+ * + COMMISSION OF THE EUROPEAN COMMUNITIES 
Brussels, 08.12.1997 
COM(97)673 final 
SECOND REPORT FROM THE COMMISSION 
ON 
THE OPERATION OF THE INSPECTION ARRANGEMENTS 
FOR TRADITIONAL OWN RESOURCES 
(FOR THE PERIOD 1993 - 96) 
(Article 18(5) of Council Regulation (EEC, Euratom) No 1552/89 

Contents 
INTRODUCTION 1 
1. LEGAL FRAMEWORK 2 
1.1 The "own resources" Decision 2 
1.2 Implementing regulation 2 
1.3 The rules governing inspections 3 
2. HOW THE INSPECTION SYSTEM OPERATES 
AT COMMUNITY LEVEL 3 
2.1 Checks on legislative and administrative provisions 5 
2.2 Documentary checks 6 
2.3 Monitoring inspection activities in the Member States 7 
2.4 On-the-spot inspections in Member States 7 
3. ON-THE-SPOT INSPECTIONS BY TH E COMMISSION 
IN 1993-96 9 
3.1 Procedures and execution of on-the-spot inspections 9 
3.2 Summary of the main results of inspections 11 
3.2.1 Comments on major malfunctions identified 12 
3.2.2 Comments on specific instances of poor application of 
the regulations 15 
3.2.3 The reasonably satisfactory operation of some regimes. 16 
3.3 Follow-up to Commission inspection measures 17 
3.3.1 Legislative aspects 17 
3.3.2 Accounting aspects 18 
3.4 Results of other forms of inspection 19 
3.4.1 Amounts written off 19 
3.4.2 Monitoring the recovery of traditional own resources 
in cases of fraud and irregularities 20 
4. ASSESSMENT OF HOW THE INSPECTION ARRANGEMENTS 
OPERATE 21 
4.1 Changes to the system for collecting and inspecting 
traditional own resources 21 
4.2 General assessment and conclusions 23 
4.2.1 Why inspections are necessary and what purpose they serve 24 
4.2.2 Entry and customs status of goods at the 
Union's external borders 24 
5. ANNEX 27 
INTRODUCTION 
Every three years the Commission compiles a report for the European Parliament and the 
Council on the operation of the inspection system for Community resources, pursuant to 
Article 18(5) of Council Regulation (EEC, Euratom) No 1552/89 of 29 May 1989 
implementing Decision 88/376/EEC/Euratom on the system of the Community's 
own resources1 ("Regulation No 1552/89"). 
The first report, concerning the period 1989-92, was submitted to the budgetary authority 
on 4 January 19942. This report presents an analysis and general assessment of the 
operation of the inspection system for traditional own resources between January 1993 
and December 1996. In an attempt to provide a complete overview of inspections that 
took place over several years, especially as regards inward processing, generalised 
preferences and external Community transit, the Commission has decided to include in the 
report the results of the inspections carried out in 1996 and to outline follow-up action on 
the various cases up to the end of February 1997. 
The first part of this report explains its objectives and structure and presents the legal 
basis for the different inspection methods. The second part is a factual description of the 
inspection system operating at Community level, taken from the first report and amended 
where necessary. 
In the third part, the Commission gives a summary account both of the procedures and the 
results of the on-the-spot inspections carried out during the period. It also reports on the 
follow-up action to these inspections in terms of amendments to rules and accounting 
adjustments, and on the results of other inspection methods. 
The fourth part details the developments underway in the inspection system as a whole, 
before going on to evaluate the efficiency of the system. It also includes an assessment of 
the feasibility of carrying out unannounced inspections of the national administrations of 
the Member States3 and for the European Parliament4 provides an assessment of the 
situation regarding the entry and customs status of goods at the external borders of the 
Union. 
The report also has an annex listing the cases where Article 17(2) of Regulation 
No 1552/89 has been applied. 
OJI 155, 7.6.1989. p.1. 
COM(93) 691 final 
lu .iixniifcinœ with the undertaking given bv the Commission when Council Regulation (EEC, Euratom) No 1355/96 was adopted amending 
Regulation No 1552/89 (OJ L 185,1 > 1988, p.24). 
In response to the request made by the European Parliament during the discharge procedure in respect of the 1994 budget 
1. LEGAL FRAMEWORK 
1.1 The "own resources" Decision 
From 1988 to 1994, the legal basis for the Communities' own resources system was 
provided by Council Decision 88/376/EEC, Euratom of 24 June 1988. Article 2(1) of this 
Decision defines the own resources that are entered in the budget of the Community. 
Traditional own resources (TOR) are defined as revenue from: 
a) levies, premiums, additional or compensatory amounts, additional amounts or factors 
and other duties established or to be established by the institutions of the 
Communities in respect of trade with non-member countries within the framework of 
the common agricultural policy, and also contributions and other duties provided for 
within the framework of the common organisation of the markets in sugar; 
b) Common Customs Tariff duties and other duties established or to be established by 
the institutions of the Communities in respect of trade with non-member countries 
and customs duties on products coming under the Treaty establishing the European 
Coal and Steel Community. 
On 1 January 1995, Council Decision 94/728/EC, Euratom of 31 October 1994,5 
replaced the Decision of 24 June 1988 as the legal basis for the own resources system. 
1.2 Implementing regulation 
The legal arrangements for the implementation of Decision 88/376/EEC were created by 
Regulation No 1552/89, which establishes the principle of establishment of an entitlement 
to own resources (Article 2), the accounting rules for these resources (Article 6(2)) and 
the rules for making them available to the Commission (Article 10). 
This Regulation contains provisions governing the obligation of Member States to report 
to the Commission cases of fraud and irregularities they have detected, the aim being to 
monitor recovery procedures more closely in such cases (last subparagraph of 
Article 6(3)). In addition, it contains provisions relating to exemption from the obligation 
to make own resources available to the Commission (Article 17(2)); inspections 
(Article 18(2) and (3)) and the Advisory Committee on the Communities' own resources 
(Article 20).6 
An important amendment to this Regulation was made in July 1996. It is intended to: 
• define and clarify certain financial and accounting provisions, especially the criteria for 
establishing and making available the entitlement to own resources from sugar 
(automatic entry in the "A" accounts, as specified in Article 6(2)(a) of 
Regulation 1552/89) and the date the entitlement to TOR is established, especially in 
cases involving infringement proceedings; 
• simplify and streamline certain accounting procedures and 
• strengthen the anti-fraud measures and the monitoring arrangements available to the 
Commission. 
i) OJL 293.12.11.1994, p. 9. 
Council Regulation (EC, Euratom) No 1355/96, adopted on 13 June 1996, in force since 14 July 1996 
3 -
1.3 The rules governing inspections 
Council Regulation (EEC, Euratom, ECSC) No 165/74 of 21 January determining the 
powers and obligations of officials appointed by the Commission71974 hereafter referred 
to as "Regulation 165/74" applies to inspections carried out jointly with the national 
administrations of the Member States.8 
These joint inspections are concerned with the establishment, recording and making 
available of TOR. The officials appointed by the Commission are bound by professional 
confidentiality and subject to other obligations in the exercise of their powers of 
inspection. 
2. HOW THE INSPECTION SYSTEM OPERATES AT COMMUNITY 
LEVEL 
The TOR system is subject to several types of control within the Commission: apart from 
the internal Commission audits carried out by the Directorate-General for Budgets in its 
capacity as authorising department for budget revenue, the system is monitored as regards 
the recovery of Community entitlements (Special report from the Financial Controller 
pursuant to Article 29(3) of the Financial Regulation) and as regards the safeguarding of 
the financial interests of the Community (Annual UCLAF report on the fight against 
fraud). 
