Opinion No 11/2002

on a proposal for a Commission regulation on the framework financial regulation for the bodies referred to in Article 185 of Council Regulation (EC, Euratom) No 1605/2002 on the Financial Regulation applicable to the general budget

(pursuant to the second subparagraph of Article 248(4) of the EC Treaty)

(2003/C 12/01)

CONTENTS

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THE COURT OF AUDITORS OF THE EUROPEAN COMMUNITIES,

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

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

Having regard to Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities (hereinafter called the "EC Financial Regulation"), and in particular Article 185(1) thereof,

Having regard to the proposal for a Commission Regulation on the framework financial regulation for the bodies referred to in Article 185 of the EC Financial Regulation (SEC(2002) 836 final, of 17 July 2002, hereinafter called the "draft framework financial regulation"),

Having regard to the request for an opinion on this proposal submitted by the Commission on 18 July 2002,

Whereas, according to Article 185(1) of the EC Financial Regulation, "The Commission shall adopt a framework financial regulation for the bodies set up by the Communities and having legal personality which actually receive grants charged to the budget",

Whereas in a statement for the Council minutes the Commission undertook to submit a draft for the opinion of the European Parliament, the Council and the Court of Auditors before adopting, on the basis of Article 185, the framework financial regulation for the bodies set up by the Communities,

HAS ADOPTED THE FOLLOWING OPINION:

GENERAL OBSERVATIONS

1. The Court welcomes the proposal for a draft framework financial regulation. It recalls that it had asked for such a common framework specific to the various Community bodies(1). The Court notes that Article 185(1) of the EC Financial Regulation invites the Commission to adopt a framework financial regulation for the bodies set up by the Communities and having legal personality which actually receive grants charged to the budget. This provision in no way requires the Commission, when it adopts this framework regulation, to be guided by the rules of the Financial Regulation applicable to the general budget of the European Communities, or of any other legislative text of this nature. It follows that the Commission is at liberty, concerning the draft framework regulation submitted to the Court for appraisal, to introduce original financial provisions that are specific to the management needs of the Community satellite bodies.

2. The Court reminds the Commission, however, that in its Opinion No 2/2001(2) on the draft Financial Regulation applicable to the general budget of the European Communities it set out three principles on the basis of which it had founded its appraisal of the text.

These principles are as follows(3):

(a) the Community budgetary system should apply the existing budgetary principles and should tolerate only those exceptions that are indispensable;

(b) the budgetary system should be as simple as possible;

(c) the budget, in terms of both estimates and implementation, and the financial statements, should reflect the reality of the operations and financial situations of the Communities.

The Court sees no reason for not adhering to these three principles in its drafting of an opinion on the text submitted to it for appraisal.

3. Nevertheless, the Court states that, in the current context, "existing budgetary principles" must be understood to mean the principles on which the EC Financial Regulation is based, as well as those on which the Community satellite bodies' own financial regulations are also currently based.

These principles are as follows:

(a) the principle of the unity of the financial instrument;

(b) the principle of the annual nature of the budget;

(c) the principle of the unit of account used to draw up the budget;

(d) the principle of the universality of the revenue entered in the budget to cover all payment appropriations;

(e) the principle of equilibrium;

(f) the principle of specification of the appropriations;

(g) the principle of sound financial management;

(h) the principle of transparency of the actual budget, its accounts and any action connected with its implementation.

4. In the Court's judgment, the Community satellite bodies, which were set up to manage Community public services, are subject to the constraints that are specific to public entities. As independent economic entities, they must certainly act in accordance with the principles of unity and efficiency in their management. However, by virtue of their very nature, they must adhere to the budgetary principles set out in the preceding paragraph. In order to ensure the unity and efficiency of their management, some exceptions to the budgetary principles may be indispensable. In order for these exceptions to be legitimate, however, they must satisfy the following requirements:

(a) meet compelling managerial needs specific to the Community satellite bodies;

(b) be proportionate to the objective pursued without infringing the budgetary principle to which an exception is being made any more than is strictly necessary.

5. The Court also finds that many provisions(4) of the draft framework financial regulation either faithfully reflect or copy similar provisions contained in the EC Financial Regulation. With regard to these provisions, the Court considers that if it had appraised their relevance in detail, it would have risked creating more confusion, rather than clarifying the Community financial legislation. It has therefore preferred to limit itself to making the comments that were most strictly necessary in their regard.

