICH NORMALLY GIVES ITS OPINION WITHIN FOUR WEEKS OF RECEIVING THE COUNCIL'S REQUEST . UNLESS THE COUNCIL DECIDES OTHERWISE WITHIN SIX WEEKS FROM RECEIPT OF THE REQUEST TO CARRY OVER APPROPRIATIONS , THE CARRY-OVER IS DEEMED TO HAVE BEEN APPROVED .

1.3 . THE FINAL DATE ON WHICH THE COUNCIL MAY EXPRESS A NEGATIVE OPINION ON REQUESTS FOR CARRY-OVERS IS THEREFORE NORMALLY 2 JUNE , ONE DAY LATER THAN THE DATE ON WHICH THE COMMISSION IS REQUIRED TO DRAW UP THE ACCOUNTS OF THE GENERAL BUDGET ( 2 ) . WHEN PREPARING THE ACCOUNTS THE COMMISSION INCLUDES AS EXPENDITURE ALL REQUESTS FOR NON-AUTOMATIC CARRY-OVERS WHICH IT HAS SUBMITTED ON BEHALF OF THE INSTITUTIONS TO THE COUNCIL AND IT IS THEN NECESSARY TO AMEND THE ACCOUNTS SUBSEQUENTLY TO DELETE ANY CARRY-OVERS FOR WHICH THE COUNCIL WITHHOLDS APPROVAL .

1.4 . WHEN DRAWING UP THE 1979 ACCOUNTS AT 1 JUNE 1980 , THE COMMISSION WAS UNABLE TO MAKE ADJUSTMENTS FOR TWO REQUESTS FOR CARRY-OVERS AMOUNTING TO 2 458 600 EUA , WHICH WERE REJECTED BY THE COUNCIL :

TABLE 1

SECTION III : COMMISSION : **

CHAPTER 25 , ITEM 2550 : **

CONFERENCES , CONGRESSES AND MEETINGS ORGANIZED BY THE INSTITUTION*58 600 EUA*

CHAPTER 100 , ARTICLE 940 : **

EXPENDITURE RESULTING FROM THE AGREEMENT BETWEEN THE EEC AND UNRWA*2 400 000 EUA*

*2 458 600 EUA*

IN THE ACCOUNTS PRODUCED ON 1 JUNE 1980 APPROPRIATIONS CARRIED FORWARD TO 1980 WERE THEREFORE OVERSTATED BY 2 458 600 EUA AND THE SURPLUS FOR THE YEAR WAS UNDERSTATED BY THE SAME AMOUNT . AN ADJUSTMENT WAS MADE TO CORRECT THIS ITEM IN THE AMENDED VERSION OF THE ACCOUNTS SENT TO THE COURT ON 20 OCTOBER 1980 :

BALANCE OF THE YEAR ( SURPLUS ) REPORTED IN THE ACCOUNTS PRODUCED ON 1 JUNE*453 447 830,98 EUA*

ADD : APPROPRIATION CARRIED FORWARD FOR WHICH THE COUNCIL EXPRESSED A NEGATIVE OPINION*2 458 600,00 EUA*

AMENDED BALANCE OF THE YEAR ( SURPLUS ) *455 906 430,98 EUA*

1.5 . WHEN PRESENTING THE ACCOUNTS ON 1 JUNE 1980 THE COMMISSION STATED THAT IN THE ABSENCE OF A DECISION BY THE BUDGETARY AUTHORITY AT THE TIME OF PREPARING THE 1979 ACCOUNTS THE FIGURES GIVEN FOR NON-AUTOMATIC CARRY-OVERS OF APPROPRIATIONS WERE PROVISIONAL AND THAT A CORRIGENDUM TO THE ACCOUNTS WOULD BE ISSUED SUBSEQUENTLY . THE COURT RECOMMENDS THAT CHANGES SHOULD BE MADE IN THE BUDGETARY TIMETABLE TO ENSURE THAT DECISIONS TAKEN BY THE COUNCIL ON APPROPRIATIONS TO BE CARRIED OVER TO THE NEXT FINANCIAL YEAR CAN BE INCORPORATED IN THE ACCOUNTS PRODUCED BY THE COMMISSION ON THE DUE DATE .

1.6 . IN ACCORDANCE WITH ARTICLE 64 OF THE FINANCIAL REGULATION GOVERNING THE EUROPEAN DEVELOPMENT FUNDS , THE ACCOUNTS FOR EACH YEAR ARE TO BE PRESENTED BY THE FOLLOWING 31 MARCH . AT 1 JUNE 1980 THE COMMISSION HAD DRAWN UP ONLY A PROVISIONAL SET OF ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 1979 FOR THESE FOUR FUNDS .

1.7 . THE COURT FINDS IT UNSATISFACTORY THAT BOTH THE ACCOUNTS FOR THE GENERAL BUDGET AND FOR THE EUROPEAN DEVELOPMENT FUNDS WERE AVAILABLE IN PROVISIONAL FORM ONLY BY 15 JULY , THE DATE ON WHICH THE COURT IS REQUIRED TO SUBMIT ITS COMMENTS TO THE INSTITUTIONS . SINCE THE DECISION OF THE BUDGET AUTHORITY IS AWAITED FOR APPROVAL OF THE CARRY-OVERS OF THE PARLIAMENT , WHICH ARE REFERRED TO IN PARAGRAPH 1.27 , THE COMMISSION NOTED IN THE AMENDED VERSION OF THE ACCOUNTS THAT THESE CARRY-OVERS HAVE ONLY BEEN ENTERED ON A PROVISIONAL BASIS . AT THE TIME OF DRAWING UP THIS REPORT , THE ACCOUNTS HAVE THEREFORE NOT BEEN FINALIZED .

IMPLEMENTATION OF THE 1979 BUDGET

FINAL APPROPRIATIONS

1.8 . THE TOTAL OF APPROPRIATIONS AUTHORIZED TO BE CHARGED TO THE BUDGET ACCOUNTS IN 1979 AMOUNTED TO 14 488 MEUA COMPARED WITH 14 447 AUTHORIZED IN THE AMENDING AND SUPPLEMENTARY BUDGET NO 3 , AS SHOWN IN THE FOLLOWING TABLE :

TABLE 2 - FINAL APPROPRIATIONS 1979

* ( MEUA ) *

*AMENDING BUDGET NO 3*ADDITIONAL APPROPRIATIONS*FINAL APPROPRIATIONS*

COMMISSION*14 168*41*14 209*

PARLIAMENT*144* - *144*

COUNCIL*103* - *103*

COURT OF JUSTICE*19* - *19*

COURT OF AUDITORS*13* - *13*

*14 447*41*14 488*

1.9 . THE TOTAL ADDITIONAL APPROPRIATIONS AMOUNTING TO 41 MEUA SHOWN IN TABLE 2 ARE MADE UP OF 11 MEUA CORRESPONDING TO INCOME FROM WORK DONE FOR THIRD PARTIES ( 3 ) AND 30 MEUA TRANSFERRED FROM 1978 APPROPRIATIONS CARRIED FORWARD .

TRANSFER OF APPROPRIATIONS FROM THE 1978 BUDGET TO THE 1979 BUDGET

1.10 . THE AMOUNT OF 30 MEUA WAS TRANSFERRED FROM DIFFERENTIATED PAYMENT APPROPRIATIONS CARRIED FORWARD FROM THE 1978 BUDGET ( CHAPTER 96 : COOPERATION WITH NON-MEMBER STATES ) AND ADDED TO THE NON-DIFFERENTIATED APPROPRIATIONS OF THE 1979

TABLE 3 - UTILIZATION OF 1979 BUDGET APPROPRIATIONS

A . AMOUNTS CHARGED TO THE INCOME AND EXPENDITURE ACCOUNT FROM FINAL APPROPRIATIONS

( MEUA )

*FINAL APPROPRIATIONS*PAYMENTS MADE*PAYMENTS AS % OF APPROPRIATIONS*APPROPRIATIONS CARRIED FORWARD TO 1980*TOTAL CHARGED TO INCOME AND EXPENDITURE ACCOUNT 1979*TOTAL CHARGED AS % OF FINAL APPROPRIATIONS*

COMMISSION*******

NON-DIFFERENTIATED APPROPRIATIONS : *12 368*11 996*97,0*329*12 325*99,6*

DIFFERENTIATED APPROPRIATIONS : *******

PAYMENT APPROPRIATIONS*1 841*726*39,4*1 095*1 821*98,9*

*14 209*12 722**1 424*14 146*99,5*

NON-DIFFERENTIATED APPROPRIATIONS : *******

PARLIAMENT*144*98*68,0*17*115*79,9*

COUNCIL ( INCLUDING THE ECONOMIC AND SOCIAL COMMITTEE ) *103*80*77,7*8*88*85,4*

COURT OF JUSTICE*19*16*84,2*1*17*89,5*

COURT OF AUDITORS*13*9*69,2*1*10*76,9*

*14 488*12 925**1 451*14 376**

B . DIFFERENTIATED APPROPRIATIONS : COMMITMENTS

*FINAL APPROPRIATIONS*COMMITMENTS ENTERED INTO*COMMITMENTS AS % OF APPROPRIATIONS*APPROPRIATIONS CANCELLED*APPROPRIATIONS CARRIED FORWARD*

COMMISSION*3 682*2 897*78,7*154*631*

UNDER-UTILIZATION OF APPROPRIATIONS

1.13 . UNDER-UTILIZATION OF APPROPRIATIONS IS A SERIOUS MATTER SINCE IT CALLS INTO QUESTION BOTH THE BASIS ON WHICH BUDGETARY ESTIMATES HAVE BEEN PREPARED AND THE FINANCIAL MANAGEMENT OF THE BUDGET . UNDER-UTILIZATION OFTEN ALSO INDICATES SLOW IMPLEMENTATION OF COMMUNITY POLICIES AS AUTHORIZED IN THE BUDGET . TABLES 3 , 4 , 5 , AND 6 ILLUSTRATE THE UTILIZATION OF APPROPRIATIONS BY ALL THE INSTITUTIONS AS SHOWN IN THE ACCOUNTS PRODUCED BY THE COMMISSION ON 1 JUNE 1980 ( 4 ) AS AMENDED BY THE ADJUSTMENTS SENT TO THE COURT IN OCTOBER 1980 ( 5 ) . FURTHER DETAILED COMMENTS ON THE UTILIZATION OF APPROPRIATIONS IN EACH SECTION OF THE GENERAL BUDGET ARE INCLUDED IN THE RELEVANT CHAPTERS OF THIS REPORT .

1.14 . IT IS INEVITABLE THAT THE FULL AMOUNT OF APPROPRIATIONS ENTERED IN THE BUDGET WILL GENERALLY NOT BE UTILIZED . A REDUCTION BELOW THE ESTIMATED AMOUNT OF APPROPRIATIONS REQUIRED FOR A PARTICULAR POLICY MAY BE WELCOMED IN CIRCUMSTANCES WHERE MORE ECONOMICAL MEANS OF ACHIEVING PARTICULAR OBJECTIVES HAVE BEEN USED . HOWEVER IN MANY CASES THE UNDER-UTILIZATION OF APPROPRIATIONS IN THE GENERAL BUDGET DEMONSTRATES THAT ORIGINAL ESTIMATES OF EXPENDITURE WERE SUBSTANTIALLY INACCURATE AND SUGGESTS THAT THE IMPACT OF COMMUNITY POLICIES WHICH HAVE BEEN AUTHORIZED BY THE BUDGETARY AUTHORITIES WAS LESS THAN HAD BEEN INTENDED .

1.15 . ONE CONSEQUENCE OF SIGNIFICANT UNDER-UTILIZATION OF APPROPRIATIONS IN THE GENERAL BUDGET IS THAT BUDGETARY RESOURCES ARE ALLOCATED TO SECTORS IN WHICH THEY ARE NOT FULLY UTILIZED , WHILST OTHER SECTORS MAY BE SHORT OF FUNDS . A FURTHER EFFECT IS THAT COMMUNITY REVENUE HAS BEEN PROVIDED IN 1979 AT A LEVEL WELL IN EXCESS OF THAT NECESSARY TO COVER THE PAYMENTS ACTUALLY MADE IN THE YEAR .

COMMISSION

1.16 . THE UTILIZATION OF APPROPRIATIONS FROM THE 1979 BUDGET IS SHOWN IN TABLES 4 AND 5 . BUDGET ( CHAPTER 95 : EXCEPTIONAL MEASURES TO ASSIST DEVELOPING COUNTRIES AND NON-MEMBER STATES ) . ALTHOUGH TRANSFERS BETWEEN TITLES AND CHAPTERS OF THE BUDGET MAY BE MADE UNDER ARTICLE 21 OF THE FINANCIAL REGULATION ( 6 ) THEY DO NOT CONSTITUTE AN INCREASE IN THE OVERALL TOTAL OF THE BUDGET . THE TRANSFER OF 30 MEUA WHICH WAS MADE FROM THE BUDGET APPROPRIATIONS OF 1978 TO THE FINAL APPROPRIATIONS FOR 1979 , HOWEVER , HAD THE EFFECT OF INCREASING THE TOTAL OF EXPENDITURE AUTHORIZED IN THE 1979 BUDGET BY 30 MEUA ABOVE THE TOTAL SPECIFIED IN THE BUDGET AS FINALLY ADOPTED .

1.11 . IN THE OPINION OF THE COURT THE TRANSFER OF APPROPRIATIONS CARRIED FORWARD FROM THE 1978 BUDGET TO BE ADDED TO THE 1979 BUDGET CONFLICTS WITH THE PRINCIPLE OF ANNUALITY AND RESULTS IN THE LIMIT OF TOTAL EXPENDITURE AUTHORIZED IN THE 1979 BUDGET BEING EXCEEDED . THE GENERAL PRINCIPLE OF MAKING SUCH TRANSFERS IS ALSO CONTRARY TO THE PROVISIONS OF ARTICLE 6.2 ( B ) OF THE FINANCIAL REGULATION ( 7 ) IN ACCORDANCE WITH WHICH NON-UTILIZED PAYMENT APPROPRIATIONS MAY BE CARRIED OVER AUTOMATICALLY TO THE NEXT FINANCIAL YEAR ONLY . THE TRANSFER OF APPROPRIATIONS FROM ONE BUDGET YEAR TO THE NEXT HAS THE EFFECT OF PROLONGING THE VALIDITY OF THE APPROPRIATION FOR A FURTHER YEAR . THE COURT RECOMMENDS THAT THE TRANSFER OF APPROPRIATIONS TO SUBSEQUENT BUDGET YEARS SHOULD BE PROHIBITED .

REMARK OF THE COURT ON THE REPLY OF THE COMMISSION TO PARAGRAPH 1.11

AFTER STUDYING THE COMMISSION'S REPLY THE COURT ACCEPTS THAT , IN THIS SPECIFIC INSTANCE , THE DIFFICULTY TO WHICH IT DREW ATTENTION WAS AVERTED . HOWEVER , IT REGARDS THE GENERAL PRACTICE AS SOMETHING WHICH SHOULD BE AVOIDED IN THE FUTURE .

UTILIZATION OF FINAL APPROPRIATIONS 1979

1.12 . TOTAL APPROPRIATIONS AUTHORIZED IN THE 1979 BUDGET INCLUDED COMMITMENTS IN RESPECT OF DIFFERENTIATED APPROPRIATIONS AMOUNTING TO 3 682 MEUA .

DIFFERENTIATED APPROPRIATIONS ARE USED FOR THE IMPLEMENTATION OF MULTIANNUAL ACTIVITIES AND CONSIST OF COMMITMENT APPROPRIATIONS AND PAYMENT APPROPRIATIONS . COMMITMENT APPROPRIATIONS COVER , FOR THE CURRENT FINANCIAL YEAR , THE TOTAL COST OF THE LEGAL OBLIGATIONS ENTERED INTO FOR ACTIVITIES WHOSE IMPLEMENTATION EXTENDS OVER MORE THAN ONE FINANCIAL YEAR . PAYMENT APPROPRIATIONS COVER , UP TO THE LIMIT OF THE AMOUNT ENTERED IN THE BUDGET , EXPENDITURE ARISING FROM COMMITMENTS ENTERED INTO IN THE CURRENT FINANCIAL YEARS AND/OR PRECEDING FINANCIAL YEARS ( 8 ) . ONLY THE SUM OF THE AMOUNT PAID IN THE YEAR PLUS THE AMOUNT CARRIED FORWARD IS CHARGED TO THE INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR .

THE UTILIZATION OF BOTH DIFFERENTIATED AND NON-DIFFERENTIATED APPROPRIATIONS OF THE 1979 BUDGET IS SHOWN IN TABLE 3 .

TABLE 4 - UTILIZATION OF FINAL APPROPRIATIONS FOR 1979 - AMOUNTS CHARGED TO THE INCOME AND EXPENDITURE ACCOUNT 1979 : SEE O.J .

TABLE 5 - UTILIZATION OF FINAL APPROPRIATIONS FOR 1979

COMMISSION : DIFFERENTIATED COMMITMENT APPROPRIATIONS

( MEUA )

*FINAL APPROPRIATIONS*COMMITMENTS ENTERED INTO*APPROPRIATIONS CANCELLED*APPROPRIATIONS CARRIED FORWARD*

**AMOUNT*COMMITMENT AS % OF APPROPRIATIONS***

TITLE 3 : RESEARCH , ENERGY , ETC.*512*334*65,2*45*133*

TITLE 5 : ******

SOCIAL FUND ( CHAPTERS 50-53 ) *824*775*94,1* - *49*

REGIONAL FUND ( CHAPTERS 55 AND 56 ) *1 010*962*95,3* - *48*

TITLE 8 : ******

EAGGF GUIDANCE ( CHAPTERS 80-86 ) *666*460*69,1*23*183*

SPECIFIC MEASURES IN THE FISHERIES SECTOR ( CHAPTER 87 ) *56*22*39,3* - *34*

TITLE 9 : AID*576*344*59,7*48*184*

TITLE 10 : OTHER*38* - *0,0*38* - *

*3 682*2 897*78,7*154*631*

TABLE 6 - UTILIZATION OF FINAL APPROPRIATIONS FOR 1979 - AMOUNTS CHARGED TO THE INCOME AND EXPENDITURE ACCOUNT 1979 : SEE O.J .

1.17 . TABLES 3 AND 4 SHOW THAT ALTHOUGH 99,5 % OF THE TOTAL APPROPRIATIONS AVAILABLE WERE CHARGED TO THE INCOME AND EXPENDITURE ACCOUNT OF THE COMMISSION IN 1979 , ONLY 39,4 % OUT OF DIFFERENTIATED PAYMENT APPROPRIATIONS AMOUNTING TO 1 841 MEUA WAS ACTUALLY PAID DURING THE YEAR . 1 095 MEUA WAS SURPLUS TO REQUIREMENTS AND WAS CARRIED FORWARD TO 1980 .

