Special report on the contract measures for the expansion of markets for milk and milk products financed by proceeds of the coresponsibility levy
Date: 1986-02-20
Institutions: European Court of Auditors
Subjects: European Court of Auditors, milk, milk product, producer co-responsibility, report













EUR-Lex - 31986Y0526(01) - EN






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31986Y0526(01)

Special report on the contract measures for the expansion of markets for milk and milk products financed by proceeds of the coresponsibility levy  


Official Journal C 127 , 26/05/1986 P. 0001 - 0026 





<(BLK0)LA ORG="CCF">EN</(BLK0)LA>SPECIAL  REPORTon the contract measures  for the expansion of markets for milk and milk products financed by proceeds of the  coresponsibility levy(86/C 127/01)(Observations, Article 206a, paragraph 4, of the EEC  Treaty)This report was adopted by the Court of Auditors at its meeting of 20 February 1986. The  draft report had been sent on 8 November 1985 to the Commission, whose replies are attached. >TABLE>1.  INTRODUCTION Background1.1.  In 1977 the Council of Ministers  decided to introduce a coresponsibility scheme as a part of a package of measures designed to  reduce the chronic imbalance between production and consumption of milk and milk products. Council  Regulation (EEC) N° 1079/77 of 17 May 1977  (1) provides on the supply side for a uniform  coresponsibility levy to be paid by milk producers on all deliveries to dairies and certain farm  sales of milk products, and, on the demand side, for specific measures linked to the levy to  encourage: (a)  the expansion of markets within the Community; (b) the expansion of markets outside the Community; (c) the search for new outlets and improved products  (2). 1.2.  The adoption of the coresponsibility scheme introduced into the management of the milk sector  a principle which the Commission had been proposing openly since 1973  (3), namely that the  producers of milk should be more directly associated with the measures to dispose of their surplus  production, and, by means of the levy, with the financing of those measures. In addition to the  payment of the coresponsibility levy by milk producers, they and milk processors, through their  representatives at Community level (COPA, COGECA and ASSILEC), participate in the preparation and  execution of the coresponsibility expenditure programmes by means of their membership of the  Coresponsibility Group, a special consultative group established by the Commission in 1977. 1.3.  The specific measures financed from the proceeds of the corresponsibility levy can be divided  into two groups, as shown in Table 1 of Annex I: (a)  'existing measures': measures for disposing of surpluses which were already being used by the  Commission before the coresponsibility scheme was introduced: Table 1 shows that to the end of 1984  these accounted for some 89  % of actual expenditure of levy proceeds; (b) 'new measures': measures which were adopted after the introduction of the coresponsibility  scheme, to be financed by the levy: these accounted for approximately 11  % of actual expenditure  of levy proceeds to the end of 1984. 1.4.  The Court of Auditors has already presented observations on most of the 'existing measures'   (4). The present report, therefore, while dealing with certain issues which concern all the  expenditure measures financed by the coresponsibility levy, is specifically directed to  observations on the management and effectiveness of the 'new measures'. Unlike the existing ones,  these measures are of particular interest in that they are carried out by means of contracts  between the Commission and organisations in the Member States, with management responsibility for  the measures divided between the Commission and the intervention agencies. This arrangement follows  neither the normal procedures for the management of EAGGF Guarantee expenditure nor those for  managing the Commission's contracting activities in other areas. Objectives of the audit1.5.  The overall objective of the audit of contract measures financed by  the coresponsibility levy was to determine whether: (a)  the expenditure on the contracts has been incurred in a lawful and regular manner in  accordance with the regulations in force; (b) the financial management of the contract measures is sound. 1.6.  More specifically, particular objectives were to determine whether: (a)  budgetary and accounting procedures and presentation of coresponsibility contract expenditure  are in conformity with the financial regulations in force; (b) the systems of management and control at the two levels of the Commission and the intervention  agencies are efficient and effective; (c) adequate arrangements exist for evaluating whether the measures concerned have achieved their  objectives. 2.  DESCRIPTION OF CORESPONSIBILITY CONTRACT MEASURES Outline description2.1.   Expenditure on coresponsibility contracts may be considered under the following headings: (a)  promotion and publicity measures within the Community; (b) market and technical research within the Community; (c) promotion and publicity, technical assistance and research outside the Community; (d) improvement of milk quality. Annex III sets out the regulations between 1978 and 1985 governing these measures. Promotion within the Community2.2.  The promotion and publicity measures within the Community are  the most important ones financially. They consist of annual programmes of generic advertising and  sales promotion of milk, butter, cheese, cream and other milk products run by organisations  representing the dairy sectors in each Member State. The maximum Community contribution is 90  %   (5) of the amount the organisation spends over and above the average annual expenditure of the same  kind incurred by the organisation in the period 1975-77, up to a limit imposed by the total funds  allocated according to an agreed 'key' (see paragraph 3.14) to the Member State concerned. Research within the Community2.3.  The market and technical research measures within the Community  cover a wide range of research activities by research institutes and dairy firms. The first  regulation in this area, Commission Regulation (EEC) N° 723/78 of 10 April 1978 covered both market  and technical research proposals, but from Commission Regulation (EEC) N° 2935/79 of 20 December  1979 onwards, encouragement has been directed to research primarily of a technical or scientific  nature into new orimproved products and packaging, nutritional aspects of the consumption of milk  and its constituents, and increased use of liquid skimmed milk for animal feed. The maximum  Community contribution is limited to 75  % of the expenditure incurred. Promotion and other measures outside the Community2.4.  The promotion and publicity, technical  assistance and research measures to expand markets outside the Community have provided for a wide  range of activities, including the search for new markets, new and improved products for export and  packaging to facilitate transport and preservation of products, research into nutritional aspects  of milk and milk product consumption, and market surveys. Finance has been provided for generic  promotion and advertising, the improvement of marketing conditions, and consumer information in  favour of milk products of Community origin. On the technical assistance side, under certain  conditions, know-how necessary for the establishment of factories or plants used for the  manufacture or processing of milk products has been provided. 2.5.  Only proposals which are not liable to prejudice existing Community trade in milk products  are taken into consideration. The maximum Community contribution is normally limited to 75  % of  expenditure incurred, but for generic promotion activities this percentage has ranged in some of  the regulations between 60  % and 70  % and up to 90  % in Commission Regulation (EEC) N° 1024/78  of 19 May 1978 for actions proposed by a specially constituted group representing the milk sector  of the Community. Improvement in milk quality2.6.  The measures designed to improve the quality of milk within the  Community include actions relating to the quality control, or bacteriological content, of milk,  testing in relation to health aspects of raw milk and the control of mastitis, the testing of  milking machines, the counselling of individual milk producers on questions of hygiene and quality  control, counselling on the collection and transport of raw milk, training of personnel for quality  control and counselling, and the setting up of co-operative milk collection centres, if necessary  with refrigeration facilities. In justified exceptional cases this last aid may be granted to  single farms. Also in properly justified cases, aid may be given for the examination of the  composition of raw milk and for equipment for the transportation of samples. 2.7.  Community financing is limited to 90  % of expenditure incurred. Commission Regulations (EEC)  Nos 1271/78 of 13 June 1978, 2936/79 of 20 December 1979 and 593/83 of 14 March 1983 covered all  Member States, but the measure was restricted to Italy and Ireland for Commission Regulation (EEC)  N° 1079/81 of 23 April 1981, plus Greece for Commission Regulation (EEC) N° 272/82 of 4 February  1982, Commission Regulation (EEC) N° 283/84 of 1 February 1984 and Commission Regulation (EEC) N°  615/85 of 8 March 1985. Financial information2.8.  