REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND THE COUNCIL - Follow-up Report on the European Parliament resolution on 2000 Discharge for the General Budget

TABLE OF CONTENTS

1. SUMMARY

2. Follow-up Report on the 2000 Discharge Resolution for the Commission (EP document A5/0103/2002)

I. Effectiveness

The administrative machinery of the Commission

The procedures

Contractual management procedures and Community subsidies

The complexity of procedures and legislation

The controls

Own resources

II. Regularity, combating fraud and protection of financial interests

Export Refunds

Corrections

As regards the Anti-Fraud Office

Enlargement

Involvement of Parliament

Spending sectors

III. Sectoral issues

Justice and home affairs sector (JHA)

Agencies

DAPHNE Programme

Trans European Transport

Cooperation

IV. Access to documents

SUMMARY

I/ Context

1/Scope of the Follow-up Report

Article 276 of the Treaty establishing the European Community (EC Treaty) determines the discharge procedure. Its Paragraph 3 stipulates that "The Commission shall take all appropriate steps to act on the observations in the decisions giving discharge and on other observations by the European Parliament relating to the execution of expenditure [...]. At the request of the European Parliament or the Council, the Commission shall report on the measures taken in the light of these observations and comments and in particular on the instructions given to the departments which are responsible for the implementation of the budget [...]." The Commission accordingly, at Parliament's request, produces the present Follow-up Report which relates to the resolution voted by the European Parliament on 10 April 2002. This Report, as well as the one addressed to the Council, is sent to all the other institutions concerned by the discharge procedure.

2/Object of the follow-up report

In accordance with the EC Treaty, the object of this Follow-up Report is mainly to present the action taken by the Commission or that which it intends to take in response to the comments contained in the discharge resolution in respect of the implementation of the general budget of the European Union for the financial year 2000 voted by the European Parliament on 10 April 2002.

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2. Follow-up Report on the 2000 Discharge Resolution for the Commission (EP document A5/0103/2002)

I. Effectiveness

1. Notes that Commission effectiveness must be gauged on the basis of three criteria in relation not only to compliance with the objectives laid down by the political authority, but also to the speed and simplicity of the administrative and budgetary measures taken to realise those objectives, and to the best possible use of the budget resources deployed;

2. Takes the view that the following bases for that effectiveness must be examined as a matter of priority: the administrative machinery of the Commission; the various regulatory procedures and the system of checks; the respect by the Commission of the political priorities and budget guidelines as defined by the European Parliament;

Commission's reply :

The Commission has implemented a new management system (Activity-Based Management). By doing so, the Commission wishes to gradually increase cost awareness through integrated decisions on priorities and allocation of resources, objectives, planning, monitoring and evaluation of activities and to develop performance management by emphasising results rather than input control. This clearly shows the efforts the Commission has made and is continuing to make regarding this very important issue that represents a profound cultural change in management practices.

The first Annual Policy Strategy (APS), adopted in February 2001 for the year 2002, launched the strategic planning and programming cycle, linking political priorities, key actions and corresponding resources. Even if some inevitable weaknesses emerged within the assessment of this exercise, several improvements were noted concerning the second APS decision, adopted in 2002 for the year 2003, namely in the area of definition of priorities, corresponding resource orientations and a new structured dialogue with the European Parliament and the Council.

The Commission also reformed its Work Programme to provide better focus on political priorities and introduced a new system of operational programming to ensure more effective delivery on priority objectives.

Moreover, new supporting management tools were introduced for the first time in 2002: Annual Management Plans as key instruments to help management integrate priorities, objectives and resource allocation at the operational level and Annual Activity Reports aggregating information on outcomes and use of resources according to the principles of sound financial management (economy, efficiency and effectiveness).

However, this is a long-term and complex learning process which represents a major challenge for the success of the Reform, and some lessons have to be drawn by the Commission from those first exercises in order to make it more effective in the future.

The administrative machinery of the Commission

3. Believes that Commission departments must be structured to ensure management with the utmost integrity and effectiveness; notes the administrative reform under way, some basic aspects of which were launched in the financial year 2000, and encourages the Commission to continue its efforts to ensure that results become visible as quickly as possible with regard, in particular, to reform of the external service according to the political guidelines adopted by the European Parliament and to the reform of financial management and control within departments;

Commission's reply :

Firstly, as regards human resources management, in order to make reform measures visible as quickly as possible the Commission has initiated a series of actions to fully exploit the potential for reform under the existing Staff Regulations. The Commission has adopted a large number of decisions implementing the new staff policy in all those fields that do not require modifications of the Staff Regulations. Until June 2002 the Commission has adopted decisions on:

- the conduct of administrative inquiries and disciplinary proceedings;

- mobility;

- guidelines for job descriptions;

- whistleblowing;

- social policy;

- the Mediation service;

- national experts;

- training;

- and the general provisions for implementing Article 43 and Article 45 of the Staff Regulations (appraisal and promotion).

Commission decisions and guidelines on further reform issues such as flexible working time, teleworking, financial liability (Article 22 of the Staff Regulations), moral harassment, advisers and heads of units are currently being prepared.

In addition to new rules, the reform entails organisational changes. A new "Investigation and Disciplinary Office of the European Commission" (IDOC) was set up early in 2002. The inter-institutional "European Personnel Selection Office" (EPSO) will become operational from 1 January 2003.

However, a large number of reform measures require amendments to the Staff Regulations. The Commission submitted its proposal for amendments to the Council in April 2002. It is envisaged that the Council will adopt these amendments by June 2003. The full benefit of reform will thus only be visible after the amended Staff Regulations have entered into force.

Secondly, the Council on 25 June adopted unanimously the new Financial Regulation. As Parliament will recall, the process leading to this new Financial Regulation was marked by an intensive inter-institutional dialogue allowing to take into account the views of all actors involved.

Together with its Implementing Rules (a proposal for which has been adopted by the Commission on 24 July and subsequently been transmitted to the other institutions for an opinion), the new Financial Regulation will form the cornerstone for a modern system of financial management and control as from 1 January 2003.

Thirdly , with the help of the budget authority, the BA lines created in 2000 now offer a frame under which technical and administrative assistance for programme implementation and which is of a non public authority task can be funded ; this has considerably alleviated the constraints under which many programmes had to operate and has provided the Commission with the means without which the start of a massive deconcentration of external aid programmes and absorption of TAOs would not have been thinkable.

Fourthly, as regards the key elements of the reform of the external service, launched in May 2000, results have already been obtained. These are:

- on the intention to achieve a better match between programming of assistance and political priorities, through the development of Country and Regional Strategy Papers: so far over 110 Country Strategy Papers have been prepared;

- on the aim of a more coherent approach to delivery of projects, with the whole project cycle managed by a single new entity, EuropeAid Cooperation Office: since then, old and unspent commitments have been halved;

- on the objective of the management of these projects at a more local level, through deconcentration of responsibilities to the European Commission's Delegation offices: by the end of 2002, all Delegations in Europe, Central Asia, the Mediterranean, Asia and Latin America as well as 13 Delegations in the African, Caribbean and Pacific countries (ACP) region will be working with this new model.

The Commission is grateful for the support it has received from the European Parliament and hopes that the dialogue will continue. In particular, it has been very helpful that the Budgetary Authority decided, for the first time in the Budget 2002 procedure, to lift the reserve on the resources intended to finance the Delegations (title A-6 of the Commission budget). It permitted a smooth and efficient financing of their activities. Provided that the necessary resources are forthcoming in future budgets, the process will continue and should lead to an enhancement of the role and visibility of the European Union (EU).

4. Notes a delay, however, in implementing some of the White Paper actions, as emerges from the implementation scoreboard forwarded by the Commission (Annex 5 to the replies to the questionnaire), because of ongoing interinstitutional procedures, concerning both the Financial Regulation and the Staff Regulations of Officials; notes concerning Action 96 (recovery of unduly paid funds) that the Commission in its December 2000 Communication has established a new organisational structure for treatment of recoveries; notes also that the internal procedures concerning enforced recovery are in preparation and wishes to be informed about the effectiveness of this new control system, in an area which is a matter of priority for the Budgetary Control Committee;

Commission's reply :

Firstly, as regards the personnel policy reform, an updated scoreboard summarising the state of play of the implementation of Reform Actions as at 31 March 2002 and showing that several delays could be caught up, was transmitted to Parliament in May 2002.

However, it is correct that delays occurred in 2001 with respect to the initial timetable. Nevertheless, as regards personnel policy, the discussion in the framework of a high-level body chaired by the former Secretary-General of the Council, Mr Ersboell, brought a very positive outcome: the agreement reached between the Commission and the trade unions representing the majority of staff in electoral terms on the global package of personnel policy reform. In May, June and October 2001 the "Ersboell Group" organised meetings with representatives of the other institutions (Secretaries-General/Administration and staff representatives) before drawing up its report. The meeting produced a very fruitful discussion that allowed the group to draw its conclusions and draft its recommendations to the Commission with full knowledge of the different positions and contributions of the other institutions.

Moreover, the administrations of the other institutions had the opportunity to express their views on all reform proposals in a group of Human Resource Experts set up by the Heads of Administration. The group met several times in 2001 in parallel with the consultations that were ongoing within the Commission. The group exchanged views on individual proposals and identified at an early stage points of particular interest to the institutions.