DIFFERENTIATED APPROPRIATIONS

1.18 . THE INTENTION OF THE PROCEDURES DESCRIBED IN PARAGRAPH 1.12 IS THAT DIFFERENTIATED APPROPRIATIONS ENTERED IN THE BUDGET FOR THE YEAR CAN BE REDUCED TO A MINIMUM NECESSARY TO MEET PAYMENTS FALLING DUE , WITHOUT RESTRICTING THE COMMISSION'S ABILITY TO COMMIT EXPENDITURE ON MULTIANNUAL PROJECTS UP TO THE LEVEL AUTHORIZED IN THE BUDGET . THE BUDGET FOR PAYMENT APPROPRIATIONS THEREFORE CONSISTS SIMPLY OF A FORWARD ESTIMATE OF PAYMENTS TO BE MADE DURING THE YEAR UNDER A PROGRAMME OF MULTIANNUAL PROJECTS FOR WHICH LONG-TERM COMMITMENTS HAVE ALREADY BEEN ENTERED INTO .

1.19 . THE PRINCIPAL SECTORS OF THE BUDGET FOR WHICH DIFFERENTIATED APPROPRIATIONS HAVE BEEN INTRODUCED ARE THE RESEARCH SECTOR ( UNDER TITLE 3 ) , THE SOCIAL FUND AND THE REGIONAL FUND ( UNDER TITLE 5 ) , EAGGF GUIDANCE ( UNDER TITLE 8 ) AND AID TO DEVELOPING COUNTRIES ( UNDER TITLE 9 ) .

1.20 . TABLES 4 AND 5 CLEARLY SHOW THAT THE UTILIZATION OF COMMITMENTS FOR MULTIANNUAL PROJECTS HAS BEEN SIGNIFICANTLY HIGHER THAN THE UTILIZATION OF PAYMENT APPROPRIATIONS . ALTHOUGH THE COMMISSION HAS BEEN ABLE TO COMMIT FUNDS FOR PROJECTS WHICH WILL BE IMPLEMENTED OVER SEVERAL YEARS , PAYMENTS IN 1979 FOR THE SAME PROJECTS COULD NOT BE MADE AT THE RATE ANTICIPATED IN THE BUDGET . PROGRESS IN IMPLEMENTING THESE POLICIES IN REAL TERMS HAS THEREFORE BEEN SLOW :

UTILIZATION OF DIFFERENTIATED APPROPRIATIONS

( % )

*PAYMENT*COMMITMENT*

RESEARCH*51,2*65,2*

SOCIAL FUND*56,0*94,1*

REGIONAL FUND*32,1*95,3*

EAGGF GUIDANCE*29,9*69,1*

AID*13,8*59,7*

1.21 . IT SHOULD BE REMEMBERED THAT THE LOW RATES OF PAYMENT INDICATED ABOVE HAVE BEEN RECORDED DESPITE THE FACT THAT IN 1979 THE COMMISSION INTRODUCED A SCHEME FOR PAYMENT OF SPECIAL ADVANCES TO MEMBER STATES TO ACCELERATE IMPLEMENTATION OF POLICIES UNDER THE SOCIAL FUND , THE REGIONAL FUND AND THE EAGGF GUIDANCE FUND .

1.22 . THE COURT RECOGNIZES THAT IN MANY CASES DELAYS IN UTILIZING APPROPRIATIONS FROM THESE FUNDS CAN BE CAUSED BY PRACTICAL DIFFICULTIES ENCOUNTERED IN THE MEMBER STATES , RATHER THAN IN THE ADMINISTRATIVE SERVICES OF THE COMMISSION . EVERY EFFORT SHOULD BE MADE TO OVERCOME THESE PROBLEMS . IN THE MEANTIME THE BUDGET FOR PAYMENT APPROPRIATIONS SHOULD REFLECT MORE ACCURATELY THE VOLUME OF PAYMENTS WHICH ARE LIKELY TO BE MADE IN THE YEAR .

OVERBUDGETING FOR DIFFERENTIATED PAYMENTS LED TO AN ANOMALOUS SITUATION IN 1979 . SINCE THE BUDGET MUST BE IN BALANCE , OVER-ESTIMATION IN THE BUDGET OF APPROPRIATIONS WHICH WILL BE UTILIZED DURING THE YEAR REQUIRES THE PROVISION OF A CORRESPONDING AMOUNT OF REVENUE FROM THE COMMUNITIES' OWN RESOURCES . THIS REVENUE IS PROVIDED DESPITE THE FACT THAT THE EXCESS APPROPRIATIONS FOR EXPENDITURE CANNOT BE UTILIZED , AT THE EARLIEST , UNTIL THE FOLLOWING YEAR . IN 1979 , 1 095 MEUA WAS PROVIDED TO COVER PAYMENT APPROPRIATIONS CARRIED FORWARD WHICH COULD NOT BE UTILIZED UNTIL 1980 , WHILST AT THE SAME TIME ADDITIONAL REVENUE OF 731 MEUA WAS PROVIDED IN THE THIRD SUPPLEMENTARY BUDGET TO COVER EXPENDITURE IN 1979 . IF THE BUDGET FOR PAYMENT APPROPRIATIONS HAD BEEN CLOSER TO THE ACTUAL SUMS PAID IN THE YEAR THE TOTAL AMOUNT OF REVENUE TO BE PROVIDED IN 1979 WOULD HAVE BEEN CORRESPONDINGLY REDUCED .

NON-DIFFERENTIATED APPROPRIATIONS

1.23 . UTILIZATION OF NON-DIFFERENTIATED APPROPRIATIONS WAS GENERALLY HIGHER THAN OF DIFFERENTIATED APPROPRIATIONS . SLOW RATES OF PAYMENT WERE ENCOUNTERED IN RESEARCH , THE SOCIAL FUND AND AID , UNDER WHICH RESPECTIVELY ONLY 39 % , 60 % AND 57,9 % OF APPROPRIATIONS AVAILABLE IN THE 1979 BUDGET WERE PAID IN THE YEAR , AND MOST OF THE BALANCE REMAINING WAS CARRIED FORWARD TO 1980 .

1.24 . FURTHER DETAILS CONCERNING THE UTILIZATION OF BUDGET APPROPRIATIONS ARE GIVEN IN EACH CHAPTER OF THIS REPORT .

OTHER INSTITUTIONS

1.25 . THE UTILIZATION OF BUDGET APPROPRIATIONS BY THE OTHER INSTITUTIONS IS SHOWN IN TABLE 6 . FURTHER COMMENTS CONCERNING THE ACCOUNTS OF THESE INSTITUTIONS ARE INCLUDED IN CHAPTER 10 ( STAFF EXPENDITURE ) AND IN CHAPTER 11 ( OPERATIONAL EXPENDITURE ) OF THIS REPORT .

APPROPRIATIONS CARRIED FORWARD

1.26 . A SUMMARY OF THE UTILIZATION OF APPROPRIATIONS CARRIED FORWARD FOR THE YEARS 1973 TO 1978 IS GIVEN IN CHAPTER 2 ( PARAGRAPH 2.9 ) .

APPROPRIATIONS CARRIED FORWARD IN THE ACCOUNTS OF THE EUROPEAN PARLIAMENT

1.27 . THE ACCOUNTS OF THE EUROPEAN PARLIAMENT INCLUDE APPROPRIATIONS CARRIED FORWARD TO 1980 AMOUNTING TO 2 681 000 EUA . THESE CARRY-OVERS SHOULD HAVE BEEN APPROVED BY THE COUNCIL UNDER THE PROCEDURE DESCRIBED IN PARAGRAPH 1.2 ABOVE . SINCE NO FORMAL REQUEST WAS SUBMITTED TO THE COUNCIL BY THE DUE DATE , 21 APRIL , THE COURT CONSIDERS THAT THE CARRY-OVER OF THESE APPROPRIATIONS HAS NOT BEEN DULY AUTHORIZED . THE TOTAL OF APPROPRIATIONS CARRIED FORWARD IS THEREFORE OVERSTATED AND THE SURPLUS FOR THE YEAR SHOWN IN THE INCOME AND EXPENDITURE ACCOUNT OF THE GENERAL BUDGET IS UNDERSTATED BY 2 681 000 EUA . THE BUDGET ITEMS CONCERNED ARE SHOWN BELOW :

ITEM*EUA*

1301 MISSION EXPENSES , STAFF*1 200 000*

1420 RESTAURANTS AND CANTEENS*25 000*

2220 TECHNICAL EQUIPMENT AND INSTALLATIONS*1 400 000*

2253 SUBSCRIPTION TO NEWS AGENCIES*21 000*

2941 SCHOL * HIOS FOR VOCATIONAL TRAINING * CONFERENCE INTERPRETERS*35 000*

*2 681 000*

REMARK OF THE COURT ON THE REPLY OF THE EUROPEAN PARLIAMENT TO PARAGRAPH 1.27

THE PROCEDURE REFERRED TO IN THE REPLY OF THE EUROPEAN PARLIAMENT IS THAT ESTABLISHED IN ARTICLE 6 ( 3 ) OF THE FINANCIAL REGULATION WHICH STATES THAT REQUESTS FOR THESE CARRY-OVERS SHALL BE ,

( I ) PRESENTED TO THE COMMISSION , WHICH IN TURN FORWARDS THEM TO THE COUNCIL AND TO THE EUROPEAN PARLIAMENT , AND

( II ) DEEMED APPROVED IF THE COUNCIL HAS NOT EXPRESSED A NEGATIVE OPINION WITHIN SIX WEEKS .

THE RESOLUTION OF THE COUNCIL TO WHICH THE PARLIAMENT REFERS MAKES NO REFERENCE TO THE PROCEDURE FOR APPROVAL OF CARRY-OVERS . THE COURT THEREFORE CONCLUDES THAT CARRY-OVERS CAN ONLY BE DEEMED TO HAVE BEEN APPROVED IF THE PROVISIONS OF ARTICLE 6 ( 3 ) OF THE FINANCIAL REGULATION HAVE BEEN COMPLIED WITH .

ACCOUNTING PROBLEMS IN THE EAGGF GUARANTEE SECTION

1.28 . SIGNIFICANT ACCOUNTING PROBLEMS HAVE ARISEN IN 1979 IN THE OPERATION OF THE EAGGF GUARANTEE SECTION . ( SEE ALSO CHAPTER 4 . )

1.29 . THE INCOME AND EXPENDITURE ACCOUNTS PRODUCED ON 1 JUNE 1980 EXCLUDE EXPENDITURE OF 203,5 MEUA INCURRED IN NOVEMBER AND DECEMBER 1979 , WHICH WAS IN EXCESS OF BUDGET APPROPRIATIONS FOR THE YEAR AND HAS BEEN CHARGED AS EXPENDITURE OF 1979 ON APPROPRIATIONS FOR 1980 . THE COURT CONSIDERS THAT THE ACCOUNTS , AS PRODUCED ON 1 JUNE 1980 , DO NOT PROPERLY SHOW EXPENDITURE INCURRED IN 1979 . FURTHERMORE , THE EXCESS OF EXPENDITURE FORECAST FOR THE YEAR SHOULD HAVE BEEN INCORPORATED AND FORMALLY AUTHORIZED IN THE AMENDING AND SUPPLEMENTARY BUDGET NO 3 WHICH WAS APPROVED AS LATE AS 13 DECEMBER 1979 .

REMARK OF THE COURT ON THE COMMISSION'S REPLIES TO PARAGRAPHS 1.29 AND 4.14 TO 4.18

THE COURT NOTES THE COMMISSION'S STATEMENT THAT THE EXPENDITURE OF 203,5 MEUA RELATES TO 1979 BUT HAS BEEN CHARGED AGAINST BUDGET APPROPRIATIONS OF 1980 . IN THE OPINION OF THE COURT THE TOTAL EXPENDITURE OF THE GENERAL BUDGET FOR 1979 IS THEREFORE UNDERSTATED IN THE ACCOUNTS BY 203,5 MEUA . THE COURT RECOMMENDS THAT THE DISCHARGE AUTHORITY SHOULD REQUIRE THIS AMOUNT TO BE CHARGED EXCEPTIONALLY AS EXPENDITURE IN THE ACCOUNTS FOR THE YEAR ENDED 31 DECEMBER 1979 .

1.30 . IN 1978 , 306,2 MEUA WAS CHARGED TO THE ACCOUNTS AS ANTICIPATED DEPRECIATION OF THE VALUE OF INTERVENTION STOCKS HELD AT 31 DECEMBER 1978 . THIS AMOUNT APPROXIMATED TO THE BALANCE OF UNSPENT APPROPRIATIONS AT THE END OF THE YEAR . NO SUCH DEPRECIATION HAS BEEN CHARGED IN 1979 . IN THE OPINION OF THE COURT , PROPER ACCOUNTS OF EXPENDITURE CANNOT BE DRAWN UP UNLESS ACCOUNTING POLICIES ARE CONSISTENTLY APPLIED .

1.31 . UNDER THE PRESENT REGULATIONS , CERTAIN TYPES OF INCOME CONTINUE TO BE ENTERED AS NEGATIVE EXPENDITURE . THIS PRACTICE IS UNDESIRABLE SINCE IT CONCEALS THE TRUE AMOUNT OF EXPENDITURE . ( SEE PARAGRAPH 4.36 . )

BALANCE OF THE YEAR

1.32 . THE BALANCE OF THE YEAR , AS SHOWN IN THE AMENDED ACCOUNTS , AMOUNTS TO 455,9 MEUA . THE REAL SITUATION IS , HOWEVER , AS FOLLOWS :

REPORTED BALANCE ( SURPLUS ) *455,9 MEUA*

LESS : **

1979 EXPENDITURE OF EAGGF GUARANTEE CHARGED TO 1980 ( PARAGRAPH 1.29 ) *203,5 MEUA*

*252,4 MEUA*

ADD : **

EXCESS APPROPRIATIONS CARRIED FORWARD TO 1980 : PARLIAMENT ( PARAGRAPH 1.27 ) *2,6 MEUA*

*255 MEUA*

IN ADDITION TO THE ABOVE ADJUSTMENTS DEPRECIATION OF INTERVENTION STOCKS TO 306 MEUA WAS CHARGED IN DECEMBER 1978 . THIS SHOULD EITHER HAVE BEEN CHARGED IN 1979 ON REALIZATION OF THE STOCKS OR A CONSISTENT POLICY SHOULD HAVE BEEN APPLIED RESULTING IN A FURTHER CHARGE IN RESPECT OF STOCKS HELD ON 31 DECEMBER 1979 .

REMARK OF THE COURT ON THE REPLY OF THE COMMISSION TO PARAGRAPH 1.32

IN THE ACCOUNTS PRESENTED BY THE COMMISSION 203,5 MEUA OF EXPENDITURE RELATING TO 1979 HAS BEEN OMITTED FROM THE INCOME AND EXPENDITURE ACCOUNT FOR THE YEAR AND INCONSISTENT ACCOUNTING POLICIES HAVE BEEN APPLIED IN 1978 AND 1979 . IN THESE CIRCUMSTANCES THE COURT CANNOT ACCEPT THE COMMISSION'S VIEW THAT THE BALANCE OF THE FINANCIAL YEAR HAS BEEN CALCULATED IN ACCORDANCE WITH THE CORRECT APPLICATION OF THE PRINCIPLES OF ACCOUNTANCY .

LEGAL DEVELOPMENTS

THE JUDGMENT OF THE COURT OF JUSTICE IN THE COMO AFFAIR

1.33 . IN JANUARY 1980 AN IMPORTANT JUDGMENT WHICH HAS WIDE IMPLICATIONS FOR THE AUDIT OF COMMUNITY FUNDS WAS GIVEN BY THE COURT OF JUSTICE RELATING TO THE AUDIT OF COMMUNITY REVENUE ARISING IN THE MEMBER STATES . THE JUDGMENT OF THE COURT OF JUSTICE IN THE COMO AFFAIR ( 9 ) CLARIFIED CERTAIN ASPECTS OF THE COMMISSION'S POWERS OF CONTROL OVER THE OWN RESOURCES OF THE COMMUNITY . THE CASE AROSE OUT OF A DISAGREEMENT BETWEEN THE COMMISSION AND THE ITALIAN GOVERNMENT AS TO THE COMMISSION'S RIGHT TO CONTINUE INVESTIGATIONS INTO SUBSTANTIAL FRAUDS CONNECTED WITH THE IRREGULAR DIVERSION TO HOME CONSUMPTION OF LARGE QUANTITIES OF IMPORTED BUTTER WITHOUT PAYMENT OF AGRICULTURAL LEVIES . THE EVENTS CONCERNED WERE , AT THE TIME , THE SUBJECT OF PRELIMINARY JUDICIAL PROCEEDINGS IN ITALY , AND , AS A CONSEQUENCE , CERTAIN DOCUMENTS ESSENTIAL TO THE COMMISSION'S INVESTIGATIONS WERE SUBJECT TO JUDICIAL SECRECY . FURTHERMORE , THE ITALIAN GOVERNMENT CONTESTED THE COMMISSION'S RIGHT TO CARRY OUT CONTROLS BEFORE THE OWN RESOURCES HAD BEEN DULY ESTABLISHED BY THE MEMBER STATES .

1.34 . THE COURT OF JUSTICE , WHILE UPHOLDING THE RULE OF JUDICIAL SECRECY IN THE CASE INVOLVED , CONFIRMED THE COMMISSION'S POWER TO INVESTIGATE DOCUMENTS AND EVENTS AT ALL STAGES IN THE CLAIN LEADING UP TO THE MAKING AVAILABLE OF THE COMMUNITIES RESOURCES INCLUDING THOSE WHICH OCCUR PRIOR TO THE DATE OF ESTABLISHMENT . THE COURT OF AUDITORS WELCOMES THIS ASPECT OF THE DECISION WHICH SHOULD BE AN ANCOURAGEMENT TO THE COMMISSION TO PRESS AHEAD WITH EFFECTIVE INVESTIGATIONS IN THE FIELD OF FRAUD AND IRREGULARITY . IT SHOULD BE NOTED THAT THE JUDGMENT RELATED ONLY TO THE CONTROLS CARRIED OUT BY THE COMMISSION AND NOT TO THE POWERS OF THE COURT OF AUDITORS WHICH ARE LAID DOWN IN THE TREATY OF 1975 .

