20. 3. 89 Official Journal of the European Communities No C 72/1 
II 
(Preparatory Acts) 
COURT OF AUDITORS 
OPINION No 1/89 
of the Court of Auditors of the European Communities on a proposal for a general revision of the Council Regulation 
(ECSC, EEC, Euratom) amending the Financial Regulation of 21 December 1977 applicable to the general budget of 
the European Communities 
(89/C 72/01) 
THE COURT OF AUDITORS OF THE EUROPEAN COM­
MUNITIES, 
Having regard to the Treaty establishing the European 
Coal and Steel Community, and in particular Article 78h 
thereof, 
Having regard to the Treaty establishing the European 
Economic Community, and in particular Article 209 
thereof, 
Having regard to the Treaty establishing the European 
Atomic Energy Community, and in particular Article 183 
thereof, 
Having regard to the Financial Regulation of 21 December 
1977 applicable to the general budget of the European 
Communities [}), as last amended by Council Regulation 
(ECSC, EEC, Euratom) No 2049/88 of 24 June 1988 (2), 
and in particular Article 107 thereof, 
Having regard to the Commission proposal of 21 
December 1988 (3), 
Having regard to the Council decision of 23 December 
1988, received by the Court on 4 January 1989, in which the 
Council requested the Court of Auditors' opinion on this 
proposal, and asked it to draw up the opinion as a matter of 
urgency; 
HAS ADOPTED THE FOLLOWING OPINION: 
The proposal prompts the Court to make two sets of 
observations which are of a different but complementary 
nature: firstly, general remarks on the way it would like the 
system for authorizing and implementing Community 
budgetary funds to be developed, and, secondly, more 
specific comments arising from its examination of the 
articles of the proposal; 
0) OJ L 356, 31.12.1977, p. 1. 
(2) OJ L 185, 15.7.1988, p. 3. 
(3) DOC. COM(88) 838 final. PART 1 
GENERAL OBSERVATIONS 
1. The Court refers to the opinion it adopted in 1981 (4) 
on an earlier Commission proposal for a revision of the 
Financial Regulation. The Court is of the view that the 
detailed amendments now proposed by the Commission 
represent, as in 1981, only limited improvements of mainly 
presentational value. Taken as a whole, the proposal does 
not provide, contrary to what was requested by the 
European Council at its meeting of June 1987 (5), the 
means necessary to overcome the many weaknesses which 
experience has shown to exist in the management of the 
Communities' finances. 
2. In the Court's opinion, the Community Financial 
Regulation should comply with the following principal 
criteria: 
(a) its provisions should be clear and unambiguous, no less 
at the level of principles and objectives than at the level 
of detailed implementation; 
(b) they should be, so far as possible, universal in their 
application, and should not include more than minimal 
provision for exception; 
(c) they should address the financial management problem 
posed by the decentralized character of the most 
important components of the Community budget, 
namely revenue collection and operational expenditure. 
3. As regards the internal management of Community 
funds, the present text of the regulation details provisions 
relating to certain aspects of the responsibility of the 
authorizing officer, the accountant and the Financial 
Controller, but says nothing about the Commission's 
responsibility for ensuring proper internal audit and 
inspection of Community funds administered by Member 
(4) OJ C 232, 11.9.1981. 
(5) Point 8 of the Conclusion of the Presidency. 
No C 72/2 Official Journal of the European Communities 20. 3. 89 
States, whether on the revenue side or on the expenditure 
side of the budget. Furthermore, no central guidance is 
given to potential beneficiaries of Community funds within 
the Member states concerning the minimum accounting 
and reporting standards with which they should conform. 
None of these important issues is dealt with in the 
Commissions's latest proposal. 
4. In paragraphs 4.1 — 4.4 below, the Court puts forward 
certain reflections which could contribute to increasing the 
effectiveness of the tools of budgetary management and 
control provided by the Financial Regulation. The Court's 
purpose in so doing is to underline the importance of the 
issues at stake and also to signpost some of the main 
problem areas which in the Court's view need to be dealt 
with in the new Financial Regulation. 
Presentation and management of budgetary provisions 
4.1. 
(a) Revenue 
There is a need for clarity and simplicity in the 
management and presentation of all funds to which the 
Community budget is entitled, including all revenue 
arising from the operation of the Common Agricultural 
Policy. The inclusion of revenue on the expenditure side 
of the budget under the euphemism of 'negative 
expenditure' is, as the Court has repeatedly pointed out, 
contrary to fundamental accounting principles and 
practice. As the budget so presented fails to give a true 
picture of revenue and expenditure, the opportunity 
should now be taken to prohibit accounting practices 
which obscure the true budgetary situation. The 
treatment of revenue in terms of establishment, 
authorization, collection and cancellation is not 
provided for in sufficient detail in the present or the 
proposed regulation. The control and management of 
Community funds should be no less rigorous in the case 
of revenue than in the case of expenditure. 
(b) Expenditure 
The Court recognizes that there is a need for 
simplification in this area but does not regard the 
Commission's present proposal as an adequate response 
to the problems caused by the existing rules about the 
form and utilization of budgetary appropriation. The 
Court must draw attention to the view it expressed in 
section 3.2 of its 1981 Opinion (*), namely that 
'reconciliation of the amounts authorized and the actual 
expenditure of one year is made particularly difficult by 
the fact that not all the appropriations in the budget 
have the same form and the rules governing their carry­
over to the following year are not internally consistent. 
The result is complex accounts whose general signific­
ance cannot easily be discerned and which thus 
constitute a practical obstacle to budgetary control.' In 
3.4 of the same Opinion the Court added that 'a sharper 
distinction betweeen the appropriations authorized for 
commitments and those that are authorized for 
(!) OJ C 232, 11.9.1981. payments (the present system for certain categories of 
expenditure) would give the system greater clarity and 
allow a more direct comparison between authorization 
and implementation of budgetary expenditure.' The 
Court adheres to these views and it accordingly 
recommends that all budgetary appropriations should 
in future be governed by two basic rules: 
(i) all expenditure headings in the budget must be 
covered by commitment appropriations and sep­
arate payment appropriations; 
(ii) commitments and payments should be charged to 
the budget of the year in which they are made. 