Table 2 in Annex I sets out the amounts allocated to the new  measures by the Commission, as contained in the Communications to the Council. This shows that from  1977 up to and including the milk year 1986/87 the Commission has allocated a total of 498,4 Mio  ECU of which 293,4 Mio ECU (58,9%) is for promotion measures within the Community. The amounts  actually approved for expenditure by the Commission on individual contracts under the various  regulations, following the evaluation of proposals submitted by organisations in the Member States,  have normally been very close to these overall allocations. 2.9.  Table 1 shows that between 1977 and the end of 1984 total payments amounted to 307,6 Mio ECU.  The payments in this table, however, cannot be compared directly with the allocations in Table 2  because the payments relate to budget years while the allocations concern milk years. Also,  payments in respect of these actions are spread over a number of years. The Commission does not  prepare overall information showing commitments outstanding. However, the 307,6 Mio ECU of  cumulative payments to end 1984 may be compared with the total cumulative allocations made by the  Commission up to end 1984 (columns 1 to 7 of Table 2, which includes the 1985/1986 milk year  proposals) amounting to 458,4 Mio ECU, and the total cumulative amounts approved by the Commission  to the end of 1984 for specific contract proposals which amounted to approximately 380 Mio ECU   (6). 3.   OBSERVATIONS Budgetary presentation and management3.1.  The Court of  Auditors has criticised previously  (7) the budgetary presentation and management of expenditure on  these contract measures. The central problem is that this type of expenditure is different from the  usual EAGGF Guarantee expenditure provided for in Council Regulation (EEC) N° 729/70 of 21 April  1970 and is unsuited to the special provisions of the Financial Regulation applicable to the EAGGF  Guarantee Sector  (8). Contracts under the various measures are for a normal duration of one or two  years from the date of signature, with possibilities for extension where justified, and payment  profiles may extend over five years or more. Expenditure under these measures is thus of a  multi-annual nature, which is more appropriately dealt with in the budget by differentiated  appropriations rather than the non-differentiated appropriations provided for in the EAGGF  Guarantee section of the budget. 3.2.  The current procedure is that  : (a)  when the Commission has approved the list of proposals which are to be contracted, but before  contracts are signed, the Commission carries out an internal check to ensure that the global  expenditure in respect of each measure is within the agreed programme limits; (b) the Financial Controller approves the model contracts, but does not later approve each  individual contract when it is signed; (c) the intervention agencies request funds for payments to contractors as part of the normal  procedure of requesting advances under Article 96 of the Financial Regulation: at this point the  Commission makes a provisional global commitment, approved by the Financial Controller: this is the  first accounting entry which reflects expenditure on the contracts; (d) when the Member States declare that the expenditure has been incurred, a commitment is made to  the budgetary item and the expenditure is recorded as a payment, with the approval of the Financial  Controller. 3.3.  Thus, when the Commission enters into a legal commitment to incur future expenditure by  signing a contract  (9), n° corresponding commitment is proposed, approved by the Financial  Controller, and entered in the accounts. This is not in accordance with Articles 32 to 34 of the  Financial Regulation. Contrary to the view of the Commission  (10), this situation is not covered  by the provisional global commitment established under Article 96 of the Financial Regulation which  is designed to authorise the payment of advances to Member States so that they can make the normal  EAGGF Guarantee intervention and export refund payments and to block the corresponding  appropriations. 3.4.  As a result of the current procedures, the accounts of the Community show only the  expenditure declared, i.e. total payments actually made during the financial year, but reflect  nowhere the expenditure committed. 3.5.  Further, the current procedures do not enable the Commission to carry forward appropriations  committed in one financial year in respect of individual contracts but not paid out during that  year. Nor does the Commission include either in the body of the balance sheet or as a note to it  the amounts outstanding and still to be paid in respect of coresponsibility contracts signed in the  name of the Commission. 3.6.  The Commission, therefore, has adopted budgetary management procedures which conform neither  to the normal regulatory provisions governing EAGGF Guarantee expenditure, nor to the general  provisions covering contracts in the Financial Regulations. This situation needs to be reviewed.  If, for example, the intervention authorities were given the authority to sign the contracts in  their own name rather than that of the Commission (see paragraphs 3.34 and 3.35) and had full  responsibility for managing the contracts, then the procedures could be made to conform to the  normal EAGGF rules. Status and role of the Coresponsibility Group3.7.  The Coresponsibility Group was established so  that milk producers and processors - the milk industry - could be directly involved in the  procedures for managing the coresponsibility scheme. The establishment of the Group was seen,  particularly by the industry, as a counterpart to the levy. It has a much more significant role  than the Management Committee in the formulation of the coresponsibility measures. 3.8.  The Coresponsibility Group is not specifically referred to in Regulation N° 1079/77 or any of  the individual regulations. Its role is defined in two letters from the Commission to the  Presidents of COPA, COGECA, and ASSILEC. 3.9.  The Group is composed of milk industry representatives at Community level and Commission  officials, with joint chairmen from the Commission and the industry - but without any  representation of consumer interests. It is consultative, but the procedure is such that matters on  which there is initial disagreement between the Commission and the industry are generally resolved  by a mutually acceptable modification to the Commission's proposal. 3.10.  The Group plays an influential part in the preparation of the programme that is sent by the  Commission to the Council under the terms of Article 4 (3) of Regulation N° 1079/77, in the  allocation of funds between the Member States, and in the preparation of the individual  regulations. It also is consulted by the Commission on the selection criteria to be used when  evaluating proposals, and on the list of proposals to be approved/rejected for contracts under the  measures. 3.11.  Neither the Commission nor the industry representatives see any need to formalise the status  of the Group. It is seen as a flexible and effective means of enabling the Commission to consult  industry representatives, and for the latter to influence how coresponsibility funds are used. 3.12.  No evidence was found during the audit to suggest that the involvement of the Group  diminishes the Commission's authority to take decisions concerning the management of the milk  market. It is evident that the industry representatives have been able to influence significantly  the Communications to the Council on the future programmes, the texts of regulations and the  selection criteria for evaluating proposals. In a number of instances they have been able to modify  the amounts proposed initially by the Commission for the individual measures. The Commission on the  other hand, has withstood pressure from the industry side for the creation of a separate  coresponsibility fund, and has strengthened its position over the years in favour of the use of  coresponsibility revenue to finance the general EAGGF expenditure on the milk sector. 3.13.  It was noted, however, that in all Member States there is a national coresponsibility group  representing milk producer and processing interests which reviews proposals, assigns priorities  and, in some instances, drafts the 'reasoned opinion' which the intervention agency submits to the  Commission. In many cases, industry representatives on these groups are also members of the  Coresponsibility Group at Community level. These groups are not provided for in the regulations,  and in some Member States neither the intervention agency nor the Ministry of Agriculture is  represented on them. While there are n° objections in principle to this extension of the  coresponsibility principle, the involvement of these groups should not be a substitute for the  intervention agencies exercising their responsibilities (as described below in paragraphs 3.18 and  3.25) under the regulations. The Court of Auditors considers, therefore, that the role of these  groups should be defined, and ground rules for their operation agreed. Allocation of funds3.14.  