2009
THE COMMISSION’S
TREASURY MANAGEMENTEUROPEAN COURT 
OF AUDITORS
Special Report  No 5
ISSN 1831-0834
EN

THE COMMISSION’S 
TREASURY MANAGEMENTSpecial Report  No 5   2009
EUROPEAN COURT OF AUDITORS(pursuant to Article 248(4), second subparagraph, EC)
Special Report No 5/2009 — The Commission’s treasury management2
EUROPEAN COURT OF AUDITORS
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LUXEMBOURG
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E-mail: euraud@eca.europa.eu
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Special Report  No 5   2009
More information on the European Union is available on the Internet (http://europa.eu).
Cataloguing data can be found at the end of this publication.Luxembourg: Office for Official Publications of the European Communities, 2009ISBN 978-92-9207-295-7
© European Communities, 2009
Reproduction is authorised provided the source is acknowledged.
Printed in Belgium
Special Report No 5/2009 — The Commission’s treasury management3
CONTENTS
Paragraph
I–VI EXECUTIVE SUMMARY
1–8 INTRODUCTION
1–4  BACKGROUND
5–7  REGULATORY FRAMEWORK
8 THE EUROPEAN COMMISSION’S TREASURY MANAGEMENT ACTIVITIES
9–12  AUDIT SCOPE AND APPROACH
13–39  MAIN OBSERVATIONS
13–20   DOES THE COMMISSION COMPLY WITH THE RULES AND REGULATIONS APPLICABLE 
TO TREASURY MANAGEMENT?
13–18 TREASURY MANAGEMENT AND FORECASTING
19 MANAGEMENT OF IMPREST ACCOUNTS
20 HUMAN RESOURCES — SENSITIVE POSTS
21–39   HAS THE COMMISSION ESTABLISHED INTERNAL CONTROL SYSTEMS WHICH ENSURE 
SOUND TREASURY MANAGEMENT?
21–23 OVERALL SET-UP OF THE COMMISSION’S TREASURY MANAGEMENT ACTIVITIES
24–26 RISK MANAGEMENT OF TREASURY ACTIVITIES
27–29 PERFORMANCE MEASUREMENT AND BENCHMARKING
30–32 MANAGEMENT OF FIDUCIARY ACCOUNTS
33–34 MANAGEMENT OF FINES35–38 THE PAYMENT PROCESS AND MANAGEMENT OF THE BANK ACCOUNTS
39 HUMAN RESOURCES
40–47  CONCLUSIONS AND RECOMMENDATIONS
40–43   DOES THE COMMISSION COMPLY WITH THE RULES AND REGULATIONS APPLICABLE 
TO TREASURY MANAGEMENT?
44–47   HAS THE COMMISSION ESTABLISHED INTERNAL CONTROL SYSTEMS WHICH ENSURE 
SOUND TREASURY MANAGEMENT?
 REPLY OF THE COMMISSION
REPLY OF THE 
COMMISSION
Special Report No 5/2009 — The Commission’s treasury management4
EXECUTIVE SUMMARY
I.
Treasury management at the Commission  
is performed by two Directorates-General  (DG): DG Budget (DG BUDG) and the DG for 
Economic and Financial Affairs (DG ECFIN). 
DG BUDG is responsible for treasury man-
agement of the entire budget managed by 
the Commission and the European Develop-
ment Fund. DG ECFIN is responsible for the 
treasury management of other non-budget-
ary items and the investment of Community funds.
II.
The main objective of the audit was to assess the quality of the Commission’s treasury  management and in particular whether:
the Commission complied with the rules (a) 
and regulations applicable to treasury  
management; and
the Commission had established inter- (b) 
nal control systems which ensure sound 
treasury management.
III.
The Court examined the following main  
treasury management areas:
the overall set-up of the Commission’s  (a) 
treasury management activities;
risk management of treasury activities; (b) 
performance measurement and  (c) 
benchmarking;treasury planning and forecasting; (d) 
management of fiduciary accounts; (e) 
management of fines; (f) 
the payment process and management  (g) 
of bank accounts; and
human resources. (h) 
IV.
The three main legal requirements are:
the Commission should ensure that it  (a) 
has at its disposal sufficient funds to  cover cash needs arising from budget-ary implementation;
the Commission should set up cash man- (b) 
agement systems enabling the drawing 
up of cash-flow forecasts; and
the Commission should draw on the sums (c) 
credited to the own resources accounts 
to the extent necessary to cover cash  
requirements arising from the imple-mentation of the budget.
V.
The Court’s main conclusions are:
the Commission did overall comply with  —
the main provisions prescribed by the  Community legislation;
REPLY OF THE 
COMMISSION
Special Report No 5/2009 — The Commission’s treasury management5
the Commission has set up prudent cash  —
management forecast procedures ensur-ing that it has at its disposal sufficient 
funds to cover cash requirements arising 
from budgetary implementation;
the Commission’s procedures to trans- —
fer funds between Member States’ own resources accounts were not sufficiently 
documented;
as a result of the provisions of the Com- —
munities’ own resources regulation, sig-
nificant balances accumulate during the 
second half of the year as a consequence of transferring own resources to the  
accounts opened by the Member States 
in the name of the Commission on the  
basis of budget appropriations;
the internal control procedures in place  —
concerning the execution of payments  
and bank accounts were effective over-
all. However, unlike DG ECFIN, DG BUDG 
did not document its management of  
risks arising from treasury activities, nor 
were its procedures established to assess all aspects of its performance;
lack of coordination between the Com- —
mission DGs in an area where a common 
approach to issues such as risk manage-ment and control is necessary. This led to the situation where the accounts’ limits for holding funds with commercial banks were established by the DGs concerned without considering the Commission’s  
overall risk exposure with each commer-
cial bank; and
fines are held in specific bank current   —
accounts, thus there is an increased risk 
of loss.EXECUTIVE 
SUMMARY
VI.
The Court’s main recommendations are:
the Commission should improve the   —
docu mentation of its cash flow forecast-
ing procedures;
the Commission should analyse the   —
functioning of the present system of  own resources accounts with the aim  
of reducing balances on these accounts during the second half of the year;
the Commission should put in place pro- —
cedures which ensure coordination of its 
treasury management activities;
DG BUDG should improve the documen- —
tation of its risk management and the  
scope of its performance measurement; 
and
the Commission should as a matter of   —
priority reach a conclusion in its search 
for an optimum solution for the treat-
ment of provisionally collected fines.
Special Report No 5/2009 — The Commission’s treasury management6
INTRODUCTION
BACKGROUND
 1.  The European Union budget provides funding for a wide range of actions 
in the European Union and beyond. The European Commission imple-
ments the budget under its own responsibility in accordance with the 
Financial Regulation1 and within the limits of the budgetary appro-
priations. In the process of budget implementation, the Commission made in 2007 approximately 1,5 million payments to third parties.  Third parties range from EU officials and pensioners, Member States’ public authorities managing funds to private firms and individuals directly benefiting from aid under a Community scheme. In 2007 the total payments made by the Commission reached 114 billion euro.
 2.  Financial resources need to be readily available to fund these payments. 
There are two main categories of income: own resources and other 
revenue2. The largest revenue components are own resources calcu-
lated on the basis of value added tax (VAT) and own resources based 
on the Member States’ gross national income (GNI). Accounts are  
opened in the name of the Commission by each Member State and 
into which their respective own resources contributions are paid on 
a monthly basis (see Box 1 ).1 Council Regulation (EC, 
Euratom) No 1605/2002 of 
25 June 2002 on the Financial 
Regulation applicable to the general budget of the European 
Communities (OJ L 248, 16.9.2002, 
p. 1), as amended by Regulation 
(EC, Euratom) No 1995/2006 
(OJ L 390, 30.12.2006, p. 1) 
and Regulation (EC, Euratom) 
No 1525/2007 (OJ L 343, 27.12.2007, p. 9). 
2 For more details please refer to 
Chapter 4 of the European Court of 
Auditors Annual Report concerning the financial year 2007. 