The Commission is also required to reply to and take action on the observations made by 
the Court of Auditors regarding inspections carried out under Article 188a-c of the Treaty 
and the requests made by the European Parliament during the discharge procedure in 
respect of the execution of the budget. 
Since responsibility for collecting TOR is delegated to the Member States, their duties 
involve establishing entitlements to own resources, entering the amounts correctly in the 
accounts and making these resources available. The Commission, which is accountable to 
the budgetary authority for the management of TOR, must ensure that these tasks are 
being carried out in accordance with Community regulations. This interlinking of the 
Member States' and the Commission's responsibilities is a result of the current division of 
responsibilities among the institutions of the European Union. 
In this connection, as authorising body for revenue, the Commission9 carries out three 
types of inspection in addition to those that the Member States themselves are required to 
perform. These are: 
• checks on legislative and administrative provisions; 
• documentary checks; 
• on-the-spot inspections in the Member States. 
7 OJ L 20, 24.01.1974, p. 1. 
8 Under Article 18(2) of Council Regulation No 1552/89 
9 The controls carried out by the Commission are only some of the inspections carried out by the Community institutions The Court of Auditors 
is empowered to carry out audits in this field and the European Parliament can also play an inspection role. 
The Community control and inspection arrangements for TOR, as put in place under 
Regulation No 1552/89 and implemented by the Commission, can be represented 
schematically as follows: 
Checks on 
legislation Analysis of Member States' provisions for 
establishing, collecting and making available traditional 
own resources (Art. 4(l)(b)) 
Documentary 
checks >| Anal, of statements 
and reports 
Analysis of specific 
cases 
1 Accounting 
information Monthly statement 
A accounts 
(Art. 6(2)(a))** 
Quarterly statement 
B accounts 
(Ail 6(2)(h))** 
Summary account <>l" 
established 
entitlements -» annual 
report (Art. 7) 
Half-yearly report* on outcome of 
inspections in Member States 
(Art. 17(3)) 
Exemption from the obligation to place 
resources at the Commission's disposal 
in cases of force majeure or specific 
cases if amount exceeds ECU 10 000 
(Art. 17(2)) 
Cases of fraud and irregularities 
involving entitlements of over 
ECU 10 000 
(Art. 6(3), second subparagraph)*** 
u On-the-spot 
inspections in 
Member States J Joint inspections (Art. 18(2)) 
Own inspections (Art. 18(3)) 
With the entry into force of Regulation N° 1355/96, this became an annual report with effect from 14 July 1996. 
Article 6(3). following the entry into force of Regulation N° 1355/96. 
Article 6(4), following the entry into force of Regulation N° 1355/96. 
5-
The Commission undertakes various kinds of inspections. The aim is not to examine a 
representative sample, in numeric terms, of the volume of customs transactions (which 
amount to many millions in a year10) but to cover the various types of transaction which 
occur. As will can be seen, particularly in the description of the follow-up of the 
verifications, this activity although by necessity selective is not merely limited to specific 
checks on individual transactions but develops a systematic value in the following two 
ways 
- at the level of national customs systems the national authorities are informed of 
anomalies found and invited to make the necessary corrections to national procedures, 
practices and instructions which do not comply with community requirements 
- at community level the analysis across the various administrations of the standard of 
implementation of the regulations for a particular procedure or regime, may result in 
amendments to the community legislation 
The traditional own resources inspection system therefore depends in a large measure on 
the continuing interaction between the three major categories of inspection listed above: 
the inspection of systems operated locally, a systematic dialogue with national 
administrations and the examination of national procedures and accounting requirements. 
The Commission intends to add to this array. In co-operation with member states, the 
Commission is exploring the use of various risk analysis techniques to be defined at 
community level. The intention is to enable both the Commission and national 
administrations to better target and co-ordinate their inspections and to identify the actual 
risks posed by traders and by various categories of goods. 
2.1 Checks on legislative and administrative provisions 
Pursuant to Article 4(1 )(b) of Regulation No 1552/89, Member States are required to 
notify the Commission of the general laws, regulations and administrative and accounting 
provisions relating to the establishment, collection and making available to the 
Commission of TOR. They are also required to inform the Commission of any 
amendments to these provisions. 
If the Commission judges any national provisions to be inadequate to ensure the proper 
collection of TOR, it contacts the Member State in question with a view to rectifying the 
situation; as a rule this suffices to find solutions without having to have recourse to 
infringement proceedings. 
10 18 million yearly operations for the transit regime only. 
-6 
2.2 Documentary checks 
The object of the documentary checks performed by the Commission is the analysis, for 
compliance with the rules, of accounting reports and statements and of the annual reports 
on the results of Member States' inspections. 
Article 6 of Regulation 1552/89 requires accounts for own resources to be kept by the 
Treasury or other body appointed in each Member State. Entitlements established in 
accordance with Article 2 of the Regulation, i.e. amounts due which have been notified to 
the debtor, are entered in these accounts. Each month11 the Member States send the 
Commission a statement of the established entitlements that have been entered in the 
A accounts. 
The Commission checks that the amounts credited by the Member State to the Treasury 
account; opened in its name correspond to those appearing in the monthly statement. If 
necessary, the Commission will contact the Member State concerned and make any 
corrections that are required by amending the statements and, where necessary, will 
charge interest on late payments. 
Under Article 6(2)(b) of Regulation No 1552/89, established entitlements that have not 
been entered in the A account because they have not yet been recovered and no security 
has been provided or because they have been challenged must be entered in a separate 
account, known as the "B account". All the amounts entered in these separate accounts 
are shown in quarterly statements sent to the Commission.12 
The Commission checks that each quarterly statement accords with the statement from the 
previous quarter, looking at entitlements established, corrections, cancellations and sums 
recovered in the course of the quarter covered by the statement. In the event of a 
discrepancy, the Commission contacts the Member State concerned to ascertain the 
reason. 
Under Article 17(2), Member States send the Commission half-yearly reports showing 
amounts written off These are cases where it proved impossible to recover the 
established entitlements, either because of force majeure or for special individual reasons. 
The Commission has six months in which to communicate any comments on such cases to 
the Member State concerned. 
If the Commission deems that the Member State has failed to take all the necessary 
precautions to safeguard the financial interests of the Community, the Member State may 
be held responsible and requested to make available to the Commission an amount equal 
to the non-recovered entitlements. If this amount is not made available by the agreed date, 
interest for late payment can be demanded. 
1 ' The monthly statement of the A account must be submitted to the Commission, at the latest, by the first working day after the 19th day of the 
second month following the month in which the entitlement was established. 
12 The quarterly statement of the B account must be submitted to the Commission, at the latest, by the first working day after the 19th day of the 
second month following the quarter in which the entitlement was established. 
By 1 May each year, the Member States are required by Article 7 of Regulation 
No 1552/89 to provide the Commission with a summary account of all the entitlements 
established in the previous year. This must be accompanied by a report on the 
establishment and entry into the accounts of own resources. The Commission evaluates 
the information in these reports, comparing it with other data from the different sources at 
its disposal. 
2.3 Monitoring inspection activities in the Member States 
Under Article 17(3) of Regulation No 1552/89, the Member States send the Commission 
a half-yearly report presenting the results of their own inspections. This report contains 
aggregate figures and the questions of principle relating to the main problems posed by 
application of Regulation No 1552/89, with particular reference to cases of litigation. 