INTEREST RATE SUBSIDIES

1.35 . UNDER THE REGIONAL FUND AND THE EUROPEAN DEVELOPMENT FUNDS , INTEREST RATE SUBSIDIES ARE GRANTED ON LOANS MADE BY THE EUROPEAN INVESTMENT BANK . THE COMMISSION NORMALLY PAYS TO THE BANK THE WHOLE OF THE SUBSIDY COVERING THE FULL PERIOD OF THE LOAN AT THE TIME WHEN THE LOAN IS FIRST GRANTED . THE AMOUNT PAYABLE IS ABATED TO COMPENSATE FOR THE PRESENT VALUE OF PAYMENTS WHICH WOULD NORMALLY HAVE BEEN MADE OVER THE FULL PERIOD OF THE LOAN . THE COURT REQUESTS THE COMMISSION TO CONSIDER WHETHER INTEREST RATE SUBSIDIES SHOULD BE PAID ANNUALLY AS THEY BECOME DUE , RATHER THAN MAKING LUMP-SUM PAYMENTS AS AT PRESENT .

MISCELLANEOUS PROBLEMS

DELAYS IN CLOSING ACCOUNTS

1.36 . SIGNIFICANT DELAYS ARE STILL EXPERIENCED IN THE FINAL CLOSING OF ACCOUNTS . THE COURT RECOMMENDS THAT FURTHER INTENSIVE EFFORTS SHOULD BE MADE TO ENABLE ACCOUNTS TO BE CLOSED MORE PROMPTLY . AT 1 JUNE 1980 THE LATEST ACCOUNTS OF THE VARIOUS DIFFERENT SECTORS TO BE CLOSED ARE AS FOLLOWS :

- EAGGF GUARANTEE : 1973**

- SOCIAL FUND : 1973**

- FIRST EUROPEAN DEVELOPMENT FUND ( 1959 TO 1964 ) *NO ACCOUNTS HAVE YET BEEN CLOSED*

- SECOND EUROPEAN FUND ( 1964 TO 1970 ) *NO ACCOUNTS HAVE YET BEEN CLOSED*

- THIRD EUROPEAN DEVELOPMENT FUND ( 1970 TO 1975 ) *NO ACCOUNTS HAVE YET BEEN CLOSED*

- FOURTH EUROPEAN DEVELOPMENT FUND ( 1976 TO 1980 ) *NO ACCOUNTS HAVE YET BEEN CLOSED*

OMISSIONS FROM ACCOUNTING REGULATIONS

1.37 . ALTHOUGH A NEW FINANCIAL REGULATION WAS ADOPTED ON 31 DECEMBER 1977 , NO NEW IMPLEMENTING MEASURES WERE ISSUED . AT PRESENT THE FINANCIAL REGULATION OF 1977 IS BEING APPLIED BY UTILIZING THE REGULATION OF 29 JUNE 1975 ( 10 ) FOR THE IMPLEMENTATION OF THE FINANCIAL REGULATION OF 25 APRIL 1973 ( 11 ) .

ON 5 AUGUST 1980 THE COMMISSION TRANSMITTED TO ALL THE INSTITUTIONS FOR CONSULTATION , PROPOSALS FOR NEW IMPLEMENTING MEASURES FOR THE FINANCIAL REGULATION OF 21 DECEMBER 1977 .

1.38 . SINCE 1 JANUARY 1978 THE BUDGET AND THE ACCOUNTS OF THE GENERAL BUDGET HAVE BEEN EXPRESSED IN EUA . IN 1976 THE COMMISSION SUBMITTED TO THE COUNCIL A PROPOSAL FOR A PROCEDURE FOR APPLYING THE EUROPEAN UNIT OF ACCOUNT ( EUA ) TO THE LEGAL ACTS ADOPTED BY THE INSTITUTIONS OF THE EUROPEAN COMMUNITIES . NO REGULATIONS HAVE SINCE BEEN APPROVED ALTHOUGH THE EUA WAS INTRODUCED FOR THE GENERAL BUDGET OF THE COMMUNITIES FROM 1 JANUARY 1978 . SINCE THAT DATE PROVISIONAL MEASURES HAVE BEEN INTRODUCED FOR CONVERSIONS BETWEEN NATIONAL CURRENCIES AND EUAS AND FOR DRAWING UP THE ACCOUNTS .

1.39 . IN THE OPINION OF THE COURT IT IS UNSATISFACTORY THAT NEITHER THE IMPLEMENTING MEASURES FOR THE FINANCIAL REGULATION NOR A FORMAL REGULATION GOVERNING IMPLEMENTATION OF THE EUA HAS BEEN ADOPTED . IN THE ABSENCE OF FORMAL REGULATIONS , PROVISIONAL MEASURES HAVE BEEN ADOPTED BY THE INSTITUTIONS .

1.40 . IN ACCORDANCE WITH ARTICLE 107 OF THE FINANCIAL REGULATION ( 12 ) , THE EUROPEAN PARLIAMENT AND THE COUNCIL ARE TO EXAMINE THE FINANCIAL REGULATION EVERY THREE YEARS IN THE LIGHT OF A PROPOSAL FROM THE COMMISSION . UNDER ARTICLE 209 OF THE TREATY , THE COUNCIL MUST CONSULT THE COURT OF AUDITORS ON ALL PROPOSALS FOR FINANCIAL REGULATIONS . THE NEXT REVIEW IS DUE TO TAKE PLACE IN 1980 . THE COURT RECOMMENDS THAT THE COMMISSION , AT THE SAME TIME AS PROPOSING AMENDMENTS TO THE FINANCIAL REGULATION , SHOULD ALSO MAKE PROPOSALS FOR APPROPRIATE , REVISED IMPLEMENING MEASURES AND FOR MEASURES CONCERNING THE APPLICATION OF THE EUA TO THE GENERAL BUDGET OF THE COMMUNITIES .

ACCOUNTING POLICIES

1.41 . ACCOUNTING POLICIES ENCOMPASS THE PRINCIPLES , BASES , CONVENTIONS , RULES AND PROCEDURES ADOPTED IN PREPARING AND PRESENTING FINANCIAL INFORMATION . TO ASSIST THE READER IN ASSESSING THE INFORMATION PRESENTED IN THE ACCOUNTS , A FACTUAL SUMMARY OF THE MAIN ACCOUNTING POLICIES ADOPTED IN DRAWING UP THE BUDGETARY ACCOUNTS OF THE COMMUNITIES IS GIVEN BELOW . COMMENTS ON CERTAIN ACCOUNTING POLICIES ARE INCLUDED IN CHAPTER 2 OF THIS REPORT .

OWN RESOURCES

1.42 . OWN RESOURCES AND FINANCIAL CONTRIBUTIONS ARE ENTERED IN THE ACCOUNTS ON THE BASIS OF AMOUNTS ACTUALLY CREDITED DURING THE YEAR TO THE ACCOUNTS HELD BY THE APPROPRIATE NATIONAL AUTHORITIES IN THE NAME OF THE COMMISSION ( SEE ALSO PARAGRAPH 3.18 ) .

1.43 . THE DIFFERENCE BETWEEN THE AMOUNT OF VAT OWN RESOURCES AND FINANCIAL CONTRIBUTIONS PROVIDED FOR IN THE BUDGET AND THE ACTUAL AMOUNT RECEIVABLE FOR EACH YEAR IS CALCULATED BY 1 JULY OF THE FOLLOWING YEAR . THE DIFFERENCE IS THEN ENTERED AS AN ADJUSTMENT IN A SUPPLEMENTARY BUDGET OF THAT YEAR .

OTHER INCOME

1.44 . OTHER INCOME IS STATED ON THE BASIS OF AMOUNTS ACTUALLY RECEIVED DURING THE YEAR .

CONVERSION TO EUA

1.45 . OWN RESOURCES AND FINANCIAL CONTRIBUTIONS ARE CONVERTED INTO EUA AT THE RATE OF EXCHANGE RULING ON THE DUE DATE FOR PAYMENT . OTHER ITEMS OF INCOME AND EXPENDITURE HAVE BEEN CONVERTED AT A STANDARD RATE OF EXCHANGE FOR THE MONTH IN WHICH THEY WERE RECEIVED OR PAID . GAINS AND LOSSES ON EXCHANGE ARE INCLUDED IN ACCOUNT 951 " GAIN ON DIFFERENCES IN EXCHANGE RATES " ( 13 ) .

COMMITMENTS

1.46 . COMMITMENTS ARE ENTERED IN THE ACCOUNTS ON THE BASIS OF THE COMMITMENTS ENTERED INTO ON 31 DECEMBER ( 13 ) .

PAYMENTS

1.47 . PAYMENTS OF A FINANCIAL YEAR ARE STATED ON THE BASIS OF ITEMS FOR WHICH AUTHORIZATION 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 ( 13 ) ( 14 ) .

BALANCE SHEET

1.48 . SEE CHAPTER 2 .

REPORTS AND OPINIONS PRODUCED BY THE COURT DURING THE YEAR

1.49 . ( A ) THE COURT HAS PUBLISHED THE FOLLOWING SPECIAL REPORTS AND OPINIONS DURING THE YEAR 1 DECEMBER 1979 TO 30 NOVEMBER 1980 .

- OJ NO C 84 OF 3 APRIL 1980

OPINION ON A PROPOSAL FOR A REGULATION TO AMEND THE FINANCIAL REGULATION OF 21 DECEMBER 1977 AND ON PROPOSALS FOR AMENDMENTS TO , AND A DRAFT AMENDMENT OF , RELATED LEGISLATION .

- OJ NO C 165 OF 5 JULY 1980

OPINION ON THE PROPOSAL FOR A COUNCIL REGULATION ON MONETARY COMPENSATORY AMOUNTS .

OPINION ON THE PROPOSAL FOR A COUNCIL REGULATION ON THE VALUE OF THE UNIT OF ACCOUNT AND THE CONVERSION RATES TO BE APPLIED FOR THE PURPOSES OF THE COMMON AGRICULTURAL POLICY .

- OJ NO C 233 OF 11 SEPTEMBER 1980

OPINION ON A PROPOSAL FOR A COUNCIL REGULATION AMENDING REGULATION ( EEC ) NO 1172/76 OF 17 MAY 1976 SETTING UP A FINANCIAL MECHANISM .

OPINION ON THE PROPOSAL FOR A COUNCIL REGULATION INSTITUTING SUPPLEMENTARY MEASURES IN FAVOUR OF THE UNITED KINGDOM .

- OJ NO C 258 OF 6 OCTOBER 1980

SPECIAL REPORT ON VARIOUS MEASURES AFFECTING THE MANAGEMENT OF THE EAGGF GUARANTEE SECTION .

( B ) THE COURT HAS ADOPTED THE FOLLOWING REPORTS , ETC . DURING THE YEAR 1 DECEMBER 1979 TO 30 NOVEMBER 1980 WHICH HAVE NOT YET BEEN PUBLISHED :

- OPINION ON THE PROPOSAL FOR A COUNCIL REGULATION LAYING DOWN SPECIAL GENERAL RULES FOR THE SUPPLY OF FOOD AID OF PRODUCTS OTHER THAN CEREALS , SKIMMED-MILK POWDER OR BUTTER OIL TO CERTAIN DEVELOPING COUNTRIES AND SPECIALIZED BODIES .

- SPECIAL REPORT ON COMMUNITY FOOD AID .

- SPECIAL REPORT ON THE ACQUISITION AND CONTROL OVER OFFICE SUPPLIES AND EQUIPMENT AS APPLIED BY THE INSTITUTIONS OF THE EUROPEAN COMMUNITIES .

- OBSERVATIONS ON ITS INITIAL FINANCIAL REVIEW OF THE COMPUTER CENTRE OF THE EUROPEAN COMMUNITIES .

- SPECIAL REPORT ON THE APPLICATION OF COUNCIL DIRECTIVE NO 75/268 ON MOUNTAIN AND HILL FARMING AND FARMING IN LESS-FAVOURED AREAS .

( 1 ) AS AMENDED BY REGULATION 1252/79 OF 25 JUNE 1979 , OJ NO L 160 , 28 . 6 . 1979 , P . 1 .

( 2 ) ARTICLE 73 OF FINANCIAL REGULATION , OJ NO L 356 , 31 . 12 . 1977 , P . 18 .

( 3 ) ARTICLE 91 ( 2 ) OF FINANCIAL REGULATION , AS AMENDED BY REGULATION NO 1252/79 , OJ NO L 160 , 28 . 6 . 1979 , P . 2 .

( 4 ) COM(80 ) 233 .

( 5 ) COM(80 ) 565 FR .

( 6 ) OJ NO L 356 , 31 . 12 . 1977 , P . 9 .

( 7 ) OJ NO L 356 , 31 . 12 . 1977 , P . 4 .

( 8 ) ARTICLE 1 OF FINANCIAL REGULATION . OJ NO L 356 , 31 . 12 . 1977 , P . 2 .

( 9 ) JUDGMENT OF 10 JANUARY 1980 , CASE 267/78 , COMMISSION V . ITALIAN REPUBLIC .

( 10 ) OJ NO L 170 , 1 . 7 . 1975 , P . 1 .

( 11 ) OJ NO L 116 , 1 . 5 . 1973 , P . 1 .

( 12 ) OJ NO L 356 , 31 . 12 . 1977 , P . 27 .

( 13 ) SPECIAL PROVISIONS APPLY , HOWEVER , TO THE EAGGF GUARANTEE SECTION .

( 14 ) FINANCIAL REGULATION , OJ NO L 356 , 31 . 12 . 1977 , P . 1 .

CHAPTER 2 - ACCOUNTING MATTERS

SUMMARY OF CONTENTS

*PARAGRAPH REFERENCE*

SUMMARY OF PRINCIPAL COMMENTS*2.0*

EXAMINATION OF COMMISSION SYSTEMS OF ACCOUNTING AND CONTROL*2.1 AND 2.2*

THE ASCERTAINMENT OF THE INSTITUTIONS' SITUATION IN RESPECT OF ASSETS AND LIABILITIES*2.3 TO 2.11*

THE PRESENTATION OF THE FINANCIAL STATEMENTS*2.12 TO 2.18*

EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS*2.15 TO 2.17*

A SUMMARY REVENUE AND EXPENDITURE ACCOUNT OF THE COMMUNITIES*2.18*

CONCLUSION*2.19*

SUMMARY OF PRINCIPAL COMMENTS

*PARAGRAPH REFERENCE*

2.0 . THE PRINCIPAL COMMENTS INCLUDED IN THIS CHAPTER ARE : **

( A ) THE GENERAL ACCOUNTS AS OPERATED BY THE COMMISSION AND THE COMMUNITIES' BALANCE SHEET AS DRAWN UP BY THE COMMISSION STILL FALL SHORT OF MEETING THE REQUIREMENTS LAID DOWN IN THE RELEVANT LEGISLATION . *2.3 TO 2.11*

( B ) THE BALANCE SHEET ITEM " APPROPRIATIONS CARRIED FORWARD " REFLECTS A CONCEPT RELEVANT TO BUDGETARY ACCOUNTING : FOR INCLUSION IN THE BALANCE SHEET IT NEEDS TO BE ANALYSED INTO CATEGORIES OF LIABILITIES . *2.8*

( C ) THE SURPLUS ELEMENT INCLUDED IN THE AMOUNT OF APPROPRIATIONS CARRIED FORWARD OUGHT TO BE CONSIDERABLY REDUCED ; TO THE EXTENT THAT IT REMAINS , HOWEVER , ITS EXISTENCE OUGHT TO BE DISCLOSED . *2.9 AND 2.10*

( D ) EXPLANATORY NOTES SHOULD BE ATTACHED TO THE FINANCIAL STATEMENTS TO EXPLAIN THEIR UNDERLYING ACCOUNTING PRINCIPLES AND TO GIVE SUPPLEMENTARY INFORMATION NOT INCLUDED IN THE BALANCE SHEET OR THE REVENUE AND EXPENDITURE ACCOUNT . *2.12 TO 2.17*

( E ) A SUMMARY CONSOLIDATED REVENUE AND EXPENDITURE ACCOUNT , PRESENTED TOGETHER WITH A SUMMARY CONSOLIDATED BALANCE SHEET AND EXPLANATORY NOTES , WOULD GREATLY INCREASE THE INSIGHT INTO THE COMMUNITIES' FINANCIAL AFFAIRS . AN EXAMPLE OF SUCH A REVENUE AND EXPENDITURE ACCOUNT IS ATTACHED . *2.12 TO 2.14 AND 2.18*

( F ) THE COURT HAS NOT BEEN ABLE TO SATISFY ITSELF THAT THE BALANCE SHEET OF THE COMMUNITIES AS AT 31 DECEMBER 1979 ADEQUATELY REFLECTS THE COMMUNITIES' ASSETS AND LIABILITIES AT THAT DATE , AS REQUIRED BY THE RELEVANT FINANCIAL REGULATIONS . *2.19*

EXAMINATION OF COMMISSION SYSTEMS OF ACCOUNTING AND CONTROL

2.1 . DURING THE FIRST TWO YEARS OF THE COURT'S WORK , SYSTEMS OF ACCOUNTING AND CONTROL IN THE AUDITED BODIES WERE EXAMINED BY THE COURT'S SERVICES FOR THE DIFFERENT SUBJECT AREAS .

THE EXAMINATION OF SYSTEMS IS A FUNDAMENTAL ELEMENT IN THE APPROACH WHICH , IN PRINCIPLE , THE COURT HAS ADOPTED FOR ITS AUDIT WORK . THIS APPROACH IS BASED ON THE CONCEPT THAT THE INTERNAL ADMINISTRATION SHOULD BE SELF-CONTROLLING , AND THEREFORE THE AUDITOR NEEDS TO IDENTIFY AND EVALUATE ALL ELEMENTS OF INTERNAL MANAGEMENT WHICH MAKE UP THE PROCESSES OF AUTHORIZING , RECORDING AND VERIFYING FINANCIAL TRANSACTIONS .

THE EXAMINATION OF EACH SUBJECT AREA IN THE PAST TWO YEARS HAS NECESSARILY BEEN ON A SELECTIVE BASIS : THE SCOPE OF THE AUDIT OF THE SYSTEMS , NOTABLY ACCOUNTING SYSTEMS , AND RECORDS HAS DEPENDED ON THE AUDIT RESOURCES AVAILABLE .

IN THE CASE OF THE GENERAL ACCOUNTS THE SYSTEM WAS EXAMINED AND A DESCRIPTION PREPARED ON BEHALF OF THE COURT IN 1978 . THE BUDGETARY PROCEDURES AND ACCOUNTS HAVE BEEN EXAMINED TO A CERTAIN EXTENT DURING THE FIRST TWO YEARS OF THE COURT'S EXISTENCE BY THE AUDIT SECTORS CONCERNED WITH EACH SUBJECT AREA .