CASH AND CASH EQUIVALENTS
(million euro)
Balance at 
31.12.2007Balance at 
31.12.2006
Accounts with Member States’ 
treasuries and central banks11 313 11 467
Current accounts 956 933
Imprest accounts 81 82
Cash in transit 2 3
Short-term deposits and other 
cash equivalents1 367 976
Restricted cash (fi  nes) 5 037 2 924
Cash and cash equivalents — 
Guarantee Fund249 440
Total 19 005 16 824
Source : Annual accounts of the European Communities, financial year 2007.TABLE 1
Special Report No 5/2009 — The Commission’s treasury management7
3 Commission Regulation 
(EC, Euratom) No 2342/2002 
of 23 December 2002 laying 
down detailed rules for the 
implementation of Council 
Regulation (EC, Euratom) 
No 1605/2002 on the Financial Regulation applicable to the 
general budget of the European 
Communities (OJ L 357, 
31.12.2002, p. 1), as amended 
by Regulation (EC, Euratom) 
No 1261/2005 (OJ L 201, 2.8.2005, 
p. 3), Regulation (EC, Euratom) No 1248/2006 (OJ L 227, 19.8.2006, 
p. 3) and Regulation (EC, Euratom) 
No 478/2007 (OJ L 111, 28.4.2007, 
p. 13). 
4 Article 61(1)(f) and 61(3) of the 
Financial Regulation. 
5 Article 58 of the Implementing 
Rules.  3.  In addition, the Commission opens bank accounts at central and com-
mercial banks in order to execute payments to third parties and  
collects receipts other than Member States’ own resources contribu-
tions to the budget. Funds are transferred regularly from the own  
resources accounts to the bank accounts used for payments. Sufficient 
funds need to be maintained in these payment accounts to ensure 
un interrupted funding of Community activities. On 31 December 2007 the total balance on all accounts amounted to 19 billion euro (see 
Table 1 ).
 4.  The Commission has set up systems to manage its treasury operations 
and more specifically cash flows (receipts and payments), the open-ing and running of bank accounts, cash forecasting and liquidity  management.
REGULATORY FRAMEWORK
 5.  According to the Financial Regulation and the implementing measures, 
treasury management is part of the Accounting Officer’s duties3. 
Although an overall definition of treasury management or of its main 
components is not provided, individual tasks which are ordinarily  part of treasury management, such as management of bank accounts, 
payment and reconciliation procedures, are described in sufficient 
detail.
 6.  The Financial Regulation states that the Accounting Officer should, 
amongst other duties, be responsible for treasury management,  
and only the Accounting Officer is empowered to manage cash and 
cash equivalents4. In addition, the Implementing Rules state that  
the Accounting Officer shall ensure that the Commission has at its 
disposal sufficient funds to cover cash requirements arising from  budgetary implementation and shall set up cash management systems 
enabling the drawing-up of cash-flow forecasts
5.
Special Report No 5/2009 — The Commission’s treasury management8
 7.  The Communities’ own resources regulation6 includes provisions rele-
vant to treasury management. These provisions set out the funding 
framework within which the Commission must operate and define the Commission’s treasury management objectives. The most important 
provisions in the context of this report are presented in Box 1 .
THE EUROPEAN COMMISSION’S TREASURY 
MANAGEMENT ACTIVITIES
 8.  Two Directorates-General at the Commission are involved in treasury man-
agement activities: DG BUDG and DG ECFIN. DG BUDG is responsible 
for treasury management of the entire budget managed by the Com-
mission, and the European Development Fund. DG ECFIN is respon-sible for the treasury management of other non-budgetary items,  
which are mainly the European Coal and Steel Community (ECSC)  
in liquidation, the European Community’s and Euratom’s loans and 
investments of funds and certain funds managed by financial institu-
tions under a mandate from the Commission
7. Diagram 1  presents  
an overview of the Commission’s treasury management system and 
Box 2  summarises its main tasks.6 Council Regulation (EC, 
Euratom) No 1150/2000 of 
22 May 2000 implementing 
Decision 94/728/EC, Euratom on the system of the Communities’ 
own resources (OJ L 130, 31.5.2000, 
p. 1), as amended by Regulation 
(EC, Euratom) No 2028/2004 
(OJ L 352, 27.11.2004, p. 1). 
7 DG ECFIN manages a diverse 
number of financial instruments 
related to its off-budget activity 
treasury operations. These 
encompass operations relating 
to the management of some 2,2 billion euro — representing the 
assets of the ECSC in liquidation 
and other mandated funds — and 
banking operations (borrowing 
and lending activities) for which 
the outstanding EC/Euratom/ECSC 
in liquidation borrowing/lending position amounted to close to 
1,8 billion euro as of the end 
of 2007. 
OWN RESOURCES REGULATION PROVISIONS
Accounts for own resources should be opened in the name of the Commission with the treasury • 
or the body appointed by each Member State. The Member States should credit resources to 
these accounts, which shall be kept free of charge8.
On the first working day of each month, one twelfth of the relevant totals in the budget should • 
be credited to the account for the VAT and GNI resources9.
The Commission should draw on the sums credited to the accounts to the extent necessary to • 
cover its cash resources requirements arising from budgetary implementation10.BOX 1
8 Articles 6(1) and 9(1) of Regulation (EC, Euratom) No 1150/2000 as amended. 
9 Article 10(3) of Regulation (EC, Euratom) No 1150/2000 as amended. 
10 Article 12(1) of Regulation (EC, Euratom) No 1150/2000. 
Special Report No 5/2009 — The Commission’s treasury management9
OVERVIEW OF THE COMMISSION’S TREASURY MANAGEMENT SYSTEMDIAGRAM 1
Source : European Court of Auditors.
Member States
EU institutions
Beneficiaries
Suppliers
DG BUDG
Financial
institutions Financial Regulation
and Implementing
Rules
Own resources 
Regulation
DG BUDG’s internal control system
PaymentsReceipts
Receipts
PaymentsRisk
management Planning
Forecasting
Risk
management Planning
ForecastingBank accounts
Bank accounts and 
asset managementDG ECFIN’s internal control systemTreasury Management

Special Report No 5/2009 — The Commission’s treasury management10
SUMMARY OF THE MAIN TASKS OF THE COMMISSION’S TREASURY MANAGEMENT
Treasury planning and forecasting
Cash flow forecasts (estimates of inflows and outflows)• 
Drawing from own resources accounts (treasury and central bank accounts)• 
Management of receipts and payments
Maintenance and control of third-party files• 
Execution and monitoring of payment transactions• 
Matching the receipts to recovery orders issued by authorising officers• 
Bank account reconciliations• 
Foreign exchange operations• Management of bank accounts
Opening and closing of bank accounts• 
Selecting commercial banks (tender procedures)• 
Checking bank interest and charges• 
Management of imprest accounts• 
Management of fiduciary accounts• 
Management of fines• 
Management of investments• BOX 2
Special Report No 5/2009 — The Commission’s treasury management11
 9.  The main objective of the audit was to assess the quality of the Com-
mission’s treasury management. This was done by addressing two  
questions:
Does the Commission comply with the rules and regulations   —
applic able to treasury management?
Has the Commission established internal control systems which  —
ensure sound treasury management?
 10.  The Court addressed the second question by selecting and examining 
the main areas of the Commission’s treasury management which is 
implemented by DG BUDG and DG ECFIN. These were:
the overall set-up of the Commission’s treasury management  (a) 
activities;
risk management of treasury activities; (b) 
performance measurement and benchmarking; (c) 
management of fiduciary accounts; (d) 
management of fines; (e) 
the payment process and management of bank accounts; and (f) 
 human resources. (g) 
 11.  The audit did not cover the processes established for managing the 
funding of the other institutions and Community bodies such as the 
European agencies, or the investment decisions made by DG ECFIN 
in managing the other non-budgetary items, including the borrow-
ing activities to finance Community loans. The Court reports in its  
Annual Report on the Commission’s management of the Guarantee 
Fund for external actions and on the compliance with the relevant legislation of the financial operations of the European Coal and Steel 
Community (ECSC) in liquidation. The audit focused on the financial 
years 2006 and 2007. Developments in Commission practices in the 
first half of 2008 were also considered.