A system of this kind would strengthen the principle of 
the annual nature of the budget, which would be fully 
respected at payment level, avoiding the disruptions 
caused by the present system of carry-overs. In this 
context an increase in the Commission's recognized 
powers in the authorization of transfers between 
payments appropriations could provide flexibility in the 
implementation of the budget, which would then be 
justified by management needs. 
In addition, this system ought not to preclude any 
decision by the budgetary authority in favour of multi-
annual planning of commitment appropriations or the 
imposition of time limits for payments arising from 
commitments that have been entered into. This type of 
budget would simplify the setting up of an internal 
control system (which though essential does not at 
present exist), with the object of regularly aligning the 
cash situation with budgetary implementation; it would 
also provide a more reliable, constantly up-to-date 
source of information on financial obligations, in 
particular the total of commitments still outstanding. 
Management and Control within the Institutions 
4. The Financial Regulation ought to prescribe coherent 
procedures for the management and control by the 
Community Institutions of their revenue and expenditure. 
These procedures should form a coherent sequence 
containing three main phases, via the authorization phase, 
the implementation phase and the a posteriori phase of 
audit/evaluation. Existing Community procedures are 
structured around the roles of the Financial Controller, the 
authorizing officer and the accountant. Both as defined in 
legislation and as exemplified in practice, these procedures 
are defective in the following main ways: 
(a) a key element in the authorization phase is the visa 
prealable. This is given by the Financial Controller, who 
also has important responsibilities for a posteriori 
appraisal of sound financial management. The Court 
20. 3. 89 Official Journal of the European Communities No C 72/3 
drew attention to the potential conflict between these 
two elements of the Financial Controller's respons­
ibility in its 1981 (J) study of the Communities' financial 
systems. In the Court's view, recent practice with regard 
to the centralized visa prealable militates against 
efficient management of the Community's increasingly 
complex and fast-moving financial system; 
(b) as the 1981 Study pointed out, under present arrange­
ments there is a risk that the authorizing officer and the 
accountant may unduly rely on the Financial Con­
troller's approval rather than duly carry out their own 
responsibilities; 
(c) financial control is very uneven in its impact. Its 
effectiveness is greatest in connection with appropri­
ations managed directly by the Commission (e.g. 
administrative expenditure) and weakest in relation to 
receipts and operational expenditures which are 
decentralized to the Member States; 
(d) the Financial Regulation included provisions designed 
to enforce the personal responsibility of authorizing 
officers and accountants, but they are of no practical 
value 
The Court recommends: 
(a) the scope of the visa prealable should be reduced to 
legality and regularity matters, leaving sound financial 
management to a posteriori evaluation. Thus, the a 
posteriori phase of audit/evaluation should be the 
dominant concern (e.g. via increased use of controles 
orientes) of the Financial Controller, whose role would 
then approximate to that of an internal auditor. In this 
context, the Financial Controller should be explicitly 
bound to check permanently the accuracy of the cash 
position, of the accounts and of the balance sheet and 
make the institution aware of any anomaly relating to 
the accounts and to the management. All decisions and 
records of the Financial Controller should be open for 
examination by the Court of Auditors, as external 
auditor; 
(b) as a logical corollary of (a) above (cf. the Court's 1981 
study), the role of the authorizing officer, which is of 
crucial importance for sound financial management, 
should be given a higher profile. The Financial 
Regulation should stress his duty to appraise expendi­
ture carefully, and to respect budgetary limits; 
(c) the Financial Regulation would need to be amended in 
order to strengthen the Accounting Officer's respons­
ibility. In the event of loss caused by error or negligence 
on his part, the loss should be refunded in the first 
(!) OJ C 342,31.12.1981. instance from the guarantee account and recourse to 
insurance companies should be had only to the extent (if 
any) that funds in the guarantee account might be 
inadequate to meet such loss. This change would help to 
stimulate good accounting practices and reduce the 
Institutions' insurance costs. Furthermore, the period 
within which an Institution is required to take a decision 
on the discharge to be given to accounting officers 
whould be shortened to six months from the date when 
the account for revenue and expenditure is submitted. 
This is necessary so that the Budget Authority would be 
in possession of all relevant facts before taking a 
decision on giving its discharge in respect of the 
implementation of the Budget. 
Decentralized management of funds in the Member 
States 
4.3 A serious omission from the present Financial 
Regulation is any statement of the principles which should 
regulate the Commission's supervision of the management 
of Community funds, whether revenue or expenditure, 
within Member States. Recent Court reports, notably the 
1987 annual report, have made clear that this lacuna 
represents one of the most serious weaknesses in the 
management of Community finance. In the Court's opinion 
the Financial Regulation should clearly establish the 
following principles: 
(a) the Commission has the obligation (Article 205 of the 
EEC Treaty) to satisfy itself with regard to the adequacy 
and reliability of national systems for the control and 
management of Community funds. The Member States 
are bound to ensure and facilitate the fulfilment of this 
obligation (Article 5 of the EEC Treaty). 
(b) within the Commission, the authorizing officer and the 
Financial Controller, as main pillars of the system of 
internal control, are responsible for ensuring that these 
obligations are implemented. 
EAGGF Guarantee Section 
4.4 For most agricultural expenditure, i.e. the EAGGF 
Guarantee Section, the Community still operates a budget 
which functions mainly according to rules which do not 
conform to the general rules of the Community budget. 
One effect of the special regime applicable to the EAGGF 
Guarantee Section is that decisions relating to the 
commitment of expenditure have hitherto been exempt 
from scrutiny by the Financial Controller. The EAGGF 
Guarantee Section also enjoys substantial exemption from 
the normal rules of annuality and specificity. Budgetary 
contraints have already obliged the Council to abandon the 
concept of automatic 100 % pre-funding of agricultural 
expenditure. Consequently, expenditure in the Member 
States is not, at present, preceded by commitments. In the 
No C 72/4 Official Journal of the European Communities 20. 3. 89 
Court's view, a strict procedure for the commitment of 
expenditure, payments after inspection and the observance 
of the annual nature of the budget should be applied. 