As a result of the aforementioned meetings, the consultation with the staff and the "concertations" with the trade unions, the Commission approved a draft proposal for a Council Regulation amending the Staff Regulations in December 2001.

According to Article 10 of the Staff Regulations the inter-institutional Staff Regulations Committee has to be consulted by the Commission on any proposal for revision of the Staff Regulations. Thus the draft proposal for a Council Regulation amending the Staff Regulations had first to be transmitted to the Staff Regulations Committee before it could be adopted as a proposal of the Commission. In January 2002 the Commission submitted its draft proposal to the Staff Regulations Committee, which gave its opinion at the beginning of April. On 24 April 2002 the Commission adopted the proposal for a Council Regulation amending the Staff Regulations, taking account of the comments made by the inter-institutional Staff Regulations Committee. The overall timetable - agreed by the General Affairs Council on 15 April 2002 - foresees to finalise negotiations by the end of the Greek Presidency (June 2003). In view of this the General Affairs Council has appealed to the other institutions to provide their opinion by the end of 2002.

Secondly, as regards financial control, all final decisions foreseen as part of the Reform are scheduled to be taken before the end of 2002. But in some cases, the implementation of reform actions will not be possible until certain items of legislation enter into force: namely the entry into force on 1 January 2003 of the new Financial Regulation adopted by the Council on 25 June last and of the implementing rules, the draft of which the Commission submitted to the other institutions for their opinion at 25 July 2002.

Some measures decided under the action plan adopted by the Commission on 13 December 2000 (More effective management of the recovery of unduly paid funds, SEC(2000)2204/3) are provisions which could not be put into effect without a change in legislation. On this matter, and as regards measures which could be taken without any change in legislation, see the comments under point 79.

A communication to the other institutions is being prepared with the dual objective of reporting on measures taken under the December 2000 first plan of action referred to above on the recovery of established amounts and, in accordance with the undertakings given by the Commission in December 2000, of adding new measures to this plan of action to ensure the most efficient recovery of debts. This communication should take into account the conclusions drawn in an IAS report on recoveries which will be soon finalised.'

5. Asks that the competent committees of the European Parliament be regularly informed about implementation of certain reform actions and management decisions, in particular:

- a precise review, and a genuine forward schedule, of operations to discontinue or extend the life of Technical Assistance Offices (TAO) and equivalent bodies and set up new ones in particular as regards the Community equal opportunities programme under heading B3-4012, the management of which was much criticised by the Court (annual report - paragraph 3.95),

Commission's reply :

In future, Article 57 of the Financial Regulation 2002 (together with the proposal on Implementing Rules) stipulates clear rules concerning the kind of tasks that can be given to private sector bodies and how to proceed in such cases. No measure of implementation of funds may be entrusted to private sector bodies any longer.

As regards Technical Assistance Offices (TAOs) as identified in the letter of amendment N°1 (Annex 3 to the letter of amendment No 1 to the preliminary draft budget 2001 SEC(2000) 1363 of 4 September 2000), the list is regularly updated by the Commission and sent to the relevant Committees of the European Parliament. This list contains detailed information on:

- the dates on which contracts expire;

- the number of TAOs dismantled;

- the number of TAOs to be dismantled.

The present situation is that out of a total of 126 TAOs, 87 had already been dismantled at 1 May 2002, seven are to be dismantled in 2002 and one in 2003.

As regards technical and administrative assistance as covered by the Guide "Guidelines for outsourcing of technical and administrative assistance to private-law entities for the purpose of programme implementation", the Commission conducts systematic advance checks to ensure compliance with the rules and in particular that the tasks to be outsourced do not involve exercise of public authority or discretionary powers.

With regard to the use of TAOs under the Equal Opportunities Programme, the Commission confirms:

- that the tasks devolved to the technical assistance office to which the Court of Auditors refers in its 2000 Annual Report were reinternalised within DG EMPL over the two budget years 1999 and 2000;

- that the appropriations relating to technical assistance were reduced very considerably under the Equal Opportunities Programme 2001-2005;

- that this reinternalisation policy was backed up by regular resources enabling the Commission to perform its tasks in favourable conditions.

- in connection with the executive agencies entrusted with certain tasks in the management of Community programmes (COM(2000) 788), specific tasks identified by the various directorates-general as being outsourceable,

Commission's reply :

According to the Commission's proposal, on which the Parliament gave its opinion last July, the new instrument "executive agency" is supposed to be potentially applicable in the management of Community programmes in all policy fields. The Budgetary Committee of the Council recently reached an agreement on the proposal on 26 September 2002. The opportunity of establishing an executive agency will have to be assessed in each case; the Parliament will be informed of individual implementing projects at least on a yearly basis during the budgetary procedure.

- the regulatory instruments laying down the Community programmes where the method of management is the use of a network of national agencies; asks to be consulted on these regulatory instruments,

Commission's reply :

Article 54 of the new Financial Regulation (F. R.)- which is the result of an intensive inter-institutional dialogue - contains general rules on how and when to resort to national agencies in the implementation of Community programmes. In the draft regulation laying down detailed rules for the implementation of the new F. R., the Commission considers submitting the delegation of powers to national public-sector bodies or private-law entities to strict conditions. These ones relate to applicable law, financial guarantees requested and compliance with sound financial management rules (economy, effectiveness, efficiency). As to individual programmes, they will be adopted according to the procedures set out in the EC Treaty.

- the Commission's management policy for the EU financial assistance to the different world regions including deconcentration towards the delegations and decentralisation in favour of external agencies, as well as their impact on improving EU external aid,

Commission's reply :

The Commission will continue to keep the EP regularly informed about the introduction of deconcentration towards the Delegations, and is happy to transmit to the EP the latest progress report on deconcentration.

Building on the Communication on the reform of the management of external assistance of 16 May 2000 and the ongoing process of deconcentration, a memorandum to the Commission on the administrative reform of the unified external service was presented on 2 July 2002. The approval of this memorandum by the Commission is a significant step that will lead to improvement in staff training and in the management of Delegations. It is proposed that a new single department will manage Delegation staff, that there should be a clearer definition of Delegation responsibilities, and that there should be a new career structure for those who will serve in third countries. These measures are designed to ensure speedier and more efficient delivery of EU assistance.

- the establishment of a European College of Administration and of a European Recruitment Office,

Commission's reply :

The Secretaries General of the Institutions established an inter-institutional working group on the subject of a "European Administrative School".

A first ideas paper produced by the working group was discussed in the meeting of the Secretaries-General on 9 July 2002 and a mandate has been given to the working group to elaborate a more detailed draft to be transmitted to Secretaries General by January 2003.

While agreeing in principle to set up such a school in the course of 2004, Secretaries General agreed that the school should focus primarily on three main priorities, i.e. the induction of new staff, management training and upskilling/career development. In this way the establishment of the European Administrative School would contribute to a more coherent administrative and managerial culture in the Institutions.

Following the agreement of all Institutions the inter-institutional European Personnel Selection Office (EPSO) will be established and start working from 1 January 2003 (see also reply to para. 11).

- the multiannual programme to convert temporary posts into permanent posts, and the sectors concerned,

Commission's reply :

In its Reform White Paper the Commission stated its intention of launching an operation to convert temporary posts into permanent posts. This operation was justified by the finding that some temporary staff in the Commission were in fact engaged in what had become permanent tasks.

These conversions in no way mean that the institution will no longer be employing staff on a temporary basis for certain specific duties requiring special expertise. As was indicated in the White Paper, other types of status as proposed in the Reform should replace some of the temporary posts.

The document on human resources accompanying the 2001 preliminary draft budget (PDB) announced a first operation involving 180 A and 90 B posts, in three annual instalments of 60 A and 30 B.

150 conversions were carried out over the budget years 2001 and 2002. In 2003, they should affect 67 posts (20 A4, 20 A5, 1 LA5, 6 LA7, 10 B1 and 10 B2). The remaining conversions will be requested for the budget year 2004.

The conversions are being carried out in all the Directorates-General except the Commissioners' cabinets.

- strengthening of the external element in the disciplinary procedure,

Commission's reply :

On 19 February 2002 the Commission adopted a decision on the conduct of administrative inquiries and disciplinary proceedings (C 2002 (540)). In order to strengthen the external element in disciplinary proceedings, Article 10 of this decision provides that the Chairman of the Disciplinary Board is to be chosen from among former officials, serving officials (to be placed on special leave during their mandate) and former members of the European Institutions. The new Chairman of the Disciplinary Board, a former Member of the Court of First Instance, will take office on 1st November 2002.

- a reform of the invalidity pension arrangement especially with regard to the weighting system;

Commission's reply :

The main point of the Reform being proposed to the Council on the Community Invalidity System is the replacement of the invalidity pension by an invalidity allowance equal to 70% of the last basic salary while in active service; this allowance will be subject to the pension scheme contribution. Step advancement will be withdrawn. The invalidity allowance will not be lower than the minimum subsistence figure.

In the proposal submitted in April by the Commission to the Council, a weighting factor was specifically established for pensions, which was determined after comparison of the cost of living between countries. The weighting factors applied to the pensions will likewise be applied to the invalidity allowances. The new weighting factors based on the comparison between countries instead of between capitals - as it is today - will be closer to the real differences between the cost of living in the various countries of the European Union.

