Report

on the financial statements of the European Environment Agency for the financial year ended 31 December 2000, together with the Agency's replies

(2001/C 372/02)

CONTENTS

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THE COURT'S OPINION

1. This report is addressed to the Management Board of the European Environment Agency in accordance with Article 13(4) of Council Regulation (EEC) No 1210/90(1).

2. The Court has examined the financial statements of the European Environment Agency for the financial year ended 31 December 2000. In accordance with Article 14 of Council Regulation (EEC) No 1210/90 the budget was implemented on the responsibility of the executive director. This responsibility includes the drawing-up and presentation of the financial statements(2) in accordance with the internal financial provisions provided for in Article 14 of Council Regulation (EEC) No 1210/90. The Court of Auditors is required under Article 248 of the Treaty establishing the European Community to audit those accounts.

3. The Court performed its audit in accordance with its audit policies and standards. These have been adapted from generally accepted international auditing standards to reflect the specific characteristics of the Community context. The Court carried out such tests of the accounting records and applied such other audit procedures as it deemed necessary in the circumstances. Through this audit the Court obtained a reasonable basis for the opinion expressed below.

4. This examination has enabled the Court to obtain reasonable assurance that the annual accounts for the financial year ended 31 December 2000 are reliable and that the underlying transactions, taken as a whole, are legal and regular.

MAIN OBSERVATIONS ON THE IMPLEMENTATION OF THE BUDGET OF THE EUROPEAN ENVIRONMENT AGENCY (COPENHAGEN) FOR THE FINANCIAL YEAR ENDING 31 DECEMBER 2000

Implementation of the budget and budgetary accounts

5. The implementation of the appropriations for the financial year 2000 and of the appropriations carried over from the previous year is set out in Table 1(3).

6. Final appropriations for the financial year totalled 18,9 million euro, 18,8 million euro (99 %) of which was committed. The operating appropriations (Title III, 9 million euro) were committed almost in their entirety (8,9 million euro).

7. Appropriations carried over to 2001 amounted to 5,4 million euro (29 % of commitments) and essentially concerned operating appropriations, 4,4 million euro of which was carried over (50 % of commitments), i.e. a decrease compared with the previous financial year (5,4 million euro, 59 % of commitments). Of all the appropriations that were carried over from 1999, namely 6 million euro, approximately 11 % were cancelled at the end of 2000. The Agency should continue its efforts to minimise its carryovers of appropriations.

8. In December 2000, a commitment of 105000 euro was made with a view to financing translations and terminology services to be provided during the first half of 2001. As this was expenditure for the financial year 2001, it should have been financed by appropriations from the 2001 budget. Furthermore, this commitment is not supported by any order form.

Financial statements and keeping of the accounts

Keeping of the accounts

9. Tables 2 and 3 show, respectively, the revenue and expenditure account for the financial year 2000 and the balance sheet as at 31 December 2000.

10. The SI2 budgetary accounting system does not yet include the module for recording amounts to be recovered and should be completed.

Accounting management of fixed assets and inventory

11. The Agency's Financial Regulation contains no provisions concerning the accounting management of fixed assets and no rules for valuation or depreciation. The Agency should incorporate the provisions adopted by the Commission in December 2000(4) into its own regulations so as to avoid, among other things, problems with the valuation of inventory items (see paragraph 12).

12. According to Article 52 of its Financial Regulation, the Agency is required to keep a permanent inventory of all movable and immovable property which makes up its assets. The Agency's inventory system is unsatisfactory. Two inventory lists are kept, one for furniture and miscellaneous equipment and another for IT equipment, but the quality of these two lists is very unequal. The list of IT equipment is incomplete. For a large part of the equipment, the year of purchase, the location and the value are not indicated. The list of furniture and miscellaneous equipment is more detailed, but values are indicated only in local currency.

Recovery orders

13. Any measure or situation which may give rise to a debt due to the Agency must be preceded by a forward estimate of the amount due, drawn up by the authorising officer (Article 23 of the Agency's Financial Regulation). The forward estimates are sent to the accounting officer, for provisional registration. When the debt is established, the authorising officer draws up a recovery order (Article 24) which he must forward to the accounting officer, who must in turn ensure that the resources are collected (Article 25).