 12.  The audit included visits to both DG BUDG and DG ECFIN. Audit evidence 
was collected through examination and assessment of existing rules and procedures, reviews of documentation, testing of controls and transactions, and interviews. For comparison purposes treasury man-agement practices in other public bodies were also considered and 
a review of the relevant academic literature was undertaken.AUDIT SCOPE AND APPROACH
Special Report No 5/2009 — The Commission’s treasury management12
DOES THE COMMISSION COMPLY WITH THE RULES 
AND REGULATIONS APPLICABLE TO TREASURY MANAGEMENT?
TREASURY MANAGEMENT AND FORECASTING
 13.  The three main legal provisions which define the nature of treasury 
management to be exercised by the Commission are:
the Commission should ensure that it has at its disposal suf- (a) 
ficient funds to cover cash needs arising from budgetary  implementation;
the Commission should set up cash management systems enabling (b) 
the drawing-up of cash-flow forecasts
11;
the Commission should draw on the sums credited to the own  (c) 
resources accounts to the extent necessary to cover cash require-
ments arising from the implementation of the budget12.
 14.  The Court tested whether the Commission’s systems and procedures in 
place and the actions taken for paragraph 13(a) and (c) adhered to 
these provisions. The Court’s testing did not reveal any significant 
instances of non-compliance with the abovementioned provisions.
 15.  As mentioned in paragraph 2, VAT and GNI own resources are the lar-
gest revenue components of the Community budget. These resources are credited to the accounts opened by each Member State in the  name of the Commission in monthly twelfths of their relevant total of the budget. Therefore, with the exception of the need to pro-vide earlier funding to the European Agricultural Guarantee Fund  (see paragraph 16) in the first months of the year, the crediting of 
resources to the aforementioned Commission accounts is not based 
on actual treasury needs but on the Member States’ share of the  annual budget. Considering that the budget is in equilibrium, there 
is therefore a low risk that the Commission will not have at its dis-
posal sufficient funds to cover cash needs arising from budgetary  
implementation. As a consequence of the above method for provid-
ing own resources laid out by the Communities’ regulation, together 
with the effect of a level of budgetary execution lower than planned, 
significant balances are accumulated during the second half of the year on these own resources accounts (see Table 1 ). Budgetary own 
resources are amended only as a consequence of a revision of the  Community budget
13. Since this procedure takes considerable time, 
excess funds are not released back to the Member States as quickly 
as they could be.MAIN OBSERVATIONS
11 Article 58 of the Implementing 
Rules. 
12 Article 12(1) of Regulation (EC, 
Euratom) No 1150/2000. 
13 In the case of the 2007 budget, 
a substantial repayment was made at the beginning of 2008. 
Special Report No 5/2009 — The Commission’s treasury management13
 16.  The Regulation stipulates that the VAT and GNI resources can be called 
up in advance, within certain limits, during the first months of the 
year for the purpose of financing the EAGF payments. The Commission prepares a monthly cash forecast with the purpose of determining 
whether advanced calls of own resources are needed to cover pay-
ments. The Court noted that the documentation in place was neither 
recently updated nor provided sufficient details of the method ology 
used for the preparation of these cash flow forecasts. Moreover, finan-
cial information on cash requirements, covering approximately 85 % of budgetary expenditure, is provided by three DGs only
14, two of  
which provide this information on an informal basis only to the unit in DG BUDG responsible for treasury management.
 17.  The Commission has also put in place another cash management forecast 
procedure. Its main aim is to ensure that there are sufficient funds in each commercial bank account for the execution of payments. This is an effective automated tool which enables the Commission both to monitor bank balances and to ensure availability of funds
15.
 18.  Finally, the Commission has put in place a third cash forecast procedure 
which aims to transfer funds between Member States’ own resources 
accounts in order to align the balances on these accounts with their 
respective budgetary contributions. The calculations underpinning 
the amounts transferred are partly based on estimates of future cash flows. The Court noted that the methodology used for the preparation 
of the forecast was not sufficiently documented and that the estimates 
made were not subsequently checked for their accuracy. This has a 
temporary effect on the balances of the accounts opened by each  
Member State in the name of the Commission (see paragraph 2).14 DG Agriculture and Rural 
Development, DG Regional Policy 
and DG Employment, Social Affairs 
and Equal Opportunities. 
15 DG BUDG managed 33 bank 
accounts in total with 30 banks in 
26 Member States. 
Special Report No 5/2009 — The Commission’s treasury management14
MANAGEMENT OF IMPREST ACCOUNTS
 19.  Imprest accounts can be set up for the collection of revenue and for 
the payment of small sums of money. However, in certain situations, 
e.g. external aid operations, such accounts may be used without any 
limitation on the amounts of the payment transactions16. The require-
ments set out in the Implementing Rules and in the internal guidelines 
established for tender procedures for the selection of the banks were not followed in most of the cases the Court examined. In addition, 
the selection procedure was not appropriately documented in one third of the cases examined.
HUMAN RESOURCES — SENSITIVE POSTS
 20.  Applying the internal control standards of the Commission, DG ECFIN 
carried out a risk assessment (see paragraph 26), on the basis of  
which in 2004 a number of posts were listed as sensitive. As this list 
is rather old, it needs to be reassessed in the context of the DG’s risk 
assessment, the completion of which is imminent. The 2008 DG BUDG risk assessment exercise concluded that only one post in the unit  
responsible for treasury management has been assessed as sensitive. 
This is despite the high volumes, values and nature of transactions 
processed daily by this unit.
HAS THE COMMISSION ESTABLISHED INTERNAL 
CONTROL SYSTEMS WHICH ENSURE SOUND TREASURY MANAGEMENT?
OVERALL SET-UP OF THE COMMISSION’S TREASURY 
MANAGEMENT ACTIVITIES
 21.  Large commercial organisations have established treasury management 
departments whose ultimate aim is to contribute to maximising cor-porate profitability and ensuring at the same time an effective man-agement of risks and the availability of sufficient cash reserves for the financing of operations. Likewise, many public sector organisations have established treasury management structures aimed at providing support to the attainment of their organisational objectives
17. What-
ever the nature of the organisation, effective treasury management significantly contributes to corporate success.16 Article 63(1) of the Financial 
Regulation as amended. 
17 Depending on the nature of the 
public sector organisation, the 
treasury management structures can embrace a wide range of 
activities. A definition of treasury 
management provided by the 
Chartered Institute of Public 
Finance and Accountancy (UK) is 
as follows: ‘Treasury management 
includes the management of cash flows, banking, money-market 
and capital-market transactions; 
the effective control of the risk 
associated with those activities; 
and the pursuit of optimum performance consistent with those 
risks’ (Management in the public 
services, code of practice and 
cross-sectoral guidance notes, 
2001, the Chartered Institute of 
Public Finance and Accountancy, 
United Kingdom). 
Special Report No 5/2009 — The Commission’s treasury management15
 22.  With a view to achieving effective treasury management whilst remain-
ing within the boundaries of the regulatory framework of Community 
legislation (see paragraph 7), the Commission assigned the treasury management of the Community budget to DG BUDG and the treas-
ury management of the non-budgetary items
18 and the activity of  
investing Community funds to DG ECFIN19 (see paragraphs 6 and  
8). Considering their respective areas of expertise and the role and 
responsibilities of these two DGs in the implementation of the Com-
mission’s annual work programme and in the execution of the Com-munity budget, this split of responsibilities reflects the day-to-day 
reality of treasury operations
20. Notwithstanding the aforementioned, 
it was noted that each DG operates entirely independently in manag-ing and controlling its treasury activities. As a result of this split there was in effect no unit with overall responsibility for the Commission’s treasury management operations and there was no coordination in an area where a common approach to issues such as risk management and control is necessary.