6. Asks the Commission, in view of the recent proliferation of decentralised bodies, to propose a review mechanism for Agencies, based on the cost-benefit ratio and the added value compared to other alternatives;

Commission's reply :

As already indicated under point 5, second indent , the Commission proposes for the new instrument "Executive Agency" an individual assessment of the opportunity to create an Executive Agency in the specific case in question. In addition, the Commission's proposal explicitly foresees the possibility to abolish an Executive Agency, once its continuation is no longer considered opportune. As regards the existing Community Agencies, only in the case of the European Agency for Reconstruction, the legal mandate provides explicitly a possibility to abolish the Agency.

7. Stresses that any measure involving amendment of the Staff Regulations of Officials and the Conditions of Employment of Other Servants, such as the new career system, underperformance, flexible retirement, and the rules governing whistleblowing must comply with the principles of independence, neutrality and continuity of the European civil service and modern standards of administration, especially providing service and openness towards the citizens;

Commission's reply :

The Commission committed itself in the White Paper to base the whole reform on the key principles of independence, responsibility, accountability, efficiency and transparency.

In its proposal for amendments to the Staff Regulations the Commission has suggested a number of measures which reinforce the principles of independence, neutrality and continuity of the European Civil Service. The principal obligations of European officials governing the performance of their duties and their conduct such as impartiality, objectivity and loyalty, which are recognised by case law, are set out clearly in the proposal. The obligations of officials in situations liable to give rise to conflicts of interest have been redefined. Rules on professional discretion have been revised to better align them on the new EU rules regarding public access to documents. Finally, the Commission has introduced a variety of measures to safeguard professional and ethical standards such as new disciplinary rules, rules on whistleblowing and professional incompetence.

The continuity of the European Civil Service will be guaranteed under the amended Staff Regulations. Basic principles such as the lifetime employment of European officials and a career-based system will be retained. Moreover, it should be emphasised that the Staff Regulations will continue to apply to officials of all European Institutions and agencies.

8. Expects that the human resources allocated to the various aspects of the reform will be sufficient to ensure that it is introduced quickly and effectively, e.g. staff allocated for reform of the external service and staff affected by that reform; likewise, as regards reform of financial management and control within Commission's departments and delegations, wishes to know what recruitment problems, if any, the Commission faces;

Commission's reply :

The problems encountered by the Commission's departments and Delegations in relation to the reform of the external service is related to the uncertainty of prior availability of sufficient financial resources to be able to ensure continuous progress as planned. As the role of the Commission Delegation offices grows, the Commission has to ensure that sufficient resources are available and has therefore asked for increased funds in 2003 (under Title A6) to cover infrastructure linked to deconcentration and increased staff numbers.

The Commission is committed to deconcentrating the management of external assistance and implementing the associated transfer of responsibilities to the 78 Delegations managing aid, according to the following schedule: 21 Delegations were covered in 2001, a further 26 Delegations will be covered in 2002 and the remaining 31 in 2003. On top of this the Commission intends to complete the installation of a new office in Kabul in 2002.

The Commission's approach has always been that the Commission's Delegations in third countries must be given the necessary means to discharge their new responsibilities to the required quality standards. This includes the provision of additional human, technical and budgetary resources from the different parts of the budget (A6 as well as the BA lines).

Some of the new posts authorised in the 2001 and 2002 budget covered the deployment of additional staff in the Delegation network, and the 2003 PDB includes further demands for accelerating the deployment of existing posts from headquarters to Delegations.

The transfer of responsibilities on a specific country portfolio will be gradual, the pace depending on the speed of increase of the absorptive capacity of Delegations. Delegations have identified an important need for posts and non-permanent personnel. Part of the latter is to be financed, in accordance with agreements reached in the framework of the dismantling of the TAOs, from appropriations under the BA headings of the relevant external actions programmes.

In order to ensure that the human resources allocated are sufficient to ensure that the various aspects of the reform are developed effectively, the Commission, in the context of the Annual Policy strategy (APS) 2003, has decided to allocate more personnel for this priority:

- it is proposed that around a third of the posts becoming vacant as a consequence of early retirements in 2003 be used by services to cover their needs in this area. The logical link of using these posts for a new staff policy is apparent, as this policy focuses on investing in people, in particular by intensifying training and career guidance.

- The Commission has thereby demonstrated its determination to meet the target of reinforcing the human resources dedicated to the implementation of the Reform and will continue to ensure in the framework of the APS cycle 2004 that the posts that will become available as a result of further early retirements will be devoted to the priority needs of making the reform a success.

As regards recruitment problems, in view of a lack of suitably qualified people on reserve lists and the ensuing need to train inexperienced staff, the Commission has decided to review as soon as possible profiles for recruitments needed by DGs in financial management and related issues, compare these with the current competitions programme in this area and launch additional open competitions as appropriate. In this respect, DG Personnel and Administration will draw up a plan to be implemented by the new personnel selection office, EPSO, as from early 2003. As an interim measure, the recruitment of temporary agents on vacant permanent posts will be extended up to the point at which sufficiently long reserve lists for the related competitions will be available. Thereby the Commission has managed to reduce the number of vacant post (as of 2 October 2002) to 594 (3,3 % of the total population under the operational budget). In addition, DG Budget will provide the necessary training for staff on financial management as well as training specifically geared to the implementation of the new Financial Regulation.

9. Takes the view that a motivated workforce is essential to the success of the policies implemented by the Commission and asks the Commission to ensure maximal consultation with all levels of staff; welcomes the fact that agreement has been reached between the Commission and trade unions representing a large majority of staff to the proposed amendment of the staff regulations which it considers to be an essential part of the Commission reform process and invites all parties concerned to cooperate constructively in the reform process;

Commission's reply :

The Commission is also committed to ensuring maximum consultation with all levels of staff and all parties concerned and to cooperating constructively in the reform process (see reply to point 4). On all reform decisions within the current Staff Regulations, the Commission has not only gone through the full formal concertation procedures, but also far beyond the usual mechanism. By doing this, the Commission has established a framework of confidence with the social partners in the Commission and followed its line of a fully transparent social dialogue.

On the reform package represented by the Commission's proposal of a Council Regulations on modifications to the Staff Regulations, the Commission has organised extensive political consultations and held formal concertations with staff and staff representatives of an unprecedented level. The Commission has also encouraged interinstitutional social dialogue and welcomed the presence of staff representatives from other Institutions in almost every single concertation.

With regard to the ongoing negotiations in the Council the Commission concluded, on the occasion of the finalisation of the reform package, a Protocol Agreement which will ensure a constant exchange of information and consultation. So far this Agreement has been signed by two unions representing in electoral terms 60 % of staff of the Commission. Both unions are also represented in other Institutions. The Commission has taken all the necessary steps to make the Protocol Agreement operational and to open it to further staff unions from the other Institutions.

In view of the objective to finalise negotiations by June 2003 and the implications that the reform may have for the organisation and running of each institution, the Commission and the Council have agreed to establish an informal Contact Group allowing a regular exchange of information on the timetable and the progress made within each institution. The first meeting of this Group covering all Institutions took place at the end of the Spanish Presidency on 28 June 2002.

10. Calls on the Commission to make sure the process of reform does not have any adverse impact, e.g. as regards a reduction in the on-the-spot checks carried out by the Commission (cf. paragraph 3.72 of the Court of Auditors' annual report);

Commission's reply :

The overall objective of devolving responsibility to the Directorates-General (DGs) initiated by the Reform has led to the transfer from Financial Control to the operational DGs of resources allocated to on-the-spot checks, responsibility for which now lies fully with the DGs.

As regards the specific Court of Auditor's observation mentioned, the transitional process in 2000 resulting from the reform did in some cases have an impact on the number of on-the-spot checks carried out, but it can be seen now that this was a temporary phenomenon. Considerable efforts have been made by allocating additional staff to audit tasks and , where necessary, by having greater recourse to external auditors. The overall situation having remained stable in 2001, reinforcement of the audit units has continued in 2002. This will be reflected in a continuing increase in the level of audit activity, in particular for the Cohesion Fund.

For example, for the ERDF the number of on-the-spot checks increased to 70 in 2001 from 52 in 2000 and 61 in 1999. For the Cohesion Fund the figures are 6 in 2001, 3 in 2000 and 7 in 1999. In addition, in 2001 80 audits on the spot were carried out by external auditors contracted by the DG to verify directly managed projects financed under Articles 7 and 10 of Regulation 4254/88.

11. Asks the Commission to assess the cost-benefit of introducing the reform, including the cost of professional training (in particular in the field of financial management), the cost of recruitment and of termination-of-service arrangements (regarding Article 50 of the Staff Regulations of Officials) and to inform it of the results;

Commission's reply :

The mission statement of the Directorate-General for Personnel and Administration (DG ADMIN) states that one of its main missions is to "contribute to the reform related to Personnel and Administration. Therefore this DG continuously updates its programming for the reform in accordance with a culture of change and experience gathered in the implementation and evaluation process". An evaluation function within this DG was established in 2001.