This report also presents in detail the factors that prevented a Member State from making 
available to the Commission entitlements of over ECU 10 000 that were established but 
not recovered. 
Finally, the Commission monitors the Member States' anti-fraud activities in the field of 
TOR, on the basis of information it receives from these States. This information is mostly 
on cases of fraud reported to the Commission under the mutual assistance arrangements13 
and under Article 6(3) of Regulation No 1552/89. Given the very large number of cases of 
fraud or irregularity involving amounts over ECU 10 000 that are reported to the 
Commission (more than 2 000 every year), the Commission has implemented a follow-up 
mechanism that involves processing all the "fraud reports", but with special attention 
given to a limited selection of "serious cases", which are monitored in detail until finally 
settled. 
As soon as the Commission learns that a case of fraud or irregularity involving a 
significant amount has been detected but not reported as required by Regulation 
No 1552/89, it reminds the Member State in question of its obligations as regards the 
protection of the financial interests of the Community. The Commission also gathers 
information from the Member States on the state of play regarding amounts established 
and any amounts recovered, or the reasons why recovery has not been effected. 
2.4 On-the-spot inspections in Member States 
Although documentary checks and the monitoring of national legislative and 
administrative provisions relating to TOR have their place among the instruments for 
verifying the application of the Community rules, no monitoring system could be properly 
effective and viable without the possibility of "on-the-spot" inspections. This provides the 
Commission with the opportunity to verify and, where necessary, tighten application of 
Community rules on TOR by the Member States, and to cross-check the conclusions 
deriving from the other forms of control. 
13 Council Regulation (EEC) No 1468/81 (OJ L 144, 2.6.1981, p. 1). 
8-
The Commission operates two types of on-the-spot inspections, both carried out in close 
collaboration with national officials. The first is the ujoint inspection", which has been in 
existence since the Community own resources system was created by the Decision of 
21 April 1970. Inspections of this type are carried out in accordance with the provisions 
of Regulations No 1552/89 and No 165/74. 
The Council later introduced a new method of inspection under Article 18(3) of 
Regulation No 1552/89: the "autonomous inspection", which is carried out on the sole 
initiative of the Commission. This type of inspection enables the Commission to act with 
the minimum delay when it has identified a need for an inspection targeted at a particular 
topic. The Commission itself decides the scope of the inspection and the locations 
involved. However, the assistance of the national administration concerned is sought in 
the arrangement and operation of the inspection particularly to obtain access to the 
necessary documents. The scope of autonomous inspections and general arrangements 
for their conduct were set out in a Commission statement entered in the Council minutes. 
In terms of procedure, the preparations for own inspections are similar to those for joint 
inspections, apart from the fact that Member States are not informed of the annual 
inspection programme. 
The inspection strategy initially involves analysing the extent to which the system in 
operation conforms to Community regulations from two points of view: action taken by 
the national administrations before the goods are released and the ex post inspection 
measures and/or the discharge of customs procedures. Subsequent to this analysis, the 
Commission officials carry out checks (either on a sample of documents or by inspecting 
all the documents individually, depending on the particular circumstances) to assess 
whether the system is functioning as it is designed to. All supporting documents must be 
made available to the appointed officials during the inspections. 
9-
3. ON-THE-SPOT INSPECTIONS BY THE COMMISSION IN 1993-96 
3.1 Procedures and execution of on-the-spot inspections 
Certain procedures have been agreed in the interests of openness and clarity. At the end 
of each year, a detailed draft annual programme is drawn up in agreement with the 
competent national departments. The Commission informs all Member States of the final 
version of the programme via the Offices of the Permanent Representatives. Although 
prime responsibility for implementing this programme lies with DG XIX as authorising 
department, other Commission departments may be involved, depending mainly on the 
subject under investigation. 
The inspections must be carried out according to a clearly-defined procedure: 
• Approximately one month before each inspection mission, the Commission sends 
confirmation of the date of the inspection by post to the Office of the Permanent 
Representative of the Member State concerned and organises an internal coordination 
meeting between the different Commission departments involved, in order to clarify the 
targets for the inspection in question. 
• Each inspection in a Member State begins with a coordination and preparation meeting 
between the Commission officials and the national officials concerned. 
• After the inspection has taken place, a closing meeting is held, at which the competent 
authorities are informed of the results of the inspection; the Member State is formally 
notified of this information at the earliest possible opportunity. 
• Finally, the report is presented to the Advisory Committee on Own Resources14, a 
procedure which guarantees equal treatment for all Member States. After it has been 
scrutinised by this committee, the report is returned to the Commission, which takes a 
final position on it and notifies the Member State concerned. 
The Commission carried out a total of 81 inspections during the period under 
consideration (1993-96), broken down as follows {the first figure indicates the number of 
joint inspections, the second denotes the number of own inspections): 
Year 
iw;< 
1994 
1995 
1996 
Total B 
1/ 
1/-
1/-
1/-
41-DK 
l/-
1/1 
1/-
1/-
4/1 D 
•71 
2/1 
-/1 
1/1 
3/4 EL 
1/ 
1/1 
1/-
1/-
4/1 E 
1/1 
-12 
1/1 
1/1 
3/5 F 
1/1 
1/1 
1/1 
1/1 
4/4 IRL 
1/-
1/-
1/-
1/-
41-1 
21-
1/1 
1/1 
1/1 
5/3 L 
1/ . 
1/-
1/-
1/-
41-NL 
1/1 
2/1 
-12 
1/1 
4/5 P 
1/-
1/-
1/-
1/1 
4/1 UK 
1/1 
1/1 
1/1 
21-
5/3 A 
1/-
1/-
21-FIN 
1/-
1/-
21-s 
1/-
1/-
21-Total 
12/5 
13/9 
13/7 
16/6 
54/27 
'4 This Committee, which was set up by Article 20 of Regulation No 1552/89, is composed of representatives from the Member States and from 
ihe Commission 
10 
The results of the inspections carried out by the Commission are analysed in Part 3.2. 
The table below shows the subjects inspected during the period 1993-96 and the Member 
States concerned: 
N° 
1. 
2. 
3. 
4. 
5. 
6. 
7. 
8. 
9. 
10, 
11. 
12. 
13. 
14. 
15. 
16. 
17. 
18. 
19. Subject 
EC/Andorra Agreement 
Postal packages 
Separate accounts 
Establishment, recording and making available of own 
resources 
Sugar levy 
Import of calves for fattening 
Ex-GDR transitional measures 
Inward processing 
Outward processing 
"POSEICAN" programme 
Generalised System of Preferences 
External Community Transit system 
Warehousing systems 
Repayment, recovery and centralisation 
Deferred payments 
Delays in making entitlements available as a result of 
strikes 
Write-offs 
AT containers 
Communication of fraud reports and mutual assistance 
forms Member States 
concerned 
Eand F 
All Member States 
B, D, EL, E, F, IR, 1, L, A, P, UK 
All Member States 
D,F,landNL 
1 
D 
All Member States 
B, D, F, 1, L, NL, UK 
E 
B, D, EL, E, IRL, 1 and UK 
All Member States 
D, F, 1, L, NL, UK 
NL 
D 
P 
B, D, EL, F, IR, 1, L, A, P 
D, NL, B 
B, IR, 1, E, EL, F Year(s) 
1994 
1993,1994 
1993 -1995 
1995, 1996 
1993, 1994 
1993 
1993 
1994-96 
1995, 1996 
1993,1994, 1996 
1993, 1995-96 
1994, 95, 96 
1995, 1996 
1994 
1994 
1993 
1996 
1996 
1996 
11 
3.2 Summary of the main results of inspections 
The 81 inspections carried out by the Commission during the period 1993-96 produced a 
total of 352 observations. This gives a broad picture of how the national administrations 
apply Community financial and customs regulations. 