The procedures for the allocation of the overall amounts set  out in the Commission's Communications to the Council vary according to the different types of  measure. For the promotion measures within the Community, the Commission and the Coresponsibility  Group have agreed a 'key' allocating the funds to each Member State in accordance with their shares  of Community population, milk consumption and production. For milk quality improvement measures an  adjusted version of the key is used, giving particular emphasis to Italy, Ireland and Greece, where  milk quality problems are greater. For the other measures, the Commission seeks to allocate the  funds on a Community basis in consultation with the Coresponsibility Group, according to specific  selection criteria agreed for each regulation, while at the same time aiming at a 'harmonious  distribution'  (11) between the Member States. Ensuring that each Member State receives what is  perceived to be its 'fair share' is, therefore, an important part of the contracts system. 3.15.  The applicants for contracts under the different regulations cover a wide range of public,  semi-public and private sector organisations and firms involved in the milk sector. It is  inevitable, given the involvement of industry in the decision-making procedures, that, both at  national and Community level, potential beneficiaries are involved in advising which contract  proposals should be accepted or rejected. 3.16.  In these circumstances, the Commission has an important role to play in ensuring firstly,  that the contracts approved, both individually and takentogether, reflect Community priorities  rather than national ones only, and, secondly, that applicants' proposals are reviewed in an  objective manner. Procedure for awarding contracts3.17.  Normally, where public funds are used to finance contracts,  the procedure by which contracts are awarded is also important in ensuring objectivity and the best  use of those funds. Competitive tendering and adjudication, as laid down for Community Institutions  in Articles 50 to 58 of the Financial Regulation, and Article 94 paragraphs 4 and 5 for research  contracts, form an important component of this. 3.18.  For the coresponsibility contracts, the procedure, in outline, is as follows: (a)  regulations are published by the Commission in the Official Journal calling for proposals in  respect of the individual types of measures; (b) proposals are sent by applicants to the intervention agency, which checks that they conform to  the terms of the regulations and prepares a 'reasoned opinion' on the proposal: in this the agency  has been helped to a considerable extent by the national coresponsibility groups; (c) the agency sends the proposals and the reasoned opinions to the Commission, which reviews them  and submits them to the Coresponsibility Group. The Group advises which ones should be accepted or  rejected, and this advice is passed to the Management Committee; (d) the Commission formally approves the list of accepted/rejected proposals, after which contracts  are concluded, in the name of the Commission (see paragraph 3.35). 3.19.  The result of this procedure, therefore, is that the Commission is legally committed to the  contract without having gone through the normal procedures for public tendering or adjudication set  out in the Financial Regulation-and, as pointed, out in paragraph 3.2 (b), without the approval of  the Financial Controller on the individual contract terms and conditions. The procedure described  above is particular to the coresponsibility contracts. 3.20.  For the measures concerned with research, improvement in milk quality and promotion outside  the Community, there are normally more proposals than funds available, so that there is some  element of choice. For promotion within the Community, how-ever, the situation is different. With  these measures there is a high degree of national coordination of the actions to be carried out and  the funds available are known in advance from the allocation 'key'. Accordingly, several Member  States submit only one proposal from a central organisation, including the names of the principal  subcontractors who carry out the publicity and promotion actions on its behalf. In most cases the  proposals submitted are accepted virtually unchanged. This procedure also does not involve  competitive tendering; rather it reflects the situation where thesemeasures are essentially  national promotion programmes subsidised from Community funds. The Commission has little option but  to finance the proposals substantially as presented up to the amount allocated to each Member  State. 3.21.  In addition, in view of the close involvement of the industry, (including potential  beneficiaries) in the decision-making process, these procedures do not seem to provide a sufficient  guarantee of objectivity and of the best use of Community funds. They should therefore be  reviewed. Systems and procedures for managing the coresponsibility contractsSystem of dual management3.22.   As noted above the distribution of responsibility for management and control of the  contractmeasures differs considerably from the normal arrangements for managing EAGGF Guarantee  expenditure, as defined in Regulation (EEC) N° 729/70 and Title VIII of the Financial Regulation.  Under the normal arrangements, the day-to-day execution and management of market intervention  measures is devolved to intervention agencies in the Member State: as far as the coresponsibility  contract measures are concerned, direct management responsibility is divided between the Commission  and the intervention agencies. 3.23.  Where management responsibility is shared or divided difficulties can easily arise, so it is  essential that the respective roles be defined as clearly as possible and fully understood by all  concerned. This is particularly so when the procedures are not the normal ones to which the parties  are used. The system in operation needs to be monitored thoroughly so that weaknesses can be  identified and remedied. 3.24.  The procedures to be followed and the responsibilities of the Commission and the  intervention agencies are set out in the individual regulations. These are supplemented by working  documents prepared by the Commission in consultation with the Coresponsibility Group covering such  matters as the selection criteria to be applied when choosing proposals to finance under the  individual regulations, and the maximum reimbursement rates for research personnel costs, travel  costs, and so on. 3.25.  Paragraph 3.18. above sets out the current procedure up to the point where the Commission  approves the list of accepted and rejected proposals. Thereafter: (a)  the intervention agency concludes and signs contracts on behalf of and in the name of the  Commission using standard forms provided by the Commission: before 1983 the Commission signed the  contracts directly; (b) the intervention agency monitors and manages contract execution, undertaking interim control  visits and paying instalments of the contract amount against securities lodged in a recognized  manner: all contract amendments must be approved by the Commission, which also deals with queries  from the agencies concerning individual contracts; (c) at the end of the contract, following presentation of the final report, the intervention agency  checks the content of the report and that the contract terms and conditions have been met and, if  satisfied, makes the final payment and releases the securities: a certificate on contract  performance is sent by the agency to the Commission, together with a copy of the report. 3.26.  In 1981, following a report on the management of the coresponsibility measures by the  Financial Controller, and again in 1983, changes were made to the division of responsibilities in  the light of experience. The purpose in doing this was to improve the efficiency of the procedures  by devolving more of the detailed management to staff in the individual intervention agencies in  the Member States. 3.27.  Nevertheless, the Court of Auditors found that the dual management system still has several  weaknesses which are described in the following paragraphs. Different applications of the Regulations3.28.  Since 1981 the regulations have provided that the  agencies are 'responsible for ensuring the observance of the agreed conditions by means of  on-the-spot checks'  (12). This, taken together with the provisions for possible deferral of  instalment payments  (13) strongly implies that on-the-spot checks should be carried out at interim  stages of the contract. The Court found, however, that in one Member State n° on-the-spot interim  checks whatsoever were carried out, whereas in another there is at least one interim visit per  contract, and indeed in a third, interim visits occur as and when considered necessary. 3.29.  Although the regulations provide for the intervention agencies to verify all the details in  the final report of the contractor, some agencies wrongly considered that they were responsible for  verifying the financial part, and that the terms and conditions had been respected, leaving the  Commission to examine the results of the measures. Indeed, some of them waited for the receipt of a  letter from the Commission saying that it had n° comments on the technical part of the report  before making final payments and releasing securities, although there was n° basis in the  regulations for this. Unfortunately, as the Commission services have not had sufficient resources  to be able to review thoroughly all the reports of the results of the measures, there are  contractors' reports which have been reviewed thoroughly neither by the intervention agency nor by  the Commission. 