Opinion No 2/2002

on an amended proposal for a Council Regulation on the Financial Regulation applicable to the general budget of the European Communities

(pursuant to Article 248(4), second subparagraph, EC)

(2002/C 92/01)

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 Coal and Steel Community, and in particular Article 45c(4) and Article 78h 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 proposal for a Council Regulation on the Financial Regulation applicable to the general budget of the European Communities(1),

Having regard to the request for an opinion on this proposal submitted by the Council to the Court of Auditors on 24 November, and received by the Court on 29 November 2000,

Having regard to the amended proposal for a Council Regulation on the Financial Regulation applicable to the general budget of the European Communities(2),

Whereas this amended proposal introduces substantial modifications, in particular to Part 1, Title VIII, concerning external audit and the discharge,

Whereas the Council's aforementioned request for an opinion of 24 November 2000 also covers the substantial modifications made to the text during the course of the legislative procedure, since otherwise Article 279 of the Treaty establishing the European Community would be voided of its substance,

HAS ADOPTED THE FOLLOWING OPINION:

Introduction

1. On 8 February, 2002, the President of the Court sent a letter to the President of the Council announcing that the Court had decided to prepare observations on those parts of the amended proposal which concern directly its own operations, notably Title VIII, Chapter 1, Articles 138 to 145 of Part 1 dealing with external audit, and Title VII, Chapter 1, Articles 127 to 128 of Part 1 concerning the presentation of the accounts. These observations concern:

- the provisions concerning the Court's role as external auditor which repeat or extend in an unsatisfactory manner the provisions set out in the Treaty,

- Articles 143 to 145, which deal with the Court's annual report, special reports and opinions, and which provide for a procedure and timetable which are unworkable for the Member States, the Commission and the Court alike, and which will not allow the Court to issue in the time allowed useful reports to the discharge authority,

- the need to omit from the amended proposal any provisions which impose upon the Court obligations, notably in relation to the publication in its reports of Member State replies, which go beyond those provided for in the EC Treaty,

- the timetable and procedure for the presentation by the Commission of first, provisional accounts and then final accounts, which can affect considerably the ability of the Court to carry out its role as external auditor, and which is inconsistent with the wish to accelerate production of the Court's annual report, and confuses responsibility of auditor and auditee.

2. The Court supports the objective of bringing forward the date of publication of the annual report, and improving the consideration given to the views of the Member States. However, it considers that the proposals made in Title VII and Title VIII are unlikely to be workable and are inconsistent with the Treaty in some respects.

Provisions in the amended proposal which repeat/explain the provisions of the Treaty

3. In paragraph 44 of its Opinion No 2/2001 the Court pointed out that provisions which are set out in the Treaty concerning the Court's role as external auditor of the Community's finances do not need to be repeated and explained in the Financial Regulation. The Commission has, however, maintained its proposal, and indeed some new and important elements have been added, with results that are unsatisfactory in several respects not only for the Court but also for the Member States.

4. In some places, the paraphrasing of the Treaty in the amended proposal is wrong, with unsatisfactory consequences. For example, in Article 138 it is stated that "The Court of Auditors shall conduct the audit of accounts provided for by Article 248 of the EC Treaty... ". But this is not what Article 248 says. Article 246 of the Treaty provides that the Court of Auditors "shall carry out the audit", without limiting it to "the accounts"(3). Article 248(1) then provides that "The Court of Auditors shall examine the accounts of all revenue and expenditure..." This is part of its audit task. Article 248 requires the Court to undertake an audit which goes beyond the narrow concept of "audit of accounts". The words "of accounts" in Article 138 should have been omitted.

5. Article 140(1) repeats part of Article 248(3) of the Treaty which provides that "The audit in the Member States shall be carried out in liaison with the national audit bodies or, if these do not have the necessary powers, with the national competent departments"(4), - text which has been added to that of the initial proposal. However, Article 140 then fails to go on to say that "The Court of Auditors and the national audit bodies of the Member States shall cooperate in a spirit of trust while maintaining their independence" which is an important part of Article 248(3) of the Treaty.

6. Similar problems exist with Article 142 of the amended proposal, where Article 142(3) develops the second subparagraph of Article 248(3), setting out more specific obligations on Member State institutions to provide information to the Court.

7. Furthermore, Article 145 restricts "observations" which the Court may make to the form of "special reports", by omitting the word "particularly" from the first paragraph, which is clearly intended to quote Article 248(4), second subparagraph, of the Treaty.