 23.  For instance, in order to control the risk of loss generated by holding 
funds in accounts with commercial banks, DG BUDG and DG ECFIN  
have each established their own limits for the maximum amounts  of funds to be held at specific banks. The two DGs used different  
methodologies to establish the limits without considering the Com-
mission’s overall risk exposure with each commercial bank. This was 
due to a lack of communication and coordination between the two 
DGs in the treasury management area. The Commission’s treasury  management practices are not aimed at reducing the Commission’s 
overall exposure to financial losses.
RISK MANAGEMENT OF TREASURY ACTIVITIES
 24.  Entities should carry out risk assessments for each significant business 
process in order to identify and analyse the key risks to the achieve-
ment of their objectives. On the basis of these assessments, the appro-
priate measures to be taken for the management and monitoring of the identified risks should be decided.18 Except for the treasury 
management of the European 
Development Fund, which is 
managed by DG BUDG. 
19 The Accounting Officer gives 
his/her agreement for the opening 
and closing of accounts with 
financial institutions and his/her opinion on internal rules 
established for the DG’s treasury 
operations. 
20 DG ECFIN processes a smaller 
number of high-value payment 
transactions in comparison to DG BUDG. For DG ECFIN, the 
timeliness of the execution of 
payments is a major issue. The DG 
often needs to make payments 
within very strict deadlines 
following an investment decision. 
Payments commonly have to be executed at the latest within two 
days and there are instances where 
payments have to be made on the 
day the instruction is issued. 
Special Report No 5/2009 — The Commission’s treasury management16
 25.  No specific risk assessment was carried out by DG BUDG for its treasury 
management operations. In the 2007 and 2008 general risk assess-
ment exercises undertaken by DG BUDG, only two risks pertaining to treasury management operations were identified: the shortage of staff 
in the ‘third party’ section (see paragraph 36) and the risk of loss con-
cerning deposits with commercial banks of provisionally cashed fines 
(see paragraph 33). Notwithstanding this, the Commission published 
for the first time an overview of the risks in its treasury operations 
in the 2007 annual accounts of the European Communities
21. This  
overview includes risks arising from the Commission’s management 
of the day-to-day operations, operational, currency, credit and inter-est rate risks, and risks arising from the management of provisionally cashed fines (see paragraph 33). No documentation was identified  
providing evidence of active management and monitoring of the  
abovementioned risks.
 26.  Although risk assessments were performed for financial instruments 
where major changes had occurred, DG ECFIN’s last overall risk assess-
ment was carried out in 2004. This assessment contained an evalua-
tion of the impact and likelihood of potential risks for the treasury 
and financial market operations. In addition, in 2004, a risk man-agement function was established by DG ECFIN contributing to the 
effective management of risk and monitoring at entity and activity 
levels. For the risks identified in the abovementioned assessments, 
risk reports are produced regularly and meetings are held throughout 
the year to monitor risk exposure (see Box 3 ). The Court examined 
these reports and noted that the principal risks listed below were  
monitored and that limits set per investment category were regu-
larly checked by the DG, which took corrective actions when this was 
deemed necessary:
market risk: this is the potential loss that could result from adverse (a) 
market movements; it includes interest rate risk, which is the  fluctuation of a financial instrument’s future cash flows because 
of changes in market interest rates, and foreign exchange risk,  
namely the currency exposures resulting from a financial instru-
ment being denominated in a currency other than the euro;
credit risk: this is the potential loss to a portfolio that could  (b) 
result from the default of a counterparty or the deterioration  
of its creditworthiness, such as, for instance, downgrading by a 
rating agency;
operational risk: this is the risk of loss resulting from inadequate (c) 
or failed internal processes, people and systems and external  events.21 Annual accounts of the 
European Communities 
financial year 2007, Volume I 
(Consolidated financial statements and consolidated 
reports on implementation of the 
budget), Section 7 (Financial risk 
management). 
Special Report No 5/2009 — The Commission’s treasury management17
PERFORMANCE MEASUREMENT AND BENCHMARKING
 27.  Management should monitor performance by establishing systems which 
gather information on the implementation of the selected activities. 
These systems should make use of indicators in order to evaluate  
performance in relation to the set goals and objectives22. In addition, 
benchmarking is a process used in management by which organisa-
tions evaluate various aspects of their processes and performance in relation to best practice and take corrective action.
 28.  DG BUDG established a number of ‘high level’ indicators linked to its 
treasury operations. These were included in the DG’s monthly ‘tab-
leau de bord’ (scoreboard system). They refer to payment operations (at least one payment run per day), the bank reconciliation process 
(number of unreconciled items older than 30 days), and to the man-
agement of third-party files. These ‘high level’ indicators do not cover 
all the areas of the treasury management operations and no evidence 
of appropriate benchmarks was found.
EXAMPLE OF RISK MONITORING ACTIVITIES BY DG ECFIN
Quarterly risk report on financial activities of a DG ECFIN unit for the quarter 
ending on 31 December 2007 (extracts)
The financial market turmoil, also known as the sub-prime crisis, continued over the report-• 
ing period. The operational unit concerned and the risk management unit continued the close monitoring of the development of the sub-prime crisis over the past months in order to assess its possible impact on the treasury management portfolio of bonds and bank deposits. From a credit risk perspective, an updated analysis of the bond portfolio and the bank counterparties was prepared.
Concentration risk is also monitored. This is the risk arising from too high a proportion of bonds 
• 
or deposits being allocated to a specific country, sector, instrument or type of transaction.Operational risk for treasury transactions is also monitored. Compliance with in-house procedures 
• 
and standard regulations was tested and results for the quarter were reported and analysed. 
This was based on the examination of a sample of securities transactions and deposits placed during the period.BOX 322 These notions are documented 
in the Commission’s internal 
control standard number 5 
‘objectives and performance 
indicators’. 
Special Report No 5/2009 — The Commission’s treasury management18
 29.  DG ECFIN uses a market index23 as the benchmark for its performance 
review of the portfolio of securities and cash of the European Coal 
and Steel Community (ECSC) and the Guarantee Fund for external  actions. In this respect, tolerance ranges were established and when 
the portfolio’s actual monthly performance was found to fall outside 
the range, the DG undertook actions to correct the portfolio. However, the benchmark to be used for the performance review of the other portfolios, namely money market products, such as deposits managed 
by the DG, was under preparation at the time of the audit.
MANAGEMENT OF FIDUCIARY ACCOUNTS
 30.  Fiduciary accounts are established for certain EU spending programmes 
in the context of specific agreements entered into by the Commis-sion, where a financial institution acts as an authorised agent of  the Commission. In other words, these are accounts opened with a financial institution for it to manage funds directly and to make pay-ments on behalf of the Commission. Funds are transferred from the Commission to these fiduciary accounts to cover future payments.  The total amount of funds held in such accounts at the end of 2007 
was approximately 970 million euro
24; the largest part, approximately 
900 million euro, is classified as short-term deposits and the rest as 
current accounts (see Table 1 ).
 31.  The Court’s audit showed that there are no clear rules for the setting 
up of these fiduciary accounts. In addition, there is also no explicit strategy aimed at the optimisation of the interest produced by these accounts. The Court’s audit revealed that the terms of the contractual 
agreements entered into with financial intermediaries differ. This can result in significant variations as to the return obtained from these 
accounts
25. It should be noted, however, that these variations can be 
partly explained by the different legal bases, payment frequencies 
and maturity patterns.
 32.  There is no overall supervision of the management of the funds held by 
these financial institutions. DG ECFIN has the necessary expertise  
and systems in place to ensure an effective overview. In July 2007, 
DG ECFIN offered its asset management services to the six DGs con-
cerned26. As a result, agreements between DG ECFIN and two DGs  
have been signed.23 The iboxx index is published 
by ‘Deutsche Börse AG’ on the 
basis of prices from multiple providers. According to DG ECFIN 
it constitutes a market standard. 
24 720 million euro of this amount 
relates to specific agreements 
entered into by Commission DGs 
with the European Investment Bank (EIB) and the European 
Investment Fund (EIF). 
