Special Report by the Court of Auditors on the securities, deposits and guarantees furnished in respect of operations that give rise to expenditure from the EAGGF, Guarantee Section
Date: 1981-07-02
Institutions: European Court of Auditors
Subjects: EAGGF Guarantee Section, guarantee, regulation, statistics













EUR-Lex - 31981Y0929(01) - EN






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31981Y0929(01)

Special Report by the Court of Auditors on the securities, deposits and guarantees furnished in respect of operations that give rise to expenditure from the EAGGF, Guarantee Section  


Official Journal C 249 , 29/09/1981 P. 0001 - 0011 





SPECIAL REPORT BY THE COURT OF AUDITORS on the securities, deposits and guarantees furnished in respect of operations that give rise to expenditure from the EAGGF, Guarantee Section The organization of the Community agricultural markets involves undertakings by operators to the Community at various stages ; for example to remove a product from storage, or to export or denature a product. To guarantee that these obligations are fulfilled, the Regulations have provided for the taking of securities. These securities are furnished to the national departments responsible for the operation to which they relate. It is important to know how these securities are furnished, recorded in the accounts, forfeited and credited. That is the purpose of this enquiry.    1. The Court's first observation was that the only Regulation of an apparently general nature is "Council Regulation (EEC) No 352/78 (1) of 20 February 1978 on the crediting of securities, deposits and guarantees furnished under the common agricultural policy and subsequently forfeited".  Previously, there were a large number of provisions scattered among the specific Regulations on the different products. These specific Regulations vary in nature. Some of them laid down rules for the crediting of securities forfeited.  Article 4 of the Regulation, however, provides for the repeal of only two of the previous provisions.  Since the list of earlier Regulations was compiled in 1972 in preparation for the Regulation and does not appear to have been up-dated since, there is some doubt as to whether all pre-existing provisions have been repealed. There is thus a danger of conflicting rules.  Moreover, Article 5 of the Regulation provided for implementing rules, which have still not seen the light of day.  Thus the system of securities does not have a set of legal rules which is clear, complete and easy to use.       2. The Court examined in particular Regulation (EEC) No 352/78 and its application. This Regulation was found to be of limited scope. Important aspects - which are also not dealt with clearly elsewhere - remain obscure.  This applies to the following matters in particular:      - defining the various types of security which may be required according to their purpose and form;  (1) OJ No L 50, 22.2.1978.            - laying down a registration procedure, involving an obligation upon the Member States to keep a record by type of all securities furnished, which is not necessary at present for the securities on file;           - dealing with the problem of valuing securities in the form of shares, bonds, mortgages or bank deposits, whose value or liquidity may vary;           - providing a suspense account for all securities furnished, irrespective of their potential beneficiary, and subsequently for those forfeited.         3. Even if attention is confined to the narrow purpose of the Regulation, i.e. the crediting of securities, it is not possible to find a clear answer to the following questions:      - in the case of each type of security, to whom is it finally credited - the Member State or the Community?           - at what point are the securities credited to the Community entered in the EAGGF accounts?         4. In addition, the Regulation poses problems of interpretation, in particular with regard to the following points:      - the purpose of the Regulation is to determine the principles for the crediting of securities forfeited. Articles 2 and 3, however, are drafted in terms of accounting rules;           - the recitals define as the general principle the crediting to the Community of securities forfeited and as the exception their crediting to the Member States. However, the exceptions in Article 1 (2) are presented as an area from which application of the Regulation is excluded and not as a derogation from the general principle.         5. It appeared to the Court that the Commission does not possess the necessary information for an overall assessment of the application of the rules on securities:      - no up-dating since 1972, date of the first preparatory document for the Regulation, of the list of cases where it is necessary to furnish securities under the common agricultural policy;           - no statistical data, for lack of accounting data, on the securities furnished, their distribution according to whether they are released or not, their crediting to the Member State or to the Community.         6. On 4 September 1979 the Court sent, through the national Courts of Auditors, a questionnaire to all Member States on the application of the Regulation in 1978.  The results of this enquiry have been summarized in a note in Annex I. After all due allowance for the lack of completeness and homogeneity in the replies to the enquiry, three main conclusions can be drawn:      - the securities are of unquestionable financial significance. According to the enquiry, the balance of securities furnished at 31 December 1978 amounted to 1053 MEUA. For the sake of comparison, it may be noted that in that same year the total expenditure of the common agricultural policy amounted to 8 672 MEUA;           - the Member States retain at least 85 % of the securities forfeited;           - the diversity of the replies of the Member States and the uncertainties in a number of them reflect the inadequacy of the rules.         7. Even more important for the Community than having the securities forfeited credited to it is its being able to check that the securities fulfil their main purpose : to ensure that the operator fulfils his obligations. This does not necessarily involve crediting the securities forfeited to the Community ; what is important is that the Community provide itself with the means of ascertaining the total number of securities and of monitoring their effectiveness.  