Evaluations are and will be carried out for DG ADMIN's own policy-making purposes, to provide it with information that helps to (re-)orient its policies or activities, and to be accountable for the results achieved. The evaluation function systematically examines the effectiveness, efficiency (cost-benefit), relevance, utility and sustainability of a selection of the activities. It focuses in particular on the reform initiatives for which it was made responsible in the White Paper on "Reforming the Commission" of March 2000. The evaluation plan of DG ADMIN for 2002, being part of the Annual Management Plan, includes a sample of actions relevant to the Reform:

- Evaluation of the language training;

- Evaluation of management training;

- Evaluation of the equal opportunities policy in the Commission, with an emphasis on career policy in regard to gender equality;

- Evaluation of the information technology (IT) infrastructure policy and support for the e-Commission initiative.

The results of these evaluations will become available during the first half of 2003. To ensure that the conclusions of evaluations are as sound as possible, different evaluation tools are combined to collect and analyse data from the same "object of study" (e.g. a target group), which is known as methodological triangulation. This allows the strengths of one to offset the weaknesses inherent in another.

As regards measures not or only partly covered by this evaluation plan:

1. Professional Training

The main budget lines for professional training of Commission staff in 2001 were :

- A7060 (for general training) : 9.000.000 EUR

- A4030 (for language training) : 3.868.000 EUR

- A2 & A5 (for IT training) : 2.145.000 EUR

- C651 (for training of research staff) : 0.055.000 EUR

Financial administration training was a priority topic in 2001 and represented 19% of total number of (general) training days organised centrally for Commission staff in 2001 (4 802 training days out of a total of 24 643).

The cost of this training was only 5% of the A7060 budget for central training. Many of these courses were facilitated by DG Budget staff due to the very nature of the subject. In this respect, six different training courses were provided amounting to 203 person/days.

The Commission holds these expenses to be indispensable. As it already pointed out in the White Paper "Reforming the Commission" of 1 March 2000 "a fundamental factor necessary to ensure the robustness of the new audit, financial and control system is that financial operations must be run by highly competent staff. Any shortfall in human resources, skills or expertise would seriously undermine the reliability of the system. ... To ensure a common understanding of the concepts and vocabulary of the new audit, financial and control system across the Commission, staff will be trained immediately on the principles behind the financial reforms. Managers in charge of spending programmes will be given training courses on strategies for maximising the value for money of their activities. Once the new operational manuals with simplified and consolidated rules and procedures are available, an intensive and thorough training programme will be provided for operational staff responsible for programmes that involve expenditure. .... An introduction to the way the Commission's budgeting and financial systems work will be compulsory for all staff."

2. Article 50

In 2000 the total cost of article 50 decisions taken amounted to EUR3 861 715. This represents 0.11% of the total salary bill including pensions (0.15% excluding pensions) and can therefore be considered to be very modest.

In addition these figures do not take into account the fact that the cost of Article 50 decisions could be offset by savings resulting from the fact that officials departing under the terms of Article 50 are often replaced by officials at the initial step of the grade in question. In other words, the salary costs for the newly appointed officials are often lower than for their predecessors.

The provisions of Article 50 constitute an element of flexibility in the management and organisation of the services of the institutions, in that senior officials can be retired whenever, for organisational reasons, it is considered to be in the interest of the service (e.g. in the case of restructuring or reorganisation of services, or to ensure a better matching of the profiles of the senior officials with the tasks of the institution).

3. Recruitment - Cost-benefit analysis of the inter-institutional European Personnel Selection Office (EPSO)

As pointed out in the replies to paras. 3 and 5 EPSO will become operational from 1 January 2003 onwards.

See annexed table which illustrates the recruitment costs and savings generated by the setting-up of EPSO.

Savings are proved if the cost per successful candidate is less after the setting-up of EPSO.

The estimate of the number of successful candidates needed each year is linked to the posts to be filled. The number of posts to be filled depends on turnover (retirement), ad hoc measures such as the conversion of appropriations into posts or termination of service, and the number of new posts (whether normal or linked to enlargement).

The duration of a competition varies between 15 and 18 months for multilingual competitions. It can be considered that 58% of the costs are borne in the year of publication of the competition and 42% in the year in which the lists of successful candidates are drawn up.

Taking account of these factors, it can be seen that, in the context of enlargement, EPSO reduces the cost of a successful candidate by a little less than half. This saving comes essentially from the considerable number of candidates who will have to be recruited following enlargement. The rationalisation of selection procedures as a result of the creation of EPSO will lead to savings of about 20% per successful candidate compared with costs for the Commission, recruitment unit, in 2001 and 2002. When enlargement is taken into, there will be additional economies of scale leading to a reduction in cost of approx. 37% per successful candidate.

12. Considers that the 'management declarations' by each director-general, introduced under the new internal-management system (and effective as of May 2002), will provide a welcome new tool in assessing the performance of Commission Directorates-General and will make it easier to identify areas where further improvements need to be made; underlines that the management declarations do not in any way diminish the individual or collective responsibility of Members of the Commission;

Commission's reply :

Within the new management and accountability framework, the Annual Activity Reports and Declarations are newly implemented management tools whereby the Commission's Directors-General and Heads of Service having individual responsibility and liability for the resources that they manage, render account to the College and other stakeholders (Council and European Parliament). As the Commission pointed out in its response to Parliament's discharge resolution for 1999, in no way does this alter the individual or collective responsibility of the Members of the Commission.

The first Annual Activity Reports, concerning the year 2001, were produced by all Directors-General and Heads of Service by 1 May 2002. These reports should be considered as a first step towards a totally consistent strategic planning and programming cycle but the preparation process and the scope of the report and the declaration will require a continuation of methodological work in the light of this first year's experience.

On the basis of these reports, the Commission adopted a synthesis report on 24 July 2002 which has been subsequently transmitted to the European Parliament, the Council and the European Court of Auditors, together with all Annual Activity Reports and the reports of the Financial Controller and of the Internal Auditor under Articles 24 and 24a of the Financial Regulation.

13. Expects the Commission to inform the European Parliament in the event of any other reforms under way;

Commission's reply :

The Commission has informed the European Parliament as well as the other institutions right from the very beginning of the reform process. This will, of course, also be done in the event of other reforms, such as the modernisation of the accounting system and process which is under the way.

The procedures

14. Notes, as the Court of Auditors' annual report stresses, that procedures are not commensurate with the objectives pursued; in particular,

(a) deplores a weakness of linkage between the Commission and the Member States: the lack of uniformity of own-resources-related information forwarded to the Commission by the Member States in connection with, for instance, fraud, irregularities established and checks introduced to prevent them (cf. paragraph 1.61 of the Court of Auditors' annual report), the failure by some Member States to forward data in connection with the clearance of accounts (cf. EAGGF, Guarantee Section, paragraph 2.59 of the annual report) and the same failing concerning the Structural Funds, and the lack of statistics at the Commission on premiums within the sheepmeat and goatmeat CMOs (cf. 2.117 of the Court of Auditors' annual report);

Commission's reply :

For traditional own resources and in particular with regard to cases of fraud and irregularities, the Commission and the Member States are linked via the OWNRES system which provides for an overall view of the situation. However, because of differing definitions of fraud and irregularity used by Member States, the information obtained is sometimes difficult to compare. To provide for an adequate solution, in 2001, the Commission tabled a proposal for an EP and Council directive on the criminal law protection of the Community's financial interests, which includes a distinction between fraud and irregularity. OWNRES, while functioning acceptably from a technical angle, is currently under review with the aim of enhancing its user-friendliness.

Furthermore, in the framework of the Advisory Committee on Fraud Prevention (COCOLAF), the Commission regularly reminds the Member States of the importance of providing homogeneous information on cases of fraud or irregularity communicated in the area of own resources.

As regards the Structural Funds, information on how Member States are using the Structural Funds should improve as a result of computerisation and stricter enforcement of reporting obligations. Innovations introduced in this area in the new period include: the common Structural Funds financial database SFC, the linking of interim payments to submission of annual reports, better forecasting of payment claims, coding of projects according to a standard classification, reporting of financial corrections and recoveries, and access to detailed project information for analysis before audits.

In the autumn of 2002 the Commission Structural Fund Directorates-general and the European Anti-Fraud Office (OLAF) will audit the observance by Member States of the procedures for reporting irregularities in the Structural Funds.

As regards the statistics on premiums within the sheepmeat and goat regime, there is only one Member State which transmitted incomplete data and appropriate measures were already taken by the Commission. It therefore disagrees with the statement regarding the sheep sector. The reform of this sector was made with viable statistics They were the basis for the feasibility study and for the budget simulations of different policy alternatives, including the calculation for the additional payments.

(b) notes the Commission's acknowledgement of this state of affairs (in its reply to paragraph 2.117); does not accept, however, that a shortcoming detected in one sector may be used as an excuse with regard to others, and therefore calls on the Commission to make the necessary representations to the Member States in time for the next discharge to ensure that they meet their obligations on time and that, in all Member States, the information forwarded matches standard definitions (in particular where fraud or irregularities are involved);

Commission's reply : As regards the reform of the sheep sector, see answer to point a).