Independence of the Court of Auditors 
5. By virtue of Article 206 of the Treaty, the indepen­
dence of members of the Court of Auditors 'must be 
beyond doubt'. Paragraph 5 of the Article says, inter alia, 
that in the performance of their duties the members of the 
Court shall not 'take instructions from any government or 
from any other body'. Accordingly, the Court considers 
that the limitation imposed on its independence by 
Articles 89 and 91 of the draft new regulation are 
unacceptable. 
Conclusion 
6. The Court is of the opinion that the proposals made by 
the Commission to the Council should be substantially 
amended or withdrawn and replaced by a new proposal 
which would take into account the fundamental points 
raised above and the other amendments suggested by the 
Court in Parts 2 and 3 of the annex hereto. 
PART 2 
SPECIFIC OBSERVATIONS 
1. DRAFTING PRINCIPLES 
1.1. If the general principle of the hierarchical ranking of 
legal acts is to be observed, the text of the Financial 
Regulation may not incorporate, except in the form of 
quotations or references, legal acts of a rank which is higher 
(such as the Treaties) or lower (such as implementing 
regulations). Partial incorporation of higher-ranking 
legislation or detailed incorporation of lower-ranking 
legislation is likely either to give a misleading impression of 
the exact scope of higher ranking acts or make the 
respective amendments to the said Regulation and its 
implementing texts unnecessarily difficult and frequent. 
1.2. The same principle of the hierarchical ranking of 
legal acts and the principle of the security of legal rules 
mean that the scope and cases of application of derogations 
introduced to provisions that are general in nature must be 
explicitly defined, which thus excludes the use of vague or 
declaratory wordings. 
2. STRUCTURE OF THE BUDGET 
2.1. Articles 19 and 20 of the proposal introduce a reform 
of the budgetary structure of expenditure by creating 
sections which are each devoted to an area of budgetary 
intervention, and by entering a section for expenditure of 
an inter-institutional nature. The Court notes, however, 
that the management of the headings thus grouped together 
is not clearly determined with regard to the responsibilities 
of the authorizing officer, the accountant and the Financial Controller of the various Institutions and, consequently, 
would like the proposal to be completed in this respect. 
2.2. The Court finds that, despite the substantive 
objections which it expressed in its Opinion No 1/88 (*) 
with regard to the very principle of the creation of a 
'negative reserve', the proposal seeks, in Article 19(5), to 
perpetuate this notion, which was introduced by Council 
Regulation (ECSC, EEC, Euratom) No 2049/88 (2) of 24 
June 1988. It observes, moreover, that neither in its text nor 
in its explanatory memorandum does the proposal give 
adequate justification for the creation of this negative 
reserve or for the conditions of its use, thus allowing the 
budgetary authority to act virtually at its own discretion 
with regard to the constitution of such a reserve, whilst at 
the same time the proposal has nothing specific to say on 
the subject of its management. The Court observes, 
furthermore, that the procedure concerning transfers 
provided for in Article 26(5)(a) and (b) allows transfers 
relating to the said 'negative reserve' (Article 19(5), at the 
end) to be deemed to have been approved in the absence of 
any explicit contrary decision by the budgetary authority 
within the six-week time-limit stipulated by the transfer 
procedure laid down in Article 26(5). The Court cannot 
therefore see that these provisions are anything more than a 
legalization of a budgetary device intended to circumvent 
political difficulties, and must ask for them to be quite 
simply deleted since they are incompatible with due 
observance of fundamental budgetary principles. 
2.3. The Court regrets, moreover, that the proposed 
reform is confined to expenditure alone and hopes that the 
opportunity will be taken to establish a clearer presentation 
of revenue in the budget, thus ensuring that the structure 
proposed for revenue and expenditure is uniform and 
symmetrical. 
2.3.1. The Court in fact notes that, according to the 
present wording of Articles 19(1) and 20(1), the proposal 
seeks to keep, in addition to a general statement of revenue, 
a statement of revenue and expenditure in which the 
revenue accruing to each Institution is entered, by section, 
against its expenditure; the Court considers that this 
presentation does not meet the need — based on the 
principle of universality, which is, nevertheless, reaffirmed 
in Article 4 of the proposal — for the revenue and 
expenditure of the Communities' general budget to be 
clearly separated. This principle means, moreover, that the 
practice of negative entries, for revenue and expenditure 
alike, must be definitively abandoned. 
0) OJ C 166, 25.6.1988. 
(2) OJ L 185, 15.7.1988, p. 3. 
20. 3. 89 Official Journal of the European Communities No C 72/5 
2.3.2. This is why the Court considers that Articles 
19(l)and 20(1) should be revised in order to provide for, on 
the one hand, a general statement of expenditure, from 
which all revenue has been removed, and on the other, a 
general statement of revenue, detailing, in particular, for 
the part devoted to operating revenue, several sections 
corresponding to each category of revenue, whether own 
resources or miscellaneous revenue, and especially revenue 
arising from the implementation of the various instruments 
for regulating the agricultural markets ('negative ex­
penditure'). 
2.3.3. In the past, and on a number of occasions (*), the 
Court has raised objections not to the legality of creating 
such revenue but to its treatment in the accounts, which 
leads to a reduction in the apparent overall volume of 
operations financed by the EAGGF-Guarantee and effect­
ively allows an increase, compared with what is authorized 
in the budget, in the gross expenditure of the latter up to the 
amount of the increase in the 'negative expenditure' 
(revenue). The amendment proposed in the preceding 
paragraph would, from this point of view, have the 
advantage of establishing true transparency in the 
presentation in the accounts of the financial movements 
concerned. 
2.3.4. Furthermore, the Court considers that, with regard 
to the rules for laying down the budgetary nomenclature 
(Article 19(3)), the proposal must be made more specific in 
order to take account of the changes in the legislation 
which were introduced by the Council Decision of 24 June 
1988 on the system of the Communities' own resources (2). 
2.4. Lastly, the Court notes with regret that, with regard 
to the Communities' borrowing and lending operations, 
the proposal, in the words of its explanatory mem­
orandum, gives 'no formal place' to these operations and 
that, consequently, the earlier proposal for including these 
operations in the budget (3) has been abandoned. The 
proposal in fact confines itself to stipulating that 'factual 
information' will be presented in an annex to the budget 
(Article 20(5)). 