Inspection results 93/96 
Miscellaneous 
22% 
B accounts 
6% 
Postal packages 
4% 
Sugar 
3% 
REM/REC 
5% CW/FZ 
3% 
(The figures indicate the percentage of suspected anomalies accounted for by each area) 
IP Inward processing 
CW/FZ Customs warehouses/Free zones 
OP Outward processing 
GSP Generalised system of preferences 
REM/REC Remission / recovery 
Transit External Community transit Postal Recording in accounts of goods 
packages sent by post 
B accounts Separate accounts under Article 6(2) of 
Regulation 1552/89 
Sugar Levies under the common organisation of 
sugar markets 
The inspections have resulted in the discovery of major malfunctions in some regimes, to 
the correction of the poor application of regulatory requirements in some specific cases 
and to the identification of reasonably satisfactory operation in some other regimes. 
- 12-
3.2.1 Comments on major malfunctions identified. 
In some instances these inspections have enabled the Commission to detect problems 
early. The full significance of these malfunctions has only been established later. 
• External community transit and TIR 
For instance in the external community transit and TIR regimes the presence of grave 
deficiencies has been confirmed by initiatives undertaken by other community 
institutions - particularly the first Commission of Enquiry of the European Parliament.15 
Inspections carried out in 1994, 1995 and 1996 in all Member States in the area of 
external Community transit and the TIR system brought to light 48 anomalies, 
primarily concerning delays in initiating the recovery process, often linked to the 
failure to discharge operations and deficiencies in the ex post control methods for 
transit documents. In all Member States, it was discovered that import duties on goods 
placed under this system were not entered in the accounts ex post after the expiry of 
the 14-month deadline specified in Article 379 of Regulation No 2454/93. 
A major difficulty was detected for the discharge of transit documents issued by certain 
Community customs offices for goods from non-member countries sent by sea to free 
zones situated in a sea port. The authorities which manage such zones do not require 
document T to be presented along with the goods. 
As regards comprehensive guarantees, the checks revealed several examples of 
irregular practices which offer no guarantee that the total amount of duties owed as 
own resources is actually covered. This was also the case as regards the calculation by 
the Danish administration of the flat-rate guarantee for goods that constitute a high 
fraud risk, such as cigarettes. 
Accounting data is currently being collected within the Member States with a view to 
assessing the financial implications for TOR of delays caused in the establishment of 
entitlements and determining the amounts of late payment interest due. 
• preferential tariff schemes 
In the field of preferential tariff schemes, the Commission continued the inspections 
based on Article 18 of Regulation No 1552/89 that were initiated in 1992. These 
complement the inspection activities it is carrying out as part of the follow-up to the 
observations made by the Court of Auditors, especially in its 1991 annual report.16 
1 s Mr Kellet-Bowmann's alarming report that four years after the removal of the Community's internal frontiers an frightening discrepancy exists 
between the community-wide organisation of international crime and the fragmentary nature of the various national administrative and legal 
systems This report was adopted by the Commission of Enquiry on the Community Transit system on 20 February 1997 etc made a 
number of recommendations to the Commission intended to ensure the proper working and security of the regime 
^ The results of this follow-up action on cases involving amounts above a certain level and recovery cases following notifications made in the 
context of mutual assistance were dealt with in two reports on the recovery of TOR in cases of fraud or irregularity (COM(95) 398 final, 
6.9.1995, and COM(97) 259/2, 9.6.1997). 
- 13 
These inspections focused on compliance with the rules governing preferential import 
schemes, with particular attention paid to abuses involving falsified or invalid 
certificates, the minimum number of ex post inspections and the application of the rules 
on the automatic refusal to grant preferential tariff rights in cases where replies to ex. 
post inspection requests are not provided within the time allowed. 
The checks made revealed 64 anomalies, which, for the most part, were problems 
regarding the application of the rules on evidence of origin and the rules on 
administrative cooperation and mutual assistance. The results indicate that the main 
problem is the implementation of the ex post inspection procedure, the criteria for 
which are not interpreted uniformly. The analysis and conclusions drawn from it are set 
out in detail below and have already been the subject of a letter from, the Commission 
dated 23 July 1997. 
The separate or B account: 
In accordance with the undertakings given by the Commission in a report dated 
4 January 1994 to carry out systematic, targeted inspections, 18 missions were carried 
out during the reference period in 11 Member States to verify, at local level, the 
arrangements made for keeping separate accounts. The minor anomalies detected in 
the course of these inspections were rectified, especially those irregular practices that 
caused delays in making available own resources. The powers of courts in some 
Member States can extend as far as refusing the establishment of TOR in disputed 
cases; or else the discharge of operations can be suspended indefinitely where the 
revenue officials responsible for enforced recovery fail to take action. 
In report 96.6.1, point 3.2, the Commission pointed out that duties should not be 
entered in the separate account merely on the strength of a telephone call from the 
person liable challenging the establishment, and requested that the competent 
authorities provide a description of the procedures for cases in dispute. This issue has 
yet to be resolved. It also noted that in a port, before May 1995 (the date at which an 
electronic declaration system was installed), post clearance recovery notices did not 
constitute a genuine notification of the debt to the party liable. The authorities were 
requested to bring their procedures into line with the Community regulations and 
provide the Commission with the information necessary to determine the financial 
effects of the delayed entry into the accounts of the amounts collected since 
1 January 1993. 
14-
The procedures for collecting TOR 
The procedures for establishing entitlements, entering them in the accounts and 
making them available were checked in all Member States in 1995 and 1996. Several 
cases of amounts not being established or being established very late where no special 
circumstances existed were detected in the Netherlands, Spain, Belgium and Italy. 
These defaults in the system, more often than not the result of poor communication 
between the customs authorities and inspection departments or the inadequacy of 
national procedures, prompted requests for corrections to be made and late payment 
interest to be paid. 
Other authorities were requested to review their procedures, in particular as regards ex 
post recovery, following an inquiry or in connection with out-of-court settlements as 
practised in the United Kingdom, and to provide the necessary information to enable 
the Commission to determine financial liability in cases when the party liable has not 
been notified by the authorities. 
Staying in the area of accounting for own resources the centralisation of aggregate 
deferred payments carried out by the Koblenz Bundeskasse (Trier office), starting 
from 1 January 1990, was checked by the Court of Auditors, which found serious 
delays in making own resources available. The Commission then developed a 
procedure for verifying the aggregate delays from the actual entry in the accounts, and 
thus extrapolated the amounts of late payment interest due. 
As regards the customs clearance procedure for postal packages, the 38 inspections 
carried out in all the Member States revealed that, as pointed out by the Court of 
Auditors in its 1991 Annual Report, the date on which these amounts were made 
available was not based on the date on which they were established but on the date the 
debt was entered in the accounts (aggregated at the beginning of the month following 
clearance). This practice, which was in violation of the accounting and financial 
provisions in force during the reference period, led to a request for late payment 
interest for the three years preceding the discovery of the anomaly and until such a time 
as the national accounting procedures are brought into line with Community 
regulations. 