2.2 . AT THE END OF 1979 THE COURT DECIDED THAT THE RESULTS OF THE EXAMINATION WHICH HAD BEEN CARRIED OUT IN EACH SUBJECT AREA SHOULD BE CONSOLIDATED AND COMPLETED . THE PURPOSE , IN BROAD TERMS , WAS TO PROVIDE A BASIS FOR THE COURT'S FUTURE WORK IN ALL AREAS . A SPECIAL TEAM WAS SET UP TO CARRY OUT THIS AUDIT INVESTIGATION . THE WORK STARTED IN JANUARY 1980 AND WILL BE COMPLETED LATER IN THE YEAR .

AS THIS INVESTIGATION IS STILL TAKING PLACE WHILE THESE OBSERVATIONS ON THE 1979 ACCOUNTS ARE BEING WRITTEN , THE COURT IS MAKING NO GENERAL COMMENTS ON SYSTEMS AND RELATED CONTROL ASPECTS IN THIS ANNUAL REPORT .

THE ASCERTAINMENT OF THE INSTITUTIONS' SITUATION IN RESPECT OF ASSETS AND LIABILITIES

2.3 . IN ITS ANNUAL REPORT ON THE 1978 ACCOUNTS THE COURT SPECIFIED IN DETAIL THE PROVISIONS LAID DOWN IN THE FINANCIAL REGULATION AND THE IMPLEMENTING MEASURES PERTAINING TO THE GENERAL ACCOUNTS AND THE BALANCE SHEET .

THE COURT CONCLUDED , AFTER EXAMINATION OF THE GENERAL ACCOUNTS OF THE COMMISSION AND THE BALANCE SHEET OF THE COMMUNITIES AS DRAWN UP BY THE COMMISSION , THAT THESE DID NOT MEET THE REQUIREMENTS LAID DOWN IN THE REGULATIONS , I.E . THAT THE GENERAL ACCOUNTS SHOULD ENABLE THE INSTITUTION'S SITUATION IN RESPECT OF ASSETS AND LIABILITIES TO BE ASCERTAINED AND THAT THE COMMUNITIES' BALANCE SHEET SHOULD SHOW THEIR ASSETS AND LIABILITIES . IT WAS FOUND THAT THE COMMISSION'S GENERAL ACCOUNTS " ARE NOT GEARED TO THE OBJECTIVE LAID DOWN IN THE REGULATIONS , BUT SERVE PRINCIPALLY TO RECORD MONEY MOVEMENTS " . THIS PRACTICE HAS TWO CONSEQUENCES : " THE BALANCE SHEET INCLUDES NUMEROUS ITEMS WHICH REPRESENT NEITHER ASSETS NOR LIABILITIES " AND " CERTAIN ASSETS AND LIABILITIES OF THE COMMUNITIES ARE NOT ACCOUNTED FOR IN THE GENERAL ACCOUNTS AT ALL AND CONSEQUENTLY DO NOT FIGURE IN THE BALANCE SHEET " .

THE COMMISSION REPLIED THAT IT WAS PREPARED TO COMPLY WITH THE REQUESTS OF THE COURT OF AUDITORS SUBJECT TO A CAREFUL EXAMINATION OF THE PROBLEMS OF INTERNAL ORGANIZATION AND , PROBABLY , THE STAFF NEEDED .

2.4 . THE COURT NOTES WITH SATISFACTION THAT CERTAIN IMPROVEMENTS HAVE BEEN ACHIEVED IN THIS RESPECT :

- FIXED ASSETS ARE DISCLOSED IN THE BALANCE SHEET ( BUT ONLY THOSE OF THE COMMISSION ) ;

- LOANS FOR MIGRANT WORKERS ARE NOW SHOWN IN THE BALANCE SHEET ( ALTHOUGH THE REPAYMENT RECEIVABLE REGARDING THESE LOANS IS INCLUDED INCORRECTLY IN LOANS BORROWED INSTEAD OF BEING SHOWN AS " CAPITAL " ) .

REMARK OF THE COURT ON THE REPLY OF THE COMMISSION TO PARAGRAPH 2.4

THE AMENDED VERSION OF THE CONSOLIDATED BALANCE SHEET PUBLISHED BY THE COMMISSION IN OCTOBER 1980 SHOWS THE FIXED ASSETS OF THE COURT OF AUDITORS IN ADDITION TO THOSE OF THE COMMISSION . THE COURT REGRETS THAT THE SAME COULD NOT HAVE BEEN DONE FOR THE OTHER INSTITUTIONS .

2.5 . THESE IMPROVEMENTS ARE , HOWEVER , TOO LIMITED TO GIVE THE GENERAL ACCOUNTS AND THE BALANCE SHEET THEIR CHARACTER AS REQUIRED BY THE REGULATIONS . MUCH REMAINS TO BE DONE ; FOR INSTANCE :

- THE ASSETS IN THE BALANCE SHEET STILL INCLUDE ITEMS HELD IN SUSPENSE ACCOUNTS ( I.E . EXPENDITURE OF THE YEAR NOT CHARGED AND THEREFORE RECORDED AS AN ASSET ) . A MAJOR ITEM OF THIS NATURE IN THIS YEAR'S BALANCE SHEET IS THE 203,5 MEUA EXPENDITURE MADE DURING 1979 FOR EAGGF , BROUGHT FORWARD VIA THE BALANCE SHEET TO BE CHARGED IN THE 1980 REVENUE AND EXPENDITURE ACCOUNT . ( ALL THE BUDGET APPROPRIATIONS FOR 1979 WERE ABSORBED AND THEREFORE WHEN ADDITIONAL PAYMENTS WERE MADE ABOVE THE BUDGETARY CEILING THEY HAD TO BE DEBITED TO THE BALANCE SHEET , SEE CHAPTERS 1 AND 4 . ) IN PARAGRAPH 11.7 OF ITS REPORT ON THE 1978 ACCOUNTS THE COURT CRITICIZED THIS PRACTICE OF USING THE GENERAL ACCOUNTS TO CIRCUMVENT THE CONTROLS , IN THIS CASE ANNUALITY , IN THE BUDGETARY ACCOUNTING SYSTEM ;

- RECEIVABLES AND PAYABLES ARE STILL NOT SYSTEMATICALLY RECORDED . AS A SPECIFIC RECEIVABLE ITEM THE AMOUNTS OF RECOVERABLE VALUE ADDED TAX ARE NOT ACCOUNTED FOR IN THE GENERAL ACCOUNTS AND CONSEQUENTLY ARE NOT SHOWN AS AN ASSET IN THE BALANCE SHEET , AND

- THE VALUES OF CERTAIN STOCKS ARE STILL NOT INCLUDED ( E.G . STOCKS OF STATIONERY AND OFFICIAL PUBLICATIONS ) .

BETWEEN NOVEMBER 1979 AND JULY 1980 , THE COURT DID NOT HAVE EXTENSIVE CONSULTATIONS WITH THE COMMISSION ON THESE AND OTHER ACCOUNTING MATTERS . BUT ON THE COMPLETION OF THE SYSTEMS EXAMINATION NOTED IN PARAGRAPHS 2.1 AND 2.2 THE COURT IS CONFIDENT THAT IT WILL BE ABLE TO ASSIST THE COMMISSION WITH SUCH MATTERS .

REMARK OF THE COURT ON THE REPLY OF THE COMMISSION TO PARAGRAPH 2.5

THE COURT CONSIDERS THAT THE COMMISSION ALONE IS RESPONSIBLE FOR ITS OWN ACCOUNTING PRACTICES AND THUS FOR INITIATING CHANGES THEREIN . NEEDLESS TO SAY , THE COURT WOULD HAVE GIVEN ITS ASSISTANCE HAD IT BEEN CONSULTED BY THE COMMISSION ON ANY SUCH AMENDMENTS IN 1979 .

WITH REGARD TO THE AMOUNT OF 203,5 MEUA , AN ITEM OF EXPENDITURE WHICH , ALTHOUGH INCURRED IN 1979 , WAS EXCLUDED FROM THE EXPENDITURE CHARGED TO THE FINANCIAL YEAR AND WAS BROUGHT FORWARD TO 1980 VIA THE BALANCE SHEET , THE COURT WOULD STRESS THAT , NOTWITHSTANDING ITS COMMENTS IN PARAGRAPHS 1.29 AND 4.14 TO 4.18 OF THIS REPORT , THIS PARTICULAR COMMENT REFERS TO THE PRESENTATION OF INFORMATION BY MEANS OF FINANCIAL STATEMENTS AND NOT TO THE CONSTRAINTS OF BUDGETARY LAW . IN THE CASE IN QUESTION , THE COURT FINDS THAT AN ITEM OF ACTUAL EXPENDITURE WHICH AROSE DURING THE YEAR WAS IMPROPERLY SHOWN AS AN ASSET AT THE END OF THE SAME YEAR .

THE COURT ALSO NOTES THAT IN ITS REPLIES THE COMMISSION CONFUSES CLEARANCE OF THE SUSPENSE ACCOUNTS WITH PRESENTATION IN THE BALANCE SHEET OF FIGURES WHICH DERIVE FROM VALUATIONS RATHER THAN ACCOUNTING ENTRIES . THESE ARE SEPARATE QUESTIONS WHICH HAVE IN COMMON THE EFFECT OF RAISING DOUBTS AS TO THE ADEQUACY OF THE INTERNAL CONTROL AND FINANCIAL MANAGEMENT .

THE WAY IN WHICH CERTAIN STOCKS ARE MANAGED DOES NOT DEPEND UPON AMENDMENT TO THE FINANCIAL REGULATION .

KNOWLEDGE OF THE QUANTITY AND VALUE OF STOCKS COULD BE OBTAINED BY INTELLIGENT USE OF DATA PROCESSING WITHOUT AN EXCESSIVE AMOUNT OF EXTRA WORK AND WITHOUT THE NEED FOR AMENDMENT TO THE FINANCIAL REGULATION , WHOSE IMPLEMENTING MEASURES PROVIDE THAT STOCK ACCOUNTS BE KEPT ( ARTICLE 76 ( 3 ) ) ( 1 ) .

2.6 . FOR THE MOMENT , THE COURT WOULD LIKE TO DRAW ATTENTION TO AN ADDITIONAL IMPORTANT ELEMENT INCORPORATED IN THE BALANCE SHEET , I.E . THE CREDIT ITEM " BUDGET APPROPRIATIONS CARRIED FORWARD " , WHICH CONSTITUTES APPROXIMATELY 50 % OF THE BALANCE SHEET TOTAL OF 4,600 MEUA . BASICALLY THE ITEM BUDGET APPROPRIATIONS CARRIED FORWARD REPRESENTS :

- COMMITMENTS ON NON-DIFFERENTIATED APPROPRIATIONS ,

- CERTAIN NON-DIFFERENTIATED APPROPRIATIONS THAT ARE UNCOMMITTED AT THE YEAR END , AND

- UNSPENT PAYMENT APPROPRIATIONS ARISING FROM DIFFERENTIATED APPROPRIATIONS .

THESE EMS ARE CHARGED TO THE REVENUE AND EXPENDITURE ACCOUNT OF THE YEAR AND ARE RECORDED IN THE BALANCE SHEET AS A LIABILITY . PAYMENTS MADE DURING THE FOLLOWING YEAR IN RESPECT OF THESE ITEMS ARE CHARGED TO THIS BALANCE SHEET ACCOUNT . IF ANY ITEMS REMAIN ON THIS ACCOUNT AT THE END OF THAT YEAR THEY ARE ANNULLED AND INCLUDED IN REVENUE .

2.7 . IN ORDER TO FULLY UNDERSTAND THIS BALANCE SHET ACCOUNT , GOVERNED BY THE PROVISIONS OF ARTICLE 6 OF THE FINANCIAL REGULATION , IT IS NECESSARY TO BE AWARE THST IT CONSTITUTES A MAJOR EXCEPTION TO THE PRINCIPLE LAID DOWN IN ARTICLE 5 , I.E . THAT REVENUE AND EXPENDITURE ARE TO BE ACCOUNTED FOR ON A CASH RECEIPT/PAYMENT BASIS . THE ONLY OTHER EXCEPTION IS MADE IN ARTICLE 5 ITSELF , LAST PARAGRAPH , FOR EXPENDITURE PAID AFTER 31 DECEMBER BUT NOT LATER THAN 15 JANUARY , PROVIDED THAT THIS EXPENDITURE IS AUTHORIZED AND SUBMITTED TO THE FINANCIAL CONTROLLER BY 31 DECEMBER ( PAYMENTS PENDING ) .

APART FROM THE LATTER ITEM , APPROPRIATIONS CARRIED FORWARD , AS DESCRIBED IN PARAGRAPH 2 , 6 , IS THE ONLY NON-CASH BASIS ITEM RECOGNIZED BY THE ACCOUNTING SYSTEM AS IT IS DEFINED BY CURRENT LEGISLATION . OTHER TYPES OF ACCRUALS ARE IN PRINCIPLE EXCLUDED AND THEREFORE DO NOT APPEAR IN THE BALANCE SHEET ALTHOUGH EXCEPTIONS MAY OCCUR , E.G . THE AMOUNT OF REVENUE RESULTING FROM THE THIRD REVISION OF THE BUDGET IN 1979 , WHICH WAS RECEIVED IN 1980 BUT WAS TAKEN INTO REVENUE FOR 1979 ( APPEARING IN THE BALANCE SHEET AT 31 DECEMBER 1979 UNDER " MEMBER STATES " AMOUNTING TO 397 MEUA : SEE PARAGRAPH 3.18 ) .

2.8 . THE ITEM PAYMENTS PENDING DOES NOT CONSTITUTE A PROBLEM FROM THE POINT OF VIEW OF BALANCE SHEET PRESENTATION . IT MAY BE EXPECTED TO REPRESENT REAL CURRENT LIABILITIES . HOWEVER , THE ITEM BUDGET APPROPRIATIONS CARRIED FORWARD IS MORE COMPLICATED AS FAR AS BALANCE SHEET PRESENTATION IS CONCERNED . THAT IS MAINLY BECAUSE IT IS COMPILED DIRECTLY FROM THE BUDGETARY ACCOUNTING SYSTEM AND THEREFORE DOES NOT AUTOMATICALLY CONSTITUTE A LIABILITY AS IS REQUIRED FOR PRESENTATION IN THE BALANCE SHEET . FOR BALANCE SHEET PURPOSES THE ITEM SHOULD IN PRINCIPLE BE ANALYSED AT THE YEAR END INTO THREE BROAD CATEGORIES OF LIABILITIES , PLUS A FOURTH FROM BUDGETARY PRACTICE :

1 . APPROPRIATIONS THAT EXIST IN RESPECT OF ITEMS WHERE THE TERMS OF THE CONTRACT HAVE BEEN FULFILLED ( CREDITORS ) ;

2 . APPROPRIATIONS THAT EXIST IN RESPECT OF ITEMS WHERE THE CONTRACT IS CONCLUDED BUT NOT YET PERFORMED ( EXISTING COMMITMENTS ) ;

3 . APPROPRIATIONS FOR WHICH NO BINDING LEGAL COMMITMENTS TOWARDS THIRD PARTIES EXIST YET , BUT WHERE IT CAN BE REASONABLY ASSUMED THAT THE APPROPRIATIONS WILL BE SPENT IN THE FOLLOWING FINANCIAL YEAR ( ANTICIPATED COMMITMENTS ) ; AND

4 . APPROPRIATIONS CARRIED FORWARD FOR WHICH A HISTORICAL ANALYSIS ( SEE 2.9 BELOW ) SHOWS THAT SIGNIFICANT AMOUNTS WILL REMAIN UNUSED AT THE END OF THEIR PERIOD OF VAILIDYTY ( SURPLUS ELEMENT ) .

CATEGORIES 1 AND 2 ARE IN PRINCIPLE READILY IDENTIFIABLE , BOTH FROM EACH OTHER AND FROM THE OTHER TWO CATEGORIES . IN ORDER TO DISTINGUISH BETWEEN CATEGORIES 3 AND 4 , HOWEVER , IT WILL NOT SUFFICE SIMPLY TO LOOK AT THE INDIVIDUAL TRANSACTIONS ; THERE HAS TO BE A GLOBAL ESTIMATE OF THE AMOUNT THAT WILL REMAIN AVAILABLE AFTER ACTUAL UTILIZATION OF THE APPROPRIATIONS CARRIED FORWARD . THIS ESTIMATION SHOULD BE BASED ON HISTORICAL DATA AND ON ACTUAL INFORMATION AVAILABLE AT THE MOMENT WHEN DRAWING UP THE BALANCE SHEET .

2.9 . AS TO THE PART OF APPROPRIATIONS CARRIED FORWARD WHICH REMAINS UNSPENT IN THE FOLLOWING FINANCIAL YEAR THE COURT MADE AN ANALYSIS OVER THE LAST SIX YEARS .

TABLE 1 - ANALYSIS OF THE CANCELLATIONS OF APPROPRIATIONS CARRIED FORWARD TO THE FOLLOWING FINANCIAL YEAR ( ALL INSTITUTIONS )

*TOTAL CARRIED FORWARD TO FOLLOWING FINANCIAL YEAR MEUA*OF WHICH RELATING TO PRIOR YEAR MEUA*BALANCE MEUA*OF WHICH CANCELLED IN SUBSEQUENT YEAR MEUA* % CANCELLED*

1973*1 980*748*1 232*91*7*

1974*2 323*634*1 689*29*2*

1975*2 124*886*1 238*291*24*

1976*2 827*801*2 026*455*22*

1977*2 565*894*1 671***

REVALUED*2 007*759*1 248*167*13*

1978*2 129*601*1 528*199 ( 1)*13*

( 1 ) THIS AMOUNT BREAKS DOWN AS FOLLOWS :

COMMISSION*185 MEUA*

OTHER INSTITUTIONS*6 MEUA*

CANCELLATIONS RESULTING FROM REVALUATION OF EUA AT 1 . 1 . 1978*8 MEUA*

*199 MEUA*

THIS TABLE ILLUSTRATES THAT AT THE END OF EVERY FINANCIAL YEAR APPROPRIATIONS ARE BEING CARRIED FORWARD WHICH WILL STILL NOT ALL BE SPENT BY THE END OF THE NEXT FINANCIAL YEAR .