OBSERVATIONS CONCERNING COMPLIANCE WITH BUDGETARY PRINCIPLES

6. The Court notes that the first principle set out in the draft framework financial regulation is that of "budgetary unity and truthfulness". It also notes that, as emerges from the tenor of the relevant provisions, budgetary truthfulness is understood to mean entering all revenue and all expenditure under a budget heading. The same principle, with the same tenor, is set out in the EC Financial Regulation. Nevertheless, the Court is compelled to point out that in its Opinion No 2/2001 it stated clearly that the budget in terms of estimation and implementation should reflect the reality of the financial situation and the operations(5). It thus had a far more concrete understanding of the principle of budgetary truthfulness than that set out in the draft framework financial regulation and the EC Financial Regulation.

7. The Court finds that a considerable restriction is imposed with regard to the principle of annuality by the provisions contained in Article 10(7) of the draft, which states as a general rule that "payment appropriations not used at 31 December of year N shall be carried over automatically". This rule, which totally negates the principle of annuality applied to payment appropriations, should be reviewed in the light of the Court's doctrine set out in paragraph 4. The Court reiterates that while the main budgetary principles may tolerate certain adaptations, where legitimate imperatives, such as unity and efficiency of management, need to be satisfied, they cannot allow of any negation that concerns their actual substance. The Court acknowledges that there are always good reasons justifying exceptions to the principle of annuality. However, these reasons must be compelling and, in every case, proportionate to the objective.

8. The Court also observes that the wording of Article 10(7) of the draft is not sufficiently clear. Even though, unlike the EC Financial Regulation, it adopts the rule concerning the automatic carry-over of payment appropriations, it nevertheless copies the wording of the provisions in this regard contained in the EC Financial Regulation. This gives rise to confusion. The Court is of the opinion that the text must return to the principle of the annual character of authorisations under the budget, and only allow specific exceptions, in the same manner as has also been allowed by the EC Financial Regulation.

9. Article 22 provides for the total abandonment of the principle of specification as regards payment appropriations: the director would henceforth manage a single overall budget containing one global appropriation for payments. Commitment appropriations would remain subject to the principle of specification, with the exceptions provided for in Articles 23 and 24. In the Court's opinion, the principle of specification applies equally to both commitment appropriations and payment appropriations. The principle does not result solely from a desire to rationalise expenditure, but is directly linked to the privileges of the budgetary authority in its capacity as the authority which defines the specific framework within which the authority implementing the budget is required to act. In this regard, the Court must reiterate the doctrine it has already mentioned: the total negation of a budgetary principle may not be tolerated; exceptions to its application are only possible inasmuch as they are necessary and proportionate to a legitimate objective.

10. Article 23 of the draft empowers the director to make transfers from one article to another within each chapter. The director proposes transfers from one title to another, or from one chapter to another within a title, to the Management Board. In the event that the Board does not reach a decision within a month, the transfers are deemed approved. Lastly, these transfer proposals will not have to be accompanied by anything more than justifications detailing the implementation of the appropriations and estimates of requirements. The Court notes the flexibility of the provisions of Article 23 of the draft when compared with the rigidity of the similar provisions contained in the EC Financial Regulation. It has no doubt that, given the difficult circumstances in which the Management Boards meet, the directors of the satellite bodies are empowered, by the abovementioned provisions, to alter, without any particular constraints, the allocation of all commitment appropriations contained in the budget.

11. The Court can only conclude that in the event that the provisions of Articles 22 and 23 of the draft should be adopted as they are worded in the draft, the principle of the specification of appropriations, as a whole, will no longer apply in practice to Community satellite bodies.

12. With the exception of the points referred to in paragraphs 6 to 11, the Court comes to the conclusion that the existing budgetary principles are respected.

OBSERVATIONS ON THE IMPLEMENTATION OF THE BUDGET

13. Article 35 of the draft framework financial regulation provides that all financial actors shall be prohibited from taking any budgetary implementation measures which may bring their own interests into conflict with those of the Community body and that they must refrain from such measures and refer them to the "competent authority". What is to be understood by "competent authority", also taking into account situations which might bring the interests of the Director into a conflict with those of the Community body, should be determined.

14. Article 46 of the draft contains the following provision: "In order to avoid serious consequences for the financial interests of the Community body, the Management Board may decide to suspend the director from his duties as authorising officer of the Community body. It shall appoint a provisional authorising officer who shall remain in office until the board has taken a final decision". This clause gives the Management Board the power to relieve the director of his duties as authorising officer while allowing him to retain his other duties. The Court considers that a director who has been relieved of his duties as authorising officer cannot have sufficient authority to discharge his other responsibilities. This subject, the relationship between the director and the Management Board, must be regulated in a coherent and comprehensive manner within the framework of each Community satellite body's own basic regulation(6).