3.30.  In January 1985 the Commission sent a communication to the intervention agencies reminding  them that they must examine both the financial and technical parts of the reports, and that they  should bringmeasures to a close of their own accord. While welcoming this, the Court considers that  such a communication should have been sent much earlier. Detailed guidelines3.31.  The procedural descriptions in the regulations, supplemented by the  various working documents issued by the Commission do not provide a sufficiently detailed and  comprehensive set of operating guidelines for the intervention agencies. These guidelines should  cover, inter alia: (a)  definitions of what is required in proposals under 'statements of expected results', 'itemised  breakdown of costs' and 'the corresponding financial plan'  (14): so far contractors have received  n° guidance and many of the proposals examined provided inadequate information under these  headings; (b) the depth and scope of the evaluation of proposals carried out by intervention agencies, so  that it is not necessary, as at present, for the Commission to reopen the evaluation when the  proposals are submitted to it; (c) the procedures that follow from e.g. Article 7.1.(c) of Regulation (EEC) N° 326/81 of 6  February 1981 for checking whether requests for instalments are justified by the state of  advancement of the work; (d) the depth and scope of interim control visits and final verifications, perhaps with standard  verification programmes: such audit tools are feasible and helpful for a consistent approach to  these visits; (e)  the basic documentation that should be maintained on the file as evidence that the required  controls have been carried out at each stage of the contract, from initial evaluation of the  proposal to final verification: the audit found that there is a lack of evidence particularly  concerning evaluation of proposals, in both Commission and intervention agency files. 3.32.  In addition, any selection criteria approved by the Coresponsibility Group and the  Commission which include such matters as allowable costs, should be formally communicated to  contractors so that they can prepare proposals and execute contracts in full knowledge of the terms  and conditions. 3.33.  The Commission services with responsibility for the management of the measures should ensure  that the intervention agencies are carrying out the duties and performing adequately the management  and control procedures expected of them by the Commission and required by the regulations. It is  not sufficient for the Commission to rely on the clearance of accounts procedure or examinations by  the Financial Controller for this. Commission involvement too detailed3.34.  The Court's auditors were surprised to see the level of  detail into which the Commission's officials still go in respect of individual proposals and  contracts, despite the efforts to devolve more and more to the intervention agencies. For example,  although in 1983 the intervention agencies were empowered to sign the contracts, they do so in the  name and on behalf of the Commission, so that all amendments to the individual contracts have to be  formally approved by the Commission. 3.35.  Since 1983 the regulations state concerning contract signature: 'The competent  authorities (i.e. the intervention agencies) shall conclude contracts for the measures selected  with the parties concerned'  (15). This implies - and it is the view of at least one intervention  agency - that the agency rather than the Commission should be the contracting party. By having the  agency sign in the name of and on behalf of the Commission the way is opened to potential  confusion, not only in determining exactly where management responsibility lies in the case of a  dispute between the Commission and the intervention agency, but also for the contractor, who is  faced in effect with two contracting parties. 3.36.  This involvement with detail reduces the time available for dealing with overall management  questions, and the Court considers that the Commission should be able to ensure that these contract  measures reflect Community policy interests without involving itself in detailed day-to-day  management questions on individual contracts. Duplication of effort3.37.  Duplication of effort and delays in processing documents are  inevitable in the system described above. It was in recognition of this that the 1983 changes were  made, but in the event, the Commission has found, for example, that it still needs to evaluate  individual proposals in much the same way as before, including seeking additional information from  applicants, which, under the new rules, should have been obtained by the intervention agencies. Conclusions on the dual management system3.38.  Some of the weaknesses and inefficiencies  described above could be overcome by clarifying the regulations and developing detailed guidelines  and some standardised procedures. Also, good management procedures introduced in one Member State  could be passed on to others if the officials of the agencies concerned were to meet periodically,  together with those responsible in the Commission, in order to share experiences and resolve common  difficulties. 3.39.  More fundamentally, however, the Court considers that the Commission should not be involved  in the direct management of this expenditure. The regulatory framework is ill adapted to it, and  when responsibility is shared as it is for these contracts, difficulties are bound to be  encountered. The Commission should, therefore, consider alternative arrangements which would pass  the entire responsibility for the management of the contracts to the intervention agencies within  the framework of the priorities and criteria decided upon on a Community basis. The Commission's  role should be one of overall monitoring and supervision of the intervention agencies' execution of  their responsibilities. Utilisation of funds and payment profiles3.40.  An analysis of the payments made by intervention  agencies to contractors under the individual regulations as set out in Tables 3 and 4 in Annex I,  shows that: (a)  it is not unusual for payments to be spread over three or even four years for the one-year  contracts for promotion in the Community, and five years or more for the other contract measures,  which are generally of two years duration: at the end of 1984 there were some contracts still open  under regulations adopted in 1979; (b) the percentage utilisation of the Community contributions varies according to the type of  measure: very high rates of utilisation are obtained with the promotion contracts within the  Community (up to 100  %), followed closely by improvement in milk quality measures (90-100  %):  there is a wider spread for research within the Community (80-100  %) and some low utilisation  rates for the measures outside the Community (down to 50  % and lower); (c) there are some variations in (i) payment profiles and (ii) utilisation rate patterns between  Member States. 3.41.  As far as the Court is aware, the Commission has not analysed systematically these payments  data in order to identify the reasons for the above variations, which in part relate directly to  weaknesses and inefficiencies in management procedures. Such analysis should form an integral part  of the general management activity of the Commission services in this area. Evaluation and reporting proceduresReporting3.42.  The only reports which the Commission prepares  on the implementation of the measures are: (a)  the Communications to the Council on the programme for the forthcoming milk year; (b) final reports following completion of the actions under each regulation. The former of these are very general documents, presenting overall progress as a basis for the  proposed programme. 3.43.  The final reports on each regulation are prepared by the Commission, primarily for the  Coresponsibility Group and Management Committee. They are not submitted to the Council. To date,  reports have been prepared on eleven regulations, up to Regulation N° 1079/81. The first reports  were brief summaries, but the later ones are more detailed and provide a useful description of what  has happened. They do not, however, contain a comprehensive summary of the financial implementation  of the regulations, comparing the amounts allocated and approved by Member State with the amounts  actually spent. The Court considers that an important part of any report on the outcome and  management of measures financed by Community funds should contain comparisons of actual expenditure  with amounts approved for the measures. Procedure for evaluating the contract measures3.44.  Paragraphs 3.22-3.41 have been concerned with  evaluating the efficiency of the management and control procedures. The Commission's own evaluation  of them has been restricted to an examination by the Financial Controller which was reported at the  end of 1980 to the Commission, and an internal review in 1982 which included consultation with the  Coresponsibility Group and the Management Committee. In each case amendments to the regulations  resulted. Individual points concerning specific Member States made by the Financial Controller are  followed up during the clearance of accounts procedure. 