Whilst deploring the premises on which such action was 
based, the Court considers that a document drawn up on 
the basis of the information provided for in Article 20(5) of 
the proposal is not likely to provide the budgetary authority 
with a complete view of all the categories of these 
operations, which nevertheless receive, to varying degrees, 
Community budgetary guarantees. The Court would 
therefore like Article 20(5) to be amended along the lines it 
has set out in the table in Part 3 of this opinion. 
(1) The most recent of which was the annual report on the 
financial year 1986, paragraphs 2.16 to 2.18, OJ C 336, 
15.12.1987, p. 24. 
(2) Decision 88/376/EEC, Euratom, OJ L 185, 15.7.1988. 
(3) Proposal of 5 March 1984, OJ C 97, 9.4.1984. 3. PRESENTATION AND ENTRY OF APPROPRI­
ATIONS 
3.1. With regard to the definition of the notion of a 
commitment, the Court regrets that Article 37 of the 
proposal shows no change from the current wording of the 
Financial Regulation, despite the fact that Articles 1 and 71 
introduce the concept of a 'legal obligation to third parties', 
which it seems necessary, for reasons of consistency, to 
transpose to Article 37. The Court consequently considers 
that Article 37 should be supplemented by the introduction 
of a new second sentence worded as follows: 'A 
commitment proposal must cover the total cost of 
foreseeable expenditure, including the amount correspond­
ing to the legal liabilities with regard to third parties which 
arise for the Communities from the operation in question.' 
4. TRANSFER SYSTEM 
4.1. Before setting out its objections to the proposed 
provisions on the system governing transfers, the Court 
would like to point out that, in the past (4), it has taken the 
view that the principle of the annuality of the budget means 
that appropriations should be requested and authorized 
only where there is a high probability that they will be 
used; in this context, the Court also considered that the 
volume of the transfers carried out in previous financial 
years gave significant proof of the unreliable nature of the 
estimates on which the budget is drawn up. Consequently, 
the Court considers that the objective defined by the 
proposal's explanatory memorandum should be pursued 
not only by making the transfer procedure more flexible 
but also, and preferably, by improving the quality of the 
budgetary forecasting, which the proposal does not seem to 
want either to strengthen or to organize. 
4.2. The general arrangements for transfers tend to 
confer on the institution managing the budget, the 
Commission, (and, for the other sections, the Institutions), 
the power of deciding on transfers of payment appropri­
ations (Article 26(2) and (3)). 
4.2.1. Thus, the Court takes the view that, with regard to 
transfers of provisional appropriations to a particular 
budget heading, it is up to the budgetary authority to 
ascertain, according to its own decision-taking criteria, 
that the conditions which it stipulated when drawing up the 
budget have in fact been fulfilled. This is why the Court 
asks for Article 26(3)(d) to be deleted. 
4.2.2. Similarly, the Court objects to the present wording 
of Article 26(2), which grants the Institutions power to 
make transfers within their own section of the budget 
without limiting this power to transfers within each Title of 
(4) — Annual report on the financial year 1986, paragraphs 1.21 
and 2.5; OJ C 336, 15.12.1987, p. 13 and 19. 
— Annual report on the financial year 1987, paragraphs 1.13 
and 2.6; OJ C 316, 12.12.1988, p. 12 and 27. 
No C 72/6 Official Journal of the European Communities 20. 3. 89 
the said sections (as is the case for the Commission, Article 
26(3)(b)). The proposed wording would in fact allow the 
administrators of the said sections to transfer appropri­
ations between the Titles devoted to staff expenditure and 
operating expenditure respectively, thus calling into 
question the essential choices made by the budgetary 
authority with regard to balancing the budget for the 
financial year and for each Institution. Such transfers can 
be decided only at the discretion of the budgetary authority 
itself. 
4.3. The Court points out, moreover, that the proposal, 
in Article 9(6) to (8), allows for the possibility of making 
transfers of appropriations under the provisional twelfths 
arrangements. As soon as it came to make its analysis of the 
management of the budget for the financial year 1985 
under the provisional twelfths arrangements (1), the Court 
clearly set its face against any such possibility, firstly, 
because this practice constitutes a technique for implement­
ing a budget which has not yet been adopted (and on which, 
consequently, the budgetary authority has not yet decided), 
and, secondly, because the provisional twelfths arrrange-
ments allow the budgetary authority to authorize, at the 
Commission's request, expenditure representing two or 
more twelfths in the event of the allocations of the various 
chapters proving inadequate. Accepting the present text of 
the proposal would not only be contrary to the principle of 
careful and conservatory management of appropriations in 
the absence of a budget, but would also have the effect of 
prejudging the final decision of the budgetary authority on 
the amount of the various budget headings. 
The Court therefore considers that the arrangements 
provided for in Article 9(6) to (8) do nothing more than 
allow the legalization of practices previously criticized by it 
and requests that they be deleted. 
5. CONDITIONS FOR IMPLEMENTING THE GEN­
ERAL BUDGET AND PRESENTING THE AC­
COUNTS 
5.1. As regards Section II 'Budgetary revenue, manage­
ment of available funds' of the proposal (Articles 28-32), 
the Court notes that the proposal does not specify the 
different phases of budgetary implementation as precisely 
in the case of revenue as it does in the case of expenditure. 
In the Court's opinion, this omission should be remedied by 
describing each phase of the procedure (proposal for 
establishment, recovery order or proposal for a cancel­
lation, recovery or cancellation) on the pattern established 
for expenditure, whilst at the same time taking into account 
the implications of the Decision of 24 June 1988 on the 
system of own resources. Articles 28 to 31 should be 
amended for this reason. 