Inward Processing 
Checks on the inward processing arrangements, focusing on the granting of 
authorisation, the application of economic conditions, equivalent compensation and the 
discharge of the procedure were carried out in all Member States in 1994, 1995 and 
1996. A total of 109 one-off anomalies were detected. These anomalies demonstrate 
that the system must be reformed, for its uniform application is not guaranteed, which 
results in unequal treatment. Where there was no direct consequence for the 
Community budget, steps have been taken to bring the national provisions into line 
with Community rules. Where recovery was delayed because operations were not 
discharged, late payment interest has been demanded or is in the process of being 
calculated, after exchanges of information with the Member States concerned. The 
Court of Auditors also made fundamental comments on the system. 
- 15-
3.2.2 Comments on specific instances of poor application of the regulations 
The most common observations where those made as a result of specific cases of poor 
application of the regulations. These inspections provided a means to correct these 
individual errors and where they had affected the community budget to request the 
payment of interest on delays. Those benefits do not include the solutions which have 
been introduced at the regulatory level and which are outlined below. 
• The procedures for establishing and paying the sugar levy were inspected four times 
at both local and central level during the period in question; these inspections 
uncovered certain one-off anomalies, although none had any financial relevance, except 
in one Member State where appropriate checks are being made. 
• The customs warehousing system was inspected in six countries in 1995 and 1996. 
The results of the inspections revealed some instances of late recovery and 
management deficiencies with possible financial implications. Inspections in this area 
will continue in future years. 
• The application of the temporary import system for containers was checked in 
Belgium, Germany and the Netherlands in 1996. The Commission noted the lack of 
real controls on the duration of stay of containers and urged the Member States to 
meet their obligations in this respect. 
• The inspections in 1993, 1994 and 19% of the application of the specific tariff-based 
measures to promote the Canary Islands under the POSEICAN programme 
(Programme of options specific to the remote and insular nature of the Canary 
Islands)17 uncovered some anomalies, particularly as regards the collection of 
anti-dumping duties and the implementation of common commercial policy measures. 
The Commission is currently considering the question of certain anti-dumping duties 
that have not been collected. 
• Following a mission to Portugal in May 1993, and on the basis of observations made 
by the Court of Auditors, the Commission examined the effect of two strikes by 
customs officials on the making available of TOR. The simplified procedure system 
adopted by the Portuguese administration in order to maintain the flow of goods was 
inspected in detail and it was demonstrated that the delays in establishing entitlements 
up to the end of the strike were acceptable. A method was devised for fixing a notional 
date for making TOR available to the Commission and for calculating late payment 
interest on aggregate declarations. 
• As a result of the inspections carried out, solutions were found to the technical flaws in 
the application of the EC/Andorra Agreement. Steps have been taken to make the 
necessary corrections. A new customs clearance procedure has since been put in place, 
transferring to the Andorran authorities the responsibility for clearance of goods bound 
for the Principality. 
Ilu> mSUOAN programme w;i:; initialed on tho basis of Article 9 ol Council Regulation (ŒC) No 1911/91 (OJ L 1/1, 29 6 1991), whirl 
temiinated the derogations for the Oanaty Islands that were provided for in the Spanish Act of Accession 
16 
• Cases of failure to submit fraud reports and mutual assistance forms, in violation of 
Article 6(3) of Regulation No 1552/89 were detected in several Member States; 
specific observations were made, some of them relating to the interpretation of the 
rules. Apart from these one-off shortcomings, the substantial deficiencies that were 
detected in the management of the transit procedure and the implementation of the 
mutual assistance measures were dealt with in much more detail, as discussed in the 
next section. 
• Individual cases of delays in making available own resources in certain cases of 
payment by instalments and periodic aggregate declarations were noted, leading to 
demands for late payment interest and requests to bring accounting procedures into line 
with Community rules. 
• Monitoring of incomplete declarations was the target of inspections in a number of 
countries. They revealed that four Member States (Denmark, Sweden, Finland and 
Ireland) have installed electronic customs clearance systems, which release importers 
from the obligation to submit supporting documents such as invoices or preferential 
certificates in addition to the customs declarations. Commission departments are 
currently examining this phenomenon, taking as a principle that the Community's 
financial interests can effectively be safeguarded, in particular where preferential 
arrangements are concerned. 
• Inspections in the Netherlands in 1994 looked at the application of the rules 
concerning repayment, recovery and centralisation, especially as for those cases 
where decisions are taken by the Member States themselves. The outcome was a 
demand for late payment interest in addition to the recovery of the duty involved. 
3.2.3. The reasonably satisfactory operation of some regimes. 
The inspections enabled the Commission to establish the reasonably satisfactory operation 
of some regimes 
• The outward processing arrangements were inspected in seven Member States in 
1995 and 1996. Apart from certain deficiencies in the monitoring of operations and the 
issuing of authorisations, few anomalies were detected; the national administrations 
were requested to correct those that had budgetary implications. 
• The inspections carried out by the Commission enabled it to satisfy itself that certain 
specific arrangements were operating correctly. One such system is that for imports of 
calves for fattening, under which importers qualify for a reduced levy; during an 
inspection in Italy in 1993, the Commission ascertained that the basic rules were being 
observed. The temporary measures applicable in the territories of the former (il)R, 
which allow certain Eastern European countries to continue to enjoy preferential 
tari lis, were extended until 1994. The measures were verified at both local and central 
level in 1993, and the Commission was able to rectify certain minor anomalies and 
otherwise satisfy itself that the system was being implemented in compliance with 
Community regulations. 
17 
3.3. Follow-up to Commission inspection measures 
3.3.1 Legislative aspects 
Where it has found flaws or loopholes in national regulations or administrative provisions, 
the Commission has systematically asked the Member States concerned to bring their rules 
into line with Community requirements. Such adjustments, which have been made in both 
customs law and the financial field, are another appreciable spin-off from inspections. 
Commission inspections are also an important source of information on the way in which 
Member States apply the rules, particularly in the customs field, and can be of use to the 
Commission departments responsible for the legislation. 
• As a result of Commission inspections, national rules on establishing and making 
available own resources in respect of the customs clearance of postal parcels have 
been adapted to bring them into line with Community legislation. The lack of 
consistency between the concepts of entry in the accounts and establishment of 
entitlements, which the Court of Auditors identified in its annual report for 1991, has 
been resolved following the entry into force of Council Regulation No 1355/96 
amending Regulation No 1552/89. The rules on postal traffic contained in 
Regulation (EEC) No 2454/93 laying down provisions for the implementation of the 
Community Customs Code favour the use of a single entry in the accounts. This 
simplification of the establishment of own resources allows the national authorities to 
be considered the declarant or, where applicable, the debtor. 
• The inward processing arrangements also attracted comments from the Court of 
Auditors in its annual report for 1995. Existing procedures clearly need to be reviewed, 
given the flaws that have been detected in the granting of authorisations, the 
application of economic conditions and equivalent compensation, and the discharge 
arrangements. In 1996 the Commission adopted a report on the operation and future 
shape of the inward processing arrangements18 and is now evaluating the results of 
consultations with industry at a seminar in September 1996 on tailoring customs 
arrangements to the needs to businesses. 
18 Communication No 96/C 194/07, OJ C 194, 5 7.1996, p.6. 
18-
• As regards the preferential schemes, it was found that application of the system for 
withdrawing tariff advantages from beneficiary countries which fail to reply in time or 
do not provide satisfactory answers was hampered by differences between the Member 
States' interpretations of the concept of "justified suspicion", and the lack of 
Community rules on the subject. This concept is important for the defence of the 
Community's financial interests. After examining the problem, the Commission will 
shortly be publishing explanatory notes on the protocols on the rules of origin in the 
Europe Agreements so that firms have a clearer idea of how to interpret certain parts 
of these protocols. 