3.45.  Before 1985 n° systematic evaluations of the overall effectiveness of the measures in  promoting the expansion of markets for milk and milk products were undertaken, nor were there  specific evaluations of the regulations grouped under one of the four headings, promotion within  the Community; promotion outside the Community; research; or improvement in milk quality. The final  reports referred to in paragraph 3.42 summarize the results reported by contractors, but this does  not constitute an evaluation. In many cases, contractor's reports provide unsatisfactory statements  of results. In 1984, in an attempt to improve the quality of the results reported in respect of  promotion within the Community, the Commission provided for up to 5  % of the contract sum to be  spent on market surveys to ascertain the effectiveness of the measures undertaken  (16). 3.46.  At the end of 1984, however, in the Ninth Communication to the Council concerning the  programme for the utilisation of coresponsibility levy funds for the 1985/86 milk year  (17), the  Commission proposed to allocate 2,5 Mio ECU for a major evaluation of the effectiveness of the  different measures for increasing the  consumption of dairy products in the Community, especially  butter. Reports resulting from this work were finalised during the second half of 1985, after the  completion of the Court's audit. Evaluations of measures such as these should form an integral part  of the management process and, indeed, they might be most effectively carried out by a special  evaluation unit within the Commission. 3.47.  As the results of the evaluation undertaken by the Commission in 1985 were not available  during the audit, the Court itself undertook a study based on Eurostat data and on the audit of  individual contracts. The results are set out below. Effectiveness of the measures3.48.  According to the recitals to Regulation N° 1079/77, the  overall objective of the specific measures financed from coresponsibility levy proceeds is to  encourage the expansion of markets. The Commission regulations setting out the individual measures  do not provide more detailed objectives. Some of the measures are designed to have a more direct  impact on the expansion of markets than others: thus publicity and promotion may be expected to  influence consumption of milk  and milk products more directly than the research measures into new  products and those for the improvement of milk quality. 3.49.  There are many factors apart from themeasures under consideration which affect the  consumption of milk and milk products. In particular, the following have a major influence: (a)  price, in particular the movement of prices in relation to competing products (e.g. butter and  margarine); (b) health considerations; (c) changing tastes; consumer attitudes; (d) the promotion of competing products: again, e.g. butter and margarine. Isolating the impact of the different factors is difficult, and requires the use of sophisticated  statistical and econometric techniques. Some efforts in this direction have been made by some  contractors in relation to individual promotion actions, and the inclusion in Regulation N° 2252/84  of provision for market surveys to measure the effectiveness of individual measures will strengthen  this. 3.50.  In the following paragraphs some general observations are set out. Trends in consumption of milk and milk products 1972-833.51.  As a first, general step in  considering the effectiveness of the measures, trends may be examined in the consumption of milk  and milk products within the Community. Diagrams 1-5 in Annex II present data for the period  1972-83 for key milk and milk product headings. They show trends both before and after the  introduction of the measures in 1978, in order to see whether there have been any significant  changes since then. It should be noted that any such observed changes do not necessarily mean that  there is a causal link between them and the measures. 3.52.  The main points that emerge from these data are: (a)  there has been n° overall increase in per capita consumption of milk and milk products since  the coresponsibility measures were introduced in 1978; (b) for products such as cream and cheese the upward trend observed since 1978 continues the rise  that had occurred since 1972; (c) despite intensive butter promotion campaigns, per capita consumption has continued to decline  since 1978 in all Member States except Ireland and the Netherlands; (d) the trends are not the same in all Member States: in some of them, however, for some milk  products, there is a slight indication that trends may have marginally improved since 1978, for  example fresh milk products, cheese and cream in the Federal Republic of Germany, France, the  Netherlands and Belgium and Luxembourg. Promotion within the Community3.53.  Many of the final reports of promotion contracts within the  Community present only inadequate statements of results achieved, which do not assist an overall  evaluation. It is evident from the more thorough ones, however, that some of the other factors  affecting consumption have had an overwhelming effect during the period 1978-83. Thus, for example,  increases in milk and butter prices in the UK, and changing social attitudes are given as the main  reasons for the decline in fresh milk and butter sales there. 3.54.  Nevertheless, the industry has argued strongly that generic promotion and product  research are essential as counters to the market strength of competitors, especially for butter  against margarine. It is argued that without these measures, the observed trends would be worse.  There is evidence from a few contractors' reports of short-term positive impacts of individual  promotion actions, but they need to be sustained for lasting effect. 3.55.  There is n° evidence as to whether the level of funding for the various measures is optimal.  The Court was informed by the national organisations in three Member States that more important  than the level of funding was its timing and availability. All pointed out that serious disruption  had been caused to their promotion programmes by the Commission in 1984 when, for budgetary  reasons, the Commission held up for several months its decision to approve the proposal lists for  promotion activites in 1984/85 already reviewed by the Coresponsibility Group and the Management  Committee. The prospective contractors were not all able to fund their planned measures from  alternative interim sources, leaving important gaps in the promotion activities. Research3.56.  A wide range of research measures has been financed from coresponsibility funds.  According to the Commission, experience has shown that, in general, research undertaken by research  institutes was of a higher standard than that undertaken by dairy companies, and preference is now  given to the former when giving new contracts. 3.57.  The Commission has encouraged publication of useful work, and in each Member State a central  office has been designated where copies of reports are available for consultation by interested  parties. The accessibility of some of the research results is, however, limited by the fact that  the reports are only available in the original language. 3.58.  No information is available on the effectiveness of the research in expanding the markets  for milk products. The Court considers that it is esssential that the Commission carries out an  evaluation of the extent to which the research undertaken since 1978 has led to new or improved  products and packaging which have been successfully put on the market. Improvement of milk quality3.59.  The main measures undertaken under the regulations concerned  with the improvement of milk quality have been the purchase of various types of laboratory and  testing station equipment, and producer counselling. In so far as such equipment has been  successfully installed and is operating these measures have been positive. Many final reports  present, for example, results of tests showing improvements in the quality of milk supplies. It  should be noted, however, that the Court was informed by some of the organisations involved that  some at least of the investments financed from coresponsibility funds would have been carried out  anyway, albeit over a longer period. Promotion, technical assistance outside the Community3.60.  Evaluating the effectiveness of these  measures is particularly difficult. The measures tend to consist of a large number of fairly small  contracts with very specific activities, such as promotion of milk products in supermarkets or  bringing dairy industry representatives from non-EEC countries to trade fairs in the Community.  Statements of expected results in the proposals are often vague, and actual results in terms of  expanding the markets for Community products not quantified. It is not feasible to isolate the  impact of these measures on overall exports of Community milk products.Nonetheless, more could be  done by contractors to identify the specific results obtained, e.g. the number of new agents  obtained as a result of participation at a trade fair. 3.61.  