Opinion No 13/2002

concerning a draft Commission regulation laying down detailed rules for the implementation of Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities

(presented pursuant to Article 279 of the EC Treaty)

(2003/C 12/03)

THE COURT OF AUDITORS OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Community, and in particular Article 248(4) and Article 279 thereof,

Having regard to the Treaty establishing the European Atomic Energy Community, and in particular Article 160c(4) and Article 183 thereof,

Having regard to the draft Commission Regulation(1) laying down detailed rules for the implementation of Council Regulation (EC, Euratom) No1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities(2),

Having regard to the request for an opinion on the draft regulation, sent to the Court of Auditors by the Commission on 25 July 2002,

HAS ADOPTED THE FOLLOWING OPINION:

INTRODUCTION

1. Following the adoption of a new Financial Regulation in June 2002, the Commission submitted in July 2002 a proposal for recasting the Implementing Rules of the Financial Regulation. The adoption of this proposal will complete the recasting of the Financial Regulation, which the Commission expects to achieve at the end of the year 2002. The aim of the Commission is to make applicable at the beginning of the year 2003 the new instruments that should improve the quality of the financial management and financial reporting of the Communities.

2. The Court has examined the proposal within the framework set by the new Financial Regulation. It has structured its analysis around the following objectives:

(a) to ensure that the Implementing Rules do not contain exceptions to the basic principles included in the Financial Regulation (where not specifically provided for in the Financial Regulation);

(b) that all important issues and areas are adequately covered; and

(c) that provisions are practical and workable.

The Court has also examined the way in which some major issues raised in its opinion(3) on the recasting of the Financial Regulation, such as the provisions relating to accounting and the presentation of the financial statements and to expenditure operations, have been considered in the proposal.

3. Specific comments on individual articles, containing proposals for amending the text where appropriate are attached in a two-column table (in addition, relatively minor questions relating to the terminology used have been communicated to the Commission). The simpler and clearer structure adopted for the Financial Regulation, which should contain only basic principles, has resulted in a more logical structure and an increased number of detailed provisions in the proposed Implementing Rules. However, the attached table indicates that there are still provisions, including those highlighted at paragraphs 4 to 12 below, which are inadequate, are incomplete or lack clarity.

KEEPING AND PRESENTATION OF THE ACCOUNTS

4. The further refinement in the Financial Regulation of the existing requirement for an economic outturn account (Article 126(1)(a)) and of a budgetary outturn account (Article 127(a)) represents a major step in the development of the financial reporting practice of the Communities. The Implementing Rules should require the incorporation of a table in the Annex(4) to the financial statements that makes clear the link between the two outturns.

5. Article 205 refers to Article 132 of the Financial Regulation, which contains provisions common to both the general and budgetary accounts. Several articles in the proposal (Articles 211, 212, 213 and 215(2)), which currently refer to Article 135 of the Financial regulation, and which therefore apply only to the general accounts (on which the balance sheet is based), are of relevance to both the general and budgetary accounts and therefore should be incorporated in Article 205. The most important of these is the requirement to use double-entry bookkeeping. This is required by Article 134 of the Financial Regulation for the general accounts. The Court considers that the Commission should also introduce in an appropriate manner double entry bookkeeping for the budgetary accounts. This would lead to a fully integrated accounting system capable of providing the accounting discipline which would help to solve many of the problems associated with the present incomplete and disjointed approach. The challenge which would still face the Commission would be to adequately integrate also the information required to produce the financial statements which is produced by subsidiary accounting systems.

ASSIGNED REVENUE

6. Articles 11 to 13 include provisions dealing with three of the ten cases of assigned revenue provided for by Article 18(1) of the Financial Regulation. There is however no article, either in the Financial Regulation or in the Implementing Rules, defining a budget structure to be applied generally to all cases of assigned revenue, covering the treatment of the related budgetary expenditure as well as the assigned revenue itself. Such an article should be introduced in the Implementing Rules.

COMMITMENT OF EXPENDITURE

7. In order to ensure the completeness of the recording and the adequate monitoring of commitments Articles 88 and 92 should provide:

(a) for the registering of budgetary commitments in the central accounting system;

(b) whether one or two levels of legal commitment should be recorded where financing agreements are concerned; and

(c) that the central accounting system should automatically prevent the cumulative amount of legal commitments from exceeding the amount of the corresponding budgetary commitment.

PAYMENT OF EXPENDITURE

8. Article 81 of the Financial Regulation provides that a distinction shall be made in the accounts between the different types of payment (pre-financing, interim payments, etc.) at the time they are made. In its opinion on the recasting of the Financial Regulation(5), the Court insisted that subsequent changes in the nature of the different types of payments (for instance, pre-financing absorbed by reimbursements of expenditure) be registered as well, in order to enable the Commission's accounts to provide information about the extent to which budgetary payments represent expenditure at the level of beneficiaries. A provision to this effect should be made explicit in the Implementing Rules at Article 102.

9. At Article 178(1), the Court proposes that it would be far preferable not to reason in terms of renewing pre-financing payments, but to establish the principle that pre-financing payments are made once at the beginning of an operation, and that all subsequent payments are made on the basis of reimbursing the Community share of expenditure incurred by the grant recipient. At the appropriate time, the prefinancing payments would be absorbed by expenditure incurred. An approach of this kind, which was proposed by the Court in its Opinion on the recasting of the Financial Regulation(6), makes it relatively easy to identify, for management and supervision purposes, prefinancing payments which have not yet been absorbed by expenditure incurred and to reflect the extent to which budgetary payments represent expenditure at the level of beneficiaries (see paragraph 8).

AUDIT OF GRANTS

10. Audits complying with terms of reference laid down by the authorising officer should be mandatory for grants which exceed the monetary limits laid down in Article 178(2).

INTERNAL AUDIT

11. Articles 106 to 111 concerning the Internal Auditor contain repetitions of articles 85 and 86 of the Financial Regulation, contradictory elements, and provisions which could limit the institution's responsibilities for creating the internal audit function and ensuring its independence. They are also not entirely in line with recognised international internal audit standards. These articles should be dropped. The Court considers that the implementing rules should be limited to provisions related to the responsibilities of the internal auditor as explicitly foreseen in article 87 of the Financial Regulation. In any case, if Articles 106 to 111 remain, the Court reserves the right to draft its own rules concerning its internal auditor based solely on Articles 85 and 86 of the Financial Regulation.

INTERNAL RULES FOR EACH INSTITUTION

12. Articles 51 and 59 of the Financial Regulation make reference to the internal rules of the institutions. It is necessary for the Implementing Rules to require each institution to adopt such internal rules for the "proper implementation of its section of the budget", incorporating not only the assignment of responsibilities but also the rules and procedures to be followed. Such a provision is found in Article 9 of the current Implementing Rules.

This Opinion was adopted by the Court of Auditors in Luxembourg at its meeting of 24 October 2002.

For the Court of Auditors

Juan Manuel Fabra Vallés

President

(1) Commission document, reference SEC(2002) 835 final.

(2) OJ L 248, 16.9.2002, p. 1.

(3) Opinion No 2/2001 (OJ C 162, 5.6.2001).

(4) Generally referred to in English as "notes to the financial statements".

(5) Opinion No 2/2001, paragraph 32 (OJ C 162, 5.6.2001).

(6) Opinion No 2/2001, paragraph 33 (OJ C 162, 5.6.2001).

ANNEX

THE COURT'S COMMENTS ON THE COMMISSION'S PROPOSAL

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