REMARK OF THE COURT ON THE REPLY OF THE COMMISSION TO PARAGRAPHS 2.6 TO 2.9

IN THE ABOVE PARAGRAPHS , THE VIEW EXPRESSED BY THE COURT IS THAT THE BALANCE SHEET AT THE END OF THE YEAR SHOULD RECORD THE REAL FACTS OF THE SITUATION . COMMUNITY LIABILITIES SHOULD THEREFORE BE DIVIDED INTO CATEGORIES ACCORDING TO THEIR NATURE AND NOT SIMPLY BY VIRTUE OF THEIR TREATMENT UNDER THE BUDGETARY RULES . IN THIS RESPECT , IT IS NOT CORRECT TO SAY THAT ARTICLES 5 AND 6 OF THE FINANCIAL REGULATION STIPULATE THAT THE WHOLE OF THE BUDGET APPROPRIATIONS CARRIED FORWARD MUST BE ENTERED AS SUCH UNDER LIABILITIES . THE COMMISSION'S REPLY FURTHER STATES THAT THE PRESENTATION ENVISAGED BY THE COURT WOULD BE INCONSISTENT , AS IT COULD NOT BE RECONCILED WITH THE GROUNDS SUBMITTED WITH APPLICATIONS FOR NON-AUTOMATIC CARRY-OVERS . THE COURT WOULD POINT OUT IN THIS CONNECTION THAT AT THE END OF 1979 CANCELLATIONS OF APPROPRIATIONS FROM NON-AUTOMATIC CARRY-OVERS OF THE COMMISSION FOR THE FINANCIAL YEAR 1978 AMOUNTED TO 4.3 MEUA , OR ABOUT 2 % OF THE TOTAL APPROPRIATIONS FOR PAYMENT CANCELLED ( 185 MEUA ) . THUS THE COURT CANNOT SEE ANY PRACTICAL INCONSISTENCY BETWEEN THE ANALYSIS OF THE APPROPRIATIONS TO BE CARRIED OVER AND THE GROUNDS SUBMITTED WITH APPLICATIONS FOR NON-AUTOMATIC CARRY-OVERS . THE COURT CONSIDERS THAT IN FUTURE THE COMMISSION SHOULD PAY MORE ATTENTION TO THE REMAINING 98 % , REPRESENTING CANCELLATIONS AGAINST AUTOMATIC CARRY-OVERS . THE ANALYSIS NECESSARY FOR A SEPARATE PRESENTATION OF THESE APPROPRIATIONS UNDER LIABILITIES IN THE BALANCE SHEET WOULD IN TIME LEAD TO THE DISAPPEARANCE OF THIS CATEGORY , WHOSE EXISTENCE IS DUE TO ILL-CONCEIVED BUDGETARY PRACTICES .

2.10 . TWO COMMENTS CAN BE MADE HERE REGARDING THIS ELEMENT OF UNUSED APPROPRIATIONS CARRIED FORWARD . THE FIRST IS THAT SUCH A HIGH PERCENTAGE OF UNUSED APPROPRIATIONS CARRIED FORWARD CASTS DOUBT ON THE EFFICIENCY OF FINANCIAL MANAGEMENT . ( THE PROCEDURES FOR ALLOCATING THE BUDGET APPROPRIATIONS MUST BE DOUBTED IF THE APPROPRIATIONS ARE NOT SPENT AS EXPECTED AND THE END-OF-YEAR REVIEW OF THE APPROPRIATIONS TO BE CARRIED FORWARD MUST BE LIKEWISE CONSIDERED AS DEFICIENT . ) THE SECOND IS THAT , GIVEN THIS SITUATION , THE BALANCE SHEET SHOULD REFLECT THE FACT THAT A PART OF THE APPROPRIATIONS CARRIED FORWARD WILL NOT , IN THE END , BE USED .

REMARK OF THE COURT ON THE REPLY OF THE COMMISSION TO PARAGRAPH 2.10

THE COURT CONSIDERS IT NECESSARY TO POINT OUT THAT ITS COMMENT REFERS TO APPROPRIATIONS CARRIED OVER TO THE FOLLOWING YEAR , WHEREAS THE COMMISSION'S REPLY REFERS TO APPROPRIATIONS BROUGHT FORWARD FROM THE PREVIOUS YEAR .

2.11 . THE COURT EMPHASIZES AGAIN THAT FUNDAMENTAL EFFORTS ARE NEEDED IN ORDER TO BRING THE GENERAL ACCOUNTS AND THE BALANCE SHEET INTO ACCORDANCE WITH THE REQUIREMENTS OF THE LEGISLATION . THE COMMENTS MADE ABOVE ARE BASED ON THE CURRENT LEGISLATION AND THE COURT REFRAINS FROM COMMENTING ON THIS LEGISLATION , PENDING THE SYSTEMS EXAMINATION TAKING PLACE AS REFERRED TO IN PARAGRAPHS 2.1 AND 2.2 AND THE IMMINENT REVISION OF THE FINANCIAL REGULATION .

REMARK OF THE COURT ON THE REPLY OF THE COMMISSION TO PARAGRAPH 2.11

THE COURT CONSIDERS AND THE PRESENTATION OF FINANCIAL INFORMATION ( AS OPPOSEA TO THE ACCOUNTING PROCEDURES , WHICH THIS CHAPTER ONLY DEALS WITH INDIRECTLY ) COULD BE IMPROVED BY THE COMMISSION FORTHWITH , WITHOUT CREATING AN INSURMOUNTABLE WORK-LOAD AND WITHOUT CHANGES IN THE LEGAL FRAMEWORK . IT LARGELY DEPENDS ON IMPROVED COOPERATION BETWEEN THE DIFFERENT DEPARTMENTS OF THE COMMISSION .

THE PRESENTATION OF THE FINANCIAL STATEMENTS

2.12 . IN ITS REPORT ON THE 1978 ACCOUNTS THE COURT CONSIDERED THAT THE PUBLISHED FINANCIAL STATEMENTS OF THE COMMUNITIES DO NOT ENABLE THE READER TO GAIN A CLEAR INSIGHT INTO THE COMMUNITIES' FINANCIAL AFFAIRS . THE COURT NOTED THAT THE FINANCIAL STATEMENTS LACKED AN EXPLANATION OF THE ACCOUNTING PRINCIPLES APPLIED AND OTHER EXPLANATORY NOTES NEEDED FOR A FULL UNDERSTANDING OF THE FIGURES PRESENTED . THE COURT ALSO COMMENTED THAT IT WOULD BE HIGHLY INFORMATIVE , AND IN COMPLIANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES , IF FINANCIAL STATEMENTS WERE TO SHOW THE CORRESPONDING FIGURES OF THE PRECEDING YEAR , WITH EXPLANATORY NOTES IN CASES WHERE THE UNDERLYING BASIS OF THE FIGURES HAS CHANGED .

2.13 . IN MAKING THESE COMMENTS ON THE COMMUNITIES' PUBLISHED FINANCIAL STATEMENTS THE COURT WAS CONCERNED WITH THE OVERALL PICTURE OF THE COMMUNITIES' FINANCIAL AFFAIRS AS PRESENTED BY THE REVENUE AND EXPENDITURE ACCOUNT TOGETHER WITH THE BALANCE SHEET . HAVING REGARD TO THE VOLUMINOUS , DETAILED AND COMPLEX FORMAT OF THE REVENUE AND EXPENDITURE ACCOUNT AS AT PRESENT ISSUED BY THE COMMISSION , THE COURT OBSERVED THAT IT WOULD BE HIGHLY DESIRABLE TO SHOW A SUMMARY CONSOLIDATED REVENUE AND EXPENDITURE ACCOUNT FOR THE COMMUNITIES , PRESENTING REVENUE AND EXPENDITURE IN A MEANINGFUL BREAKDOWN .

2.14 . THE COURT CONTINUES TO RECOMMEND THAT EXPLANATORY NOTES AND A SUMMARY CONSOLIDATED REVENUE AND EXPENDITURE ACCOUNT ARE PREPARED . THESE TOGETHER WITH A SUMMARY OF THE CONSOLIDATED BALANCE SHEET WOULD CONSTITUTE A SET OF ANNUAL FINANCIAL STATEMENTS WHICH , WHEN INCLUDING THE PREVIOUS YEAR'S FIGURES , WOULD ENABLE THE READER TO GAIN A MORE IMMEDIATE , OVERALL INSIGHT INTO THE COMMUNITIES' FINANCIAL AFFAIRS , I.E . REVENUE AND EXPENDITURE OF THE YEAR AND THE FINANCIAL POSITION AT THE YEAR END .

BECAUSE THE COURT ATTACHES GREAT IMPORTANCE TO THE ELEMENT OF INSIGHT PROVIDED BY THE FINANCIAL STATEMENTS , TO THOSE WHO LEGITIMATELY WISH TO BE INFORMED ON A GLOBAL LEVEL , IT CONSIDERS IT USEFUL TO ELABORATE IN THIS ANNUAL REPORT ON THESE TWO IMPORTANT ELEMENTS . AS FAR AS EXPLANATORY NOTES ARE CONCERNED , THE COMMISSION HAS GIVEN NO FOLLOW-UP AT ALL TO THE OBSERVATION MADE LAST YEAR . AS TO THE SUMMARY CONSOLIDATED REVENUE AND EXPENDITURE ACCOUNT , A TABLE HAS BEEN ADDED TO THE REVENUE AND EXPENDITURE ACCOUNT , SHOWING A RECAPITULATION FOR TITLES 1 AND 2 , ADDING UP THE TOTALS PER INSTITUTION PER CHAPTER IN THESE TITLES .

EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS

2.15 . BASICALLY , THERE ARE TWO TYPES OF EXPLANATORY NOTES : NOTES EXPLAINING THE ACCOUNTING PRINCIPLES ON THE BASIS OF WHICH THE FINANCIAL STATEMENTS IN QUESTION HAVE BEEN DRAWN UP AND FINANCIAL NOTES THAT PROVIDE SUPPLEMENTARY FINANCIAL INFORMATION WHICH IS NOT INCLUDED IN THE BALANCE SHEET OR THE REVENUE AND EXPENDITURE ACCOUNT . THESE TWO TYPES OF NOTES ARE DISCUSSED IN PARAGRAPHS 2.16 AND 2.17 RESPECTIVELY .

2.16 . EXPLANATORY NOTES ON UNDERLYING ACCOUNTING PRINCIPLES ARE PARTICULARLY IMPORTANT TO ENABLE A READER TO HAVE A SOUND UNDERSTANDING OF THE COMMUNITIES' FINANCIAL STATEMENTS , SINCE THESE ARE BASED ON THE PROVISIONS LAID DOWN IN THE FINANCIAL REGULATION WHICH CONTAINS A NUMBER OF RATHER SPECIFIC CONCEPTS AND DEFINITIONS . FOR INSTANCE , THE UNINFORMED READER , ACCUSTOMED TO READING FINANCIAL STATEMENTS THAT ARE DRAWN UP IN COMPLIANCE WITH GENERALLY ACCEPTED ACCOUNTING PRINCIPLES , SHOULD BE MADE AWARE OF THE SPECIFIC CONCEPTS UNDERLYING THE CALCULATION OF REVENUE AND EXPENDITURE AS EXPLAINED IN PARAGRAPH 2.7 . THESE SIGNIFICANTLY AFFECT THE FIGURES REPORTED IN THE BALANCE SHEET AS WELL AS THE CALCULATION OF THE SURPLUS/DEFICIT . OTHER EXAMPLES ARE :

- FIXED ASSETS : THE READER NEEDS TO BE INFORMED THAT THE AMOUNT SHOWN IN THE BALANCE SHEET REPRESENTS THE ACCUMULATED HISTORICAL COST OF FIXED ASSETS OWNED BY THE COMMISSION AT 31 DECEMBER 1979 ;

- CAPITAL : IT SHOULD BE EXPLAINED THAT THE NATURE OF THIS ITEM IN THIS CASE IS EXPENDITURE CHARGED TO PRIOR YEARS FOR PURCHASE OF FIXED ASSETS ;

- PAYMENTS PENDING : THIS ITEM WILL BE UNDERSTOOD ONLY IF THE PROVISION LAID DOWN IN THE LAST PARAGRAPH OF ARTICLE 5 OF THE FINANCIAL REGULATION IS SET OUT ( SEE PARAGRAPH 2.7 ) ;

- EXCHANGE DIFFERENCES : IT SHOULD BE DISCLOSED ON WHAT BASIS THE VARIOUS CURRENCIES ARE CONVERTED TO THE EUA FOR BOTH REVENUE/EXPENDITURE AND BALANCE SHEET ITEMS . THIS IS PARTICULARLY IMPORTANT IN THE CASE OF THE BALANCE SHEET OF THE COMMUNITIES AS AT 31 DECEMBER 1979 SINCE THE FIGURES THEREIN ARE BASED ON 1 DECEMBER 1979 EXCHANGE RATES ( WITH THE EXCEPTION OF THE FIGURES FOR THE COURT OF AUDITORS , INCLUDED IN THE CONSOLIDATION AT 31 DECEMBER 1979 RATES ) . AS THE COURT POINTED OUT IN ITS REPORT ON THE 1978 ACCOUNTS IT DISAPPROVES OF THIS PRACTICE . ALTHOUGH IT MAY BE CONVENIENT , FOR INTERNAL OPERATIONAL REASONS , TO APPLY MONTHLY RATES TO CURRENCY CONVERSIONS IN THE ACCOUNTING SYSTEM , THIS SHOULD NOT LEAD TO THE PRESENTATION OF THE COMMUNITIES' ASSETS AND LIABILITIES AS AT 31 DECEMBER ON THE BASIS OF EXCHANGE RATES AS AT 1 DECEMBER . THE MODIFICATION OF THE SYSTEM SO THAT EXCHANGE RATES WERE ALTERED ON THE LAST DAY OF THE YEAR WOULD NOT APPEAR TO IMPLY ANY MAJOR TECHNICAL DIFFICULTY BECAUSE THIS CONVERSION IS DEALT WITH ON 1 JANUARY OF THE FOLLOWING YEAR .

REMARKS OF THE COURT ON THE REPLY OF THE COMMISSION TO PARAGRAPH 2.16

IN THE COURT'S VIEW THERE IS NO ESSENTIAL DICHOTOMY BETWEEN THE EXCHANGE RATES USED FOR THE CLOSING BALANCE SHEETS OF ONE FINANCIAL YEAR AND THE OPENING BALANCE SHEETS OF THE FOLLOWING YEAR . THEY ARE SEPARATED ONLY BY A NOTIONAL MOMENT OF TIME WHICH , OTHER THAN IN EXCEPTIONAL CIRCUMSTANCES ( CHANGE IN THE CURRENCY IN WHICH THE ACCOUNTS ARE EXPRESSED ) WOULD NOT CAUSE ANY CHANGE IN THE FINANCIAL POSITION ; A BALANCE SHEET MAY THEREFORE BE DRAWN UP USING THE EXCHANGE RATES AT THE BEGINNING OF THE FOLLOWING FINANCIAL YEAR .

AS FOR THE CLAIM THAT ADOPTION OF THE END-OF-YEAR EXCHANGE RATE WOULD LEAD TO OVERRUNS , THE COMMISSION IS CONFUSING CONVERSION OF THE FINANCIAL POSITION AT THE END OF THE YEAR WITH CONVERSION OF THE BUDGETARY OPERATIONS DURING THE LAST MONTH OF THAT YEAR .

2.17 . NOTES PROVIDING ADDITIONAL FINANCIAL INFORMATION WHICH CANNOT BE INCLUDED IN THE BALANCE SHEET OR REVENUE AND EXPENDITURE ACCOUNT BUT ARE STILL NEEDED FOR A COMPLETE INSIGHT INTO THE COMMUNITIES' FINANCIAL AFFAIRS ARE AT PRESENT NOWHERE TO BE FOUND IN THE PUBLISHED FINANCIAL STATEMENTS . THE FOLLOWING ARE EXAMPLES OF SUCH ADDITIONAL INFORMATION THAT CAN BE GIVEN :

- EXPOSURE TO LOSSES ON INTERVENTION STOCKS : ONE CATEGORY OF EXPENDITURE IN THE CONTEXT OF THE COMMON AGRICULTURAL POLICY IS WHERE THE COMMUNITIES REIMBURSE TO MEMBER STATES THE LOSSES REALIZED ON SALE OF GOODS FROM INTERVENTION STOCKS HELD BY MEMBER STATES : AT THE YEAR END LARGE AMOUNTS OF INTERVENTION STOCKS ARE HELD , ON WHICH SUBSTANTIAL LOSSES WILL MOST PROBABLY BE REALIZED DURING THE FORTHCOMING YEAR(S ) . IN ORDER TO HAVE A PROPER INSIGHT INTO THE COMMUNITIES' FINANCIAL AFFAIRS AT THAT DATE SOME INDICATION IS NEEDED OF THE AMOUNTS INVOLVED , IN SO FAR AS NOT ALL LOSSES HAVE BEEN PROVIDED FOR ;

- ANALYSIS OF PRINCIPAL BALANCE SHEET ITEMS : THE INTRODUCTION OF EXPLANATORY NOTES TO THE FINANCIAL STATEMENTS WOULD ALSO BRING THE ADVANTAGE OF MAKING IT POSSIBLE TO MOVE CERTAIN DETAILS , SUCH AS ANALYSIS PER ( SUB)HEADING FROM THE BALANCE SHEET ITSELF TO THE EXPLANATORY NOTES , THUS IMPROVING THE GENERAL OVERVIEW WITHOUT LOSING THE NECESSARY DETAIL ;

- COMMITMENTS ON MULTIANNUAL CONTRACTS : THE COMMUNITIES HAVE MULTIANNUAL CONTRACTS . ESTIMATED COMMITMENTS FOR THESE CONTRACTS ARE DETAILED IN THE BUDGET . HOWEVER , APART FROM THE CURRENT YEAR THERE IS NO DISCLOSURE OF THE TOTAL AMOUNT OF THESE COMMITMENTS . IT WOULD BE USEFUL FOR THE READER OF THE FINANCIAL STATEMENTS IF A NOTE WERE INCLUDED INDICATING THE AMOUNT EXPECTED TO BE COMMITTED ;

- GUARANTEES GIVEN TO THIRD PARTIES : THE COMMUNITIES GIVE GUARANTEES ON LOANS MADE BY BANKS AND GOVERNMENTS AND , ON THE OTHER HAND , RECEIVE GUARANTEES FROM MEMBER STATES AND OTHER GOVERNMENTS . FOR A COMPLETE VIEW OF THE COMMUNITIES' FINANCIAL SITUATION , IT WOULD BE NECESSARY TO GIVE AN INDICATION OF THE TOTAL EXPOSURE IN RESPECT OF GUARANTEES ;

- POTENTIAL FUTURE DEFICIT ON PENSION RIGHTS : PENSION RIGHTS ARE ACQUIRED OVER A RELATIVELY LONG PERIOD OF TIME AND ARE BORNE IN THE COMMUNITIES BY RETENTION OF A FIXED PERCENTAGE FROM SALARIES , PLUS IN PRINCIPLE TWICE THE SAME AMOUNT AT THE COMMUNITIES' COST , HOWEVER , WITHOUT CREATING A FUND . GIVEN A CERTAIN BUILDUP OF STAFF OVER THE YEARS , IT IS POSSIBLE THAT A SUBSTANTIAL DEFICIT OR SURPLUS ARISES BETWEEN THE MONIES ALLOCATED FOR PENSIONS , AND PAYMENTS .