The activities outside the Community are more difficult to control adequately, and are  riskier: for example, contractors may have to work with local agents, whose financial stability  cannot always be assured. Further, paragraph 3.40 shows that the percentage utilisation of funds on  these measures is lower than in the other areas. 3.62.  In the light of this, and the difficulties of evaluating the effectiveness of the measures,  the Commission should examine whether there is sufficient justification for continuing them in  their current form. 4.   SUMMARY OF MAIN CONCLUSIONS Regularity and legality4.1.  Budgetary  presentation and management of expenditure on coresponsibility contracts are not in accordance with  the Financial Regulation (paragraphs 3.1-3.6). 4.2.  The role of the national coresponsibility groups should be clarified (paragraphs 3.7-3.13). 4.3.  The procedures for allocating funds, and the close involvement of representatives of the milk  industry in the decision making procedures, both at national and Community level, mean that the  Commission has an important role to play in ensuring that: (a)  the contracts approved, both individually and taken together, reflect Community priorities; (b) applicants' proposals are reviewed in an objective manner (paragraphs 3.14 - 3.16). 4.4.  The procedures for awarding the coresponsibility contracts do not follow these laid down in  the Financial Regulation, and do not seem to provide a sufficient guarantee of objectivity and the  best use of Community funds: they should, therefore, be reviewed (paragraphs 3.17-3.21). System of management and control4.5.  The systems and procedures that result from the sharing of  responsibility for the direct management and control of the contract measures contain a number of  weaknesses and inefficiencies, notably: (a)  there are different interpretations of relative responsibilities as defined in the  regulations, and of the implications of certain provisions for management action (paragraph  3.28-3.30); (b) in some areas there are not enough guidelines to assist the intervention agencies in the  performance of their responsibilities (paragraphs 3.31-3.33); (c) the Commission has become too involved in the detail of individual proposals and contracts,  limiting the attention that it can give to overall management of the expenditure programme  (paragraphs 3.34- 3.36); (d) the division of some responsibilities and sharing of others can result in duplication of effort  and delays in processing documents (paragraph 3.37). 4.6.  The Commission has not analysed systematically the payments data from Member States' annual  declarations of accounts to identify the reasons for extended payment profiles, different  utilisation rates of the measures, and the variations between Member States (paragraphs  3.40-3.41). 4.7.  Financial reporting needs to be strengthened (paragraphs 3.42-3.43). Evaluation of effectiveness4.8.  Evaluation of the effectiveness of the contract measures and the  efficiency of the procedures used to manage them should form a systematic part of the management of  measures such as these: this would be more feasible if the Commission possessed an evaluation unit  to undertake such work (paragraphs 3.44-3.47). 4.9.  It seems from a general analysis of consumption trends within the Community that the  effectiveness of the measures in achieving the objectives in Regulation N° 1079/77 has been  limited. In the light of this, and of the more specific results from the evaluations carried out in  1985, the Commission should review ways in which to increase the effectiveness of these measures  and determine whether they should be continued in their present form (paragraphs 3.48-3.61). This report was adopted by the Court at its meeting of 20 February 1986. For the Court of AuditorsMarcel MARTPresidentTHE  COMMISSION'S REPLIES I.  General considerations Introduction1.  The Commission considers that the Court of Auditors'  report has, in general terms, provided a balanced analysis of the special measures for the  expansion of the dairy products market, financed from the proceeds of the coresponsibility levy. Purpose of the measure2.  The legal basis for the coresponsibility levy was provided by Council  Regulation (EEC) N° 1079/77 of 17 May 1977, which introduced the levy and linked it with measures  for expanding the markets in milk and milk products. Since a major purpose of the coresponsibility  levy was that farmers should assume some degree of financial responsibility for structural  surpluses, the levy and related measures are considered under the terms of this regulation as  forming part of the measures to stabilize agricultural markets and thus to supplement the existing  intervention system (last preamble and Article 5 (1)). For these reasons they form part of the  expenditure of the EAGGF Guarantee Section. These market stabilization measures concern: - expansion of markets within the Community (Article 4 (1)); - expansion of markets outside the Community (Article 4 (1)); - the search for new outlets and improved products (Article 4 (2)). It is pointed out that less than 10% of the funds collected under the coresponsibility levy have  been used for these special measures, and from an early stage the Commission laid the priority on  finding normal disposal measures for butter, skimmed milk powder and school milk. In its 10th  communication to the Council the Commission has reduced further the allocation for these special  measures. Necessary division of responsibilities(Points 3.14 - 3.16, 3.22 - 3.27, 3.31, 3.34 - 3.37 and  conclusions 4.3 - 4.5)3.  In the beginning it was necessary for the Commission to take on  widespread authority over the day-to-day management of contracts, as the national authorities had  n° experience at all in this field. The Commission believes that its own services should continue to undertake the examination of  applications, since it is only at Community level that a comparison of proposals from different  Member States and a balanced decision can be made. At the same time, the Commission has encouraged the national authorities to play a greater role in  the management of contracts, and as the Court notes in point 3.26 their responsibilities were  increased in 1981 and 1983, after they had sufficient time to acquire experience. Their  responsibility to examine both the financial and technical parts of reports and to conclude  contracts were confirmed by the communication mentioned under point 3.30. The Commission has given operating guidelines to Member States, improving them as appropriate to  take into account the operational experience of the competent authorities. The table below gives  details of both the number of information notes and guidelines issued and the number of proposals  and contracts managed by the Commission directly (1982 and earlier), and by the competent  authorities (1983 onwards). >TABLE>Commission involvement in the detail of the measures, necessary in the beginning,  has been reduced considerably. It would not be possible to go as far as the Court proposes in point  3.36 because the Commission needs to ensure objectivity of the decisions on contracts, and to avoid  recipients of the aid duplicating each other's work. The Commission will examine favourably the Court's suggestion that consideration be given to  increasing the national authorities' responsibilities to include signature of contracts, after they  have been examined and selected at Commission level. As they have now had time to acquire  experience, the authorities should be in a position to handle this themselves. In the event of  transferring these responsibilities the Commission would consider further strengthening the  guidelines issued to the authorities as suggested, to make sure that the regulations are applied in  all Member States in the same way.II. Considerations on the budgetary treatment applicable (Points 2.9., 3.1,  3.3., 3.4. - 3.5., 3.6.)The Commission would like to make the following comments in response to  the observations of the Court of Auditors: 1.    The legislationArticle 5 (1) and (2) of Council Regulation (EEC) No 1079/77 of 17 May 1977   (18) provides that: '1.  With regard to the financing of the common agricultural policy, the coresponsibility levy and  the measures referred to in Article 4 shall be considered as forming part of the measures to  stabilize agricultural markets. 2.  By way of derogation from Article 3 (1) of Regulation (EEC) N° 729/70, the financing of the  measures listed in Article 4 may be limited to a portion of the expenditure concerned.'While  appreciating the special nature of the operations, both as regards the levy itself and the  expenditure(= measures to expand the markets for milk products), the Council decided that the  operations, which "formed part of the measures to stabilize agricultural markets", were covered by  the EAGGF Guarantee Section, the management of which is governed by the framework regulation  (Regulation (EEC) N° 729/70) and by Articles 95 to 101 of the Financial Regulation. This is why the levy is entered in the budget as a negative appropriation under the EAGGF Guarantee  Section, and why the appropriations for promotional measures, which are a corollary of the levy,  are also entered as negative amounts. These operations therefore form an integral part of the EAGGF  Guarantee Section, despite their special nature. The validity, in economic and political terms, of this approach rests on the considerations set out  in Section I.1. The Commission readily admits that the operations are different from the other traditional forms of  intervention (refunds, premiums, etc.) governed by the various market organizations, which make up  most of the EAGGF Guarantee expenditure. However, there is n° reason to strive for total uniformity  as an end in itself. The complexity and particular demands of agriculture as a whole make this  impossible. 