By providing that the securities forfeited to the Community be applied to reduce EAGGF Guarantee expenditure, however, this is precisely what Articles 2 and 3 of the Regulation do not guarantee.   It would appear desirable in this connection that, if not entered into the budgetary accounts as revenue, the securities credited to the Community should at least be declared by the Member States at the same time as the expenditure from which they are deducted.       8. The above comments were officially communicated to the Commission by a letter of 3 February 1981. On 10 June 1981, the Commission sent its reply, the text of which is given in Annex 2. In stating in paragraph 7 of this reply that preparatory work has been undertaken to "define the different types of securities and to establish a system for the transmission of this information" the Commission is, in part, fulfilling the wish expressed in the Court's observations.       9. Nevertheless it is necessary for the Commission to be fully informed of the securities furnished, those subsequently released or forfeited, and those credited to the Member State or to the Community, if it wishes to be in a position to judge whether the securities have fulfilled what it recognizes as their primary purpose, namely to "ensure the proper execution of an operation within the framework of the common market organizations".       10. The diversity of paying agencies should be no obstacle to the application of a minimum of accounting or registration rules. The Court does not see how the fact that the paying agencies are subject to national accounting rules would prevent them, for example, from keeping a complete record of the guarantees furnished in order to keep track of them, which is not present practice with the securities on file in some paying agencies.       11. The Court still wishes to see the provisions of the Regulation re-examined, not necessarily as a "new attempt at general allocation to the Community", but quite simply for the purposes of clarification. The contradictions between the explanatory memorandum and the provisions of the Regulation arise from priority being given to the secondary problem, namely of regulating the crediting of securities forfeited to the Member States or to the Community. In actual fact, however, the principal problem is verifying that the securities guarantee the proper functioning of the market organizations.  It is in this spirit that the Court considers it advisable to re-examine the entire legislation relating to securities.  The above comments were adopted by the Court of Auditors at its meeting of 18 June 1981.    Luxembourg, 2 July 1981  For the Court of Auditors  Michael N. MURPHY  President   Annex I THE ENQUIRY OF THE COURT IN THE MEMBER STATES  The information requested covered the following points:    (a) the total balance of securities furnished at 31 December 1978;       (b) the form in which the securities comprising the balance were furnished:  liquid assets,  cheque,  guarantee (bank or insurance),  shares or bonds,  other;       (c) the total amount of securities forfeited in 1978;       (d) the amount kept by the national authorities;       (e) the amount credited to the EAGGF account;       (f) the item of the Community budget under which the securities were entered in the accounts (type of product, EEC Regulation and amount).    The table below illustrates the replies to questions (a) to (e).   >PIC FILE= "T0035487">    This information should be interpreted with certain allowances for the incomplete nature of the Member States' replies:    - Belgium did not indicate the securities forfeited that were credited to that Member State;       - Denmark stated that it had encountered difficulties in applying the Regulation and requested the Commission to lay down implementing rules;       - the Federal Republic of Germany sent no information on the Hamburg-Jonas agency : the figures are thus partial;       - France did not give any information on the securities registered with the customs;       - Italy did not give any information on the securities managed by the Ministry of Finance. It also appears from the Italian reply that the securities are only credited to the EAGGF account upon closure of the accounts in the following year;       - the United Kingdom stated that the balance did not include bank guarantees given for individual operations since they are kept in the file until completion of the operation then immediately returned to the guarantor.    Due to the uncertain comparative value of the enquiry results, a more detailed analysis can only be made with the greatest diffidence. Several items of information would be necessary for an unbiased interpretation of the results:    - the operations giving rise to the furnishing of securities as a percentage (by Member State) of the total expenditure of the common agricultural policy;       - the total amount of securities furnished : for Belgium, Italy and the United Kingdom, the figures do not represent the full amount;       - for France and the Federal Republic of Germany, they do not cover the whole area of observation;       - the amount of securities forfeited to the Member States was underestimated in the case of Belgium and Italy;       - the representativeness of the balance at 31 December 1978.    This is why it would be dangerous to draw conclusions on the relative effectiveness of the administrations of the various Member States from the securities forfeited as a percentage of the balance of those furnished. At most, it can be stated that four of the Member States where this rate is still of significance have rates of between 1 71 % and 2 71 % for securities subsequently forfeited as a percentage of the balance of the securities furnished at 31 December 1978 : the Federal Republic of Germany, France, Ireland and the Netherlands.  Comparison of the total of securities forfeited with expenditure under the common agricultural policy yields a general average of 0 714 %, i.e. within the Commission's estimate of between 0 71 % and 0 72 %.   The figures by Member State are as follows: >PIC FILE= "T0035488">   Only three Member States (Belgium, Netherlands and France) are within the limits of the Commission's estimate. One Member State (the United Kingdom) is much higher than the average ; the general average is nonetheless at the level of the Commission's estimate. No final conclusion may be drawn from this table.  