The Commission is continuing, in the framework of the regular meetings of the COCOLAF, the Advisory Committee for the Coordination of Fraud Prevention, a dialogue with the Member States to ensure that the reporting of fraud and irregularities in the Structural Funds by the Member States follows standard procedures. A presentation was made by the Commission services on the need to have standard procedures in the areas of both the Structural Funds and agricultural expenditure at the most recent meeting of the COCOLAF in July 2002 and an audit of three procedures will be carried out in the autumn of 2002 (see answer to point a).

(c) deplores certain Member States' resistance to applying certain strategies, as was the case concerning the measures taken by the Commission to detect and eradicate BSE, and as exposed by the Court of Auditors (Special Report 14/2001 [1]), and the lack of emergency rules allowing such situations to be put right promptly, (proceedings before the Court of Justice not being appropriate for managing emergencies);

[1] OJ C 342, 20.11.2001.

Commission's reply :

Until the adoption of European Parliament and Council Regulation No 178/2002 laying down the general principles and requirements of food law, the Commission had very limited powers (apart from infringement procedures) to take prompt and quick action in the event of a Member State failing to implement feed and food safety rules, or to impose financial corrections concerning veterinary expenditure or market-related measures financed by the EU. This was a major handicap with regard to the detection and eradication of BSE.

With the forthcoming proposal on official feed and food controls, the Commission aims to introduce new tools that would empower the Commission to take more efficient measures against Member States that fail to implement EU feed and food law. The aim is to submit this proposal to the European Parliament and Council before the end of 2002.

(d) notes that some of the errors detected by the Court (cf. paragraph 2.36-2.41 of the Court of Auditors' annual report 2000) proved to be systemic. The principal type of systemic error observed concerns unwarranted deductions from aid payments (paragraph 2.36). Notes that the Court mentions examples of unwarranted deductions from aid payments in Sweden, Greece and Spain; notes that the Commission is currently investigating the administrative fees introduced in Denmark on applications for export refunds; asks the Commission to be fully informed on developments in this case;

Commission's reply :

As regards deductions from EAGGF subsidies operated by farming cooperatives, producer's associations and related bodies implementing tasks related to the management of the aid scheme concerned which have been delegated to them by public authorities or otherwise conferred on them pursuant to existing EC legislation, the Commission is of the view that if these deductions are made in sectors where a full payment provision exists and are related to the management of the aid system by these bodies, such deductions are not allowed by Community law, unless sectoral Community legislation provides explicitly for such deductions.

As regards the administrative fees introduced by Denmark on applications for export refunds, the Danish authorities have informed the Commission by letter of 23 April 2002 that as of 1 May 2002 these fees have been abolished.

For Greece, flat-rate corrections, equivalent to the amounts deducted from area aid and bovine premium payments, have been applied under the clearance of accounts procedure for the marketing years 1993 onwards. The application of such financial corrections is under consideration in respect of ovine and caprine payments effected as from the financial year 2000.

Concerning specific measures for nuts in Spain, after examination, no correction will be proposed as, for the scheme in question, there is no integral payment clause and as the beneficiary is the producer organisation and not the producer. In addition, this does not represent a deduction but a compensation which is not forbidden by Community rules.

For Sweden the Commission is considering a financial correction equivalent to the amounts levied by the Swedish authorities and deducted from area aid payments in 1999 for maps.

(e) regrets that in the area of external aid the Tacis programme for transborder cooperation failed - after four years of implementation to fulfil one of the main objectives, namely improvement of living conditions in the border areas (e.g. special report Court of Auditors 11/2001 [2]); asks the Commission to reinforce the cooperation between the different programmes (Tacis, Interreg, Phare) and to give priority to projects for a better living environment; asks to be informed about the concrete results, by July 2002, of the programme, which the Commission expected for the year 2001;

[2] OJ C 329, 23.11.2001.

Commission's reply :

The Commission acknowledges that the impact of the programme was limited at the time it was examined by the Court of Auditors (four years after the programme began). The Court itself noted that at best only a modest impact could be expected due to the limited funds available. The programme experienced some start-up problems which have now been resolved.

The programme has achieved some measurable results. One border post was completed at Leushen in Moldova in 2001; one bridge and four other border crossings have been completed, or are almost complete, and will be formally opened in the third quarter of 2002. These are the Jagodin bridge over the Bug River between Ukraine and Poland with its access road; two border posts at Salla and Svetogorsk on the Finnish/Russian border; the border post in Chop on the Hungarian/Ukrainian border, and the post at Kameny Log on the Belarus/Lithuanian border. These have contributed to more efficient and effective controls and reduced waiting times. Construction of a new border post at Bagrationovsk between Kaliningrad and Poland started in June 2002 and will be completed in early 2003. In addition, work on the border demarcation between Belarus and Lithuania started in March 2002.

The business incubator established in the economic development project at Uzghorod in Ukraine is full and has a waiting list of potential clients, and a scheme has been launched to promote innovative ideas by micro-enterprises and to provide more business skills training. A new project is currently under preparation to foster the economic development of the lower Danube Euroregion by supporting small and medium enterprises and by promoting cross-border trade with Romania. While these results are welcome, the impact on local living conditions will not be felt for some time to come.

Strengthening coordination between Tacis CBC, INTERREG and PHARE has been and continues to be a priority for the Commission. Since most of the present Tacis-PHARE borders are expected to become Tacis/INTERREG borders in 2004 the emphasis of the work has been very much on the latter. In April 2001 the Commission published "A Guide to bringing INTERREG and Tacis together" which contained a number of practical measures to facilitate preparing and implementing joint projects across the borders. The implementation of the guide is progressing well and further procedures to link these two instruments are being developed. The priorities of the two instruments have been harmonised, projects which receive funding under one instrument will receive priority treatment under the other, and an electronic newsletter has been introduced to keep interested parties up-to-date on developments with both instruments There has already been a marked rise in the number of linked projects being funded on both sides of the border. A seminar was held in St Petersburg in November 2001 where participants of all the relevant NIS countries, candidate countries and Member States had the opportunity to discuss issues related to the coordination between the different Community instruments and cross border cooperation more generally as one of the key elements of the EU's strategic approach on its present and future external borders.

In candidate countries' border regions adjacent to NIS, PHARE national programme funds can be used to support social and economic activities of a cross-border nature. In so doing, PHARE national programmes can provide the matching funds required for improving coordination with the Tacis cross-border cooperation programme.

(f) notes that the Commission has improved the administrative procedures of Echo, in order to be able to better handle emergencies (e.g. special report 2/2001 [3] - humanitarian aid for victims of Kosovo); asks for an assessment report to be made on the management of recent humanitarian crises (payment timing, decision making capacity, cooperation with NGOs and evaluation of the aid);

[3] OJ C 168, 12.6.2001.

Commission's reply :

The Commission approved a new framework decision procedure for primary emergency procedures to give further flexibility in responding to emergency humanitarian crises. This new procedure has allowed ECHO, since 2001, to become a first wave donor in all breaking emergencies since it was introduced. ECHO can now take a decision in the case of new emergencies inside a given framework and within a maximum delay of 72 hours. Since these new procedures were adopted, the new 'first emergency procedure' has been applied 4 times. In all cases the Commission approved the funding Decision with in a maximum of 3 days after the emergency occurred. A fast track process for the disbursement of funds (5 days) then follows these decisions.

ECHO also uses an Emergency Decision process that gives a response in 5 days from a crisis or event and is also accompanied with a fast track disbursement of funds process that also takes 5 days. In 2001 there were 31 Emergency Decisions for more than a total of EUR92 million.

In 2001 ECHO started strategic dialogues with its international partners, in particular the ICRC and UN families, in order to plan and better target humanitarian aid for long-term and more forgotten crises. These dialogues are annual, but also continuous in the field and in specific situations and therefore a dynamic relationship between ECHO and its partners has developed.

The broader negotiations between the Commission and the United Nations family to develop new streamlined working practices as well as the development of strategic dialogues with the UN and other international partners are active and well advanced. The revision of the EU-UN agreement will take some time yet as, among other matters, the UN and the EC have to agree on quantifiable and measurable performance indicators. However, it is intended that, by the end of 2002, the negotiations should be substantially advanced. This will however also depend on the capacity of the UN system to quickly meet the next phases of the dialogue.

The main funding mechanism used by ECHO is the Framework Partnership Agreement that includes a partner vetting process and is a comprehensive grant contract specific to the needs of humanitarian operations. The contract will undergo a further revision in 2002 to better encompass both the recast Commission rules and the mandate of ECHO, with more flexibility and simplicity.

(g) considers that in the framework of the CSFP, as is highlighted in the Special Report 13/2001 of the Court of Auditors [4], the present arrangement is unsatisfactory; asks the Council and the Commission to produce immediately - as indicated by the Commission (e.g. reply to the questionnaire 5.1) - an agreed definition of administrative and operational expenditure for EU Special Representatives (EUSR); asks that clear rules on remuneration and salary related-costs be clearly established for staff working in the EUSR offices and that clear arrangements be made on adequate reporting, auditing and evaluation;

[4] OJ C 338, 30.11.2001.