(J) Annual report on the financial year 1985, paragraphs 1.30 to 
1.35; OJ C 321, 15.12.1986, p. 18-19. 5.2. As regards Section III 'Accounts' (Articles 70-73) of 
the proposal, the Court notes that whilst the proposed 
wording is in line with its opinion concerning the first 
proposal for revision of the Financial Regulation (2), it is 
unlikely to remedy the deficiencies brought to light by the 
Court's recent analysis (3) of the confusion which persists 
in Community accounting systems between advances, 
payments on account, final payments and payments in 
settlement. This is why the Court must insist on the need to 
set up accounting systems which ensure that movements of 
funds of a like nature are treated identically. These systems 
must also allow direct identification of the status of every 
movement of funds and make it possible, at every stage and 
for every operation, to identify the commitment, any 
advances or payments on account, the payments which 
actually correspond to services rendered and the final 
movement which makes it possible to regard the operation 
as settled. In the Court's opinion the accounting systems 
should also make it possible to provide consolidated 
statements of this information, so that the persons 
concerned (managers, auditors, discharge authority) can 
immediately identify the amounts which correspond to 
final expenditure and those which correspond to unsettled 
items. 
5.2.1. Thus, in the particular case of the repayment of 
advances and payments on account (Article 27(6)), the 
Court considers that this provision must be adapted so as to 
make a clear distinction between these two concepts: 
advances must be entered in and paid from non-budget 
accounts and payments on account in and from budgetary 
accounts. By the same token, the distinction between 
payments on account and advances must be reflected in the 
accounts, which means that Article 72 needs to be 
amended. 
5.2.2. The Court must also ask for the statements 
referred to in Article 71 to be forwarded to the Financial 
Controller for approval (amendment of Article 71, final 
sub-paragraph, Article 73, second sentence and Article 82, 
paragraph 2). 
5.3. Finally, the Court wishes to point out that when the 
list of the various items of information prescribed for entry 
on the revenue side of the revenue and expenditure account 
(Article 79) was drawn up, it did not take account of the 
new system of own resources introduced by the Council 
Decision of 24 June 1988. The Court therefore considers it 
necessary for the proposal to be supplemented as shown in 
the table which follows. 
The Court also wishes to emphasise that the revenue 
amounts still to be collected at the end of the financial year 
must be entered on the assets side of the financial statement 
and draws attention to the amendment of Article 82 (1) 
which must accordingly be made. 
(2) OJ C 232, 11.9.1981. 
(3) Annual report concerning the financial year 1987, paragraphs 
2.40 - 2.54, 2.61 - 2.64, p. 37 - 41. 
20. 3. 89 Official Journal of the European Communities No C 72/7 
5.4. As regards the submission of supporting documents 
to the Court under Article 85, the Court considers that 
financial data stored on electronic data-carriers should be 
assimilated to supporting documents and that, as a result, 
data of this kind should be kept and forwarded to the 
Court. The Court therefore asks for Articles 23, 85 and 88 
to be amended accordingly. 
6. EXTERNAL CONTROL 
6.1. In Articles 89, 90 and 91, the proposal introduces an 
amended version of Articles 83-85 of the current version of 
the Financial Regulation. In the explanatory memorandum 
to the proposal, these amendments are described as 
'additional details on relations between the Court of 
Auditors and the other institutions'. 
6.2. The Court notes that apart from the introduction of 
provisions concerning the bilateral discussion procedure 
involving the Court and the Institutions and the general­
ization of the principle — already established in fact by 
means of inter-institutional agreements — that the 
Institutions' comments on the Court's special reports are to 
be published (Article 91(2)), the proposal has nothing in the 
nature of the 'additional details' referred to by the author of 
the proposal. 
6.3. In particular, the Court considers that the provisions 
which seek to rationalize the presentation and structure of 
the annual report (Article 89 subparagraph 3), to limit the 
Court's freedom to publish its work (Article 91 sub­
paragraph 3) and to specify the basis of the discharge 
resolution adopted by the Parliament (Article 90 sub­
paragraph 2) are unacceptable and undermine the powers 
which the Treaties have conferred on these two Institutions 
by means of provisions which are hierarchically superior, 
clear and self-contained. Consequently, the Court calls for 
the deletion of the Commission's proposals in this regard. 
7. PROVISIONS CONCERNING THE INSTI­
TUTIONS' OPERATING EXPENDITURE 
7.1. As regards the management of operating expendi­
ture, the Court notes that Article 27(2) (d) of the proposal 
seeks to allow the re-use of revenue from the sale of 
buildings or sums paid over in connection with lettings. 
The Court considers that the nature and amount of this 
revenue are such that they are outside the scope of re-use, 
particularly in the case of sales of buildings. Disposals of 
this kind should, in the Court's opinion, be envisaged 
sufficiently well in advance for the application of the 
amount in question to be explained clearly to the budgetary 
authority and, therefore, treated as revenue and expendi­
ture in the budget. The Court therefore asks that Article 
27(2) (d) be deleted. 
7.2. As regards the provisions relating to the awarding of 
contracts (Articles 57-69), the Court notes, firstly, that the 
proposed Article 57 would tend to eliminate the obligation 
to issue invitations to tender in respect of expenditure on buildings. Following on from its previous comment, the 
Court considers that expenditure of this kind must be as 
transparent as possible and asks for the deletion of this text, 
which tends to legalize a practice which the Court considers 
is not in accordance with the principles of budgetary 
implementation. 
7.3. Article 130 of the proposal introduces an update of 
the thresholds and amounts concerning contracts. Whilst 
the Court recognizes the need for updating of this kind, it 
considers that the update proposed is excessive in that it 
releases the Institutions — and especially those which have 
a smaller budget — from issuing invitations to tender, 
consulting the ACPC or making preliminary guarantees for 
a large number of contracts. In the Court's opinion, lower 
limits should be set: 10 000 ECU (private treaty), 35 000 
ECU (ACPC) and 250 000 ECU (guarantee). 
8. PROVISIONS APPLICABLE TO RESEARCH AND 
TECHNOLOGICAL DEVELOPMENT APPROPRI­
ATIONS 
8.1. Articles 92-98 of the proposal contain a recasting of 
Title VII of the Financial Regulation, which deals with the 
management of research and development appropriations. 
The Court considers that, on the stated grounds of 
simplifying and rationalizing the Financial Regulation, the 
proposal will jeopardise the survival of the system of 
management by objectives. This system in fact implies that 
all expenditure, including staff expenditure, must be 
covered by objectives and that the means employed and the 
objectives themselves must from time to time be adjusted, 
using the analytical accounts as the tool for making this 
adjustment. 