THIS WOULD BE THE CASE , FOR INSTANCE , IF , AFTER A PERIOD OF GROWTH , THE COMMUNITIES' STAFF WOULD STABILIZE . IF MEANS ARE SUFFICIENT INITIALLY THEY MAY NOT BE LATER . CONSIDERATION SHOULD BE GIVEN TO CALCULATING THE POSSIBLE LIABILITY ON AN ACTUARIAL BASIS AND IF FOUND TO BE MATERIAL IT SHOULD BE DISCLOSED .

REMARKS OF THE COURT ON THE REPLY OF THE COMMISSION TO PARAGRAPH 2.17

THE VERY EXISTENCE OF INTERVENTION STOCKS ENTAILS A POTENTIAL FINANCIAL BURDEN FOR SUBSEQUENT COMMUNITY BUDGETS , RESULTING FROM THE OBLIGATION UPON THE COMMUNITY TO FINANCE THE DIFFERENCE BETWEEN THEIR INVENTORY VALUE AND THEIR MARKET VALUE . THE COURT CONSIDERS THAT , FOR THE BETTER INFORMATION OF THE READER , THE FINANCIAL STATEMENTS SHOULD TAKE ACCOUNT OF THE EXISTENCE OF THIS POTENTIAL BURDEN IN THE EXPLANATORY NOTES . AS THE COMMISSION PREPARES BUDGET PROPOSALS ON THIS MATTER , IT HAS THE NECESSARY MATERIAL TO HAND .

WITH REGARD TO THE PENSION SCHEME , IT IS PRECISELY BECAUSE THERE IS NO FUND AND BECAUSE THERE IS NO VALUATION FOR ACCOUNTING PURPOSES OF THE RIGHTS ACQUIRED THAT SOME ASSESSMENT OF THE FUTURE EVOLUTION OF THE SCHEME IS NEEDED . AND IF THIS ASSESSMENT SHOULD REVEAL SERIOUS CONSEQUENCES FOR THE COMMUNITY IN THE MEDIUM OR LONG TERM , IT WOULD BE NECESSARY TO MENTION THIS IN THE FINANCIAL STATEMENTS , SO THAT THOSE RESPONSIBLE MAY BE MADE AWARE OF IT IN TIME .

A SUMMARY REVENUE AND EXPENDITURE ACCOUNT OF THE COMMUNITIES

2.18 . IN VIEW OF THE SUGGESTION MADE IN LAST YEAR'S ANNUAL REPORT TO PRODUCE A SUMMARY CONSOLIDATED REVENUE AND EXPENDITURE ACCOUNT , AND HAVING REGARD TO THE NUMEROUS CALLS FOR MORE " TRANSPARENCY " , I.E . BETTER INSIGHT INTO THE COMMUNITIES' FINANCIAL AFFAIRS , TO BE PROVIDED BY THE FINANCIAL STATEMENTS , THE COURT THOUGHT IT USEFUL TO DRAW UP AN ILLUSTRATIVE EXAMPLE OF WHAT IT THINKS COULD BE CONSIDERED AS SUCH AN OVERVIEW OF THE COMMUNITIES' FINANCIAL TRANSACTIONS DURING A FINANCIAL YEAR .

THE STATEMENT HAS BEEN BASED ON THE FIGURES CONTAINED IN THE PRESENT FINANCIAL STATEMENTS AS PUBLISHED BY THE COMMISSION AT 1 JUNE 1980 . THE FACT THAT USE IS MADE OF THESE FIGURES DOES NOT IMPLY THAT THE COURT CONFIRMS THEM .

IT MUST ALSO BE EMPHASIZED THAT THE FORMAT PRESENTED HERE IS NOT THE ONLY POSSIBILITY , NOR WOULD THE COURT PRETEND THAT IT IS THE BEST ONE .

THE COURT WISHES ONLY TO MAKE A PRACTICAL CONTRIBUTION TO THE DISCUSSION ON THE " TRANSPARENCY " OF THE ACCOUNTS , AND LEAVES IT TO THE READER TO APPRECIATE WHETHER SUCH A STATEMENT CONTRIBUTES TO THE INSIGHT INTO THE COMMUNITIES' FINANCIAL AFFAIRS ( SEE TABLE 2 ) .

CONCLUSION

2.19 . HAVING REGARD TO THE FUNDAMENTAL POINTS RAISED IN RESPECT OF ACCOUNTING AND FINANCIAL REPORTING AND THE STATE OF PROGRESS IN IMPROVING THESE MATTERS , THE COURT , ALTHOUGH UNDERSTANDING THE DIFFICULTIES EXPERIENCED BY THE COMMISSION , HAS STILL NOT BEEN ABLE TO SATISFY ITSELF THAT THE BALANCE SHEET OF THE COMMUNITIES AS AT 31 DECEMBER 1979 , OF WHICH A SUMMARIZED VERSION IS ATTACHED ( TABLE 3 ) , ADEQUATELY REFLECTS THE ASSETS AND LIABILITIES AS REQUIRED BY THE RELEVANT FINANCIAL REGULATIONS . THE COURT EXPRESSES THE HOPE THAT SUBSTANTIAL IMPROVEMENTS WILL BE ACHIEVED IN THE NEAR FUTURE TO THE COMMISSION'S ACCOUNTING AND FINANCIAL REPORTING , ALONG THE LINES SET OUT ABOVE AND THE PREVIOUS ANNUAL REPORTS .

REMARK OF THE COURT ON THE REPLY OF THE COMMISSION TO PARAGRAPH 2.19

THE COURT OF AUDITORS , AFTER CONSIDERATION OF THE AMENDED REVENUE AND EXPENDITURE ACCOUNTS AND BALANCE SHEETS RELATING TO THE IMPLEMENTATION OF THE BUDGET FOR THE FINANCIAL YEAR 1979 , REAFFIRMS ITS CONCLUSIONS IN RESPECT OF THE DOCUMENTS SUBMITTED TO IT ON 1 JUNE 1980 IN ACCORDANCE WITH ARTICLE 77 OF THE FINANCIAL REGULATION OF 21 DECEMBER 1977 ( 2 ) .

( 1 ) OJ NO L 170 , 1 . 7 . 1975 .

( 2 ) OJ NO L 356 , 31 . 12 . 1977 .

TABLE 2 - CONSOLIDATED REVENUE AND EXPENDITURE ACCOUNT OF THE EUROPEAN COMMUNITIES FOR THE YEAR ENDED 31 DECEMBER 1979

* ( 1 000 EUA ) *

*1979 BUDGET ( 1)*1979 ACTUAL*1978 ACTUAL*

REVENUE****

OWN RESOURCES*11 950 863*12 070 305*6 674 219*

CONTRIBUTIONS*2 310 570*2 312 988*5 340 297*

OWN REVENUE*149 943*172 749*162 150*

ECSC LEVIES*5 000*5 000*5 000*

TRANSFER OF APPROPRIATIONS CARRIED FORWARD*30 000* - * - *

SURPLUS OF PRIOR YEAR*41 618*41 618**

*14 487 994*14 602 660*12 181 666*

EXPENDITURE ( BY TITLE ) ****

1 PERSONNEL*581 759*536 014*473 942*

2 ADMINISTRATION*239 211*237 868*213 563*

3 SPECIFIC PROJECTS*305 183*334 305*334 672*

4 REPAYMENTS TO MEMBER STATES*721 130*721 130*668 763 ( 2 )*

5 SOCIAL AND REGIONAL FUNDS , INCLUDING EMS*1 006 500*1 278 373*1 067 539*

6-7*EAGGF-GUARANTEE*10 384 100*10 387 088*8 679 251 ( 2 )*

8 EAGGF-GUIDANCE AND FISHERY*355 600*342 389*444 500*

9 COOPERATION WITH DEVELOPING COUNTRIES , NON-MEMBER STATES*524 936*538 805*379 339*

10 OTHER EXPENDITURE*369 575* - * - *

*14 487 994*14 375 972*12 261 569*

SURPLUS ( DEFICIT ) * - *226 688* ( 79 903 ) *

SURPLUS PRIOR YEARS****

ARISING FROM ANNULMENT OF BUDGET APPROPRIATIONS CARRIED FORWARD**199 219*166 582*

EXTRAORDINARY ITEMS****

EXCHANGE DIFFERENCE U.A.-EUA*** ( 45 061 ) *

TRANSFER OF APPROPRIATIONS CARRIED FORWARD**30 000**

ACCUMULATED SURPLUS CARRIED FORWARD****

( = BALANCE OF THE YEAR ) * - *455 907*41 618*

( 1 ) FINAL BUDGET NO 3 FOR 1979 PLUS ADDITIONAL APPROPRIATIONS BUT EXCLUDING TRANSFERS MADE BETWEEN TITLES .

( 2 ) ADJUSTMENT MADE FOR RELOCATION WITHIN THE BUDGET OF AGRICULTURAL EXPENDITURE .

TABLE 3 - SUMMARY OF THE CONSOLIDATED BALANCE SHEET OF THE EUROPEAN COMMUNITIES AS AT 31 DECEMBER 1979 ( 1 ) : SEE O.J .

( 1 ) REVENUE AND EXPENDITURE ACCOUNTS AND BALANCE SHEETS FOR 1979 , VOL II , PAGES 257-259 , AMENDED BY DOCUMENT COM(80 ) 565 FR " AMENDED REVENUE AND EXPENDITURE ACCOUNTS AND BALANCE SHEETS RELATING TO THE IMPLEMENTATION OF THE BUDGET FOR THE FINANCIAL YEAR 1979 " , SENT TO THE COURT ON 20 OCTOBER 1980 . FIGURES FOR 1978 ADDED , SOURCE : 1978 ACCOUNTS .

CHAPTER 3 - REVENUE

SUMMARY OF CONTENTS

*PARAGRAPH REFERENCE*

SUMMARY OF PRINCIPAL COMMENTS*3.0*

DEVELOPMENTS IN 1979*3.1*

POINTS ARISING FROM THE ACCOUNTS : **

REVENUE OUT-TURN 1979*3.2 AND 3.3*

ARTICLE 131 OF THE ACT OF ACCESSION*3.4 TO 3.6*

VALUE ADDED TAX AND FINANCIAL CONTRIBUTIONS*3.7 TO 3.13*

BALANCE FROM 1978*3.14*

CONSEQUENCES OF AMENDING AND SUPPLEMENTARY BUDGET NO 1*3.15 TO 3.17*

AMENDING AND SUPPLEMENTARY BUDGET NO 3*3.18*

POINTS ARISING FROM ON-THE-SPOT AUDITS : **

GENERAL*3.19*

AGRICULTURAL LEVIES*3.20*

COMPLEXITY OF LEVY SYSTEM*3.21*

ACCOUNTING FOR LEVIES AND MCAS*3.22 AND 3.23*

BULK CARGOES*3.24 AND 3.25*

INTERVENTION AGENCIES*3.26 TO 3.33*

UNILATERAL EXEMPTIONS FROM CUSTOMS DUTIES*3.34 TO 3.37*

INDUSTRIAL DISPUTES*3.38*

GERMAN INTERNAL TRADE*3.39 TO 3.47*

THE COMMUNITY TRANSIT SYSTEM - ROAD : **

PURPOSE OF THE SYSTEM*3.48*

PROCEDURES*3.49 TO 3.51*

GUARANTEES*3.52*

REGULATIONS*3.53*

COMMENTS AND RECOMMENDATIONS*3.54 TO 3.61*

SUMMARY OF PRINCIPAL COMMENTS

*PARAGRAPH REFERENCE*

3.0 . THE PRINCIPAL COMMENTS INCLUDED IN THIS CHAPTER ARE : **

( A ) THE ABSENCE OF DETAILED RULES FOR THE IMPLEMENTATION OF ARTICLE 131 OF THE ACT OF ACCESSION*3.4 TO 3.6*

( B ) THE COMPLEXITY OF THE AGRICULTURAL LEVY SYSTEM , THE DANGERS INHERENT THEREIN AND THE NEED TO REVIEW THE ROLE OF NATIONAL INTERVENTION AGENCIES IN THIS REGARD*3.21 TO 3.33*

( C ) THE CONTROLS OPERATED IN RELATION TO GERMAN INTERNAL TRADE AND THE POTENTIAL RISKS FOR OWN RESOURCES*3.39 TO 3.47*

( D ) CONFLICTS ARISING FROM THE DUAL NATURE OF THE COMMUNITY TRANSIT SYSTEM AND SUGGESTIONS FOR ITS IMPROVEMENT*3.54 TO 3.61*

DEVELOPMENTS IN 1979

3.1 . IN 1979 BUDGETARY REVENUE OF THE COMMUNITIES CONSISTED OF CUSTOMS DUTIES AND AGRICULTURAL LEVIES ( INCLUDING SUGAR LEVIES ) , RESOURCES ACCRUING FROM VALUE ADDED TAX , FINANCIAL CONTRIBUTIONS FROM MEMBER STATES AND MISCELLANEOUS REVENUES SUCH AS DEDUCTIONS FROM STAFF REMUNERATION , FINES , ETC . THE YEAR WAS NOTABLE FOR THE INTRODUCTION , AFTER SOME YEARS' DELAY , OF RECEIPTS FROM VALUE ADDED TAX ( VAT ) AS AN ADDITIONAL OWN RESOURCE . THE OBJECT OF THESE RECEIPTS IS TO REPLACE FINANCIAL CONTRIBUTIONS BASED ON GROSS NATIONAL PRODUCT ( GNP ) . HOWEVER , IN THIS RESPECT 1979 MUST BE REGARDED AS A TRANSITIONAL YEAR BECAUSE THREE MEMBER STATES ( FEDERAL REPUBLIC OF GERMANY , IRELAND AND LUXEMBOURG ) HAD NOT INTRODUCED THE REQUISITE COMMON VAT MEASURES AND THEY CONTINUED TO PAY GNP CONTRIBUTIONS . THIS MIXED SYSTEM WILL NOT APPLY IN 1980 , WHEN ALL MEMBER STATES WILL ASSIGN VAT RESOURCES .

POINTS ARISING FROM THE ACCOUNTS

REVENUE OUT-TURN 1979

3.2 . THE FOLLOWING TABLE COMPARES THE BUDGETARY REVENUE OF THE COMMUNITIES FOR 1978 AND 1979 AS SHOWN IN THE ACCOUNTS :

TABLE 1 - TOTAL REVENUE 1978 AND 1979

* ( MEUA ) *

*1978 OUT-TURN*1979*

**FINAL BUDGET*OUT-TURN*

CUSTOMS DUTIES*4 390,9*5 045,5*5 189,1*

AGRICULTURAL LEVIES*1 872,7*1 706,0*1 678,6*

SUGAR LEVIES*410,6*459,8*464,9*

VALUE ADDED TAX RESOURCES* - *4 739,6*4 737,7*

FINANCIAL CONTRIBUTIONS ( GNP ) *5 329,7*2 299,7*2 302,1*

MISCELLANEOUS REVENUE ( INCLUDING ECSC AND EURATOM CONTRIBUTIONS ) *177,8*154,8*188,7*

BALANCE FROM PREVIOUS YEAR* - *41,6*41,6*

TOTAL*12 181,7*14 447,0*14 602,7*

3.3 . TOTAL REVENUE ( 14 602,7 MEUA ) WAS THUS VERY CLOSE TO THE FINAL ESTIMATE INCLUDED IN THE AMENDING AND SUPPLEMENTARY BUDGET NO 3 ( WHICH WAS NOT ADOPTED UNTIL 13 DECEMBER 1979 ) . HOWEVER , WHEN COMPARED WITH THE ORIGINAL BUDGET ESTIMATES ( 13 494,4 MEUA ) THE OUT-TURN FIGURES SHOW :

- AN INCREASE OF 9,3 % IN CUSTOMS DUTIES , EXPLAINED PRINCIPALLY BY A SUBSTANTIAL UNFORESEEN RISE IN IMPORTS SUBJECT TO COMMON CUSTOMS TARIFF DUTIES ;

- A REDUCTION OF 1,6 % IN AGRICULTURAL LEVIES , DUE TO A FALLING TREND IN IMPORTS OF THE MAIN CEREALS AND RISING WORLD PRICES LEADING , IN THE SECOND HALF OF THE YEAR , TO A REDUCTION IN RATES OF LEVY .

AN INCREASE OF ABOUT 9,6 % IN THE VAT RESOURCES AND FINANCIAL CONTRIBUTIONS WAS NECESSARY TO BALANCE THE ADDITIONAL EXPENDITURE AUTHORIZED IN THE AMENDING AND SUPPLEMENTARY BUDGETS . THIS INVOLVED AN INCREASE IN THE COMMUNITY VAT RATE FROM 0,7196 % IN THE ORIGINAL BUDGET TO A FINAL FIGURE OF 0,7889 % .

ARTICLE 131 OF THE ACT OF ACCESSION

3.4 . AS DESCRIBED IN PARAGRAPHS 12.3 TO 12.9 OF PART 1 OF THE COURT'S REPORT FOR 1978 , THE AMOUNTS DUE FROM MEMBER STATES ARE PAYABLE IN FULL , SUBJECT TO AN ABATEMENT , DURING 1978 AND 1979 , FOR DENMARK , IRELAND AND THE UNITED KINGDOM IF THE TERMS OF ARTICLE 131 OF THE ACT OF ACCESSION ARE MET . THIS OPERATION WAS APPLIED FOR 1979 IN MUCH THE SAME WAY IT WAS FOR 1978 , THAT IS TO SAY , THE BUDGET WAS ADOPTED AND IMPLEMENTED WITHOUT REGARD TO ARTICLE 131 . THAT ARTICLE , AS MODIFIED BY ARRANGEMENTS AGREED AT THE EUROPEAN COUNCIL OF 6 DECEMBER 1977 , WAS THEN PUT INTO EFFECT BY MEANS OF FINANCIAL CLEARING BETWEEN THE MEMBER STATES OUTSIDE THE BUDGET . IN ACCORDANCE WITH A DECLARATION OF THE COUNCIL AND THE COMMISSION RECORDED ON THE ADOPTION OF COUNCIL REGULATION ( EEC ) NO 1736/79 ( 1 ) THESE ADJUSTMENTS WERE NOT APPLIED TO THE FINANCING OF TRANSACTIONS ARISING FROM THE SETTING-UP OF THE EUROPEAN MONETARY SYSTEM ( 245 373 000 EUA , CHAPTER 57 OF THE BUDGET ) . INSTEAD THE UNITED KINGDOM , WHICH DID NOT PARTICIPATE FULLY IN THE SYSTEM AND , THEREFORE , DID NOT BENEFIT FROM IT , WAS REPAID ITS SHARE OF THE FINANCING INVOLVED .