14. The Agency draws up the recovery order when the debt is established but never draws up forward estimates of the amounts due. The result is a lack of control over recoveries to be made. Thus, in December 1999, the Agency noted that tax on rent of approximately 3865000 Danish crowns (519000 euro) was recoverable. In the absence of a forward estimate, no entry was made in the accounts. In March 2000, a cheque for 3000000 Danish crowns was received and a recovery order was drawn up for the same amount. In the absence of a forward estimate as of 31 December 2000, the amount still to be recovered, namely 865662 Danish crowns (116067 euro), was not registered in the accounts. This amount was recovered at the beginning of 2001.

15. When the Agency draws up a recovery order, it does not systematically notify the debtor with a view to ensuring that the amount owed can be collected. Of six recovery orders examined, there were two for which no notice had been sent, which was why the debtors had not made payment.

Follow-up to the Court's previous observations

16. In its 1999 Annual Report on the Agency(5), the Court pointed out weaknesses in the financial management of contracts, in particular as regards the handling of payment requests. An analysis of the files on payments made in 2000 revealed that the financial files did not always contain supporting documents for the payment requests and instead, despite the undertakings given by the Agency, contained only a declaration of the authenticity and compliance of the work carried out.

Management of human resources

Staffing policy

17. The Agency's staff is subject to the Regulations and Rules applicable to officials and other servants of the European Communities. As laid down in the third paragraph of Article 17 of Regulation (EEC) No 1210/90 of 7 May 1990, the Management Board has, in agreement with the Commission, adopted the appropriate implementing rules(6). Generally speaking, the Agency implements the general provisions adopted by the Commission but has not formally incorporated them into its internal rules.

18. At the end of 1999, the Agency drafted a general document on staffing policy and proposed several implementing decisions which, as of November 2000, had not yet been approved by its Management Board. In addition, several general provisions for implementing the Staff Regulations were incorporated into the Agency's internal rules in December 1999.

Recruitment procedures

19. No document on the Agency's recruitment procedures has been approved by the Management Board. In order to select temporary staff, the Agency usually recruits from outside following extensive publication of notice of competition in the Official Journal, in the European institutions, the other agencies and the media. In three of the 31 cases examined, staff were taken on without recourse to an external selection procedure. Three other employees were recruited on temporary contracts even though they were not on the reserve lists for filling these posts and all successful candidates on the lists had not been recruited.

20. The Agency applies to seconded national "experts" (SNEs) the arrangements which are applied at the Commission. In two of the eight cases examined, experts were chosen without recourse to a selection procedure. The Agency granted one SNE an amount equivalent to 40 % of national salary to cover children's education expenses. The regulations make no provision for this practice.

Changes in the Agency's staff and activities

21. The Agency's staff who are employed under the Staff Regulations are either permanent or temporary employees (PEs or TEs). The number of posts to be filled by staff employed under the Staff Regulations is authorised by the budgetary authority each year when the budget is adopted. In addition, the budget may allocate appropriations for the recruitment of auxiliary employees (AEs), whose contracts are limited to a maximum of one year, and seconded national experts (SNEs). Local employees (LEs) may also be recruited but the Agency does not avail itself of this option.

22. Table 4 shows the growth in the Agency's staff and the categories to which they belong. The increase in the number of staff has tended to level off in recent years.

23. Since the Agency was set up, it has taken on 133 members of staff. No employees were recruited to a permanent post directly. In 54 % of cases staff were first recruited as TEs, and in 46 % of cases as AEs or SNEs. At the end of 2000, 78 % of staff were PEs or, more often, TEs; the remainder were AEs or SNEs.

24. An analysis of the procedure for recruiting staff currently employed by the Agency reveals a recruitment model where:

- in the majority of cases, staff are recruited by procedures akin to external competitions as temporary employees, and subsequently have the opportunity to obtain a permanent post by means of a competition which is not widely advertised,

- other staff are recruited first as auxiliaries and then, by means of an open competition, have the opportunity to obtain a temporary post.

25. This staff-management model is revealed by an analysis of recruitment by procedures, which shows that approximately 64 % of new employees were recruited by means of open competitions advertised in the Official Journal and 25 % following competitions advertised in the Community institutions and the agencies. On average, recruitment costs totalled 2330 euro per recruit.