8. The Court, therefore, reiterates the point made in its opinion, that such provisions from the Treaty should not be repeated or extended in the Financial Regulation, so as to avoid any confusion about how the Court should exercise its responsibilities. The Financial Regulation cannot introduce new elements which either increase the Court's obligations or diminish its rights as provided for by the Treaty. On this basis, the following Articles should be omitted from the amended proposal: Article 138, Article 140 (part), Article 141(5), Article 142(1) to 3 and 6, Article 144, Article 145(1).

The procedure and timetable proposed for the annual report and special reports are unworkable

The annual report

9. In Annex 1 is set out a series of timetables for the presentation of the accounts and for the annual report of the Court. It includes the timetable of the current Financial Regulation, that of the initial proposal of the Commission, and that of the amended proposal, and, finally, a new proposal of the Court which is designed to overcome the difficulties posed by the proposals of the Commission.

10. The initial proposal of the Commission for the new Financial Regulation maintained the timetable of the current Financial Regulation for the annual report, i.e. preliminary observations of the Court to be transmitted to the institutions by 15 July, and transmission of the final report by 30 November. The new element was the introduction of a procedure for obtaining Member States' replies. The Court, in its Opinion No 2/2001, observed that including this provision for treating Member States' replies would make it very difficult to preserve the timetable(6).

11. The amended proposal of the Commission now brings forward the timetable by one month. The preliminary observations of the Court are to be transmitted to the institutions by 15 June instead of 15 July, and the final report is to be transmitted to the institutions by 31 October instead of 30 November. The Court supports the accelerated timetable for producing the annual report, but notes that achieving this will require a consistent approach throughout the text of the Financial Regulation.

12. Under the new proposals the Commission would be required to send to the Member States, immediately after 15 June, those observations concerning Member States in which the Member States are identified. These observations would have to be sent to the Member States in their own languages, which means that the observations would have to be translated. It takes time to prepare translations after adoption by the Court of preliminary observations, so that there would inevitably be a delay before the Member States receive them in their own languages, which is unlikely to be before the beginning of July. The Member States then have until 31 August to send replies to the Commission. The Court currently experiences difficulties in obtaining replies to sector letters in the two months currently agreed.

13. Supposing that all the 15 Member States' replies are received by the Commission by 31 August, it has only one month to translate the replies, analyse them, and prepare its comments on them, at the same time as it is completing the contradictory procedure with the Court on the preliminary observations. It should be noted that the advanced timetable is such that the Commission and the Court will have to conduct their contradictory discussions on the preliminary observations during July and August, i.e. before the Member States' replies are received. It will not be possible to wait for the replies of the Member States before the contradictory discussions between the two institutions because that would make physically impossible the task of producing the final text of the Court's report, and the Commission's replies, in all the Community languages by the prescribed deadline. The Commission will not, therefore, be able to take into account the Member States' replies in its draft answers submitted to contradictory discussion. It should be underlined that allowing a reasonable period for contradictory discussions is essential to avoid needless contradictions between the report and the replies based on avoidable misunderstandings, which only complicate the task of the discharge authorities.

14. Thus it is not just the Court, but also the Member States and the Commission that will find the timetable unworkable. Indeed, in order to maximise the time available for completing its annual audit work, particularly on the accounts (see paragraphs 21 to 23) and other aspects of the statement of assurance, the Court suggests that its preliminary observations be presented on 1 July rather than 15 June. This is still consistent with producing the final annual report on 31 October.

Special reports

15. Similar problems concern Article 145, which deals with the procedure for special reports. First, it should be noted that there is some very poor drafting which confuses matters, notably the repetition in the third and sixth subparagraphs of the text in paragraph 2 concerning the adoption of the special report by the Court, and the incorrect reference to the transmission of the special report (instead of the preliminary observations) to the Member States in the fourth subparagraph of paragraph 2. Leaving such matters to one side, the procedure proposed is unworkable.

16. Member States are given one and a half months (approximately six weeks) to reply to observations in preliminary observations that are sent to them. The Commission is to transmit "without delay" these replies to the Court, together with its remarks. Because the Commission will need some time to translate, analyse and consolidate its remarks on the Member States' replies, it will scarcely have time to do this before it should produce, within two and a half months, its own final replies. Again, the Member States' replies are divorced from the contradictory discussion between the Court and the Commission, which is highly unsatisfactory.