It appears, however, that, overall, the Court's enquiry, based on the very simple procedure of questionnaire sent to the Member States, arrives at credible figures.    ANNEX 2 COMMISSION OF THE EUROPEAN COMMUNITIES  OBSERVATIONS on the study of the Court of Auditors on the securities, deposits and guarantees furnished in respect of operations that give rise to expenditure from the EAGGF, Guarantee Section     1. The enquiry organized by the Court of Auditors in this area is useful. It provides supplementary information of a statistical nature on the importance of securities and on the various types employed.  As the Court found, this information is nonetheless incomplete, not all the administrations concerned having replied.  The different level of securities in the Member States is not surprising, since it depends on the type of operation mainly undertaken.  Thus, for example, the higher level of securities in Belgium may be explained by the size of butter processing operations.       2. The Court found that the balance of securities furnished at 31 December 1978 amounted to over a thousand million ; this high figure should, however, be viewed in the light of two important features of the securities:      1. in general, the securities are not furnished in cash but in the form of bank guarantees;           2. they are released, in almost all cases, often after quite a short period, because the operator has fulfilled his obligations.         3. The Court of Auditors is inclined to consider that Regulation (EEC) No 352/78 on the crediting to the EAGGF of certain forfeited securities is inadequate and contains gaps.  Firstly, it should be pointed out that the primary purpose of a security is to ensure the proper execution of an operation within the framework of the common market organizations, and the allocation of the sum involved to the Community or to the Member States is, in actual fact, a secondary matter.  In the initial stages of setting up the common market organizations, the Community decided, in each case, whether it would be preferable for the security to be forfeited to the Community.  It was only in a limited number of cases that the legislation provided for its allocation to the EAGGF, it being understood that in the absence of an express provision the security was forfeited to the Member State.       4. The Commission thought it advisable to establish provisions of general application. This was the aim of the Commission's proposal of 6 February 1976. The latter provided that the securities forfeited, except for those of a purely administrative nature, should be deducted from the EAGGF expenditure, in particular securities furnished on the issue of certificates without advance fixing of the rate of refund.   Priority of allocation to the Community met with a negative reaction from the Council and Regulation (EEC) No 352/78, adopted after long negotiations, provided for application by the EAGGF of the securities forfeited under much more restrictive conditions.  Progress has thus been limited, despite the efforts of the Commission.       5. Regulation (EEC) No 352/78 is much more precise than the Court suggests. It contains a definition which meets no serious problems in application, according to an enquiry undertaken by the Commission.  There exists a very limited number of cases which need to be clarified with the EAGGF Committee, as soon as the Commission departments have the opportunity of dealing with this non-priority question.  The establishment of an exhaustive list of all securities would be a considerable task and would need to be constantly up-dated due to the continuing development of Community legislation.  The results obtained would not justify the amount of work involved. This is also the reason why the Commission refused, during the negotiations on Regulation (EEC) No 352/78, to undertake such a course.       6. With regard to accounting, the Court of Auditors would prefer the establishment of special accounting measures in the paying agencies and the EAGGF.  The wide diversity of the paying agencies, subject to national accounting rules, does not allow the introduction of such a system in the immediate future although it could well be considered in the long term.  During on-the-spot audits, the Commission representatives can establish which securities have been forfeited and which are still held. Until now they have not encountered major difficulties in this area.  At the EAGGF level therefore, special accounting measures cannot be introduced until there has been standardization in the paying agencies.  Certain administrations do however declare separately the amounts of securities finally forfeited both in the monthly statements to the EAGGF and in the annual statements of clearance of the accounts.  The sums are entered in the accounts of the EAGGF according to the usual procedure, as and when the securities are finally forfeited to the Member States. It should, however, be pointed out that the Commission departments have found, during on-the-sport audits, that in certain cases, securities were held for quite long periods without the Member States deciding to declare them forfeited. Following action by the Commission departments, this problem now no longer seems to exist to any significant extent. Furthermore, it could not be solved under the provisions of Regulation (EEC) No 352/78, but solely within the framework of the many regulations that set up a system of securities.        7. The Commission has drawn the following conclusions from the comments of the Court and these replies:      - it is not at present advisable to propose an amendment to Regulation (EEC) No 352/78, which meets its own needs, and any new attempt at general allocation to the Community would be doomed to failure at present;           - it is desirable to try and clarify the limited cases where a doubt may exist whether allocation is to the EAGGF or not, although implementing measures for Regulation (EEC) No 352/78 have not proved necessary to date;           - it should be ensured that the various market organization regulations that set up a system of securities specify the point at which the security is forfeited to the EAGGF or the Member State;           - it is desirable to define the different types of securities which may be furnished and to establish a system for the transmission of this information by the Member States to the Commission ; preliminary work has been undertaken to this end.