3.5 . REGARDING THE ARTICLE 131 OPERATIONS THE COURT AGAIN FEELS IT NECESSARY TO MAKE THE QUALIFICATIONS EXPRESSED IN PARAGRAPHS 12.10 TO 12.11 OF PART I OF ITS REPORT FOR 1978 , IN PARTICULAR THE ABSENCE OF PUBLISHED DECISIONS BY THE COUNCIL OR THE COMMISSION DETAILING THE RULES AGREED UPON FOR THE APPLICATION OF THAT ARTICLE . AGAIN THE COURT IS UNABLE TO REPORT THAT ALL REVENUE HAS BEEN PAID TO THE COMMUNITY IN A LEGAL MANNER , INASMUCH AS ARTICLE 131 HAS NOT BEEN OBSERVED .

3.6 . THE FINANCIAL CLEARING OPERATIONS CARRIED OUT OUTSIDE THE BUDGET TO GIVE EFFECT TO ARTICLE 131 ARE SET OUT IN THE FOLLOWING TABLE .

TABLE 2 - ARTICLE 131 : CLEARING OUTSIDE THE BUDGET

* ( 1 000 EUA ) *

MEMBER STATE*COMMISSION'S INTERPRETATION OF ARTICLE 131 REPAYMENTS DUE TO MEMBER STATES*SETTLEMENT*

**AMOUNT BORNE BY EACH MEMBER STATE*AMOUNT PAID BY MEMBER STATES*AMOUNT RECEIVED BY MEMBER STATES*

BELGIUM* - *40 693*40 693* - *

DENMARK ( 1 )* - * - * - * - *

FR OF GERMANY* - *165 061*165 061* - *

FRANCE* - *163 001*163 001* - *

IRELAND*6 400*4 193* - *2 207*

ITALY* - *91 868*91 868* - *

LUXEMBOURG* - *554*554* -

NETHERLANDS* - *53 913*53 913* - *

UNITED KINGDOM*625 501*112 618* - *512 883*

TOTAL*631 901*631 901*515 090*515 090*

( 1 ) UNLIKE IRELAND AND THE UNITED KINGDOM , DENMARK'S SHARE OF THE BUDGET , BEFORE THE APPLICATION OF ARTICLE 131 , WAS BELOW THE CEILING CALCULATED ON EITHER OF THE INTERPRETATIONS CONSIDERED .

VALUE ADDED TAX AND FINANCIAL CONTRIBUTIONS

3.7 . ARTICLE 4 OF THE COUNCIL DECISION OF 21 APRIL 1970 PROVIDES THAT THE VAT RESOURCES TO BE PAID BY EACH MEMBER STATE TO THE COMMUNITY SHOULD BE CALCULATED BY APPLYING A RATE NOT EXCEEDING 1 % TO AN ASSESSMENT BASIS DETERMINED IN A UNIFORM MANNER THROUGHOUT THE COMMUNITY . THE RATE IS FIXED WITHIN THE FRAMEWORK OF THE BUDGETARY PROCEDURE . THE PROVISIONS SEEKING A HARMONIZED BASE ARE CONTAINED IN COUNCIL DIRECTIVE 77/388/EEC ( 2 ) . THIS DID NOT SUCCEED IN ESTABLISHING A FULLY UNIFORM BASIS OF ASSESSMENT . SOME DIFFERENCES REMAIN AS BETWEEN THE MEMBER STATES AND , IN ACCORDANCE WITH COUNCIL REGULATION ( EEC , EURATOM , ECSC ) NO 2892/77 ( 3 ) , IT WILL BE NECESSARY , FOR SOME TIME TO COME , TO ADJUST THE NATIONAL BASES TO BRING THEM INTO LINE WITH THE THEORETICAL UNIFORM ASSESSMENT BASIS .

3.8 . UNDER THIS REGULATION MEMBER STATES MAY ADOPT ONE OF TWO METHODS FOR CALCULATING THE ASSESSMENT BASIS . THE FIRST IS BASED DIRECTLY ON THE VAT RETURNS OF TAXPAYERS , AND THE SECOND INVOLVES THE APPLICATION OF DATA DERIVED FROM NATIONAL ACCOUNTS STATISTICS TO THE ACTUAL REVENUE COLLECTED .

3.9 . THE RESULT OF APPLYING ONE OR OTHER OF THESE BASES CANNOT BE KNOWN UNTIL AFTER THE END OF THE RELEVANT YEAR . DURING THE BUDGETARY YEAR ITSELF ONETWELFTH OF THE AMOUNT ATTRIBUTABLE TO VAT IN THE BUDGET ESTIMATE MUST BE CREDITED TO THE COMMUNITIES ON THE FIRST WORKING DAY OF EACH MONTH . THE REGULATION REQUIRES THAT THE ADJUSTMENTS TO ALIGN THESE PAYMENTS WITH THOSE BASED ON OUT-TURN FIGURES BE ACCOUNTED FOR IN THE SUBSEQUENT YEAR , FOLLOWING THE SUBMISSION OF THE NECESSARY DATA BY THE MEMBER STATES . THIS , IN TURN , GIVES RISE TO A CORRECTION OF THE FINANCIAL CONTRIBUTIONS OF THOSE MEMBER STATES WHICH HAD NOT YET CONVERTED TO VAT RESOURCES , SO AS TO RESTORE THE ORIGINAL BALANCE , ESTABLISHED IN THE BUDGET , BETWEEN VAT RESOURCES AND FINANCIAL CONTRIBUTIONS . AS THE REQUISITE BALANCING PAYMENTS ( 4 ) ARE NOT DUE BEFORE 1 AUGUST IT FOLLOWS THAT NEITHER THE COURT NOR THE DISCHARGE AUTHORITIES CAN TAKE A VIEW ABOUT THE FINAL OUT-TURN UNTIL AFTER THAT DATE .

3.10 . AS 1979 WAS THE FIRST YEAR IN WHICH VAT RESOURCES WERE RECEIVED BY THE COMMUNITY , THERE WAS NO ADJUSTING FIGURE FOR THE PRECEDING YEAR AND THE AMOUNTS CREDITED IN THE 1979 ACCOUNTS WERE , SUBJECT TO WHAT FOLLOWS , CONFINED TO THOSE PROVIDED IN THE ESTIMATES FOR THAT YEAR . THE DIFFERENCE ( A LOSS ) OF 1,9 MEUA ( SEE TABLE 1 ABOVE ) BETWEEN THE TWO FIGURES ARISES BECAUSE THE MONTHLY SUMS DEMANDED BY THE COMMISSION ARE CONVERTED TO NATIONAL CURRENCIES AT THE CONVERSION RATES FOR THE FIRST WORKING DAY AFTER THE 1KTH DAY OF THE PRECEDING MONTH WHILE , FOR ACCOUNTING PURPOSES , THEY ARE RECONVERTED INTO EUA USING THE LATEST RATE QUOTED ON THE FIRST WORKING DAY OF THE MONTH IN WHICH PAYMENT IS DUE . THE SAME EXPLANATION APPLIES TO THE DIFFERENCE ( A SURPLUS ) OF 2,4 MEUA BETWEEN THE ESTIMATED FINANCIAL CONTRIBUTIONS AND THE OUT-TURN .

3.11 . THE NET SURPLUS OF 0,5 MEUA IS MADE UP OF INDIVIDUAL NATIONAL DISCREPANCIES VARYING FROM - 1,8 MEUA TO + 2,4 MEUA .

3.12 . THIS IS THE SAME POINT AS THAT RAISED ABOUT THE FINANCIAL CONTRIBUTIONS IN PARAGRAPHS 12.18 TO 12.20 OF PART I OF THE COURT'S 1978 REPORT . IT WAS THERE RECOMMENDED THAT THIS ANOMALOUS SITUATION COULD BE AVOIDED BY USING THE ACTUAL EXCHANGE RATES OBTAINING ON THE DAY ON WHICH THE CONTRIBUTION IS DUE . THE COURT IS NOT CONVINCED THAT THE ADMINISTRATIVE DIFFICULTIES ADVANCED BY SOME MEMBER STATES ( MENTIONED BY THE COMMISSION IN ITS REPLY TO THE OBSERVATION ) ARE INSURMOUNTABLE , AND REQUESTS THE COMMISSION TO RE-EXAMINE THE MATTER AFRESH .

3.13 . BECAUSE THE VAT RESOURCES IN THE 1979 ACCOUNTS WERE BASED ON ESTIMATES ONLY , NO ON-THE-SPOT AUDITS WERE CARRIED OUT BY THE COURT ON SUCH RESOURCES IN 1979 . HOWEVER , IT UNDERTOOK A PROGRAMME OF INFORMATION VISITS TO MEMBER STATES INVOLVED IN ORDER TO BRIEF ITSELF ON THE SYSTEMS IN OPERATION AND PREPARE FOR A FULL AUDIT IN 1980 OF THE FINAL FIGURES IN RESPECT OF 1979 .

BALANCE FROM 1978

3.14 . BEFORE 1978 , BUDGET BALANCING WAS CARRIED OUT BY MEANS OF FINANCIAL CONTRIBUTIONS WHICH WERE ADJUSTED IN THE LIGHT OF THE FINAL FINANCING REQUIREMENT . FOR 1978 AND SUBSEQUENT YEARS , THE FINANCIAL CONTRIBUTIONS , AND THE VAT RESOURCES REPLACING THEM , ARE FIXED IN THE BUDGET AND IT FOLLOWS THAT ANY VARIATION IN THE OTHER ELEMENTS OF THE BUDGET CAN GIVE RISE TO A SURPLUS OR A DEFICIT . THE SURPLUS ARISING FROM 1978 WAS 41,6 MEUA . IN ACCORDANCE WITH ARTICLE 27 OF THE FINANCIAL REGULATION OF 21 DECEMBER 1977 , THIS SUM WAS ENTERED AS REVENUE IN THE BUDGET FOR 1979 .

CONSEQUENCES OF AMENDING AND SUPPLEMENTARY BUDGET NO 1

3.15 . FOLLOWING THE DISPUTE BETWEEN THE COUNCIL AND THE PARLIAMENT ABOUT THE ADOPTION OF THE ORIGINAL 1979 BUDGET ON 14 DECEMBER 1978 , THREE MEMBER STATES ( FRANCE , DENMARK AND THE UNITED KINGDOM ) LIMITED THEIR PAYMENTS ON ACCOUNT OF VAT FOR FEBRUARY AND MARCH 1979 TO THOSE RESULTING FROM THE DRAFT BUDGETS . THIS PROCEDURE IS APPLIED AUTOMATICALLY TO PAYMENTS FOR JANUARY EACH YEAR . THE SHORTFALL THUS OCCASIONED WAS REGULARIZED ON 1 APRIL 1979 IN ANTICIPATION OF THE ADOPTION OF AMENDING AND SUPPLEMENTARY BUDGET NO 1 ON 25 APRIL 1979 .

3.16 . THE FINANCIAL CONTROLLER OF THE COMMISSION REFUSED TO APPROVE THE PROPOSAL OF THE AUTHORIZING OFFICER TO WAIVE THE INTEREST INVOLVED , WHICH AMOUNTED TO 550 468 EUA . HOWEVER , THE COMMISSION , ACTING UNDER THE FINANCIAL REGULATIONS , OVERRULED THE FINANCIAL CONTROLLER ON THE GROUNDS THAT :

- THE BUDGETARY DISPUTE HAD RAISED DIFFICULT LEGAL PROBLEMS WHICH WERE ONLY SETTLED BY THE ADOPTION OF THE AMENDING AND SUPPLEMENTARY BUDGET NO 1 , AND

- THE REGULARIZATION HAD TAKEN PLACE BEFORE THE SUPPLEMENTARY BUDGET .

3.17 . FOLLOWING THE ADOPTION OF AMENDING AND SUPPLEMENTARY BUDGET NO 1 ON 25 APRIL 1979 MEMBER STATES SHOULD HAVE ADJUSTED THEIR VAT OR GNP CONTRIBUTIONS IN ACCORDANCE THEREWITH ON 1 MAY . CLAIMING THAT THERE WAS NOT SUFFICIENT TIME TO COMPLETE THE NECESSARY ADMINISTRATIVE PROCEDURES , FIVE MEMBER STATES WERE LATE IN BRINGING THE ADJUSTMENTS TO ACCOUNT . THE DELAYS INVOLVED RANGED UP TO 30 DAYS . THE INTEREST DUE ( 108 000 EUA , APPROXIMATELY ) WAS WAIVED . THE COURT WOULD BE INTERESTED TO KNOW ON WHAT GROUNDS .

AMENDING AND SUPPLEMENTARY BUDGET NO 3

3.18 . FOLLOWING THE ADOPTION , ON 13 DECEMBER 1979 , OF AMENDING AND SUPPLEMENTARY BUDGET NO 3 , WHICH INCREASED THE VAT AND GNP CONTRIBUTIONS BY A TOTAL OF 396,9 MEUA , SEVEN MEMBER STATES PAID ADJUSTING SUMS ( AMOUNTING TO 197,1 MEUA ) ON OR AFTER 2 JANUARY 1980 , THE DUE DATE . TWO MEMBER STATES HAD PAID IN ADVANCE OF THE DUE DATE .

THE TOTAL OF 396,9 MEUA WAS BOOKED BY THE COMMISSION TO THE CREDIT OF THE 1979 FINANCIAL YEAR . A STRICT APPLICATION OF ARTICLE 5 OF THE FINANCIAL REGULATION WOULD HAVE REQUIRED BOOKING THE AMOUNTS RECEIVED ON OR AFTER 1 JANUARY TO THE 1980 FINANCIAL YEAR . THIS WOULD , HOWEVER , HAVE ENTAILED A SERIOUS DISRUPTION OF THE FINANCIAL BALANCE FOR BOTH 1979 AND 1980 , AND WOULD HAVE DEFEATED THE CLEAR INTENTION OF THE BUDGETARY AUTHORITIES . THE COURT DOES NOT RECOMMEND ANY ADJUSTMENT OF THE ACCOUNTS ON THE PRESENT OCCASION . IT RECOMMENDS , HOWEVER , THAT THE RELEVANT REGULATIONS BE AMENDED AT THE EARLIEST OPPORTUNITY TO ENSURE THAT ADJUSTMENTS TO REVENUE BROUGHT ABOUT BY AMENDING AND SUPPLEMENTARY BUDGETS ADOPTED IN THE MONTH OF DECEMBER CAN BE BOOKED TO THE ACCOUNTS OF THE FINANCIAL YEAR FOR WHICH THOSE BUDGETS ARE ADOPTED .

POINTS ARISING FROM ON-THE-SPOT AUDITS

GENERAL

3.19 . THE SYSTEMS OF ASSESSMENT AND CENTRALIZATION OF OWN RESOURCES WERE FURTHER EXAMINED DURING A SERIES OF ON-THE-SPOT AUDITS IN THE MEMBER STATES IN CONNECTION WITH THE 1979 ACCOUNTS . ENQUIRIES COVERED NOT ONLY CUSTOMS DUTIES AS IN THE PREVIOUS YEAR , BUT ALSO AGRICULTURAL LEVIES AND SUGAR LEVIES .

AGRICULTURAL LEVIES

3.20 . THESE LEVIES ARE DESIGNED TO AFFORD PROTECTION TO COMMUNITY PRODUCE BY BRINGING PRICES OF IMPORTED AGRICULTURAL PRODUCE UP TO THE LEVELS PREVAILING IN THE COMMUNITY . IN SECTORS AND MEMBER STATES WHERE THE REPRESENTATIVE RATES OF EXCHANGE USED FOR THE COMMON AGRICULTURAL POLICY DIFFER SIGNIFICANTLY FROM MARKET RATES , THE LEVY IS INCREASED OR REDUCED BY THE APPLICATION OF POSITIVE OR NEGATIVE MONETARY COMPENSATORY AMOUNTS ( MCAS ) , SUPPLEMENTED , IN THE CASE OF THIRD COUNTRY TRADE , BY THE APPLICATION OF A MONETARY COEFFICIENT TO THE LEVY . RATES OF LEVY AND MCA CHANGE FREQUENTLY IN LINE WITH FLUCTUATIONS IN WORLD PRICES AND EXCHANGE RATES . TO AFFORD A MEASURE OF CERTAINTY TO PERSONS WHO INTEND TO IMPORT AGRICULTURAL PRODUCTS OVER AN EXTENDED PERIOD , ARRANGEMENTS CAN BE MADE TO FIX THE RATES OF LEVY AND MCA IN ADVANCE . NEVERTHELESS , AT THE TIME OF IMPORTATION , THESE RATES MAY BE SUBJECTED TO A COMPLICATED SERIES OF ADJUSTMENTS TO TAKE ACCOUNT OF SPECIAL MARKET CONDITIONS .

COMPLEXITY OF LEVY SYSTEM

3.21 . THE SYSTEM WHICH HAS TO BE OPERATED BY THE NATIONAL CUSTOMS AND INTERVENTION AGENCIES WHO ARE NORMALLY RESPONSIBLE FOR ADMINISTRATION IS THUS A VERY COMPLEX ONE AND IS EXPRESSED IN DIFFICULT COMMUNITY LEGISLATION . IT IS PERHAPS NOT SURPRISING THAT THE DETAILED IMPLEMENTING RULES SET OUT IN NATIONAL PROVISIONS TEND TO DIFFER ONE FROM ANOTHER . THIS INITIAL OBSTACLE TO A HARMONIZED APPROACH IS SUPPLEMENTED BY THE FREQUENCY OF ADJUSTMENTS OF LEVY RATES . SOME RATES CHANGE EVERY FEW DAYS , AND AT VERY SHORT NOTICE . SOMETIMES THEY ARE NOTIFIED IN ARREAR . IN THIS SITUATION THE POSSIBILITIES FOR ERROR ARE MULTIPLIED , AND THE WORK OF THE NATIONAL ADMINISTRATIONS IS MADE VERY BURDENSOME . SUBJECT TO THE OBSERVATIONS SET OUT BELOW , THE COURT FOUND THAT THE NATIONAL ARRANGEMENTS WERE GENERALLY SATISFACTORY IN THE DIFFICULT CIRCUMSTANCES . THERE WERE ERRORS OF CALCULATION BUT THEY WERE NOT SYSTEMATIC . NEVERTHELESS , THE COURT IS OF THE OPINION THAT THE INHERENT RISKS ARE SERIOUS AND RECOMMENDS THAT THE COMMISSION SHOULD STRIVE TO ACHIEVE THE MAXIMUM SIMPLIFICATION OF THE PRESENT COMPLEX STRUCTURES CONSISTENT WITH THE ESSENTIAL ECONOMIC AND FINANCIAL AIMS OF AGRICULTURAL POLICY .