The Financial Regulation cannot impose obligations on the Court which go beyond the provisions of the Treaty

17. The only provision in the EC Treaty for the publication by the Court in the Official Journal of the European Communities of replies to its observations is in Article 248(4), first subparagraph, where it is provided that the replies "of the institutions" to the observations of the Court in connection with its annual report shall be published in the Official Journal. The Treaty makes no provision in respect of special reports or opinions. Nowhere in the Treaty is provision made for the Court to publish the replies of the Member States, either in connection with the annual report or with special reports. A Council Regulation may not impose such an obligation on the Court (see paragraph 2).

18. The initial proposal of the Commission provided in relation to both the annual report and special report procedures for Member State replies to the preliminary observations which concerned them to be sent to the Commission, and for the Commission to transmit these replies with its remarks to the Court. No provision, however, was made for the replies of the Member States to be published by the Court in the Official Journal as part of the report. The wording of Article 143 in the amended proposal relating to the annual report is ambiguous, and should explicitly restrict the publication of replies to those of the institutions. In the amended proposal in Article 145(2), eighth subparagraph concerning the special report procedure it is expressly provided that should the Court decide to publish a special report in the Official Journal, the report "shall be accompanied by the replies of the institutions concerned or of the Member States in question". The underlined text is new, and constitutes a substantial modification to the initial proposal. The Court has not been consulted on this text. This modification directly affects the rights and obligations of the Court as an institution, and as the external auditor of the Communities: by increasing the obligations on the Court concerning the publication of replies, it restricts the rights of the Court to decide what, apart from the replies of the institutions, should be published. As the modification goes beyond what is provided for in the Treaty, it should be deleted. Indeed, the Court of Justice stated clearly in its judgment on the Ismeri case that the Court is not bound by the Treaty to publish the replies of parties other than the institutions(7).

19. Under existing arrangements, Member States are informed about observations of the Court which directly concern them, and are requested to provide their comments to both the Court and the Commission, mainly through the sector letter procedure(8). This procedure enables Member State positions to be taken into account both by the Court and the Commission when finalising the text of a report and the replies of the Commission. This ensures that for the replies to its annual and special reports the Court has one interlocutor only, the Commission, which is the institution responsible under the Treaty for the implementation of the budget.

The provisions concerning the presentation and publication of the accounts

20. In its Opinion No 2/2001 the Court pointed out in its comments on Article 118 (Article 128 in the amended proposal) that: "The provisional financial statements are exhaustive and consistent documents, and are duly drafted by the stipulated deadlines. They are provisional only in that the Commission has not yet formally adopted them and that they may, where appropriate, be subject to corrections proposed by the Court. However, the Court's task cannot under any circumstances involve helping the Commission to draft the final consolidated financial statements. This responsibility, of an administrative and accounting nature, lies solely with the Commission and is incompatible with the Court's external control responsibility."

However, the amended proposal does not make clear what is the nature of the provisional accounts and takes no account of the Court's opinion. The Court's experience in recent years is that the accounts which the Commission presents under the existing Financial Regulation on 1 May, and which are supposed to be final accounts at that stage, are incomplete and contain significant errors, and that, in addition to the corrections proposed by the Court, the Commission continues to propose modifications until a corrected set of accounts is finally issued in September/October(9).

21. The accounts to be presented for audit on 31 March should be complete, properly drawn up accounts approved by the Commission. There must be no confusion in the Financial Regulation about the roles of the auditee and the auditor with regard to the preparation of the accounts. Therefore all reference to "provisional" accounts should be deleted.

22. On further reflection, it also seems inadvisable to provide in the Financial Regulation for a date for the eventual issuing of corrected accounts. The essential need is for such accounts to be produced in time for the Court to take account of them before finalising its statement of assurance, a matter which can be agreed between the Court and the Commission. If, however, it is decided to include such a date in the Financial Regulation it should not be later than 31 July.

23. The drafting of Article 128 of the amended proposal, which provides for the Court's statement of assurance to be published in the Official Journal together with the final consolidated accounts by 31 October at the latest, has not been sufficiently coordinated with Articles 143 and 144, which provide for the Court of Auditors to transmit the annual report and the statement of assurance by the same date to the discharge authorities and to the other institutions. It is reasonable for the statement of assurance itself to be published with the final consolidated accounts. But the statement should also be published in the Official Journal at the same time as the annual report which contains all the supporting material to the statement of assurance. Indeed, the best solution would be for the final consolidated accounts, the statement of assurance, and the annual report to be published in the Official Journal on the same day, in the same edition. It would, however, not be feasible to publish the annual report in the Official Journal on 31 October while maintaining the rest of the timetable.