26. Departures from the Agency lead to a turnover rate for staff (PEs, TEs, AEs and SNEs) averaging 15 % per year, three quarters of which can be attributed to the expiry of contracts and the remainder to terminations of contracts, mainly by the staff concerned.

27. The Court's examination of a sample of 14 employees revealed no problems as regards their professional suitability for the duties proposed.

28. For the purposes of the audit, staff were broken down into in two categories:

- staff responsible for support activities (support staff), i.e. activities necessary for the continuity of the Agency's operations (e.g. administration, accounts, secretarial services, etc.),

- other, "operational", staff, who contribute directly to the realisation of the Agency's objectives.

29. On average, 87 % of A grade staff, i.e. 43 % of the total, may be regarded as operational. All other staff are considered to be support staff.

30. The ratio of operational staff to support staff is unfavourable in so far as the proportion of operational A grade staff has tended to fall. For 2000, the figure was 42 %, i.e. slightly lower than the average for the period examined (43 %).

31. Table 5 shows changes in staff-related costs and administrative expenditure from 1995 to 2000. The increase in salary costs was higher than the increase in staff numbers. This difference (approximately 10 %) can largely be attributed to automatic salary increases.

32. As regards other staff-related costs, the audit paid particular attention to professional training (PT) expenditure and administrative expenditure, in particular in the field of IT.

33. PT expenditure increased more quickly than the number of staff. Administrative expenditure fell slightly on average once the initial investment had been made.

34. In order to understand the relationship between the Agency's activities and the change in its staff and related costs, the change in these items was compared with the change in the amount of operating appropriations (Title III) which were actually disbursed (appropriations for the year and appropriations carried over) in the course of one year. This comparison suggests that, on average, the Agency's use of human resources and the cost of using them are increasing more quickly than the Agency's workload. This observation is corroborated by the fact that, on average, support expenditure (Titles I and II) is growing more quickly than operating expenditure. However, the Agency is not yet fully operational and cannot, in view of its size, reap substantial economies of scale given its material and administrative infrastructure. In this respect, the relationship between the growth-rate of its operational staff and the rate of growth of its volume of expenditure is satisfactory.

Conclusion

35. In general terms, it can be seen that from the very beginning the Agency has been unable to take on the number of staff provided for by the establishment plan in its budget, but it has been able to remedy the situation by recruiting auxiliary staff and seconded national experts.

36. In order to recruit its temporary employees, in the majority of cases the Agency employs an external recruitment model similar to the model advocated by the Community institutions.

37. In view of the expected development of the Agency's activities, and therefore of its staff, it might be preferable for the Agency, in the case of posts involving support and operational activities which require qualifications of an administrative nature, to join forces with the Community institutions and the other decentralised bodies with a view to recruiting staff on the broadest possible basis. Furthermore, in general terms the Agency should improve its staff management and information system.

This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 10 October 2001.

For the Court of Auditors

Jan O. Karlsson

President

(1) OJ L 120, 11.5.1990, p. 4.

(2) Under Article 13(3) of Council Regulation (EEC) No 1210/90, the accounts for all the Agency's revenue and expenditure for the financial year 2000 were drawn up on 30 March 2001 and were sent to the Agency's Management Board, the Commission and the Court of Auditors and the latter received them on 9 April 2001. The summary form of those financial statements is published in the tables annexed to this report.

(3) The calculations in all tables in this report are based on the most accurate data available. As regards the presentation of figures, figures have been rounded, which may give the appearance of arithmetical errors. A dash indicates an unavailable or zero value and 0,0 indicates a value lower than the rounding threshold.

(4) Commission Regulation (EC) No 2909/2000 of 29 December 2000 (OJ L 336, 30.12.2000, p. 75).

(5) OJ C 373, 27.12.2000.

(6) Decision No EEA/99/DGE/01 of 15 December 1999.

TABLES 1 TO 5

Table 1

Implementation of the budget

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Table 2

Revenue and expenditure account for the financial years 2000 and 1999

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Source:Table prepared by the Court of Auditors on the basis of data compiled by the Agency.

Table 3

Balance sheet as at 31 December 2000 and 31 December 1999

Source:Table prepared by the Court of Auditors on the basis of data compiled by the Agency.

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Table 4

Changes in staff numbers

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PE: Permanent employees.

TE: Temporary employees.

AE: Auxiliary employees.