• Turning to the external Community transit procedure, in particular delays in initiating 
recovery, all the Member States - except France and Luxembourg, where the 
time-limits laid down in Community legislation are generally observed - have been 
asked to check that Article 379 of the Provisions implementing the Code is applied in 
all customs offices over a period of three years. The Commission considers that in 
cases where operations are not discharged or there are doubts as to the place where an 
infringement took place - problems that are often caused by a lack of diligence by the 
office of destination or delays in launching inquiries - it is up to the Member State of 
departure to take the necessary measures, i.e. to notify the guarantor of absence of 
discharge by the prescribed deadline and to enter the debt in the accounts against the 
principal. Failure to take such measures may result in financial liability. 
3.3.2'. Accounting aspects 
Over the reference period (1993-96), additional entitlements (principal amounts) totalling 
ECU 64 636 72619 were identified and paid to the Commission following comments it 
made in reports on independent or joint inspections. Nearly 98% of this sum is accounted 
for by an adjustment in respect of Community transit operations in just one Member State. 
Interest for late payment was also charged for delays in making available traditional own 
resources detected during Commission inspections. Over the period 1993-96, interest for 
late payment, paid or still owed by Member States, totalled ECU 26 395 213.19 Of this 
total, ECU I 234 84919 is due as a result of observations by the Court of Auditors in its 
annual reports, on which the Commission has taken financial action, and over 80% relates 
to penalty interest in connection with aggregated deferred payments in a single office. 
It must be stressed that these figures are still incomplete, since the establishment of 
entitlements as a result of Commission inspections depends on national procedures for 
collecting the necessary accounting information. 
•'rovisional figure at 20 August 1997 
19 
3.4 Results of other forms of inspection 
It is therefore plain that on-the-spot checks can uncover problems in national collection 
systems. However, there is a great deal of synergy between different inspection methods. 
On-the-spot checks are generally targeted on the basis of other forms of inspection and 
are a way of confirming the initial conclusions of the latter. 
3.4.1 Amounts written off 
The number of reports received from Member States on cases where amounts were 
written off under Article 17(2) of Regulation (EEC) No 1552/89 was much lower than 
expected. Indeed it was so low as to suggest that this provision is not being applied 
uniformly. Reports were received from only five Member States (France, Germany, 
Netherlands, Spain and the United Kingdom). The German authorities subsequently 
informed the Commission that, in view of the German legislation on long periods of 
limitation, some cases had been reported by mistake and were now being withdrawn. 
The action taken on the 32 cases actually reported to the Commission over the period 
1993-96 (involving a total of ECU 8 762 001) is described in a table in the Annex. It 
shows that Germany withdrew four cases (involving ECU 401 316) in which attempts at 
recovery are still being made and the United Kingdom cancelled one case reported by 
mistake (involving ECU 23 103). The Commission has examined the remaining 27 cases 
- involving a total of ECU 8 337 582 - to determine whether the Member States 
concerned showed sufficient diligence in attempting to recover entitlements. 
The general outcome is as follows: 
Art. 17.2: Cases handled (by number) 
Lack of 
diligence ^ 
37% 
Sufficient 
diligence 
26% Under 
scrutiny 
37% Art. 17.2: Cases handled (by value) 
Lack of 
diligence 
53% 
Sufficient 
diligence 
4% Under 
scrutiny 
43% 
20 
In more detail: 
a) 
b) 
c) in 10 cases, a lack of diligence was found: 
1 case was rejected as inadmissible; 
in 2 cases payments were made; 
in 2 cases a suspected infringement form 
was drawn up; 
5 cases were confirmed after being 
challenged and payment was requested. 
10 cases are still under scrutiny. 
in 7 cases, the authorities were found to 
have acted with diligence. Amounts at stake 
(ECU) 
4428 487 
356 381 
95 883 
488 162 
3 488 061 
3 550 966 
358 129 % of total 
amount 
53.1 % 
4.3 % 
1.1% 
5.9 % 
41.8% 
42.6 % 
4.3 % % of number of 
cases 
37% 
3.7% 
7.4% 
7.4% 
18.5% 
37% 
26% 
These figures show that, subject to the cases still under scrutiny, the national authorities 
failed to take proper action in more than one third of the cases reported and that relatively 
large sums were involved in these cases (53% of the total value). National authorities 
could usefully concentrate their efforts on recovering entitlements in cases where the 
financial stakes are high. 
Although these results only cover reports submitted by a minority of Member States, they 
point to real, substantive problems in the collection measures employed by national 
authorities and in the uniform application of the whole system. In response to this 
worrying state of affairs, the Commission has since adopted a number of measures which 
are described in detail below. 
3.4.2 Monitoring the recovery of traditional own resources in cases of fraud and 
irregularities 
The Commission has presented the budgetary authority with two reports on its 
monitoring of Member States' anti-fraud activities for 1994, covering respectively 
70% and 30% of amounts evaded in cases of fraud and irregularities reported to the 
Commission between the first half of 1989 and the first half of 1993.20 
The first report, based on a sample of cases involving amounts over ECU 500 000, 
included a statistical analysis, which revealed that large-scale fraud tended to revolve 
around certain agricultural products, chiefly from Eastern Europe, and that the most 
common types of fraud were removal from the transit procedure and false declarations on 
release for free circulation. Where fraud involved industrial goods - mainly textile 
products, hi-fi recording equipment and TV sets from South-East Asia - there was a wider 
spread both in the number of cases and in the amounts at stake. The report found that, 
because of the complexity of the cases in question, only a tiny proportion of amounts were 
recovered and recovery rates varied from one Member State to another. 
20 Commission reports on the recovery of traditional own resources in cases of fraud and irregularities (sample A94 - COM(95) 398 final, sample 
B94 - COM(97) 259/3, presented on 6 September 1995 and 9 June 1997). 
21 
The "B94" report covered the Commission's monitoring - up to final clearance - of six 
particularly difficult cases involving over ECU 124 million in entitlements. Three of these 
cases are the subject of debate between the Commission and the Member States, and in 
one case the Commission has issued a reasoned opinion under the Article 169 procedure. 
During the first half of 1997 the Commission rejected requests from a number of Member 
States for remission or repayment in respect of imports of Turkish television sets. As a 
result of these rejections, actions have been brought before the Court of First Instance. 
Both reports concluded that the low recovery rates are due to the sophisticated nature of 
cross-border fraud and the complexity of certain agreements with non-member countries. 
However, the reports also highlight the unsuitability of national recovery procedures and 
the disparities between them, the slowness of legal proceedings and the lack of 
cooperation between Member States under the mutual assistance arrangements. 
4. ASSESSMENT OF HOW THE INSPECTION ARRANGEMENTS 
OPERATE 
4.1 Changes to the system for collecting and inspecting traditional own resources 
In general, the lack of consistency in reports submitted by the Member States tends to 
obscure their inspection and fraud-prevention efforts. A number of improvements to the 
Commission's information system have been agreed with the Member States. On 
20 March 1997 the Commission adopted a decision designed to make reports more 
consistent by introducing standard models for the monthly and three-monthly statements 
of accounts for traditional own resources, the description of fraud and irregularities 
involving more than ECU 10 000 and the annual report mentioned above. 
From 1997 - i.e. for the 1996 financial year - Member States will draw up a single report 
on the outcome of their inspections, rather than two half-yearly reports, in accordance 
with the new, amended version of Article 17(3) of Council Regulation No 1552/89. The 
new summary report to be sent to the Council and Parliament in the course of 1997 
should give the budgetary authority a clearer picture of the Member States' activities in 
this field. 