25 For instance, different rules 
apply for the interest calculation 
in the conventions entered into 
between the Commission and the EIB on the accounts for risk capital 
and interest rebates from the 
ones used for the Facility for Euro-
Mediterranean Investment (FEMIP). 
The Court calculated that interest generated up to the end of 2006 
on the FEMIP accounts would have 
been approximately 0,8 million 
euro higher, if the interest method 
of the accounts for risk capital and 
interest rebates had been used. 
26 EuropeAid, DG Enlargement, 
DG Research, DG Regional Policy, 
DG External Relations and DG 
Development. 
Special Report No 5/2009 — The Commission’s treasury management19
SELECTED PAYMENT PROCESS STATISTICS
2007 2006
Number of payments processed by 
DG BUDG1 570 576 1 508 983
Number of payments processed by 
DG ECFIN1 485 1 577
Bank account fi  le validations 71 879 60 637
Bank account fi  le modifi  cations 31 703 18 227
Third-party fi  le validations 56 864 14 551
Third-party fi  le modifi  cation volume 17 598 18 796
Source : European Court of Auditors, on the basis of data provided by the Commission.TABLE 2MANAGEMENT OF FINES
 33.  Fines are imposed by the Commission for infringement of competition 
rules by Member States or companies. Fines paid to the Commis-
sion in cases of ongoing litigation are provisionally held in specific deposit accounts with commercial banks and they cannot be used to finance any other Community activities
27. The volume of fines held 
as restricted cash has grown significantly from 2,9 billion euro on  
31 December 2006 to 5 billion euro on 31 December 2007.
 34.  Although some informal guidelines have been devised and are being 
followed, a clear policy on the treatment of these fines has not been established. In these guidelines, DG BUDG addressed risk exposure by defining a specific minimum Moody’s or equivalent rating required and by limiting its exposure to each commercial bank (see para-
graph 23). Notwithstanding the above, the risk of such large sums  
of money being held in specific current accounts with commercial  
banks still needs to be effectively addressed. At the time of the audit 
DG BUDG and DG ECFIN were in the process of searching for an opti-mum solution to the problem of the treasury management of these 
substantial funds, aiming to minimise the risk of loss and at the same 
time to yield a fair return.27 Accounts are held with the 
following six banks: Fortis, BBVA, 
ING Belgium, KBC, ING NL and 
Citibank. 
Special Report No 5/2009 — The Commission’s treasury management20
THE PAYMENT PROCESS AND MANAGEMENT 
OF THE BANK ACCOUNTS
 35.  A significant number of treasury transactions are executed and processed 
each year by both DGs (see Table 2 ). The Court examined key internal 
controls over the payment execution process, such as segregation  of duties, third-party validation, access rights and exception report-ing, in the units concerned. No significant weaknesses were noted. 
Internal controls were overall operating effectively in both DG BUDG and DG ECFIN.
 36.  Before a payment can be processed, a third-party file has to be created in 
the Commission’s computerised accounting system containing bank details and information on the identity of the recipient. In 2006 there 
was a significant delay of approximately four to six weeks for process-
ing creation and modification requests for third-party files. This was 
overcome by DG BUDG in 2007 by increasing human resources in the 
unit concerned.
 37.  The Commission also established procedures with the aim of ensuring 
that:
the transactions processed by the commercial banks on the Com- (a) 
mission’s accounts are reconciled on a regular basis with their  corresponding entries in the Commission’s accounting system in 
order to identify and resolve any differences;
bank interest and charges are checked regularly to ensure cor- (b) 
rectness of the amounts received and paid;
foreign exchange operations are accurately processed (c) 
28.
 38.  The Court examined the implementation of the above procedures. No 
significant weaknesses were noted and the procedures in place  were adequate and, overall, operating effectively at both DG BUDG and DG ECFIN. A foreign exchange policy was nevertheless formally adopted by DG BUDG only in February 2008.28 Examples of foreign currency 
transactions: (i) bank accounts are 
held in currencies other than the 
euro for the purpose of executing 
payments denominated in these 
same currencies; depending on the needs, funds are transferred to 
these accounts from euro accounts 
and (ii) own resources paid by 
Member States in currencies other 
than the euro are converted into 
euro depending on the treasury 
needs.
Special Report No 5/2009 — The Commission’s treasury management21
HUMAN RESOURCES
 39.  Both DG BUDG and DG ECFIN apply standard Commission procedures 
in the area of human resources management. These procedures  
include the recruitment, appraisal and career mobility of members of staff involved in treasury management. The Court’s audit con-firmed that appropriate job descriptions had been drawn up and staff 
employed possess adequate qualifications and sufficient previous  
experience relevant to the duties attached to their posts. DG BUDG’s unit responsible for treasury management operates with a small and 
highly ex perienced number of staff. The low staff turnover over recent 
years has created a relatively stable working environment. In the  
event, though, of key members of staff leaving at short notice, and 
considering the lack of documentation in some of the procedures  (see paragraphs 16 and 18), there is a considerable risk to business continuity, potentially impacting on the management and control of the Commission’s treasury activities.
Special Report No 5/2009 — The Commission’s treasury management22
CONCLUSIONS AND 
RECOMMENDATIONS
DOES THE COMMISSION COMPLY WITH THE RULES 
AND REGULATIONS APPLICABLE TO TREASURY 
MANAGEMENT?
 40.  The Commission complied overall with the main legal provisions prescribed 
by the Communities’ own resources regulation and in the Implement-ing Rules of the Financial Regulation (paragraphs 13 and 14).
 41.  The Commission has set up reliable and effective cash management fore-
cast procedures ensuring that it has at its disposal sufficient funds 
to cover cash requirements arising from budgetary implementation 
(paragraph 17).
 42.  One consequence of the requirement of the Communities’ own resources 
regulation of transferring own resources to the accounts opened by 
the Member States in the name of the Commission on the basis of  
budget appropriations is that significant balances are accumulated during the second half of the year. Since the amending budget pro-
cedure takes considerable time, excess funds are not released back 
to the Member States as quickly as they could be (paragraph 15).
 43.  The application of the Commission’s procedures which aim to:
transfer funds between Member States’ own resources accounts; (a) 
and
determine the need in the first months of the year for advanced (b) 
call-ups of own resources to cover payments,
  were not sufficiently documented or recently updated. Estimates used for the 
transfer of funds between Member States’ own resources accounts were not subsequently checked for their accuracy (paragraphs 15 to 18).
 RECOMMENDATIONS
The Commission should analyse the functioning of the present sys- • 
tem of own resources accounts, with the aim of reducing balances 
on these accounts during the second half of the year.
The Commission should improve the documentation of its cash flow • 
forecasting procedures, and check the accuracy of the estimates 
used for the transfers of the Member States’ own resources.
Special Report No 5/2009 — The Commission’s treasury management23
HAS THE COMMISSION ESTABLISHED INTERNAL 
CONTROL SYSTEMS WHICH ENSURE SOUND TREASURY 
MANAGEMENT?
 44.  Overall, the internal control procedures in place concerning the execution 
of payments and the bank accounts were effective. However, unlike DG ECFIN, no documentation was identified at DG BUDG providing evidence of active management and monitoring of the risks arising 
from treasury activities, nor were procedures established to assess all aspects of its performance (paragraphs 24 to 29 and 35 to 38).
 45.  As a result of the Commission’s decision to split treasury management 
operations between DG ECFIN and DG BUDG, there was no unit with overall responsibility for the Commission’s treasury management.  
There was a lack of coordination between the two Commission DGs in 
an area where a common approach to issues such as risk management 
and control is necessary. This led to the situation where the accounts’ 
limits for holding funds with commercial banks were established by 
these DGs without considering the Commission’s overall risk exposure with each commercial bank (paragraphs 21 to 23).
 46.  No clear rules for setting up fiduciary accounts were established, and 
neither was there an overall overview of all the funds held by the  
financial institutions. Optimisation of interest generated was there-fore not assured (paragraphs 30 to 32).
 47.  The value of the provisionally collected fines held in commercial bank 
current accounts has more than doubled over recent years, to 5 bil-
lion euro. This approach exposes the Commission to risk of loss in  
the event of banking failure. An optimum approach to better man-
aging the risks relating to the holding of these amounts has not been established (paragraphs 33 and 34).
