EN Official Journal of the European Union CE 78/445

(2004/C 78 E/0467)

WRITTEN QUESTION P-2975/03

by Freddy Blak (GUE/NGL) to the Commission

(6 October 2003)

Subject: Contracts with CESD

In December 2001 the Commission (EuropeAid) signed a contract worth EUR 999 780 with the firm CESD, which was to help with a census in former Yugoslavia. The fact that this contract was entered into is highly problematic. Firstly, the firm obtained the contract outside the customary tendering procedures. Secondly, it was entered into in spite of the fact that the firm had already been shown to have swindled Eurostat out of more than EUR 3 million.

Between 1996 and 2001, CESD entered into contracts worth EUR 31 655 756 with Eurostat, some of which were awarded outside the customary tendering procedures. Eurostat-CESD contracts not in line with tendering rules have been criticised by the Court of Auditors in its annual reports (1).

Would the Commission state whether it was unaware of the Court of Auditors' criticism or whether it deliberately chose to ignore it?

In a letter (29 September 2003) to Mrs Theato, Commissioner Patten stated that EuropeAid had no knowledge of irregularities and fraud in connection with CESD before July 2003.

Would the Commission explain how it is possible for EuropeAid not to have known about the problems surrounding CESD when the Eurostat audit department had established in two reports, in May and July 2001, that there had been irregularities, fraud and nepotism involving more than EUR 3 million. The problems were so serious that both reports were forwarded to OLAF in November 2001.

Would the Commission explain how it is possible that the Commission's early-warning database had no entry on CESD?

Would the Commission say whether it is standard practice for a directorate-general to enter into new contracts with a firm which has been swindling another directorate-general on a large scale, or whether rules have been broken?

Answer given by Mr Patten on behalf of the Commission

(26 November 2003)

In its Annual Report concerning the financial year 1998, the Court criticised the conclusion of contracts with companies which involved managing special funds; CESD was one of several firms mentioned by the Court in this context. As explained by Mr Patten in his letter of 29 September 2003 to Mrs Theato, this is why the project supervision arrangements for the Former Yugoslavia Republic of Macedonia (FYROM) contract were reinforced. Moreover, the FYROM contract with CESD-Roma was a contract for services, rather than a grant agreement, allowing for closer scrutiny of expenditure, on the basis of costs actually incurred.

In its Annual Report concerning the financial year 1999, the Court covered the statistical support given to the Candidate Countries through the PHARE programme, and questioned the justification for employing CESD as a technical assistance contractor through a direct agreement for an amount of EUR 15 million. The Commission explained in its reply that the decision to award the contract by direct agreement aimed to allow the mobilisation of the essential expertise of the Statistical Institutes of Member States and that, following further analysis in 1997, it was decided, with effect from 1998, to redesign the nature and scope of the tasks outsourced and organise tendering in compliance with standard PHARE procedures.

The Commission (EuropeAid) was aware of criticism by the Court of Auditors of potential problems arising out of the structure of certain contracts with CESD, and took steps to address those criticisms. However, the Court's reports did not indicate any problem of fraud or impropriety in relation to CESD.

The decision to award the contract of EUR 999 000 for the electoral census work contract in FYROM by direct agreement was taken on the basis of the technical advice from Eurostat, and of the need to ensure the success of the census in FYROM, which was at that time expected to begin in 2001. The urgency of implementation of the Lake Ochrid agreement was widely recognised at the time, including by the Council and the Parliament.

EuropeAid, like other services of the Commission, was not aware of the audit reports. Eurostat did not inform EuropeAid about these reports and the results sent to the European Anti-Fraud Office (OLAF) in November 2001. The reasons for this situation have already been described to the Parliament's Budgetary Control Committee (Cocobu) and explained again by the President of the Commission at the 25 September 2003 Conference of Presidents (CdP) extended to Members of Cocobu. The procedures in place at the time did not provide for notification to the Commission as a whole of the concerns set out in the reports. It was only when OLAF had informed the Commission that the necessary conclusions could be drawn (including use of the Early Warning system) in relation to the problems identified. In this case, the first note of substance sent by OLAF to the Secretary-General was in May 2003. EuropeAid was made aware of these reports in July 2003 and the Commission decided in July 2003 to terminate all such contracts with CESD.

The Commission fully accepts that there was a clear lack of communication in this case. In order to prevent such situations in the future, a draft Memorandum of Understanding concerning a code of conduct in order to ensure a timely exchange of information between OLAF and the Commission, with respect to OLAF internal investigations in the Commission, was approved by the Commission on 23 July 2003. Pending final adoption of this code, the Secretary General of the Commission and OLAF have decided to implement the provisions of this code of conduct on an interim basis. Furthermore the Commission took the decision that Commissioners must be informed by their Director General about the results and recommendations of audit reports.

The prevention and control mechanisms adopted by this Commission since 2001, which are progressively coming into force, are designed to avoid such a situation arising in future. The entry into force of the new Financial Regulation (2) will contribute to set out clearer and stricter rules to avoid such practices recurring in the future and further measures have already been introduced in July 2003.

On 18 November 2003 President Prodi presented an action plan to Parliament in order to remedy the shortcomings identified in the Eurostat affair.

(1) OJ C 327, 24.11.1994, OJ C 349, 3.12.1999 and OJ C 342, 1.12.2000.

(2) Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities, OJ L 248, 16.9.2002.