Improvements are expected in the recovery of traditional own resources in cases of 
fraud and irregularities when a new programme for collecting and transmitting electronic 
data on fraud and irregularities ("Ownres") comes into operation at the end of 1997. It 
will enable fraud reports to be incorporated automatically and updated, in particular - and 
this is its most novel feature - in connection with recovery. 
22 
The uneven application of the Article 17(2) mechanism, which was also highlighted by 
the Court of Auditors, detracts from the transparency and fairness of the traditional own 
resources system. Following discussions under phase III of the SEM 2000 (Sound and 
Efficient Management) programme, the Commission put forward a proposal on 
3 July 1997 for an amendment to Council Regulation (EEC) No 1552/89 aimed at 
tightening up the procedure for write-offs, which applies to entitlements not recovered by 
a set deadline, and helping the Commission make a fair assessment of the diligence shown 
by Member States.21 This proposal will also increase Member States' liability for amounts 
found to be irrecoverable as a result of an administrative error by their authorities. 
The Commission is to propose changes to the existing rules on the external Community 
transit procedure (Articles 378 and 379 of the Provisions implementing the Customs 
Code), in particular concerning the definition of the customs authority responsible for 
recovery in cases where the principal provides evidence of the place where the 
infringement occurred, and the amendment of Directive 76/308/EEC regarding mutual 
assistance22 for the recovery of claims. The question of transport by sea to free zones will 
be settled under the new Community transit arrangements. 
The Commission is taking a general look at the administration of the preferential tariff 
arrangements, in addition to the problems outlined above. It has presented a 
communication analysing the reasons why these arrangements have not operated properly. 
This communication addresses the aspects of legal certainty, the recovery of own 
resources, the fight against fraud and the effectiveness of the Union's commercial policy.23 
It sets out a plan of action designed to find solutions to the problems arising in this area, 
more especially the problems encountered in the recovery of own resources. 
As regards the actual organisation of inspections, on 10 January 1997 the Commission 
adopted a proposal for a Council Regulation replacing Regulation No 165/74. The new 
proposal, which is designed to take account of legislative and administrative changes,24 
was laid before the Council and Parliament on 28 January 1997.25 
'' mM(97) 343 final, 3.7.1997. 
'''' rin-.ié proposals are contained in the Commission communication "Action plan for transit in Europe A new customs policy" (COM(97) 188 final, 
points 4 4 ? and 4 4 3 of the Annex "Assifjnino liability for customs debt fairly, m a way that protects the various financial interests involved" and 
Sli.Minlininii debt recovery pioceduies", pp 7>\ and '«'4) 
•M iU)M(i)/) 40',' lin.il, Z< / 1ÏK»/, in u»v;poiu;n to tho loqueul by tho (.'.ounr.il in lis Decision of i!8 19!)b\()JC 1/0, p 1 
•'', 1 hose charujes were announced in the Commission's first report on the functioning of the inspection arrangements (COM(93) 691 final, p 38) 
25 COM(96) 717 final and COM(96) 717 final/2 (corrigendum). 
23 
The proposal brings together in a single text the implementing provisions for the two 
inspection procedures open to the Commission - joint inspections with the Member States 
under Regulation No 165/74 and the on-the-spot checks it conducts on its own initiative 
under Regulation No 1552/89. 
It also provides for the Commission to give inspection mandates not only to its own 
established officials, but also to other staff (temporary staff or national experts on 
secondment), along the same lines as Council Regulation (Euratom, EC) No 2185/96 of 
11 November 1996 on on-the-spot checks and inspections carried out by the Commission 
in order to protect the European Communities' financial interests against fraud and other 
irregularities.26 
Acting on the commitment it made at the interinstitutional consultations preceding the 
amendment of Regulation No 1552/89, the Commission has examined Parliament's 
proposal for the introduction of unannounced own resources inspections of national 
government departments. 
Through its contacts with national government departments, the Commission has 
established that opposition to such a provision in the Council is almost unanimous. 
However, it must be said that similar provisions have been introduced for the purpose of 
protecting the Union's financial interests, under the supervision of UCLAF.27 The 
introduction of such a system - in a field where unannounced inspections have an obvious 
purpose - has answered many of the well-founded concerns expressed by MEPs about 
cases of serious administrative anomalies requiring direct intervention. Under the present 
rules on independent Commission inspections (Article 18(3) of Regulation No 1552/89), 
the Commission must give advance warning, but it is authorised to intervene at relatively 
short notice in exceptional circumstances. Such intervention can be compared to an 
unannounced inspection. 
However, if the Commission is to give a proper appraisal of national inspection 
arrangements, it must prepare the ground, acting in close cooperation with national 
government departments. On the basis of past experience, the Commission believes that 
the degree of cooperation it has established with Member States is such that it can 
virtually guarantee that appropriate action will be taken in the event of any serious 
malfunction that has financial implications. 
26 OJI 292, 1511 19Q8,p2 
71 :Uv m pruneau Conned ReçudataiH ft'uratom. I'C) No 2186796, ( )J I 292, 15 11 1996, p 2 
24 
4.2 General assessment and conclusions 
4.2.1 Why inspections are necessary and what purpose they serve 
Whenever action needs to be taken with regard to the practical operation of the traditional 
own resources system, the Commission has a whole armoury of different measures to 
draw on: it can make one-off corrections, request that appropriate instructions be given to 
remedy shortcomings in national procedures and practices or, in the case of persistent 
malfunctions, clarify the interpretation of Community legislation and work towards 
improving it. 
As this report has shown, the Commission makes full use of all the means at its disposal. 
Given the level of resources which can reasonably be allocated to inspections of the 
traditional own resources system, these measures are fairly effective. 
The most visible effects are the financial corrections it makes where legislation has been 
applied incorrectly, and the collection of interest for late payment to offset the loss of 
revenue incurred. Moreover, inspections are still the best way of checking that customs 
legislation is properly enforced and identifying any problems that crop up. The report 
gives several examples where results have given rise to proposals designed to simplify and 
restructure the legislative framework. 
As far as the future is concerned, the Commission's inspection activities will clearly be 
justified for as long as the own resources system exists in its present form. The specific 
checks performed by the authorising officer under Regulation No 1552/89, both in 
scrutinising own resources (Article 18) and analysing information sent by the Member 
States on the organisation of their inspections (Article 4(1) of the Regulation) and the 
results of these inspections (Article 17(3)) give us a good understanding of the real 
situation on the ground and a fairly precise picture of the system for collecting own 
resources. 
The Commission intends to lay particular emphasis on the accounting treatment given to 
amounts evaded and irregularities and on the various stages of recovery, i.e. the 
establishment, entry in the accounts and making available of entitlements. It also intends 
to add to the control measures already applied in connection with the TIR. 
4.2.2 Entry and customs status of goods at the Union's external borders 
On the basis of information obtained during the inspection activities described in this 
report, the Commission is able to answer the request made by Parliament28 concerning the 
entry and customs status of goods at the Union's external borders, following the 
observations made by the Court of Auditors in its annual report for 1994. The following 
paragraphs constitute the Commission's official reply. 
:iiling of 1 / April 1996 and as partof the discharge procedure in respect ot the 1994 general budget 
-25 
When goods enter Community customs territory, the departments responsible carry out 
documentary checks as well as inspections under customs legislation. As part of its own 
resources inspections and its analysis of information sent by Member States, the 
Commission examines whether these checks are properly carried out. 