Special Report No 5/2009 — The Commission’s treasury management24
RECOMMENDATIONS
The Commission should put in place procedures to improve the  • 
oversight of its treasury management activities and enhance  
co ordination between the two DGs concerned.
In the area of treasury management DG BUDG should improve the • 
documentation of its risk management and the scope of its per-
formance measurement.
A uniform policy and adequate guidelines should be put in place • 
for the opening of fiduciary accounts and for the management of 
Commission funds held in these accounts.
The Commission should as a matter of priority reach a conclusion • 
in its search for an optimum solution for the treatment of provi-
sionally collected fines.
  This report was adopted by the Court of Auditors in Luxembourg at its 
meeting of 30 April 2009.
For the Court of Auditors
For  the  Court  of Auditors
Vítor Manuel da Silva Caldeira
President
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COMMISSION
Special Report No 5/2009 — The Commission’s treasury management25
REPLY OF THE COMMISSION
EXECUTIVE SUMMARY
V.
Third indent
The procedure for transfers between Mem-
ber States’ own resources accounts is for-mally documented and is complemented by detailed step-by-step instructions.
Fourth indent
The Commission is bound to respect the  provisions of the Council regulation imple-menting the decision on the system of the Communities’ own resources, which fore-see, namely, that Member States credit own resources to the account opened in the name of the Commission by means of monthly  twelfths. See also the Commission’s reply  to paragraph 15.
Fifth indent
The Commission’s overview of the risks  related to its treasury operations (DG BUDG), 
which is part of its annual accounts, provides 
a clear and comprehensive summary the risks 
it is exposed to, how such risks are managed, 
and which measures have been put in place 
to control, minimise or neutralise them. It  
also makes reference to procedures that  contain measures to control or limit opera-
tional and financial risks. These existing  procedures will be cross-referenced into a  single formal document of DG BUDG.
The indicators included in the DG BUDG’s  
‘tableau de bord’ are the most relevant for its treasury operations and are significant  
indicators of its performance. Such indica-tors are regularly tracked and performance against them is assessed. In case of poor  performance appropriate measures are put 
in place to correct it.
See also the Commission’s replies to para-
graphs 25 and 28.
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Sixth indent
The Commission will improve its oversight 
on the different treasury management activ-ities performed. The separation of tasks  
between the two Directorates-General con-
cerned serves to limit the need for extensive coordination.
The different methodologies to limit risks  
are due to the different nature of the tasks performed. Limits for nostro accounts, which 
cater for daily cash movements but normally 
do not hold substantial funds for a longer  
period, have to be considered differently  
from limits for counterparties with whom  money is placed for a longer period.
See also the Commission’s replies to para-
graphs 22 and 23.
Seventh indent
The current system for the management of provisionally cashed fines was subject to a 
review in 2008, with the main objective of 
increasing its security. A proposal for a Com-
mission decision on this matter has been  
issued in early 2009 by DG BUDG.
VI.
First indent
The Commission has redrafted its cash flow reporting and forecasting procedures at the end of 2008, in the context of a review of  
the related reporting tools. The updated ver-sion of the procedure, which also contains 
more details on the forecasting part, will be 
adopted as from the end of March 2009.Second indent
The present system of own resources  
accounts, primarily designated to receive  the own resources payments, is linked to  
the own resources system, as established  
by Council Decision 2000/597/EC, Euratom and its implementing regulation, Council  Regulation (EC, Euratom) No 1150/2000,  
that the Commission is bound to implement. 
The Council adopted in 2007 the new own  resources decision (2007/436/EC, Euratom), 
and very recently a revision of Regulation  
1150/2000
1, which do not introduce any  
significant changes in the system of own  
resources accounts and payments. This sug-gests that the Council is satisfied with the functioning of the present system.
Third indent
Meetings will be established more regularly 
between the two Directorates-General to  
share information on risks, and to exchange experiences and best practices regarding  
treasury and asset management activities  
on a Commission-wide level.
Fourth indent
The Commission’s overview of the risks  
related to its treasury operations (DG BUDG), which is part of its annual accounts, provides 
a clear and comprehensive summary of the risks it is exposed to, how such risks are man-aged, and which measures have been put  
in place to control, minimise or neutralise  them. It also makes reference to procedures 
that contain measures to control or limit  
operational and financial risks. These exist-
ing procedures will be cross-referenced into a single formal document of DG BUDG.
1  Council Regulation (EC, Euratom) No 105/2009, 
OJ L 36, p. 1, 5.2.2009.
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The indicators included in the DG BUDG’s  
‘tableau de bord’ are the most relevant for 
its treasury operations and are significant  indicators of its performance. Such indica-tors are regularly tracked and performance 
against them is assessed. In case of poor  
performance appropriate measures are put in place to correct it.
Fifth indent
Under the present system for the manage-
ment of provisionally cashed fines the Com-mission ensures risks are minimised, via a  
set of measures including minimum credit  
rating requirements for commercial banks, 
limits to exposure per bank, and the pos-
sibility to transfer funds at any time with  
immediate effect. Monitoring and review of 
the situation is ensured regularly and on a daily basis in the current financial context.
In addition the current system for the man-
agement of provisionally cashed fines was  
subject to a review in 2008, with the main  objective of increasing its security. A pro-
posal for a Commission decision on this  matter has been issued in early 2009 by DG BUDG.INTRODUCTION
3.
The balance on bank accounts of 19 bil-
lion euro at 31 December 2007 included  
5,9 billion euro2 which was refunded to  
Member States on the first working day of  the following year, together with amounts received from provisional payment of  
competition fines (5,0 billion euro
3), from  
assigned revenue (3,4 billion euro4) and  
from other sources (1,6 billion) which can-
not be refunded to Member States. Of the  
remainder, 1,2 billion euro5 was withheld to 
cover payment appropriations carried over to 2008, and 1,5 billion euro
6 was repaid to 
Member States through deduction from their 
amounts due for 2008.
5.
The Commission takes the view that the  
definition of treasury management in the  Financial Regulation is oriented towards  
the normal budgetary cash management and 
does not comprise asset management, which 
is dealt with separately.
8.
The relevant Commission decision on off-budget activities states that DG ECFIN ‘shall be responsible for conducting the borrow-ing/lending operations of the Communities, for the activities of investing funds and for 
the management of the non-budgetary treas-ury ….’. DG BUDG Treasury is in charge of the 
treasury and payment operations related to 
the implementation of the EU budget.
2 Note 2.11.1 of the 2007 EC consolidated accounts.
3 Note 2.11.2 of the 2007 EC consolidated accounts.
4 Volume 1, Part II, Table 7, column 9 of the 2007 accounts.
5  Volume 1, Part II, Table 7 of the 2007 accounts, columns 7 
and 8.
6 Volume 1, Part II, Table 1 of the 2007 accounts.
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A distinction must be made between the  
treasury (and payment) functions covered  by DG BUDG on the one hand and the asset 
management function ensured by DG ECFIN 
on the other hand, in accordance with the  
decision taken by the Commission. Each of these functions has a responsibility clearly allocated to one central service.
MAIN OBSERVATIONS
15.
The Commission is bound to respect the  provisions of the Council regulation imple-
menting the decision on the system of the 
Communities’ own resources, which fore-
see, namely, that Member States credit own 
resources to the account opened in the name 
of the Commission by means of monthly  
twelfths. However, since 2005 the Commis-sion has proposed a preliminary draft amend-
ing budget to the budgetary authority at the 
end of October updating the budget relative 
to the forecast of revenue and expenditure. 
This has typically anticipated the year-end surplus and led to a reduction in Member  States’ own resources contributions. Indeed, the Commission’s good budgetary manage-
ment has been acknowledged by the Court 
of Auditors: in its annual report concerning 
the financial year 2007 (point 3.4) the Court 
states that the reduction of payment appro-priations reflects good budgetary manage-
ment as it demonstrates the ability to react 
to changes and reduces the budgetary sur-
plus, allowing own resources to be returned 
to Member States.16.