15. Article 48(4) of the draft framework financial regulation provides that: "The panel set up by the Commission to determine whether a financial irregularity has occurred and what the consequences, if any, should be, in accordance with Article 66(4) of the general Financial Regulation, shall exercise the same powers in respect of the Community body as it does in respect of Commission departments". Without questioning this proposal as such, the Court, nevertheless, has doubts as to whether Article 66 or Article 185 of the EC Financial Regulation empowers the Commission to confer, on a panel purely internal to the Commission, powers over a Community body.

16. Under the generic title "Rules applicable to authorising officers by delegation and subdelegation", Article 48(5) of the draft provides that: "Any member of staff may be required to make good, in whole or in part, any damage suffered by the Community body as a result of serious misconduct on his part in the course of or in connection with the performance of his duties. The appointing authority shall take a reasoned decision, after completing the formalities laid down by the Staff Regulations with regard to disciplinary matters". The Court observes that this provision does not apply to:

- the financial actors,

- or to acts connected with the drawing-up and implementation of the budget.

In fact, this provision concerns the civil liability of the Community satellite body's staff, with regard to the satellite body, concerning acts committed by the staff in the discharge of their duties. In addition, in order to redress any damage suffered by the body, the same clause provides for responsibility to lie with the appointing authority, i.e. an authority not necessarily involved in the financial procedures. Without questioning the provision as such the Court, nevertheless, has doubts whether Article 185(1) of the EC Financial Regulation provides a legal basis for such a clause.

OBSERVATIONS ON THE INTERNAL AUDITOR

17. The Court is of the opinion that the proposal should be more precise concerning the possibility for the decentralised bodies to nominate their own internal auditor. The Court considers that the decentralised bodies should be entitled to retain this option.

OBSERVATIONS ON THE PRESENTATION OF THE ACCOUNTS AND ACCOUNTING

18. In Title VII, "Presentation of the accounts and accounting", the EC Financial Regulation contains, in its Articles 128 and 129 applicable to the institutions other than the Commission and to the "bodies referred to in Article 185", provisions on the procedure for presenting their interim and final accounts and on the Court of Auditors' role in this procedure. Articles 83 and 84 of the draft include the same procedure and supplement it. In the Court's opinion, Articles 128 and 129 of the EC Financial Regulation, which are also directly applicable to the "other institutions", cannot be supplemented by provisions that explain or clarify them and that are enacted under the legislative power delegated to the Commission on the basis of Article 185(1) of the abovementioned Regulation. Instead of simplifying the task of the person called upon to apply the Financial Regulation, such additions complicate it. In this regard the Court must remind the Commission of the principle that "the budget system should be as simple as possible".

19. Article 133 of the EC Financial Regulation is worded as follows: "1. The Commission's accounting officer shall, after consulting the accounting officer of the other institutions and bodies referred to in Article 185, adopt the accounting rules and methods and the harmonised chart of accounts (...). 2. When adopting the rules and methods referred to in paragraph 1, the Commission's accounting officer shall be guided by the internationally accepted accounting standards for the public sector but may depart from them where justified by the specific nature of the Communities' activities". Articles 86 to 88 of the draft either include the provisions quoted above or set out, in general terms, accounting rules and methods specific to the Community satellite bodies. In the Court's opinion, the rules set out in Article 133 of the EC Financial Regulation are, within the meaning of this Article, complete and leave no room for additions; furthermore, the provision under Article 185(1) of the same Regulation does not grant the Commission legislative power to amend Article 133 of the same Regulation.

20. Further remarks of a more technical nature and the Court's proposals for modification are laid down in the Annex to this opinion.

This opinion was adopted by the Court of Auditors in Luxembourg at its meeting of 25 and 26 September 2002.

For the Court of Auditors

Juan Manuel Fabra Vallés

President

(1) See paragraph 72 of Opinion No 2/2001 (OJ C 162, 5.6.2001, p. 1).

(2) OJ C 162, 5.6.2001, p. 1.

(3) See paragraph 4 of Opinion No 2/2001.

(4) Paragraphs 3, 6, 7, 9, 11, 12, 15, 17, 18, 20, 21, 26, 35, 37, 38, 40, 41, 43, 44, 45, 47, 49, 50, 53, 55, 56, 63, 64, 65, 68, 69, 71, 78, 79, 80, 81, 82, 85, 87, 88, 89, 90, 91, 93.

(5) See paragraph 4(c) of Opinion No 2/2001.

(6) See paragraph 8 of Opinion No 10/2002 on a Commission proposal for amendment of the constituent acts of Community bodies following the adoption of the new Financial Regulation.

ANNEX

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