2.    Use of contracts(Point 3.3)One of the principal ways of implementing the measures provided  for in Article 4 of Regulation (EEC) N° 1079/77 is by the conclusion of contracts, which often  cover several years. In this connection, the Commission would point out that contracting-essential  for technical and legal reasons in the case in point-is merely the procedure adopted for the  accomplishment of this particular type of intervention. Admittedly, this procedure for implementing  budgetary operations differs from conventional procedures for EAGGF Guarantee operations,  especially in two respects: - the fact that contracts are used, - the contracts cover several years. However, these particular features do not-in the Commission's view-necessitate the separate  presentation and treatment of such operations, entailing: - either presentation outside the EAGGF Guarantee Section, or- if they are kept within the EAGGF  Guarantee Section, application of the normal rules in the general provisions of the Financial  Regulation (possible differentiation of appropriations, normal provisions on commitments and  payments, etc.). The Commission does consider, however, that the 'transparency' of the operations should be  improved, along the lines suggested below. 3.    Improvement of information and transparency of budgetary presentation and implementationThe  Commission agrees with the substance of the Court's remark that present accounting data-the  acquisition of which is governed by Articles 96 and 97 of the Financial Regulation-do not provide a  full picture of the true situation and the operations involved. Consequently, the Commission agrees to take the necessary steps, in cooperation with the bodies  concerned in the Member States, to ensure that, in the course of each year, adequate information  will in future be available at the following stages: (a)  when the various contracts are concluded, the financial implications for several years must be  determined globally, on the basis of estimated timetables; (b) at the close of each financial year, a global balance sheet will be drawn up showing the  current status and the outstanding commitments. The Commission considers that these measures will ensure the necessary information and  'transparency' which the Court of Auditors rightly calls for, without reorganizing the whole  system, which would be virtually impossible. The Commission also intends to improve the  presentation of these appropriations in the preliminary drafts of the budget. III. Effectiveness of the measures Procedure for evaluating the contract  measures(Points 3.42. to 3.62. and conclusions 4.8.-4.9.)The Commission has undertaken a  systematic evaluation of the effectiveness of all measures undertaken from September 1977 to the  present. As far as promotion within the Community is concerned a special task force was set up and  its final report available (215 pages). As far as all other measures are concerned the responsible  market division has undertaken the evaluation itself. A report (167 pages) has been prepared, and  distributed to all interested services. Some of the major findings of these reports are outlined as  follows: (a)  Publicity and promotion measuresIn the econometric work presented in the European Dairy Task  Force Study 15 out of 19 separate models show advertising to have a significant and positive effect  on demand for major dairy products in six Member States. The main emphasis of coresponsibility funded advertising has been on liquid milk and cheese. In  Italy unlike most other countries promotion only commenced when coresponsibility funds became  available. Commission figures show that between 1976 and 1982 consumption of liquid milk and fresh  products increased by 18  % compared to 1,84  % in the Community overall (nine Member States). In Italy the total cost of the measures for liquid milk between 1976 and 1982 divided by the  increase in sales in the year 1982 over those in 1976 is only 0,6 ECU/100 kg of additional sales.  Even for the Community the cost of advertising divided by additional sales is modest compared with  the cost of disposal measures. Promotion agencies benefiting from the funds argue that advertising has in many cases prevented  significant declines in sales, thus having a much higher actual than apparent effectiveness. A similar pattern emerged for cheese. In Italy between 1976 and 1982 consumption increased by 23,4   %. Advertising costs divided by extra sales were 5,0 ECU/100 kg of additional sales. The Community  showed a similar increase in sales of 17,6  % giving a similar level of effectiveness for the  measures. (b)  Market and technical research within and outside the CommunitySuch work has included the  following: (a)  research into new or improved products; (b) examination of possibilities of increased use of liquid skimmed milk for animal food; (c) research aimed at improving marketing of dairy products in and outside the Community; (d) scientific examination of the nutritional aspects of the consumption of milk and its  constituents; (e) investigation of the importance and use of milk proteins (including the Protein Congress in  Luxembourg); (f) improvement of techniques for treatment and processing of milk with special reference to cheese  making. All these measures are intended to expand markets for milk and milk products, which is often  difficult to prove. Of the 85 contracts for market research in 68 non-member countries the central  organization in the Federal Republic of Germany had 67. This organization concluded that these  investigations proved highly effective in discovering markets and have improved sales to countries  investigated. The 68 countries investigated have a total population of approximately 3 000  million. The effect of the research measures can only be seen as an integrated part of the overall effort to  promote sales. Given the wide range of milk products now available in the Community the effect of  such measures can only be guessed at, it cannot be quantified. (c)  Publicity and promotion outside the Community including technical assistanceOf the total of  55,9 million ECU granted in promotional aid about 28 million ECU have been for cheese, 12 million  of it for the US market. Between 1977 and 1984 Community exports of cheese to the US went up from  40 000 tonnes to 75 000 tonnes while exports from major competitors Finland and Switzerland  maintained the same level and those for Austria fell. The rise in value of the US dollar helped but  the cutback of refunds on exports and the increase in refunds to other destinations largely offset  this. In the same period Community cheese exports were up 150 000 tonnes in promoted markets and  overall by 270 860 tonnes. This included a 100 000 tonne increase in non-promoted feta to Iran.  Nevertheless the US market remains highly important because of the significantly higher prices than  in other markets. Danish feta exported to Iran in 1984 received 86 ECU/100 kg (fob) plus an export  refund of 93 ECU amounting to 179 ECU/100 kg while Danish feta sent to the US received 273 ECU/100  kg without an export refund. Enthusiasm by Americans for European cheeses means that import quotas  are quickly exhausted though exports of soft cheese (not subject to quota) increase and the price  in dollars received continues to rise. In addition exports of other promoted high value added  products such as baby foods, long-life drinks, caseinates, desserts and diet foods are known to  have risen even though detailed statistics are not available. (d)  Improvement of milk qualityThe improvement of milk quality is most concerned with the  bacteriological content and public health. The types of measures which qualify for aid are  specified in the Regulations and include examination of raw milk, counselling of milk producers  (including testing of milking machines), training of skilled personnel and provision of  refrigerated tanks. In exceptional cases financing was available in 1983/84 to help cover the costs  of the tests themselves. In all Member States there is now some system whereby payment is made for  milk according to its quality. More than half of all contracts and funds were made available to Italy, Ireland and Greece,  countries with special milk quality problems. The results of the measures have been very positive  in raising the quality of raw milk in all Member States. Payments for milk are now based on  bacteriological quality throughout the Community. Having achieved these targets it was proposed to  discontinue these measures after the 10th Communication to the Council. IV. Establishment of contracts Points 3.7.