Commission's reply :

In a Joint Declaration (doc. 14835/01 of 4 December 2001), the Council and the Commission agreed to review the "Guidelines on appointing procedure and administrative arrangements for the EU Special Representatives" (EUSR), adopted on 30 March 2000 (doc. 7089/00 CFSP 136 FIN 104), with a view to arriving at an agreed definition of the scope of administrative and operational expenditure before 31 March 2002.

The discussion on the definition of administrative and operational expenditure for EUSRs was undertaken in the Council External Relations Counsellors working group. The Commission actively searched for a definition and presented its own contribution in the form of a Commission Services' working paper. Unfortunately the discussion was overtaken by a debate on the scarcity of resources to finance the EUSRs, notably from the administrative budget of the Council. Indeed, in accordance with the guidelines of 30 March 2000, EUSRs are to be financed under the Council's administrative budget as they are under the authority of the High Representative/Secretary-General. The working group failed to reach a conclusion. The Commission agrees that the present arrangement is unsatisfactory in that the present Guidelines on EUSRs of March 2000 do not provide an adequate definition of administrative and operational expenditure. The Commission will continue to pursue the issue actively with the Council.

Clear rules on remuneration and salary-related costs for staff working in the offices of the EUSRs and other Special Advisers of the Commission are presently being established by the Commission.

As regards reporting by the Commission to the European Parliament (EP), the weekly implementation tables received by the EP at chapter level include CFSP under Heading 4. According to the Interinstitutional Agreement (IIA) of 6 May 1999, point 40.1, the Council Presidency will regularly inform the EP about the development and implementation of CFSP actions. Hence, the provision of regular information to the EP on CFSP actions is a joint responsibility of the Council and the Commission. Further, according to point 40.3 of the said agreement, on a quarterly basis, the Commission informs the budgetary authority about the development and implementation of CFSP actions. This reporting has been regular since the beginning of 2001.

As regards reporting by the implementing bodies to the Commission, clear arrangements are already in place. The submission of interim and final reports from the bodies implementing Joint Actions is a prerequisite for payments. The Commission is putting emphasis on audits and evaluations of CFSP actions, organising 2 audits and 1 evaluation in 2001, and is continuing its efforts in this regard.

(h) recommends that the Council and the Commission present to the European Parliament, a proposal for the criteria for the definition of operational and administrative expenditure in CFSP, and a proposal for an interinstitutional agreement clarifying the role of the Commission in determining the financial and operational framework of budgetary implementation and presenting the auditing and evaluation systems set-up in this area;

Commission's reply :

In the Commission's view, it is not necessary to present specific criteria for the definition of operational and administrative expenditure for CFSP. The Financial Regulation 2002 will apply to both categories, with the only exception of operational expenditure not charged to the general EC budget.

The need to define the scope of administrative and operational expenditure only arises as regards the mandates of EU Special Representatives, which enjoy a special regime set up by the Council Guidelines of March 2000, which make a distinction between administrative expenditure to be charged to the administrative budget of the Council and operational expenditure to be charged to the CFSP budget.

The Commission welcomes the suggestion made by the European Parliament for clear operational principles and arrangements with regard to the Commission's role in the implementation of the CFSP and considers that an enhanced role for the Commission will lead to an overall improvement of the management of CFSP actions. The Commission will give due consideration to the EP's recommendation to propose a new IIA.

15. Asks the Commission to carry out special audits of the representations in the Member States in the light of the allegations of malpractice in the Stockholm representation; asks to be fully and adequately informed of the result of the disciplinary cases in relation to the Stockholm representation;

Commission's reply :

The Commission has already taken a number of preventive and control measures with the aim of limiting the risks of embezzlement in its decentralised services:

- A unit for "Inspections of the Representations in the Member States" was created in April 2001 in DG PRESS. The specific task of this unit is to ensure that administration within the Representations is fully compliant with the different internal rules that apply (and, where appropriate, external rules such as national law). Regular inspections of the various Representations will continue to be carried out to this end.

- DG PRESS has also had an internal audit capacity since an audit unit was set up in April 2001. Although this unit has responsibility for the whole DG, it can also audit the Representations in the Member States and hence ensure that their management complies fully with certain predefined criteria. Ad hoc audits of the Representations may be carried out within this framework in coordination with the inspection unit, without prejudice to the general remit of the Commission's internal audit service (IAS) to carry out additional audits.

- Finally, DG PRESS has put in place internal inspection standards as required under the reform in all the Commission's Directorates-General.

With regard to the disciplinary cases in relation to the Stockholm representation the Disciplinary Board has now delivered opinions in all three cases and the Commission is about to adopt final decisions in two of the three related cases very soon. Disciplinary proceedings in the third case had to be suspended because the Swedish judicial authorities have initiated criminal proceedings against the official concerned. The fifth paragraph of Article 88 of the Staff Regulations provides that, where the official is prosecuted, a final decision by the Appointing Authority shall be taken only after the Court has reached a final verdict.

16. Calls on the Commission to improve budget forecasts and reduce the divergences between estimates and out-turn and improve communication between Commission and Member states, especially in the framework of the budget network for information exchange;

Commission's reply :

With a view to improving the budget expenditure forecasts specially in the area of the Structural actions, the Structural Funds Regulation (1260/99) requires Member States to submit detailed payment forecasts to the Commission by 30 April each year to cover that year and the following year. After analysis the forecasts can be used in establishing the levels of payment appropriations required under each objective in the following year's budget. So far, however, they have been too late to be included in the draft budget, which has to be submitted by the Commission before the Member States' replies are received.

The Commission has made efforts to improve the reliability and timeliness of these forecasts so that they can become a management tool, despite the inherent uncertainties (expenditure deriving from large numbers of individual projects) and the lack of experience with the new reimbursement-based payments system. In March 2002 the Commission wrote to the Member States reminding them of their obligations and stressing the importance of the forecasts. This message has been repeated in letters by the Structural Fund Commissioners and through the advisory committees.

In 2002 all Member States have supplied the forecasts

As regards the budget revenue forecasts, see the answer under point 50.

17. Takes the view that the Commission must equip itself with tools to improve budget forecasts and make greater use of the budget network, in order to prevent a recurrence of excessive budget surpluses;

Commission's reply :

The Commission refers to its replies under points 16 and 50.

18. Is convinced that the management method of the present-day Union, and the enlarged Union of tomorrow, must continue to rely on the principle of decentralisation; this demands comparable and equally efficient management capacity on the part of the various national administrations, as required by the new rules on the Structural Funds (Regulation (EC) No 1260/1999) launched in 2000, which also involve a clarification of the respective roles of the Commission, the Member States and the various partners referred in article 8 of the regulation; notes, however, when a budgetary action involves several Member States in several operations of the CAP, more intervention by the Commission may be required; insists that the success of the decentralised management of Sapard and Ispa in the candidate countries and of the activity of their national administration will depend on the EU commitment to support these countries in improving their administrative capacity; encourages the Commission to continue its training efforts in the formation (via twinning with applicant countries) and information (such as round tables with the responsible bodies in the Member States);

Commission's reply :

The Commission is giving priority to ensuring that Member States have the necessary systems in place to manage Structural Funds well. Sound decentralised management is one of the thrusts of the Structural Fund Regulation No 1260/1999 and the requirements have been reinforced by the implementing regulations Nos 438/2001 (management and control systems) and 448/2001 (corrections). A parallel control systems and corrections regulation, Regulation (EC) No 1386/2002, was adopted by the Commission in July 2002 for the Cohesion Fund, which like the Structural Funds after accession will also operate in the new Member States. The Commission is now concentrating on systems in its audit work. The Commission has continued its activities designed to support the process of institution and system building in the Applicant Countries (AC) in the area of Public Internal Financial Control (PIFC) particularly through training of national officials and networking with counterpart organisations in Member States (MS) and AC. In March 2002 a PIFC training seminar for Turkish officials took place in Ankara. A workshop on regional aspects of financial control of structural aid was organised in May in Krakow, Poland with participants from 3 MS and 3AC. The 5th meeting of the Contact Group of European Financial Control Organisations (MS, AC and Commission) will take place in October next.

The Commission will further pursue these activities throughout the remaining pre-accession period. Similar emphasis is being put on institution and system-building in the pre-accession instruments.

The Commission organised a seminar involving representatives of the SAPARD Agency and the Managing Authority of the SAPARD Programmes of all ten beneficiary countries on 17-18 June 2002 in Brussels. All countries participated actively in this seminar, freely exchanging information on both progress on implementation as well as on difficulties encountered.

Decentralised management of ISPA in candidate countries is a priority for the Commission. The objective is that those countries should mostly operate under the extended decentralisation system (EDIS) before they accede likely in 2004. This should allow countries to acquire sufficient practical experience in the management of a fully decentralised implementation system before accession. The candidate countries concerned are at present at the first stage of the implementation of EDIS for ISPA, the "gap assessment" (as defined in the "Road map to EDIS for Phare and ISPA" which was communicated to candidate countries in 2001). In this context the Commission adopted the suggestion of the European Parliament to establish High-Level Working Groups in all PHARE countries. These High-Level Working Groups will supervise and monitor the transition to EDIS process. They constitute important apparatus in the sound financial management of pre-accession funds and are instrumental in ensuring compliance with commitments on financial control made by the candidate countries in the negotiations. The EDIS Roadmap clearly indicates that responsibility and ownership for undertaking this transition rests with the candidate countries for the first three steps:

1. Gap Assessment; this involves carrying out an assessment of the target national institutions (inter alia the National Fund and the implementing agencies) in order to determine to what extent the conditions for EDIS are currently met and to identify specific actions, changes and improvements required.