ACCOUNTING FOR LEVIES AND MCAS

3.22 . ACCORDING TO THE COUNCIL DECISION OF 21 APRIL 1970 , AGRICULTURAL LEVIES AND MCAS LEVIED ON TRADE WITH THIRD COUNTRIES ARE OWN RESOURCES OF THE COMMUNITIES . UNDER CURRENT COMMUNITY PRACTICE , MCAS GRANTED ON IMPORTS ( BY CERTAIN MEMBER STATES WHOSE CURRENCIES HAVE BEEN DEVALUED ) ARE DEDUCTED FROM THE IMPORT LEVIES CHARGEABLE AND ONLY THE NET TOTAL IS BROUGHT TO ACCOUNT AS OWN RESOURCES . SIMILARLY , MCAS LEVIED BY THOSE MEMBER STATES ON EXPORTS ARE DEDUCTED FROM THE EXPORT REFUNDS PAYABLE , THE NET TOTAL BEING CHARGED AS EXPORT REFUNDS . THE COURT CONSIDERS THIS PRACTICE TO BE A DEPARTURE FROM SOUND ACCOUNTING PRINCIPLES IN THAT THE RESULTING ENTRIES DISTORT THE TOTALS OF REVENUE AND EXPENDITURE AND CONFUSE THEIR CLASSIFICATION . IT STRONGLY RECOMMENDS A CHANGE IN THE RELEVANT COMMUNITY REGULATIONS . ( SEE ALSO CHAPTER 4 OF THIS REPORT . )

3.23 . IN THE NETHERLANDS AND THE FEDERAL REPUBLIC OF GERMANY WEAKNESSES WERE NOTED IN THE ACCOUNTS RESULTING IN MCAS WHICH SHOULD HAVE BEEN TREATED AS OWN RESOURCES BEING BOOKED AS " NEGATIVE " EAGGF EXPENDITURE . FURTHER , THIS HAD THE EFFECT THAT THE REFUND OF 10 % OF CUSTOMS ETC . DUTIES PAID TO THOSE MEMBER STATES FOR COLLECTION COSTS WAS WRONGLY CALCULATED . THE MEMBER STATES CONCERNED HAVE SINCE TAKEN STEPS TO RECTIFY THE SITUATION .

BULK CARGOES

3.24 . THE COURT EXAMINED THE SPECIAL PROBLEMS ASSOCIATED WITH THE APPLICATION OF AGRICULTURAL LEVY TO BULK CARGOES , SUCH AS GRAIN . THE LEVY IN SUCH CASES IS NORMALLY ASSESSED ON WEIGHT . IT IS IMPORTANT THEREFORE , IN CIRCUMSTANCES WHERE LEVIES CAN EXCEED 1 MILLION EUA ON A SINGLE CARGO , THAT PARTICULAR ATTENTION BE PAID TO THE CONTROL OF WEIGHTS . IN THE CASES EXAMINED IT WAS FOUND THAT THE PHYSICAL INSTALLATIONS FOR WEIGHING AND STORAGE ON THE QUAYSIDE WERE SATISFACTORY AND THAT THE WEIGHING EQUIPMENT WAS CHECKED REGULARLY . THE OPERATORS OF THESE INSTALLATIONS ( GENERALLY THE PORT AUTHORITIES ) ARE CONCERNED , FROM A COMMERCIAL POINT OF VIEW , TO CARRY OUT WEIGHING OPERATIONS CORRECTLY , SINCE THEIR HANDLING CHANGES DEPEND ON QUANTITIES PASSING THROUGH THE SILOS . THERE IS A COMMON INTEREST BETWEEN THEM AND THE CUSTOMS . HOWEVER , THE COURT IS OF THE OPINION THAT TOO MUCH RELIANCE IS PLACED BY THE CUSTOMS AUTHORITIES ON THIS COMMUNITY OF INTEREST WITH THE RESULT THAT THERE CAN BE A HIATUS IN THE SEQUENCE OF CHECKING OPERATIONS .

3.25 . FOR EXAMPLE , AT THE TWO PORTS VISITED BY COURT OFFICIALS ( IN THE UNITED KINGDOM AND ITALY ) IT WAS FOUND THAT THE CUSTOMS PROCEDURES FOR BALANCING THE SHIPS' MANIFESTS AND CUSTOMS DECLARATIONS AGAINST THE ACTUAL AMOUNTS OF GRAIN OFFLOADED FROM SHIPS RECEIVED VERY LOW PRIORITY AND IN SOME CASES WERE MORE THAN A YEAR IN ARREAR . AT ONE OF THESE PORTS , IN ITALY WHERE PHYSICAL CONTROL OF MOVEMENTS IN PORT AREAS IS NOT NORMALLY CARRIED OUT BY THE CUSTOMS AUTHORITIES BUT BY A SEPARATE SERVICE ATTACHED TO THE MINISTRY OF FINANCE , THE FINAL CLEARANCE OPERATION WAS FURTHER IMPEDED BY LACK OF COORDINATION BETWEEN THE AGENCIES INVOLVED .

INTERVENTION AGENCIES

3.26 . THE STRUCTURE AND FUNCTIONS OF AGRICULTURAL INTERVENTION AGENCIES OF THE MEMBER STATES WHICH HAVE A ROLE TO PLAY IN THE ADMINISTRATION OF THE OWN RESOURCES DERIVING FROM TRADE IN AGRICULTURAL PRODUCE VARY SIGNIFICANTLY FROM ONE MEMBER STATE TO ANOTHER . IN SOME CASES THEY ARE PUBLIC CORPORATIONS SET UP UNDER PUBLIC LAW , IN OTHERS , THOUGH OPERATING UNDER PUBLIC LAW , THEY HAVE THE STATUS OF SEMI-PRIVATE COMMERCIAL UNDERTAKINGS . IN THE ABSENCE OF COMMUNITY PROVISIONS REGARDING COLLECTION AND ENFORCEMENT , IT FALLS TO THE MEMBER STATES TO ENDOW THESE AGENCIES WITH THE LEGAL POWERS NECESSARY TO PROTECT COMMUNITY FINANCIAL INTERESTS .

3.27 . IN FRANCE IT WAS LEARNED THAT THE INTERVENTION AGENCY CONCERNED WITH SUGAR DOES NOT POSSESS STATUTORY POWERS OF ENFORCEMENT . WHERE IT BECOMES NECESSARY FOR RECOVERY TO BE MADE IT HAS RECOURSE TO THE ORDINARY PROCESSES OF COMMERCIAL LAW . IN THE COURSE OF EXAMINING THE ACCOUNTS OF THIS AGENCY IT WAS NOTED THAT CERTAIN SUMS ESTABLISHED ON ACCOUNT OF SUGAR STORAGE LEVY , HAD BEEN DEDUCTED FROM THE TOTALS MADE AVAILABLE TO THE COMMISSION IN THE PERIOD MAY 1979 TO JULY 1980 . THE SUMS SO RETAINED ( ABOUT 166 000 EUA ) REPRESENTED THE AMOUNTS OF LEVY WHICH CERTAIN SUGAR MANUFACTURERS HAD FAILED TO PAY TO THE AGENCY . THE AGENCY OFFICIALS CONCERNED WERE AWARE OF THE COMMUNITY RULE REQUIRING MEMBER STATES TO MAKE AVAILABLE OWN RESOURCES ESTABLISHED AS DUE , EXCEPT WHERE SUCH SUMS COULD NOT BE COLLECTED FOR REASONS OF FORCE MAJEURE . HOWEVER , THEY EXPLAINED THAT THE AGENCY HAD NO FREE FUNDS WITH WHICH TO CREDIT THE COMMISSION'S ACCOUNT .

3.28 . FOLLOWING A REQUEST ADDRESSED TO THE FRENCH AUTHORITIES BY THE COMMISSION , THE SUM INVOLVED WAS MADE AVAILABLE ON 5 AUGUST 1980 . THE COURT TRUSTS THAT THE MEMBER STATE INVOLVED WILL TAKE STEPS TO ENSURE THAT INSTITUTIONAL PROBLEMS OF THIS KIND WILL NOT , IN FUTURE , INTERFERE WITH THE TIMELY MAKING AVAILABLE OF OWN RESOURCES , THE RESPONSIBILITY FOR WHICH DEVOLVES ON THE MEMBER STATE ITSELF , AND NOT ON ITS INDIVIDUAL AGENCIES .

3.29 . IN BELGIUM THE INTERVENTION AGENCY IS RESPONSIBLE FOR THE ASSESSMENT AND COLLECTION OF AGRICULTURAL LEVIES ON THE BASIS OF INFORMATION SUPPLIED BY THE CUSTOMS SERVICES OF THE PORT WHERE THE GOODS ARE IMPORTED . SOME YEARS AGO THE INSPECTION SERVICES OF THE COMMISSION , ACTING IN ASSOCIATION WITH THOSE OF THE MEMBER STATE CONCERNED , DISCOVERED WEAKNESSES IN THE ROUTINE ACCOUNTING CONTROLS OF THE AGENCY . THESE WEAKNESSES WERE EXACERBATED BY A SERIOUS LACK OF COORDINATION BETWEEN THE INTERVENTION AGENCY AND THE CUSTOMS SERVICES , AS A RESULT OF WHICH INACCURACIES IN THE DETAILS SUPPLIED BY THE LATTER OFTEN WENT UNNOTICED .

3.30 . FOLLOWING THE STRENGTHENING OF THE CONTROL PROCEDURES , THE COMMISSION REQUESTED THE RESPONSIBLE MINISTRY TO CARRY OUT A DETAILED AUDIT OF THE PERIOD FROM 1971 TO 1975 AS A CONSEQUENCE OF WHICH ADDITIONAL SUMS EQUIVALENT TO ABOUT 4 MEUA WERE MADE AVAILABLE TO THE COMMUNITY . AN EXTENSIVE AUDIT OF SUBSEQUENT PERIODS IS AT PRESENT BEING CARRIED OUT BY THE BELGIAN AUTHORITIES , BUT IT IS NOT EXPECTED TO BE COMPLETED UNTIL THE END OF 1980 .

3.31 . THE COURT EXAMINED THE REINFORCED SYSTEM OPERATED BY THE AGENCY SINCE 1978 , AND SUGGESTED FURTHER IMPROVEMENTS .

3.32 . THE RESPONSIBLE MINISTRY INFORMED THE COURT THAT , FROM 1 JANUARY 1980 , A COMPUTER SYSTEM HAD BEEN INTRODUCED WHICH WOULD IMPROVE THE CONTROLS STILL FURTHER . IT WAS HOPED SHORTLY TO SUPPLEMENT THESE CONTROLS BY A SYSTEM OF ROUTINE A POSTERIORI CHECKS . THE COURT WILL KEEP THE MATTER UNDER REVIEW .

3.33 . THE OBSERVATIONS IN PARAGRAPHS 3.19 ET SEQ . ILLUSTRATE THE PROBLEMS WHICH CAN BE CAUSED BY A DIVISION OF RESPONSIBILITY BETWEEN INTERVENTION AGENCIES AND CUSTOMS SERVICES . WHILE AS A GENERAL RULE , BETTER COORDINATION WILL HELP TO MEET THESE PROBLEMS IN THE SHORT TERM , THE COURT IS OF THE OPINION THAT A MORE FUNDAMENTAL EXAMINATION SHOULD BE UNDERTAKEN BY THE COMMISSION AND THE MEMBER STATES OF THE STRUCTURES AND FUNCTIONS OF THE VARIOUS BODIES INVOLVED WITH A VIEW TO ESTABLISHING STANDARDIZED PROCEDURES AND ADMINISTRATIVE NORMS WHICH COULD BE FOLLOWED BY ALL THE MEMBER STATES .

UNILATERAL EXEMPTIONS FROM CUSTOMS DUTIES

3.34 . IN ITS 1977 REPORT ( PART I , PARAGRAPHS 12.15 TO 12.17 ) THE COURT REFERRED TO CERTAIN UNILATERAL EXEMPTIONS FROM THE COMMON CUSTOMS TARIFF . FOLLOWING INITIATIVES BY THE COMMISSION MOST OF THESE HAVE BEEN OR WILL SHORTLY BE WITHDRAWN , APART FROM THOSE RELATING TO MILITARY EQUIPMENT REFERRED TO BELOW .

3.35 . THE MORE IMPORTANT PROBLEM RELATES TO THE EXEMPTION BY MEMBER STATES OF IMPORTS OF CERTAIN MILITARY EQUIPMENT , AND THIS IS UNRESOLVED . IT WAS POINTED OUT IN THE 1977 REPORT THAT THE MEMBER STATES INVOKE ARTICLE 223 ( 1 ) ( B ) OF THE EEC TREATY ( PROTECTION OF MEMBER STATES' SECURITY ) IN JUSTIFICATION FOR THE EXEMPTIONS . THEY REJECT THE COMMISSION'S VIEW THAT COLLECTION OF A CUSTOMS DUTY DOES NOT JEOPARDIZE THE PROTECTION OF THE ESSENTIAL INTERESTS OF NATIONAL SECURITY .

3.36 . REQUESTS MADE BY OFFICIALS OF THE COURT TO INSPECT IMPORT DOCUMENTS RELATING TO THE EQUIPMENT IN QUESTION HAVE BEEN REFUSED BY THE NATIONAL AUTHORITIES CONCERNED ON GROUNDS OF NATIONAL SECURITY . THE COURT HAS NOT FOUND IT POSSIBLE , THEREFORE , TO QUANTIFY THE CONSIDERABLE SUMS WHICH MUST BE INVOLVED , OR TO VERIFY DIRECTLY THE NATURE OF THE EQUIPMENT AND MATERIAL TO WHICH THE EXEMPTIONS ARE APPLIED . IT WAS NOTED , HOWEVER , THAT IN ITALY THE CONCESSION APPLIES TO A VERY WIDE RANGE OF GOODS IMPORTED FOR THE USE OF THE ARMED FORCES AND EVEN EXTENDS TO TRANSPORT AND COMMUNICATIONS EQUIPMENT IMPORTED FOR THE USE OF THE GUARDIA DI FINANZA , WHICH , UNDER ITALIAN LAW , HAS THE STATUS OF A MILITARY BODY . IN SOME OTHER COUNTRIES THE CONCESSION IS APPLIED MORE RESTRICTIVELY .

3.37 . ARTICLE 223 ( 1 ) ( B ) IS NOT THE MOST SUITABLE VEHICLE FOR THE ADMINISTRATION OF AN EXEMPTION OF THIS NATURE INVOLVING , AS IT DOES , THE WAIVER OF SUBSTANTIAL AMOUNTS OF OWN RESOURCES . IT IS IN THE INTERESTS OF THE COMMUNITY AND OF THE MEMBER STATES THEMSELVES THAT A MORE SATISFACTORY SOLUTION SHOULD BE FOUND WHICH , WHILE AVOIDING ANY RISKS TO NATIONAL SECURITY INTERESTS , WOULD PERMIT THE APPLICATION OF THE PRESENT TARIFF OR , ALTERNATIVELY , PLACE THE EXEMPTIONS ON A FIRMER COMMUNITY FOOTING . ALTHOUGH IT IS NOT FOR THE COURT TO EXPRESS A PREFERENCE FOR ONE OR OTHER OF THESE SOLUTIONS , IT CONSIDERS THAT ANY EXEMPTIONS GRANTED SHOULD BE LIMITED TO STRATEGIC MATERIALS AND SHOULD NOT EXTEND TO GOODS OF THE KIND MENTIONED IN PARAGRAPH 3.36 .

INDUSTRIAL DISPUTES

3.38 . DURING THE YEAR UNDER REVIEW IRELAND AND THE UNITED KINGDOM EXPERIENCED PROLONGED INDUSTRIAL DISPUTES WHICH HAD A BEARING ON CUSTOMS DUTIES AND AGRICULTURAL LEVIES . THE IRISH CASE INVOLVED A POSTAL STRIKE . IT WAS ASCERTAINED THAT THE CENTRALIZATION AND MAKING AVAILABLE OF RESOURCES ONCE ESTABLISHED WERE UNAFFECTED , BUT THERE WERE INEVITABLE , THOUGH UNQUANTIFIABLE , DELAYS IN CORRESPONDENCE AND PROCEDURES WHICH MEANT THAT ESTABLISHMENT WAS LATER THAN IT SHOULD HAVE BEEN . THE UNITED KINGDOM CASE RESULTED IN A CESSATION OF DATA PROCESSING AT THE CENTRAL ACCOUNTING OFFICE . DURING MOST OF THE YEAR , THEREFORE , ALTHOUGH DUTIES CONTINUED TO BE ASSESSED , IT WAS NOT POSSIBLE TO ASCERTAIN EXACT MONTHLY TOTALS FROM ACCOUNTING SOURCES . THE MEMBER STATE'S MONTHLY PAYMENTS HAD TO BE BASED ON ESTIMATES , WHICH WERE ADJUSTED AFTER THE END OF THE DISPUTE . BECAUSE OF THE BACKLOG THAT HAD BUILT UP , SOME OF THE LATER MONTHS HAD NOT BEEN REGULARIZED BY THE END OF THE YEAR . THE ADJUSTMENTS CARRIED OUT DISCLOSED THAT , WHILE , FOR THE PERIOD AS A WHOLE , THE ESTIMATES WERE REASONABLY ACCURATE , IN SEVEN INDIVIDUAL CASES THE PROVISIONAL MONTHLY ESTIMATES WERE LOWER , IN SOME CASES SUBSTANTIALLY LOWER , THAN THE FINAL FIGURES , AND WERE HIGHER IN THREE CASES . THE DELAY IN RECTIFYING THE PROVISIONAL FIGURES RANGED UP TO THREE MONTHS . THE COMMISSION HAS CLAIMED INTEREST UNDER ARTICLE 11 OF COUNCIL REGULATION ( EEC , EURATOM , ECSC ) NO 2891/77 ( 5 ) .

GERMAN INTERNAL TRADE

3.39 . OWN RESOURCES DERIVED FROM CUSTOMS DUTIES AND AGRICULTURAL LEVIES ARE A DIRECT RESULT OF TRADE BETWEEN COMMUNITY MEMBER STATES AND THIRD COUNTRIES . IT FOLLOWS THAT ANY GOODS ENTERING THE C