24. Article 128, therefore, should be modified to provide that the final consolidated accounts should be published in the Official Journal together with the statement of assurance and the annual report of the Court(10). Given the complications involved in the Official Journal publication of these documents in all Community languages, and with the replies placed alongside the observations, it would be advisable not to specify a specific date, in accordance with the provisions of Article 143 for the annual report.

Conclusion

25. The Court repeats its argument set out in Opinion No 2/2001 that, to avoid restrictive and controversial interpretation of the provisions of the Treaty concerning the Court's role and responsibilities as external auditor of the Community's finances, the provisions of the Treaty should not be repeated or extended in the Financial Regulation (see paragraphs 3 to 8).

26. Also, in light of the above observations, for reasons both of timetable and compatibility with the Treaty, the Court considers that the proposal to include formally the obtaining of Member States' replies in the procedure for the annual and special reports should be dropped. Reliance should continue to be placed on the sector letter procedure to obtain the position of the Member States on the audit findings of the Court (see paragraphs 9 to 19).

27. The Court also proposes that the procedure and the timetable for the accounts should be modified to ensure that the accounts presented for audit are exhaustive and consistent documents approved by the Commission (see paragraphs 20 to 24).

28. With these amendments, the Court considers that bringing forward the timetable so that preliminary observations are transmitted to the Commission on 1 July and the final annual report of the Court is transmitted to the discharge authorities and the other institutions by 31 October, is feasible. The fourth column of Annex 1 sets out the complete proposed timetable.

29. Accordingly, the Court presents redrafts for the text of Article 127, 128 and 138 to 145 of the amended proposal. These are set out in Annex 2.

This Opinion was adopted by the Court of Auditors in Luxembourg at its meeting of 21 February 2002.

For the Court of Auditors

Juan Manuel Fabra Vallés

President

(1) Commission document ref. 2000/203 (CNS) - COM(2000) 461 final.

(2) Commission document ref. 2001/0318 (CNS) - COM(2001) 691 final.

(3) This is true of the English language version, although the French language version of this Article does so in spite of the content of Article 248.

(4) Whereas the French text of Article 140(1) of the FR proposal repeats word for word Article 248(3) of the Treaty, the text in English, "In the Member States the audit shall be carried out in conjunction with national audit institutions, or where they do not have the necessary powers, with the national departments responsible", shows differences resulting from translation. This illustrates the danger of repeating or paraphrasing text extracted from the Treaty.

(5) The Court pointed out in its Opinion No 2/2001 that this Article (formerly Article 126 of the initial proposal) is "too detailed and out of date". The Commission has not explained why it has been maintained.

(6) Comments to Article 128(2), Opinion No 2/2001 (OJ C 162, 5.6.2001).

(7) Judgment of the Court of Justice of 10 July 2001 in Case C-315/99 P, Ismeri Europa v Court of Auditors, [2001] ECR I-5281, point 27: "It should be noted that, under the provisions applicable to its proceedings, the Court of Auditors is not bound to submit draft reports to third parties under the same conditions which apply in the case of Community institutions or to publish the replies of those concerned following publication of its reports. The procedure provided for under Article 188c(4) of the EC Treaty (now, after amendment Article 248(4) EC) and Article 206 of the Treaty is intended to contribute to improving the financial management of the Community by providing for reports to be transmitted to the institutions and for the latter to respond to them. Involvement of third parties in that procedure would not contribute to attainment of the objective pursued".

(8) "Sector letters" are used by sectors of the Court to communicate potential observations to auditees, before their final adoption by the Court itself. All sector letters and replies from the Member States are copied to the Commission. This procedure has been confirmed and developed through the Contact Committee of the Presidents of the Court and the Supreme Audit Institutions (SAIs) of the Member States (see the Declaration on the Court of Auditors adopted by the Nice Conference).

(9) This procedure is not provided for in the current Financial Regulation, where there is only provision for the final accounts to be presented by 1 May. In practice, the Commission has issued corrected final accounts after requesting the Court's agreement to do so.

(10) This is, in fact current practice: the annual report of the Court including the statement of assurance, and the final consolidated accounts, are published on the same day in the Official Journal, although in different editions.

ANNEX I

TIMETABLE FOR THE PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS AND FOR THE ANNUAL REPORT

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ANNEX II

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