2. Gap Filling; the national authorities must make the necessary changes and improvements to the target institutions and procedures through implementation of the recommendations of the Gap Assessment Report (GAR).

3. Compliance Assessment; this exercise enables the national authorities responsible for the financial management of the Community instruments to determine whether the pre-conditions for formal application of EDIS are fulfilled.

PHARE assistance is being provided to the candidate countries to enable them to address stages 1 to 3 above in a timely, efficient and effective manner.

The final analysis and verification stage is the exclusive responsibility of the Commission services in order to enable the Commission to decide whether to grant EDIS under Article 12(2) of the Coordination Regulation No 1266/1999.

The Commission makes available Technical Assistance funds from ISPA (and from Phare in some countries for some steps in the "road map") to assist these countries to prepare for EDIS. Most of the countries also use external auditors to assist them. This assistance will also help in strengthening the implementation structures for the Cohesion Fund.

Agreement for the implementing agencies for ISPA to operate on a fully decentralised basis will be given upon demonstration that they have in place appropriate resources, structures and systems for the effective and timely management of Community assistance and effective internal controls including an independent audit function and an effective accounting and financial reporting system meeting internationally accepted audit standards.

Independently of the preparation for EDIS, audits were undertaken in the first half of 2002 to assess the adequacy of the management and control system of candidate countries, in line with the requirements of Article 9(2) of Regulation 1267/1999. These audits will be followed up in the second half of 2002. Their findings will provide assurance that candidate countries have established proper management and control systems ensuring that ISPA funds are correctly spent for the purposes intended and in accordance with the rules of sound financial management.

Contractual management procedures and Community subsidies

19. Asks the Court of Auditors to assess to what extent contractual management procedures for Community appropriations (invitation to tender, awarding of contracts) comply with transparency principles, in terms of objectives, selection board make-up, candidate selection, compliance with procedures and reasons for decisions, and in particular has concerns about invitation-to-tender procedures in the research sector; notes, that the Court of Auditors, in its annual report, has come to positive conclusions concerning the procurement procedures used by the institutions to purchase services, supplies and work and stresses the need for increased use of long term environmental and social benefit criteria in selection procedures; in particular, asks the Court of Auditors to assess the transparency of present Commission arrangements regarding external aid, such as the establishment of a set of shortlists where the same companies are supposed to be always the most efficient solution to apply Community grants of up to EUR 200 000 in every corner of the world;

20. Calls on the Commission to always use the most appropriate procedure, having regard both to the difficulties for applicants, particularly with research projects and costs; underlines however, that research is a high risk sector and requires very intensive controls;

Commission's reply :

The recast Financial Regulation, adopted on 25 June 2002 still strengthens the general, transparent and fair rules for awarding both grants and procurement contracts. The ensuing harmonisation of procedures throughout Community policies should simplify candidacies for applicants.

Besides, the proposed implementing rules allow for some flat-rate amounts and scales in the award of grants, which should prove easier to manage for both beneficiaries and officials while still guaranteeing sound financial management.

Furthermore, preventive actions will be encouraged through an extended system of exclusion for applicants guilty of past misconduct, including fraud, corruption or any illegal activity, as well as violation of community rules and mismanagement of funds allocated under previous contracts or grant agreements. Financial sanctions may also be imposed in the latter case or in case of false declarations.

Finally, the use of financial guarantees will be further developed, especially when major prefinancing payments are made, and no final payment shall be made without controls.

In the research sector, the Commission constantly strives to find the correct balance between, on the one hand, rapid and simple procedures and, on the other hand, the requirements of sound financial management. With respect to the implementation of the Research programmes, the Commission ensures that correct and transparent procedures are observed. The selection process of the Research proposals ensures impartial and equal treatment, and full transparency is observed towards the proposers. The proposals contain technical part which is evaluated separately from the other parts. The evaluation is done by scientific and technical experts comprising individual assessments, consensus meetings and where necessary panel meetings. With regard to the implementation of the 5th Framework Programme, a comprehensive information dissemination programme has been implemented by the services concerned, including web-sites and helpdesks, rapid information on the results of the evaluation process and there is an accelerated internal processing of contracts and payments.

By their nature research and technological development projects carry an inherent risk with respect to the expected results. The progress of the work is monitored and regularly reviewed. On the financial side the Commission continues its efforts to improve control systems. These include legal and financial viability checks during the contract preparation phase and, if needed, the implementation of protective measures. Financial audits have been substantially increased in 2001, as in the years before. A pilot action for audit certificates has been set up. Contractors are required to submit along with their cost claim an audit certificate issued by an external independent auditor.

At each stage of the definition of the 6th Framework Programme these considerations have been taken into account by the Commission.

When preparing the 6th Framework Programme, the Commission tried to find an adequate equilibrium between the need to have an « applicant-friendly » system and the necessity of management and control procedures allowing to reduce the inherent risk to an acceptable level. However, the means intended to reach this objective, which were also recommended by the Court of auditors, were not all accepted by the Council and the Parliament, in particular as regards the simplification of the cost-reimbursement system or the use of flat-rates. Nevertheless, the 6th Framework Program includes several improvements, in particular external certification of costs, limited joint and several liability of partners and entry of penalties on the basis of Regulation 2988/95.

21. Asks the Commission to explain, in connection with the selection procedure for the Media and Media Plus proposals, what type of TAO carries out preparatory work on which the Commission makes a final selection of the beneficiaries of programmes and decides on the support to be granted (cf. Council Decision 2000/821/EC [5]); asks the Commission to indicate what the geographical breakdown of programme beneficiaries was for 2000;

[5] OJ L 336, 30.12.2000, p. 82.

Commission's reply :

1. "Type" of Technical Assistance Office (TAO) and role of the TAO in the selection procedure of projects.

(Note : the relevant provisions of the Decisions establishing the MEDIA II (1996-2000) and MEDIA Plus (2001-2005) programmes are enclosed as an Annex).

The decisions establishing the MEDIA II programme (1996-2000) provided for the obligation for the Commission, in its technical appraisal of proposals presented for Community funding, to obtain the expertise of recognised specialists in the fields covered by the programme (training, development and distribution). The decisions also provided that "to this end, the Commission may involve intermediary organisations which, on the basis of their professional expertise, will provide technical assistance and will formulate proposals for the choice of the beneficiaries, without prejudice to other selection methods".

For the implementation of these provisions, the Commission contracted, through open call for tender procedures, three technical intermediary organisations (one in the area of training, one in the area of development, and one in the area of distribution), which were selected on the basis of their knowledge and expertise of the audiovisual sector.

For the MEDIA Plus Programme (2001-2005), which started on 1st January 2001, the decisions establishing the Programme also provide for the use of one or several Technical Assistance Offices (TAOs) to assist the Commission in its implementation of the programme.

In accordance with the orientations put forward by the Commission in its Letter of Amendment n° 1 to the Preliminary Draft Budget 2001 (SEC(2000)1363), the Commission proposed to renew the use of TAOs for the MEDIA Programme as a transition solution to the implementation of an executive agency.

Furthermore, the Commission decided to restrict the technical assistance to one TAO (instead of three in MEDIA II), which was selected further to an open call for tender on the basis of its technical expertise in the audiovisual area.

The assistance provided by the TAO in the framework of the procedure for selection of projects is of a purely technical and administrative nature, and does not include any public-authority tasks. The tasks carried out by the TAO are based on clear assessment guidelines defined by the eligibility and selection criteria contained in the calls for proposals. It is only one part of the overall selection procedure, which can be described as follows :

Step 1 - publication of a call for proposals by the European Commission;

Step 2 - proposals are received by the European Commission. The Commission keeps one copy of each proposal and transfers a copy of each proposal to the TAO for assessment;

Step 3 - assessment of all proposals received by the TAO, on the basis of the eligibility and selection criteria defined in the Call for Proposals. Further to this step, the TAO establishes for the Commission for all proposals received an assessment report drawn in accordance with the models provided by the Commission.

Step 4 - All the projects are submitted again to either panels of independent experts from the audiovisual area or to internal evaluation panels, who make a second assessment of the projects.

Step 5 - On the basis of these two sets of assessments (TAO + evaluation panel), the final selection decision is established and adopted by the Commission.

Step 6 - In the cases defined in Council Decisions, the projects proposed for selection by the Commission are also submitted to the opinion of the MEDIA Committee in its management procedure.