Cash flow forecasting carried out by the Com-
mission (DG BUDG) is effective. Its objective, as stated in Article 58 of the Implementing 
Rules of the Financial Regulation, has always 
been achieved, instances of insufficient  
funds resulting from incorrect forecasting  having never occurred.
The existing procedures for both cash flow 
reporting and forecasting were redrafted in 
the end of 2008 in the context of a review of 
the related reporting tools. An updated, uni-
fied, version of the procedure, also including 
more details on the forecasting part, will be adopted as from the end of the first quarter 
of 2009.
18.
The Commission points out that the cash  
forecast procedure is formally documented, 
is published, and is also complemented by a set of step-by-step instructions. For what 
concerns the estimates it uses in this exer-
cise, they are made with the best possible  
accuracy, and the Commission considers  
that the current procedures have no signifi-cant impact on either the overall treasury  operations or the respect of the applicable regulation.
19.
The Commission selects all its ‘house banks’ 
through a public call for tender procedure. House banks are located in the EU and used 
for the execution of payments authorised by 
the Commission’s central services.
It is materially impossible, and it would be 
inefficient, to apply the same procedure in 
order to open a single current bank account in each of the +/- 150 countries where imprests 
have been set up. These accounts are used 
to pay small amounts, while balances kept 
on these accounts are very low and they are 
periodically refunded up to the amount of 
the payments effectively made only.
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Whenever it is possible and appropriate — in 
view of the local banking environment — the bank where such an account will be held  
is selected on the basis of a bank survey  
undertaken locally under the supervision of 
the imprest account holder.
The Commission will follow up on the Court’s 
observation and better document the spe-cific selection procedure followed in each  
case.
20.
A proper segregation of duties exists within the DG BUDG unit concerned between the  
treasury management and the bank reconcil-
iation and is reflected in the organisational 
structure of the unit. There are three team 
leaders in this unit C01:
one for reconciliation/imprest accounts; —
one for treasury; —
and one for third-party files. —
All delegations are given in writing by the 
Accounting Officer and are kept updated.  Those delegations detail the specific tasks delegated.
The delegations respect the job description 
of each person and the tasks of the unit. Seg-
regations of duties are in place in the unit as 
demonstrated by the organisation chart.
The IT system itself is the main control tool as 
segregation of tasks is guaranteed (not ably 
between payment run and reconciliation)  
and checks are effected by the system.
Risk management is in place as are effective 
supervisory measures.On the basis of the above, it has been con-
cluded that only the head of the unit in  charge of treasury management should be  
designated as holding a sensitive function.
21.
Large public sector organisations like Mem-
ber States also have different entities for  
debt and asset management from those   handling budgetary receipts and payments. 
In the same way the Commission has found 
an efficient distribution of tasks between DG 
BUDG and DG ECFIN.
22.
The tasks carried out by the treasury in DG 
BUDG (budgetary payments) and DG ECFIN 
(off-budget asset management, and borrow-
ings) are different from each other and so a 
different approach to risk management and 
control is justified based on the different  nature of the tasks.
23.
The different methodologies to limit risks  
are due to the different nature of the tasks performed. Limits for nostro accounts, which 
cater for daily cash movements but normally do not hold substantial funds for a longer  period, have to be considered differently  
from limits for counterparties with whom  
money is placed for a longer period.
In addition, with the exception of the  
accounts where provisionally cashed fines  
are held (on this subject see Commission’s 
reply to paragraph 34), funds held by DG  
BUDG on current accounts with individ-
ual commercial banks are for such limited  
amounts that, even if DG ECFIN used the  same banks, this would not represent a  
material increase of its risk.
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25.
The Commission’s overview of the risks  
related to its treasury operations (DG BUDG), to which the Court makes reference in its  
observation, clearly explains to which risks it 
is exposed, how such risks are managed, and 
which measures have been put in place to  control, minimise or neutralise them. It also makes reference to procedures that contain measures to control or limit operational and 
financial risks. These existing procedures  
will be cross-referenced into a single formal 
document of DG BUDG.
26.
A risk assessment of all areas of DG ECFIN’s 
activities was done in 2004. Since then,  
supplemental risk assessments were per-
formed for activities where a major change 
had occurred. This risk assessment process 
is deemed adequate taking into account the 
quite stable character of DG ECFIN activ ities. Another full risk assessment of all DG ECFIN 
activities has been carried out at the end  
of 2008.
The important financial risks are closely  
monitored through the course of the year. See the Court’s statement in Box 3.
28.
The indicators included in the DG BUDG’s  
‘tableau de bord’ are the most relevant for 
the DG BUDG treasury operations and are  significant indicators of its performance.  
Such indicators are regularly tracked and  
performance against them is assessed. In  
case of poor performance appropriate meas-
ures are put in place to correct it.
Within the treasury, specific objectives are 
defined for the individual team members,  which are used to assess their performance. Most of them are in the form of perform-ance indicators. They enable management  to objectively assess/measure individual  performances and the overall performance of the treasury.29.
The calculation of a benchmark for per-
formance review for the other portfolios is under preparation. At the beginning of 2009 
the methodology is established and the IT  
implementation is in the testing phase.
30.
The mentioned fiduciary accounts opened  
by the authorising officers for the require-ments of the execution of specific budget-
ary programmes have a different nature than 
the bank accounts opened by the Account-
ing Officer for the requirements of treasury 
management according to Article 59 of the Implementing Rules.
As mentioned by the Court, fiduciary  
accounts are established for certain pro-
grammes in the context of specific agree-
ments where the financial organisation acts 
as the financial intermediary of the Commis-sion (e.g. fiduciary agreements between DG 
ECFIN and financial organisations).
Payments to financial organisations, such as 
the European Investment Bank (EIB) or the Kreditanstalt für Wiederaufbau (KFW), should not always be seen as and automat ically  treated as fiduciary transactions. Finan-
cial organisations could also act as project 
coordinators, as beneficiary or as additional 
donor for a trust fund; related payments  
have to be then normally considered as pre-financing. Thus, the correct classification of 
such payments requires a detailed analysis 
of the underlying contracts.
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31 — 32.
Following a remark of the Court, DG BUDG 
made two inventory exercises in 2007  (30.9.2007 and 31.12.2007) in order to ensure 
the completeness in the annual accounts of 
financial assets held by financial organisa-
tions. All Directorates-General have replied to these two requests and controls were  made to verify the coherence of the answers with the annual accounts for 2007.
The inventory exercise is now part of the  
standardised yearly closure procedure.
To further improve the situation, the Com-
mission has already proposed to and agreed 
with the Court that as from the 2008 clo-
sure an official circular letter is sent to the 
financial organisations concerned in order 
to get accurate, complete and standardised 
information from them regarding the fidu-
ciary accounts.
As already mentioned in the reply to para-
graph 30 the fiduciary accounts are different 
from the bank accounts opened by the Com-
mission’s Accounting Officer according to  Article 59 of the Implementing Rules. For the latter a uniform policy is already in place.  For the fiduciary accounts the Commission 
will analyse the situation further in order to 
respond to the Court’s remarks.
34.
The current system employed for the manage-
ment of provisionally cashed fines is clearly 
defined and is based on a Commission deci-
sion of 1999. The related guidelines, which 
are aligned to this decision, are a standard 
and integral part of each contract concluded 
with banks used for this purpose.The current system for the management of 
provisionally cashed fines was subject to a review in 2008, with the main objective of 
increasing its security. A proposal for a Com-
mission decision on this matter has been  
issued in early 2009 by DG BUDG.
39.
The Commission points out that, first of all, all treasury procedures in all significant  
aspects are formally documented, and in  
many cases complemented by detailed step-
by-step work instructions.
In addition, for all key tasks within the DG 
BUDG treasury there are one or more back-
ups in order to ensure continuity of the  
operations in case of planned and/or unex-
pected absences.
The Commission therefore considers that  
the risk to business continuity in case of key 
members of staff leaving the unit at short  
notice is very low.