8.2. The Court also considers that the reform according 
to which the logic of the market economy is to apply in part 
to the Joint Research Centre (JRC) has not been adequately 
translated into strict financial provisions. It is thus 
envisaged that, in application of that view, the Joint 
Research Centre (JRC) may create de facto financial 
reserves (Article 97), the budgetary arrangements for which 
are inadequately defined. 
8.3. The Court hereinafter puts forward a number of 
amendments to the proposal in tabular form, with the aim 
of correcting the weaknesses set out above. 
9. PROVISIONS APPLICABLE TO EXTERNAL AID 
9.1. In the Court's opinion the provisions relating to 
external aid are capable of improvement, particularly: 
(a) as regards their scope, which cannot be confined only to 
measures covered by financing agreements, and 
No C 72/8 Official Journal of the European Communities 20. 3. 89 
(b) as regards Article 121, which is concerned with the 
Court's audits in recipient States, by providing for: 
— on the one hand, extension of the field of application 
of these audits, in accordance with the EEC Treaty, 
not only to investment projects but also to other 
forms of aid (food aid, NGOs etc); 
— on the other hand, the Court's audit powers to be 
exercised on records and on the spot; 
— and, finally, for the Court's audit powers to be 
exercised not 'in agreement' but 'in liaison' with the 
recipient States and to cover both the legality/ 
regularity aspects of projects undertaken in respect 
of applicable regulations and the contractual obligations binding the recipient State to the 
Community, as well as assessing the effectiveness of 
financing operations that have been carried out. 
The Court has set out its proposals for the amendment of 
the provisions in question in the following table. 
PART 3 
Introductory note 
The Court sets out below the text of its proposed 
amendments as a complement to the detailed comments 
given above. The grounds for these amendments have been 
explained in the preceding section of the opinion. 
COMMISSION'S PROPOSAL COURT'S PROPOSED AMENDMENTS 
Article 20, paragraph 5 Article 20, paragraph 5 
— (• 
b) — in a document annexed to the part concerning 
operating expenditure, as an indication: 
current capital operations and current debt manage­
ment, 
the capital operations and debt management for the 
financial year in question. (...) 
a) — (unchanged) 
b) — In the general statement of revenue, the correspond­
ing budget headings carrying a token entry, together 
with the relevant remarks. 
c) — In a document annexed to the part concerning 
operating expenditure: 
— current capital operations and current debt manage­
ment for the financial year in question and 
subsequent financial years, 
— the capital operations and debt management for the 
financial year in question and subsequent financial 
years, including loans granted against budget 
appropriations. 
Article 79 Article 79 
1. a table of revenue comprising: 
— estimated revenue for the financial year; 
— amendments to the revenue estimates as a result of 
supplementary or amending budgets and additional 
revenue as specified in the second subparagraph of 
Article 4(2); 
— entitlements established in the course of the financial 
year; 
— entitlements still to be collected from the preceding 
financial year. 1. A table of revenue, comprising...: 
— (unchanged) 
— (unchanged) 
— (unchanged) 
— (unchanged) 
20. 3. 89 Official Journal of the European Communities No C 72/9 
COMMISSION'S PROPOSAL 
Article 79 (cont.) 
— revenue collected during the financial year and revenue 
carried over pursuant to Article 7(4); 
— amounts still to be collected at the end of the financial 
year. 
Statements shall be attached to this table showing revenue 
carried over pursuant to Article 7(4) and, where ap­
propriate, the balance and gross amounts of the operations 
referred to in Article 27(2); 
Article 85 
Each Institution shall forward to the Court of Auditors 
every three months and at the latest within the month 
which follows the end of the quarter, and, in the case of the 
fourth quarter, at the latest within the month which follows 
the close of the financial year, the documents supporting 
the accounts, in particular the documents and certificates in 
respect of the correct application of the provisions which 
govern the implementation of the budget and relating to 
commitments and payments, to the establishment and 
collection of revenue, subject to Article 18 of Council 
Regulation (EEC, Euratom, ECSC) No 2891/77 and to 
Article 86 of this Financial Regulation. The Court of 
Auditors may question each Institution on the subject of 
the said supporting documents. 
Article 88 
(...) 
The grant of Community funds to beneficiaries outside the 
institutions shall be subject to the agreement in writing by 
the recipients to an audit being carried out by the Court of 
Auditors on the utilization of the amounts granted. 
Article 89 
1. (.-) 
2. (...) 
3. The annual report shall comprise a section for each 
institution. Each section shall contain all the comments of 
the Court of Auditors on the relevant institution. The 
replies of each institution shall be published immediately 
following the comments relating to that institution. 
4. (...) COURT'S PROPOSED AMENDMENTS 
Article 79 (cont.) 
— (unchanged) 
— cancellations of entitlements established. 
— (unchanged) 
Statements shall be attached to this table showing: 
— the breakdown of the sums still to be recovered at the 
end of the financial year, according as they correspond 
to debts covered by a recovery order, to own resources 
covered by a recovery order or to own resources which 
have been established but which are not covered by a 
recovery order, details of the latter two categories being 
given for each Member State. 
— revenue carried over... (unchanged). 
Article 85 
Each institution shall take the necessary steps to safeguard 
all documents supporting its accounts as well as all 
financial data stored on an electronic data-carrier. The 
Court shall have free access to these documents and data-
carriers and may question each Institution on them. The 
Institutions shall submit all supporting documents for 
examination by the Court of Auditors. This shall be on a 
quarterly basis, at the latest during the month following the 
end of the quarter and, as regards the fourth quarter, at the 
latest during the month following the operations closing 
the financial year. 
Article 88 
Any grant of Community funds or other aid from 
budgetary resources to beneficiaries outside the Institutions 
shall be subject to the recipient's agreeing, in writing, to an 
audit by the Court of Auditors of the utilization of the 
funds thus granted. 