-3.13. and conclusions 4.2. - 'Role  of the national coresponsibility groups'The Commission consults only the Coresponsibility Group  established at Community level. It has not been involved in the establishment of the national  groups, and indeed has never been officially informed of their existence. The suggestion that rules  should be defined for the operation of the national groups cannot be accepted, since the Commission  has never invited the national authorities to consult these private bodies, and does not recognize  their existence. The Commission is currently preparing guidelines which will, inter alia, remind  the national authorities that they should exercise their functions independently. Points 3.14.-3.21. and conclusions 4.4. - 'Procedure for awarding contracts'In relation to the  Court's comment in 3.17. on ensuring the best use of funds, it should be noted that the Council  itself fixed the use of funds in Article 4.1. of Regulation (EEC) N° 1079/77. The Commission considers that the present procedure of inviting proposals by means of specific  regulations normally constitutes a kind of tendering system suited to specific needs. As shown in  the table in paragraph 1.3, 2214 projects were chosen out of a total of 3650 proposals submitted.  The comments relating to the non-comparability of these contracts with traditional contracts, and  the approval of the Financial Controller, have been answered under Section II.2. above. As concerns  objectivity, whilst it is true that potential beneficiaries may be involved in the Coresponsibility  Group, it should be emphasized that this Group has n° power to accept or reject proposals. The  Group only advises the Commission. In order to ensure objectivity of decisions on projects, which  the Court desires, it is vital that the power to select and review all projects remains with the  Commission. After consultation with the Group, it is the Commission which draws up the list of  projects accepted, and presents it to the Management Committee in accordance with Article 31 of  Regulation (EEC) N° 804/68. All individual proposals selected thus reflect Community priorities. The Commission is constantly examining its procedures with a view to improving them; in this  specific case, modifications were introduced in 1981 and 1983, as the Court itself notes in points  3.26., 3.28., and 3.34. V. Detailed Observations Points 3.28.-3.30. and conclusions 4.5.(a) -  'Different applications of the Regulations'Detailed discussions have been held with Member States  since the introduction of the schemes, in working groups, Management Committees, and in bilateral  consultations. The Commission is aware of the problems noted by the Court and will consider what  action to take in the clearance of accounts procedure. Since 1983, the competent authorities have had full responsibility for verifying the reports and  have to certify that reports conform with the requirements of the Regulations. Furthermore, a  substantial number of reports is checked by the Commission's services particularly in cases where  the competent authorities have doubts. Before 1983 all reports were checked by Commission  services. The Commission has reminded the competent authorities of their obligations on several occasions,  January 1985 being the latest such occasion. Point 3.31.(e)As concerns the evaluation of proposals, the procedure was changed in 1984, and  detailed evaluation of any proposal is now available. Point 3.32. Selection criteria established by Commission services have been given to the competent authorities,  which have made them available to applicants, who have thus been able to prepare proposals and  execute contracts in full knowledge of the terms and conditions. After the inevitable problems  inherent in setting up any new system, these criteria have been improved each year, in the light of  experience. In the future, the Commission will take into account the Court of Auditors'  observations. Point 3.33. The Commission is aware of this problem and is considering ways in which the situation could be  improved. Point 3.37. As far as the question of the Commission needing to seek additional information in order to  evaluate proposals is concerned, the competent authorities have now been requested to send only  completed proposals to the Commission. Points 3.38.-3.39. - 'Conclusions on the dual management system'As noted above under point I.3.,  the Commission is prepared to consider positively the suggestion the Court makes in 3.38. As noted  above, it is also prepared to examine favourably the suggestion that more responsibility for the  contracts, including their signature, should pass to the intervention agencies. Since the  comparison of different Member States' proposals and overall coordination of Community objectives  can only be achieved at Community level, it is essential that overall control of the contracts  remains with the Commission. Points 3.40.-3.41. and conclusions 4.6. - 'Utilization of funds and payment profiles'In addition  to the improvements in transparency mentioned under point II.3. above, analysis of the data  available on contract execution will be done within the day-to-day management tasks which the  competent authorities must undertake in conformity with the regulations. Points 3.42.-3.43. and conclusions 4.7. - 'Reporting on overall execution of regulations'The  regulations do not impose a legal obligation on the Commission to report on the execution of the  measures. Nevertheless, the Commission has felt it appropriate in accordance with the principles of  good management, to inform all interested parties of the main results of these actions. For this  purpose, it will in the future give more information on the financial and efficiency aspects of the  results of the measures, especially in the field of promotion. Point 3.55. The sum proposed in the Eighth Communication from the Commission to the Council for promotional  measures in 1984/85 was 37,5 million ECU. But point 7 of the communication provided that: 'The implementation of the proposals contained in this Communication will depend on both the  evolution of the market and the budget situation and outlook'. In fact, the budget situation in 1984 proved to be very tight at a very early stage in the year. On  6 July the Commission was obliged to propose a Supplementary and Amending budget of 1 983 million  ECU. Certain items of expenditure which were not strictly essential had to be held over. The extent to  which these measures caused problems in the sector in question is far from proven. (1) OJ L 131 of 26. 5. 1977.  (2) Article 4(2) of Regulation N° 1079/77, OJ L 131 of 26. 5. 1977.  (3) See, for example: 'Improvement of the Common Agricultural Policy' Commission Memorandum to the  Council, doc. COM(73) 1850 of 31. 10. 1973 ('The Lardinois Memorandum'), and 'Stocktaking of the  Common Agricultural Policy' Commission Communication to the Council and to the Parliament, doc.  COM(75) 100 of 26. 2. 1975.  (4) For school milk see the Court of Auditors' Annual Report concerning the Financial Year 1979, OJ  C 342 of 31. 12. 1980 paragraphs 4.70 to 4.79. For the disposal of skimmed-milk powder see the Court of Auditors' Annual Report concerning the  Financial Year 1979, OJ C 342 of 31. 12. 1980 paragraphs 4.87 to 4.96. For the disposal of butter see the Court of Auditors' Special Report on the Sales of reduced-price  butter within the Community, OJ C 143 of 7. 6. 1982.  (5) Since 1983 the regulations have also provided for the purchase of refrigerators and  refrigerated dispensers under certain conditions. The Community contribution towards the cost of  these is 50  %.  (6) This figure is calculated by adding together the ECU amounts available under regulations for  which the Commission had approved lists of contract proposals before 31. 12. 1984.  (7) Annual Report concerning the Financial Year 1979, paragraph 4.42, OJ C 342 of 31. 12. 1980.  (8) Financial Regulation of 21. 12. 1977, Articles 95-101, OJ L 356 of 31. 12. 1977.  (9) Since 1983 the contracts have been signed by the intervention agency on behalf of and in the  name of the Commission: see paragraph 3.35 below for further details.  (10) See the Commission's reply to the Court's comments in the Annual Report concerning the  financial year 1979, paragraph 4.42, OJ C 342 of 31. 12. 1980.  (11) See, for example, paragraph 5(j) of Document VI/4562/78 of 31. 8. 1978 concerning market  research projects, Commission Regulation (EEC) N° 723/78.  (12) See, for example, Article 6(3) of Commission Regulation (EEC) N° 326/81 of 6. 2. 1981, OJ L 35  of 7. 2. 1981.  (13) See, for example, Article 7 of Commission Regulation (EEC) N° 326/81 of 6. 2. 1981, OJ L 35 of  7. 2. 1981.  (14) See, for example, Article 4 of Commission Regulation (EEC) N° 270/82 of 4. 2. 1982, OJ L 28 of  5. 2. 1982.  (15) See, for example, Article 5(3) of Commission Regulation (EEC) N° 595/83 of 14. 3. 1983, OJ L  71 of 17. 3. 1983.  (16) Article 1, Commission Regulation (EEC) N° 2252/84 of 31. 7. 1984, OJ L 206 of 2. 8. 1984.  (17) COM(84)675 final of 4. 12. 1984 (18) OJ L 131 of 26. 5. 1977. <(BLK0)LA ORG="CCF">EN</(BLK0)LA>ANNEX I >TABLE>>TABLE>>TABLE  POSITION>>TABLE> <(BLK0)LA ORG="CCF">EN</(BLK0)LA>ANNEX II Diagram 1>START OF GRAPHIC>>END OF GRAPHIC> Diagram 2>START OF GRAPHIC>>END OF GRAPHIC>Diagram 3>START OF GRAPHIC>>END OF GRAPHIC> Diagram 4>START OF GRAPHIC>>END OF GRAPHIC>Diagram 5>START OF GRAPHIC>>END OF GRAPHIC>  <(BLK0)LA ORG="CCF">EN</(BLK0)LA>ANNEX III >TABLE>>TABLE>>TABLE  POSITION>>TABLE>