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CONCLUSIONS AND 
RECOMMENDATIONS
42.
The Commission is bound to respect the  
provisions of the Council regulation imple-
menting the decision on the system of the Communities’ own resources, which fore-see, namely, that Member States credit own resources to the account opened in the name 
of the Commission by means of monthly  
twelfths. However, since 2005 the Commis-
sion has proposed a preliminary draft amend-
ing budget to the budgetary authority at the 
end of October updating the budget relative to the forecast of revenue and expenditure. 
This has typically anticipated the year-end 
surplus and led to a reduction in Member  
States’ own resources contributions. Indeed, 
the Commission’s good budgetary manage-
ment has been acknowledged by the Court 
of Auditors — in its annual report concern-ing the financial year 2007 (point 3.4) the  
Court states that the reduction of payment 
appropriations reflects good budgetary  
management as it demonstrates the ability 
to react to changes and reduces the budg-etary surplus, allowing own resources to be returned to Member States.
43.
With respect to the Court’s observation  
under paragraph (a), the Commission points 
out that the procedure the Court refers to  (transfers between Member States own  
resources accounts) is formally documented 
and is complemented by detailed ‘step-by-
step’ instructions.
With respect to the Court’s observation  
under paragraph (b), the Commission points out that the cash forecasting procedure used 
for advanced call-ups of own resources as  
well as its application is documented. It  
is the formal basis for requesting Member  
States to pay own resources in advance.In the context of a recent review of the cash 
reporting tools, the existing procedures  
for both cash flow reporting and forecast-ing were redrafted in the end of 2008. An  updated, unified version of the procedure, also including more details on the forecast-
ing part, will be adopted as from the end of 
first quarter of 2009.
For what concerns the estimates used for the 
transfer of funds between Member States’  own resources accounts, they are made with 
the best possible accuracy and the Commis-
sion considers that the current procedures 
have no significant impact on either the  
overall treasury operations or the respect  
of the applicable regulation.
Recommendations
First indent
The present system of own resources  
accounts, primarily designated to receive  
the own resources payments, is linked to  the own resources system, as established  by Council Decision 2000/597/EC, Euratom and its implementing regulation, Council  
Regulation (EC, Euratom) No 1150/2000,  
that the Commission is bound to implement. 
The Council adopted in 2007 the new own  
resources decision (2007/436/EC, Euratom), and very recently a revision of Regulation  
1150/2000
7, which do not introduce any  
significant changes in the system of own  
resources accounts and payments. This sug-
gests that the Council is satisfied with the 
functioning of the present system.
7  Council Regulation (EC, Euratom) No 105/2009, 
OJ L 36, p. 1, 5.2.2009.
REPLY OF THE 
COMMISSION
Special Report No 5/2009 — The Commission’s treasury management33
Second indent
The Commission will endeavour to improve 
the documentation in this area. It has  redrafted its cash flow reporting and fore-
casting procedures at the end of 2008, in the 
context of a review of the related reporting 
tools. The updated version of the procedure, which also contains more details on the fore-casting part, will be adopted as from the end of March 2009. However, it does not consider 
that checking the accuracy of estimates used 
will have a material impact.
44.
The Commission’s overview of the risks  related to its treasury operations (DG BUDG), 
which is part of its Annual Accounts, pro-
vides a clear and comprehensive summary  
of the risks it is exposed to, how such risks 
are managed, and which measures have been 
put in place to control, minimise or neutral-
ise them. It also makes reference to proce-dures that contain measures to control or  
limit operational and financial risks.
These existing procedures will be cross-
referenced into a single formal document  of DG BUDG.
The indicators included in the DG BUDG’s  
‘tableau de bord’ are the most relevant for 
the DG BUDG treasury operations and are  
significant indicators of its performance.  
Such indicators are regularly tracked and  performance against them is assessed. In  
case of poor performance appropriate meas-
ures are put in place to correct it.45.
One has to make a distinction between the 
treasury (and payment) functions covered  by DG BUDG on the one hand and the asset 
management function ensured by DG ECFIN 
on the other hand, in accordance with the  
decision taken by the Commission. Each of these functions has a responsibility clearly allocated to one central service. See also the Commission’s reply to paragraph 23.
46.
Given the very varied purpose of the funds 
held on trust accounts, which results in dif-
ferent cash flow patterns and holding peri-ods, it is operationally very difficult to even 
optimise interest of funds held with one  
financial institution. See also the replies to 
points 31 and 32 above.
47.
The current system for the management of provisionally cashed fines was subject to a 
review in 2008, with the main objective of 
increasing its security. A proposal for a Com-
mission decision on this matter has been  
issued in early 2009 by DG BUDG. See also the Commission’s reply to paragraph 34.
Recommendations
First indent
The Commission will improve its oversight 
on the different treasury management activ-
ities performed. The separation of tasks  between the two DGs concerned serves to  
limit the need for extensive coordination.  
Meetings will be established more regularly 
between the two DGs to share information 
on risks, and to exchange experiences and 
best practices regarding treasury and asset 
management activities on a Commission-wide level.
REPLY OF THE 
COMMISSION
Special Report No 5/2009 — The Commission’s treasury management34
Second indent
The Commission’s overview of the risks  related to its treasury operations (DG BUDG), 
which is part of its Annual Accounts, pro-
vides a clear and comprehensive summary  of the risks it is exposed to, how such risks are managed, and which measures have been 
put in place to control, minimise or neutral-
ise them. It also makes reference to proce-dures that contain measures to control or  
limit operational and financial risks.
These existing procedures will be cross-
referenced into a single formal document  of DG BUDG.
The indicators included in the DG BUDG’s  
‘tableau de bord’ are the most relevant for 
the DG BUDG treasury operations and are  
significant indicators of its performance.  
Such indicators are regularly tracked and  performance against them is assessed. In  
case of poor performance appropriate meas-
ures are put in place to correct it.
Fourth indent
The current system for the management of provisionally cashed fines was subject to a review in 2008, with the main objective of increasing its security. A proposal for a Com-mission decision on this matter has been  
issued in early 2009 by DG BUDG. See also 
the Commission’s reply to paragraph 34.
REPLY OF THE 
COMMISSION
Special Report No 5/2009 — The Commission’s treasury management35
European Court of Auditors
Special Report No 5/2009
The Commission’s treasury management
Luxembourg: Office for Official Publications of the European Communities2009 — 34 pp. — 21 x 29.7 cmISBN 978-92-9207-295-7

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IN THIS SPECIAL REPORT THE COURT AUDITED THE QUALITY OF THE 
COMMISSION’S TREASURY MANAGEMENT, ASSESSING WHETHER THE COMMISSION COMPLIED WITH THE RELEVANT RULES AND REGULATIONS, 
AND WHETHER THE COMMISSION HAD ESTABLISHED INTERNAL 
CONTROL SYSTEMS WHICH ENSURE A SOUND TREASURY MANAGEMENT. THE COURT CONCLUDED THAT OVERALL THE COMMISSION COMPLIED WITH THE APPLICABLE COMMUNITY LEGISLATION, THAT IT HAD SET UP PRUDENT CASH MANAGEMENT FORECAST PROCEDURES, AND THAT IN GENERAL ITS INTERNAL CONTROL PROCEDURES WERE EFFECTIVE. HOWEVER, THE COURT ALSO FOUND A LACK OF COORDINATION BETWEEN THE RELEVANT COMMISSION DGS IN AREAS SUCH AS RISK MANAGEMENT AND CONTROL. THIS LED TO A SITUATION WHERE THE COMMISSION DID NOT SUFFICIENTLY CONSIDER ITS OVERALL RISK 
EXPOSURE WITH EACH COMMERCIAL BANK. FURTHERMORE THE COURT 
FOUND THAT THERE IS AN INCREASED RISK OF LOSS OF PROVISIONALLY COLLECTED FINES HELD IN SPECIFIC BANK CURRENT ACCOUNTS.
EUROPEAN COURT OF AUDITORSQJ-AB-09-005-EN-C
ISBN 978-92-9207-295-7