Article 89 
1. (unchanged) 
2. (unchanged) 
3. Delete 3. 
4. Amend the numbering. 
No C 72/10 Official Journal of the European Communities 20. 3. 89 
COMMISSION'S PROPOSAL COURT'S PROPOSED AMENDMENTS 
Article 90 
1. (• 
2. Parliament shall deliver its opinion on the discharge, in 
particular on the basis of the accounts of all revenue and 
expenditure of the Communities audited by the Court of 
Auditors. 
3. (...) 
4. (...) 
5. (...) 
6. (...) 
7. (...) Article 90 
1. (unchanged) 
2. (Delete this paragraph, which duplicates Article 206b 
of the EEC Treaty. The latter is a higher-ranking piece of 
legislation and the paragraph restricts its scope. 
3. to 7. Change the numbering. 
Article 91 
1. (...) 
2. (...) 
3. If the opinions referred to in paragraph 1 do not relate 
to proposals for legislation or draft legislation on which it 
has been consulted, the Court of Auditors shall not publish 
them unless the institution which has requested the opinion 
and the institution concerned agree. In this case, these 
opinions shall be accompanied by the replies of the 
institution or institutions concerned. Article 91 
1. (unchanged) 
2. (unchanged) 
3. Delete 3. 
Article 93 
1. The appropriations relating to the activities covered by 
this Title shall be entered in a special section in the part of 
the budget devoted to operating appropriations. 
This Section shall contain the appropriations intended for 
the realization of research and technological development 
objectives through the implementation of the following: 
a) —(..-) 
b) —(...) 
c) —(...) 
d) —(...) Article 93 
1. The appropriations relating to the activities covered by 
this Title shall be entered in a special section in the part of 
the budget devoted to operating appropriations. 
This section shall contain the appropriations, including 
staff appropriations, intended for the realization of 
research and technological development objectives through 
the implementation of the following: 
a) — (unchanged) 
b) — (unchanged) 
c) — (unchanged) 
d) — add at the end: 'participation in joint undertakings 
as provided for in Article 130 (o) of the EEC treaty'. 
Article 93a 
The sums authorized each year under the budgetary 
procedure with a view to meeting research and investment 
expenditure shall include commitment appropriations and 
payment appropriations. 
Article 94 
• (-) 
'.. However, staff appropriations for the Joint Research 
entre shall be entered separately in a single chapter. 1 
2 
centre Article 94 
1. (unchanged) 
2. Delete paragraph 2. 
20. 3. 89 Official Journal of the European Communities No C 72/11 
COMMISSION'S PROPOSAL 
Article 95 COURT'S PROPOSED AMENDMENTS 
Article 95 
The following shall be annexed to the special section 
referred to in Article 93: 
— a table of equivalence giving the breakdown by purpose 
and type of expenditure of the appropriations made 
available in the section, as specified in the implementing 
rules provided for in Article 128. 
For management purposes, the Commission may create 
appropriation accounts corresponding to the instru­
ments of implementation; 
— a provisional schedule of commitments and payments 
showing the planned utilization of the commitment 
appropriations and the corresponding payment ap­
propriations. The schedule shall be reviewed annually. (unchanged) 
—(unchanged) 
For management purposes, the Commission shall open 
appropriation accounts corresponding to the instru­
ments of implementation; 
a forward schedule of commitments and payments... 
(unchanged). 
Article 95 a 
1. Movements of funds from one appropriation account 
to another and movements within appropriation accounts 
shall be notified to the Financial Controller for information 
purposes. 
2. If the Financial Controller considers that he cannot 
ascertain in advance the effects of a transfer on the financial 
balance of the appropriation accounts for the financial 
plans, notwithstanding Article 26(9), he shall deliver an 
opinion. 
Article 96 
Notwithstanding Article 26, the Commission may, within (unchanged) 
the special section referred to in Article 93, transfer 
appropriations from one chapter to another within a limit 
of 15% for the commitment appropriations relating to the 
activities referred to in Article 93(1) (a) and (e), provided 
that these activities fall under the framework programme. 
These transfers may not have the effect of increasing the (unchanged) 
appropriations earmarked for exploratory research by 
more than 5% of the initial allocation for the total 
appropriations in respect of the JRC under the framework 
programme. Article 96 
This special provision does not concern staff appropri- Delete the third paragraph. 
ations for the JRC. 
No C 72/12 Official Journal of the European Communities 20. 3. 89 
COMMISSION'S PROPOSAL COURT'S PROPOSED AMENDMENTS 
Article 98 
With regard to the award of contracts in the fields falling 
under this Title, the implementing rules provided for in 
Article 128 may lay down special provisions on: 
— the limit values determining the conditions for conclud­
ing contracts, 
— the operation and the determination of the powers of 
the advisory committee on procurements and contracts. Article 98 
1. (unchanged) 
2. (Add a new paragraph) 
Notwithstanding Article 67(1), scientific and technical 
equipment may be sold without prior publication, by 
decision of the authorizing officer, which decision shall be 
taken after the opinion of the Advisory Committee on 
Procurements and Contracts has been obtained. 
Article 106 
1. (...) 
2. (...) 
3. The appropriations may be earmarked for grant aid, 
special loans, risk capital or interest rate subsidies, and 
shall be used by the Commission, which may confer 
authority on behalf of the Community to administer a part 
thereof, either on the European Investment Bank or, under 
its responsibility, on other organizations. 
This provision shall not prejudice the audit powers of the 
Court of Auditors under Article 206a of the EEC Treaty. Article 106 
1. (unchanged) 
2. (unchanged) 
3. The appropriations may be earmarked in particular for 
grant aid, special loans, risk capital, interest rate subsidies, 
and loan guarantees; they shall be used by the Commission, 
which may, under its own responsibility, confer authority 
to administer a part thereof, either, on behalf of the 
Community, on the European Investment Bank, or on 
other organizations. 
This provision shall not prejudice the audit powers of the 
Court of Auditors under Article 206a of the EEC Treaty. 
4. (unchanged) 
5. (unchanged) 
Article 107 
1. Any cooperation project adopted by the Commission 
may be covered by: 
— a financing agreement drawn up between the Commis­
sion, acting for the Community, and the Government of 
the recipient State or the governing bodies of the 
recipient organizations or institutions, hereinafter 
referred to as the recipient. 