Taking into account the comments made above, the results of the Commission's 
inspections show that, in general, the checks carried out by customs authorities on the 
entry of goods are of an acceptable standard, given the huge number of basic transactions 
that take place each year - in the region of several hundred million, all customs procedures 
and destinations combined. 
The Commission has noted- that Member States increasingly decide on the detailed 
inspection arrangements to be applied (at customs clearance or post-clearance) on the 
basis of the trade flows in question and the administrative set-up of their departments. 
This explains why inspection techniques differ from one Member State to another. The 
Commission believes that by developing risk-analysis methods this state of affairs can be 
remedied and targeted controls made more effective. 
The Commission has already responded by adopting certain measures designed to offer 
the Community's financial interests a high level of protection, in the absence of internal 
borders, by ensuring that the procedures and inspections applied to imports of goods are 
equally effective throughout the Community customs territory. 
In this context, European Parliament and Council Decision No 210/97/EC of 
19 December 1996 adopting an action programme for customs in the Community 
(Customs 2000)29 laid down a clear legal framework for measures already undertaken, in 
particular the monitoring operations on Member States in 1994, which were aimed at 
examining the procedures for inspecting sea borders and free zones. 
Other initiatives to be implemented under this programme include the computerisation of 
customs departments at Community level, essential for the rationalisation of procedures, 
and the development of guidelines in the field of risk analysis. On this last point, the 
Commission, in close cooperation with the Member States' customs authorities, is 
studying the possibility of establishing common principles for applying these techniques at 
Community level.30 It also hopes to define common criteria for permitting operators to 
use simplified procedures as well the targeting and co-ordination of controls. It is also 
planning to draw up Community-wide "risk profiles". 
i\ll X\ 4 2 199/ 
1 lu* initial lesults aie being studied by the special at/ hoc sub gioup on internal audit set up by the Advisory Committee on Own Resources 
under phase III of the "Sound financial management" initiative 
26 
The aim of checks on the customs status of goods presented at customs is to prevent 
non-Community goods being granted the status of goods in free circulation resulting in a 
failure to collect own resources. Inspections by the Commission and the Court of Auditors 
have revealed that, in the case of goods transported by sea and - in certain simplified 
external transit procedures - by air or sea31, the present procedure has a number of 
shortcomings and does not really guarantee that own resources will be collected. 
To remedy this state of affairs, Member States have been asked for additional information 
on anomalies which might have an impact on the Community budget. At its meeting in 
February 1995, the Community Customs Committee - Transit Section adopted 
administrative arrangements for the ex post inspection of such procedures, which should 
improve the situation. 
The Commission is also considering a draft amendment of the regulations to simplify the 
procedures applied to the transit of non-Community goods by sea and tighten controls on 
the customs status of such goods. This measure also forms part of the action plan for 
transit adopted by the Commission on 30 April 1997 and sent to the budgetary authority.32 
*. 
This report is one of several which the Commission has laid before the budgetary 
authority on the inspections it carries out on revenue, including the summary of the 
Member States' annual reports on the results of their inspections under Article 17(3) of 
Regulation No 1552/89, the special report of the Financial Controller under Article 29(3) 
of the Financial Regulation and UCLAF's annual report on the fight against fraud. 
Mention should also be made of the reports on action taken to follow up comments by 
Parliament. 
More generally, these reports supplement the accounting and budgetary information which 
the Commission is required to supply under Article 78 of the Financial Regulation, in 
particular the consolidated revenue and expenditure account containing a statement of 
established own resources by Member State and an annex showing potential entitlements 
relating to fraud and irregularities. 
The next report on the functioning of the inspection arrangements for traditional own 
resources will cover the period 1997-99 and appear in first half of the year 2000. 
31 Articles 314 ff. of the provisions implementing the Code. 
32 COM (97) 188 final. 
-27-
ANNEX 
Application of Article 17(2) of Regulation No 1552/89 
Reference 
period 
(half-year) 
1st half 1993 
'2nd half 1993 
1s1 half 1994 
2nd half 1994 
1st half 1995 
^iwlhf ill 1995 
Subtotal Member 
State 
D 
UK 
D 
NL 
UK 
D 
NL 
UK 
E 
F 
E 
NL 
UK 
UK Reasons given for release 
from obligation 
Firm wound up 
Case reported by mistake 
Bankruptcy 
Debtor insolvent 
Bankruptcy 
Bankruptcy 
Bankruptcy 
Circumstances to be explained 
Bankruptcy 
Bankruptcy 
Firm ceased trading 
Trader ceased business 
Liquidation 
Trader ceased business 
Debtor insolvent 
Liquidation 
Debtor insolvent 
Debtor insolvent 
Circumstances to be explained 
Bankruptcy 
Bankruptcy 
Bankruptcy 
Bankruptcy 
Bankruptcy 
Bankruptcy 
25 cases reported Entitlements 
at stake 
(ECU) 
15 250 
23105 
48 329 
18 734 
25 350 
19114 
14021 
319 003 
62 894 
44 744 
136135 
37 344 
76 769 
37151 
902 857 
37 834 
1 555 753 
401345 
675 227 
450 818 
1 802 954 
576 925 
481 063 
116 862 
88 463 
7 968 042 Commission position 
Rejection 
Cancellation 
Information requested 
Information requested 
Sufficient diligence 
Lack of diligence 
Sufficient diligence 
Information requested 
Sufficient diligence 
Sufficient diligence 
Sufficient diligence 
Lack of diligence 
Lack of diligence 
Sufficient diligence 
Lack of diligence 
Sufficient diligence 
Further information requested 
Further information requested 
Information requested. 
Lack of diligence 
Information requested 
Lack of diligence 
Information requested 
Lack of diligence 
Lack of diligence Status of case 
Case withdrawn by D 
Closed 
Case withdrawn by D 
Case withdrawn by D 
Closed 
Amount paid. Closed 
Closed 
Case withdrawn by D 
Closed 
Closed 
Closed 
UK refuses to pay. 
Suspected infringement form 
drawn up. 
Amount paid. Closed 
Closed 
In progress 
Closed 
In progress 
In progress 
In progress 
UK does not accept 
Commission's position 
I Jnder review 
In progress 
UK does not accept 
Commission's position 
Under review 
In progress 
UK does not accept 
Commission's position 
Under review 
UK does not accept 
Commission's position 
Under review 
-28 
Reference 
period 
(half-year) 
Subtotal 
1st half 1996 
2nd half 1996 
1996 (whole 
year) 
Total 1993/96 Member 
State 
UK 
NL 
F 
B 
DK Reasons given for release 
from obligation 
25 cases reported 
Debtor insolvent 
Bankruptcy 
Debtor insolvent 
Bankruptcy 
Bankruptcy 
Bankruptcy 
Debtor insolvent 
32 cases reported Entitlements 
at stake 
(ECU) 
7 968 042 
356 381 
138 953 
215 995 
10 777 
23 830 
36112 
11911 
8 762001 Commission position 
Inadmissible 
Information requested 
Under scrutiny 
Under scrutiny 
Under scrutiny 
Under scrutiny 
Under scrutiny Status of case 
UK reply expected 
open 
open 
open 
open 
open 
open 
Art. 17(2) Number of cases by Member State 1993/96 
Number of cases 
ISSN 0254-1475 
COM(97) 673 final 
DOCUMENTS 
EN 09 
Catalogue number : CB-CO-97-689-EN-C 
ISBN 92-78-28742-3 
Office for Official Publications of the European Communities 
L-2985 Luxembourg 
M