SNE: Seconded national experts.

Table 5

Changes in staff numbers and in staff-related costs

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The agency's replies

Implementation of the budget and budgetary accounts

8. The Court refers to work that was planned for in the 2000 work plan but due to uncertainty in the actual translation requirements, which can change in terms of the volume and timing, the final decision to execute this work was delayed until later in the year. It can be noted that work to the Translation Centre is ordered through work sheets while order forms are used with outside suppliers.

Financial statements and keeping of the accounts

10. The income module in the financial system (SI2) is currently being implemented and made operational.

Accounting management of fixed assets and inventory

11. The new dispositions referred to by the Court (Decision 2000/716/EC) will be integrated in the Agency's procedures and will be used as a basis for the 2001 closing of the accounts and the assessment of the value of the assets of the Agency.

12. The Agency will have for the 2001 closing exercise, a fully integrated and unique inventory including the value of assets, date of acquisition and location of the material.

The Agency is implementing a permanent system in which the values in the assets are calculated at the time of purchase instead of taking it as an operation at the end of the year. It can be noted however that the impact on the value of the inventory is minor and has no repercussions on the correct amounts paid to the contractors.

Recovery orders

13. The Agency recognises the need to build into the SI2 financial system recovery and credit operations and better to formalise the procedure.

This area is a main priority for the EEA in 2001, especially in view of the increased importance of contract-based funding of the EEA's operations.

14. The comment on the recovery of an outstanding amount of EUR 116067 in relation to the rent of the EEA building is indeed correct. The delay in recovery was caused by the need for a clarification with and between the previous and the current owners of the building EEA rents. The matter has now been clarified and the recovery has been registered in the accounts.

Follow-up to previous observations made by the Court

16. The Agency recognises the need to include documents in support of payment requests and has improved and implemented procedures to ensure this with authorising officers.

In addition, providing access to and linking of supporting documents to the payment requests is being reviewed and developed in the context of the automation project that the EEA is conducting jointly with other Agencies on the basis of Commission IT system (CSS group on the basis of SINCOM2).

Management of human resources

Staffing Policy

18. A number of internal decisions have been formalised with the Management Board, but it is agreed that this has not been done fully. While analogy with Commission's internal dispositions is the main aim, and harmonisation with other EU bodies is considered to be important, the Agency also strives to stay in line with the Community personnel regulations and implementation rules, recognising that they are currently being revised and redeveloped in the context of the reform process and specifically in the personnel policy area.

The EEA will propose to the Management Board, for approval, implementation of those Commission rules which will be fully followed, and specific decisions where the EEA deviates from the Commission's approaches.

Recruitment procedures

19. The Agency follows common procedures for recruitment. These procedures will be put to the Board for approval as explained above in relation to point 18 on staffing policy.

The EEA continues to give widespread notification on recruitment opportunities of temporary agents.

These three candidates were recruited and appointed directly by the AIPN, in the early start up period of the Agency (1996). Two of these candidates (now former staff members of the EEA) were appointed after identification and proposal by the Agency's Financial Controller. The third staff member as referred to by the Court was recruited directly with the aim of assuring the functioning of the EEA, and specifically the IT infrastructure, after he had shown excellent and dedicated work as consultant to the task force and to the EEA. The three other employees mentioned were recruited in any case on the basis of shortlists that were established for posts for which the technical background is similar and the same expertise/skills are required.

20. The EEA follows for the recruitment of detached national experts the same "regime" as the Commission. It can be noted here that the recruitment of detached national experts was initially driven by the "offer side" by Member States rather than a "demand pull" by the EEA. Nevertheless, the EEA has in recent years, and will continue to do so, given widespread notification to Member States of the areas for which the competences would be relevant and would complement the available capacities.

Indeed the EEA has followed an approach of positive discrimination in the cases where the basic salaries of national experts are considerably lower than average. This approach was taken upon the advice of Commission services.

Changes in the Agency's staff and activities

23. It is considered as part of our developing personnel policy that the number of permanent posts should be kept to a minimum. Currently, the possibility of recruiting to a permanent post is only considered to allow interinstitutional mobility. Only two permanent staff members are now employed by the EEA.

29. Our view is that many of the Agency's B and C grade staff participate considerably and directly in the operational work and hence an operational support split is not easy to quantify.