2. Geographical breakdown of the programme beneficiaries in 2000: see Annex.

22. Takes the view, as regards the current procedures for granting Community subsidies to specific organisations, namely in the context of A-302 lines, that a system of both earmarking and calling for proposals is unsatisfactory and calls on the Commission to suggest to the budgetary authority a more transparent system, which also might help to avoid the state of permanent insecurity which hangs over some organisations, without creating dependence on Community funds for their survival; notes that Activity Based Budgeting may help end the present system; calls on the Commission to ensure new organisations that wish to bid for money are not excluded from doing so; asks the Commission to cooperate with OLAF and the Court of Auditors in auditing associations or centres funded almost exclusively from the Union budget;

Commission's reply :

The new Financial Regulation contains a general framework for the award and supervision of grants in accordance with the principles of transparency, equality of treatment and co-funding. It extends the call for proposals procedure already forecast in the vade-mecum on grants and in most legal bases - as this is the most transparent and non discriminatory way to hand out subsidies, especially with regard to newcomers. The Activity Based Budgeting (ABB) and the disappearance of parts A and B in the budget imply indeed that this procedure should also apply to former part A lines, lest some justified exceptions (e.g. institutional beneficiaries) are foreseen in the legal bases the Commission will propose to the legislative authority in the coming months.

The recast Financial Regulation also provides for compulsory cofinancing and a check on the lack of profit-making in order to reinforce the beneficiaries' independence towards Community funds.

As to audits, the recast Financial Regulation stresses the authorising officers' responsibility in soundly managing Community funds and clearly states the need for ex ante and ex post controls, especially in relation to final payments.

Furthermore, the Commission has stated its intention to submit legislative proposals with the objective of determining the global criteria to apply to awards under article 108(b). These measures will represent the culmination of a process, initiated by the Commission's vade-mecum on grants, aiming to establish a clear, fair and stable legal environment for beneficiaries.

In the context of the impending disappearance of Part A of the budget, the Commission will thus need to present one or more proposals for a legal basis to allow this funding to continue in the context of the introduction of the ABB approach. On this occasion it will make proposals regarding the management regime to be used for these headings and will raise the question of earmarking some of them and the difficulty of reconciling the two current methods of awarding these subsidies: designation of beneficiaries by the Budgetary Authority in some cases and the use of calls for proposals in others.

The Commission considers that the use of competitive procedures (calls for proposals) for granting subsidies constitutes an egalitarian, transparent and effective procedure and hence that it would be counterproductive to challenge it. As stated above, the new Financial Regulation incorporates the principle of equality of treatment of beneficiaries.

It could be difficult to completely and rapidly abandon the designation of certain beneficiaries. Currently, in fact, there are two sorts of earmarked beneficiaries: some are or could be "institutional" (the College of Europe, for example); others are not (beneficiaries representing only themselves). On the one hand, it is not necessarily desirable to stop supporting "institutional" beneficiaries; on the other, the practice of earmarking has, over the course of the years, created de facto dependence on the part of the current beneficiaries, which have sometimes benefited from Community funding for years: stopping this financing from one day to the next could create excessive insecurity for the bodies concerned. However, in future, designation of beneficiaries should be the exception rather than the rule, and should therefore be limited and properly monitored.

For the time being, the Commission welcomes the fact that the existence of separate headings (earmarked beneficiaries; beneficiaries to be selected on the basis for calls for proposals) in the 2002 budget makes the situation more easily manageable than in the past when the earmarking did not always concern all the appropriations for a given budget heading.

OLAF has been given full independence to exercise its investigation function to fight fraud, corruption and any other illegal activity affecting the financial interests of the Community. OLAF itself is not an audit service. However, should the Commission or the Court of Auditors, in the course of their audits, have suspicions that a fraud or irregularity detrimental to the Communities' financial interests has been committed, Article 7 of Regulation 1073/1999 sets out the obligations of the institutions to inform OLAF.

23. Notes that in year 2000, EUR 800 000 earmarked under budget line A-3040 towards the operating cost and the work programme for European Migrants Forum; notes that an investigation has begun by OLAF after allegations of fraud and mismanagement in this organisation and that OLAF sent the case to the Belgian judicial authorities in June 2001; expects to be fully informed of the conclusions of the Belgian authorities; asks the Commission to ensure that this body and others funded under A-3 Community subsidies are effective in meeting their objectives;

Commission's reply :

The Commission, in collaboration with OLAF, will provide Parliament with information as soon as it is able.

OLAF has completed its investigation into the matter of the European Migrants Forum and a file has been referred to the Belgian judicial authorities with which OLAF is in periodic contact to monitor progress on the case.

ECRE, a body funded by the Commission under Chapter A-3, is currently being audited. The report should be finalised in October 2002.

The recast Financial Regulation and its implementing rules, which are to apply with effect from 1 January 2003, lay down a number of rules concerning procedures for the award and management of grants, which will afford greater protection of the Communities financial interests. For operating grants one condition is that external audit reports must be produced before beneficiaries are selected and then before grants are paid where these exceed EUR 50 000, save where an exception is authorised by the authorising officer responsible in the case of public bodies and international organisations or where a number of beneficiaries are jointly and severally liable.

The Commission may also reduce the grant if the beneficiary does not satisfy the contractual obligations properly, in full or at all, and it may even impose financial penalties in the event of serious shortcomings.

Standard grant agreements, incorporating all the tools available to the Commission to ensure beneficiaries comply with their contractual obligations (suspension of payments, reduction of grant, termination with total or partial recovery, financial penalties) are being drafted centrally in order to harmonise the contractual instruments used by Commission departments and bring them into line with the implementing rules of the new Financial Regulation.

The complexity of procedures and legislation

24. Agrees with the Court of Auditors that, more often than not, Community rules are too complex, causing difficulties for beneficiaries, and asks the Commission to develop a systematic assessment of the efficiency of the various regulatory instruments in achieving the policy objectives as defined in the Treaty or otherwise approved by the European institutions;

Commission's reply :

In recent years, the Commission has taken both horizontal and sectoral initiatives in order to improve regulation. These respond to the general obligations to respect the proportionality principle (cf. Protocol to the Amsterdam Treaty) and to the growing recognition of the need for better and simpler regulation. In particular, the Commission's internal procedures for planning and programming of work have been significantly improved (allowing in particular for the results of policy and programme evaluations to be fed better into policy design). Moreover, the Commission launched in June 2002 a major action plan on better regulation, introducing inter alia a common framework for ex-ante assessment of its initiatives.

In conducting ex-ante impact assessments of its key initiatives, the Commission will also consider the alternative regulatory instruments available to achieve a specific set of policy objectives. In this task the Commission will take into account the respective competencies of the Community and the Member States as defined in the Treaty and also give due consideration to the principles of subsidiarity and proportionality.

The assessment by the Commission of the regulatory instruments in achieving political objectives has to rely on the monitoring, measurement and evaluation systems that its departments will have to implement or adapt following the introduction of Activity-Based Management.

Even if the Commission services are constantly endeavouring to implement and improve the use of these management instruments, it must be recognised that more needs to be done to adopt common methodologies and best practices and develop consistent and coherent approaches in order to respond to the Commission's needs for assessing the efficiency and effectiveness of its regulatory instruments and the achievement of the expected results.

Further to the aggregation of the relevant information carried out by the individual DGs in their Annual Activity Reports, the Commission will produce a synthesis report on the achievement of its political objectives by policy area that will be communicated to the Council and to the European Parliament.

As regards specifically the agricultural area, in Agenda 2000 and subsequent decisions, the Commission has taken a number of steps to promote further simplification of legislation and its implementation. The Small Farmers Scheme represents an important precedent for reducing the administrative burden. However, the range of mechanisms within the common market organisations continues to create many complex obligations for farmers and difficult control and monitoring responsibilities for Member States and the Commission. This complexity is a brake on initiative and may discourage entry into the farming profession. In some sectors such as beef, farmers are eligible for several premiums with different requirements in addition to environmental, food safety and animal health and welfare legislation. Considerable simplification could be achieved if checks at individual farm level could be brought together into a more integrated framework.

Simpler conditions on payments with less market-related procedures would enable farmers to spend more time making their business successful and meeting their statutory requirements. It would also allow Member States to concentrate on checking environmental, food safety and animal health and welfare requirements. Greater decentralisation, particularly through the reinforcement of the Second Pillar, would allow Member States to better target local needs, and bring agricultural policy closer to consumers.

The Commission has also started codifying numerous regulations and has proposed an amendment of the current mechanisms whenever it has been possible to make a substantial simplification without imperilling the other objectives. This objective of simplification was taken into account when the proposals for the mid-term review were drawn up.

As regards the Structural Funds, the Commission recognises that the application of the new provisions governing them has not always led to the expected result of a simplification of management.

Since the informal Council in Namur in July 2001, where this question was raised, the Commission has started to look at the possibilities for simplifying the application of the provisions, while retaining the positive elements of the reform of the rules adopted in 1999. This examination concerns both the improvements that can be made in the current period and those which should be envisaged for the period after 2006.

While, for the current period, the work of simplification is more along the lines of interpretation and coordination, for future regulation it reopens the political question of the division of responsibilities between the Commission and the Member States in a situation where the latter take on the largest share of setting the Structural Funds objectives and administering the appropriations.

The debate with the Member States on simplification is continuing in the advisory committees for the Structural Funds. A meeting with the ministers for regional policy took place on 7 October and a seminar will be held at the beginning of 2003.

25. Notes that the Commission, in the new regulation on Structural Funds (EC) No 1260/99, has declared its intention to simplify the rules; hopes that this will be verified in 2001, but deplores the under-implementation of the Structural Funds in 2000 due to delays in programming (itself accounting for much of the budget surplus); points out that the same difficulties occurred in the first year of the previous programming peri