— or a contract with international organizations, or 
natural or legal persons responsible for carrying out the 
project. Article 107 
1. Any cooperation project shall give rise to the drawing 
up of: 
— a financing agreement between.... (unchanged) 
— a contract... (unchanged) 
Depending on the type of project adopted by the 
Commission, the financing agreement and the contract or 
contracts are either supplementary to each other or 
mutually exclusive. If it is necessary to conclude both a 
financing agreement with the recipient government and one 
or more contracts with organizations carrying out the 
project, the Commission shall ensure that the provisions 
laid down in the various documents concerning the 
implementation of one and the same project are closely 
coordinated. 
20. 3. 89 Official Journal of the European Communities No C 72/13 
COMMISSION'S PROPOSAL 
Article 107 (cont.) 
2. The financing agreement or contract shall determine 
the financial commitment of the Community for the 
measure concerned. No expenditure in excess of this 
amount may "be charged to the budget without an 
additional commitment. 
3. In addition, a loan contract shall be drawn up between 
the Commission, acting for the Community, and the 
borrower in respect of any investment project financed by a 
special loan. 
Article 109 
1. The function performed by the Commission may be 
referred to in the preferential agreements or the financing 
agreements as those of chief authorizing officer. 
2. The Commission, in close cooperation with the 
recipient, shall ensure that participants in tendering 
procedures can compete on an equal footing, that there is 
no discrimination and that the tender selected is economi­
cally the most advantageous. In particular, it shall approve 
the terms of the invitation to tender before it is issued, be 
apprised of the results of the examination of the tenders, 
and approve the proposal for the award of the contract. 
Article 110 
1. (...) 
2. The recipient shall submit invitations to tender to the 
Commission for agreement before issuing them. On the 
basis of the decisions thus endorsed and in close 
cooperation with the Commission, the recipient shall issue 
invitations to tender, receive tenders, preside over the 
examination of tenders and establish the results of the 
tendering procedure. 
3. (...) COURT'S PROPOSED AMENDMENTS 
Article 107 (cont.) 
2. The financing agreement.... an additional commitment 
and the inclusion of a supplementary clause in the 
agreement or contract. 
3. (unchanged). 
Article 109 
1. The function performed by the Commission shall be 
referred to.... (unchanged) 
The Commission.... shall approve the terms of the 
invitation to tender before it is issued, shall, if it so wishes, 
be represented at the opening of the tenders, be apprised of 
the results.... (unchanged). 
Article 110 
1. (unchanged) 
2. The recipient shall submit invitations to tender to the 
Commission for agreement before issuing them. On the 
basis of the decisions thus endorsed and in close 
cooperation with the Commission, the recipient shall issue 
invitations to tender, receive tenders, preside over the 
opening of tenders and establish the results of the tendering 
procedure. The Commission shall, if it so wishes, be 
represented at the opening of tenders. 
3. (unchanged) 
4. (...) 4. (unchanged) 
No C 72/14 Official Journal of the European Communities 20. 3. 89 
COMMISSION'S PROPOSAL 
Article 112 
1. For payments in a currency other than that of the 
recipient State, the Commission shall make payment direct 
for services provided in connection with projects financed 
with grant aid. 
2. (...) 
3. (...) 
4. (...) 
5. (...) 
6. (...) 
7. (...) 
Article 117 
In urgent cases or where the nature, small scale or 
particular characteristics of certain works or supplies so 
warrant, the Commission or the recipient may, by 
agreement with the Commission stating the reasons 
therefor, exceptionally authorize: 
— the award of contracts after open invitations to tender, 
confined to a specific geographical area; 
— the award of contracts after restricted invitations to 
tender; 
— the conclusion of contracts by private treaty; 
— the performance of contracts through public works 
departments. 
Article 119 
1. (•••) 
2. (...) 
3. Contracts for services and technical cooperation shall, 
as a rule, be prepared, negotiated and concluded by the 
Commission. 
4. (...) COURT'S PROPOSED AMENDMENTS 
Article 111 
1. For payments... the Commission shall make payment 
direct, in ECUs, for services... (remainder unchanged). 
2. (unchanged) 
3. (unchanged) 
4. (unchanged) 
5. (unchanged) 
6. (unchanged) 
7. (unchanged). 
Article 117 
In urgent cases or where the nature, small scale or 
particular characteristics of certain works or supplies so 
warrant, the Commission or, where appropriate, the 
recipient may authorize, by way of exception: 
— (unchanged) 
— (unchanged) 
— (unchanged) 
— (unchanged). 
In cases where authorization is given by the recipient, the 
latter shall be required to obtain a reasoned statement of its 
agreement from the Commission beforehand. 
Article 119 
1. (unchanged) 
2. (unchanged) 
3. Contracts for services and technical cooperation shall 
be prepared, negotiated and concluded by the Commission. 
4. (unchanged) 
5. No payment shall be made unless it is covered by a 
contract or a supplementary clause to a contract. 
20. 3. 89 Official Journal of the European Communities No C 72/15 
COMMISSION'S PROPOSAL 
Article 121 COURT'S PROPOSED AMENDMENTS 
Article 121 
1. Each agreement shall make express provision for the 
Court's power of audit. 
2. Should the Court of Auditors wish to carry out audits 
on the territory of recipient States, or States in which 
recipients are located, it shall do so by agreement with the 
relevant authorities of the State concerned. Such audits 
shall be limited to the inspection agreements implemented 
pursuant to the provisions governing Community aid and 
shall not apply in respect of the execution arrangements 
which are the responsibility of the national authorizing 
officer. 1. Each agreement on the financing of an investment 
project, each development project contract and each food 
aid delivery agreement shall make express provision for the 
Court's power of audit on the basis of records and on the 
spot. 
2. Should the Court of Auditors wish to carry out audits 
on the territory of recipient States, it shall do so in liaison 
with the relevant authorities of the State concerned. Such 
audits shall be limited to ensuring observance of the 
relevant Community legislation and the contractual 
undertakings entered into with the Community and 
assessing the efficiency of Community financing. 
This opinion was adopted by the Court of Auditors at its meeting of 9 February 1989 
For the Court of Auditors 
Marcel MART 
President