Annual report concerning the financial year 1991 together with the institutions' replies
Date: 1992-11-30
Institutions: European Court of Auditors
Subjects: European Court of Auditors, European Development Fund, balance-sheet analysis, financial management, fund (EU), report













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31992Y1215(01)

Annual report concerning the financial year 1991 together with the institutions' replies  


Official Journal C 330 , 15/12/1992 P. 0001 - 0496 





ANNUAL REPORT  concerning the financial year 1991(92/C 330/01) The report, together with the  institutions' replies to the Court's observations, was transmitted to the authorities responsible  for giving discharge and to the other institutions by 30 November 1992 Aldo ANGIOI (President)  André J. MIDDELHOEK John CAREY Josep SUBIRATS Carlos M. MORENO Richie RYAN Ole Joergen WARBERG  Konstantinos ANDROUTSOPOULOS Daniel STRASSER Bernhard FRIEDMANN Maurice THOSS >TABLE> >TABLE>INTRODUCTION  (*)  >TABLE>THE MANAGEMENT AND AUDITING OF THE  COMMUNITY'S FINANCES0.1. In the case of the execution of the general budget as well as in the case  of the execution of the European Development Funds, the Court's observations on its audit of the  Community's finances are generally of two main types: (a)firstly, there are errors and mis-statements which arise largely as a result of inadequate  drafting of rules and regulations; (b)secondly, even when the legislative framework is well conceived, organizational failure may mean  that errors or irregularities occur and are not detected and corrected. 0.2. Price compensation aid to producers of beef and veal and olive oil provides examples of the  above: in both cases it is often very difficult to check the eligibility of beneficiaries of this  aid, which means, bearing in mind, in addition, the large number of such beneficiaries (several  million), that this item of Community expenditure cannot be correctly audited. The errors of  conception affecting these aid schemes cannot be rectified at a reasonable cost. 0.3. Generally speaking, significant progress needs to be accomplished in order to make the reform  of the Structural Funds fully effective. Additionality, which is a key legal requirement of  Structural Fund financing, has not yet been defined with the clarity needed to establish it in  practice. Certain basic notions concerning training measures have not been adequately defined,  resulting in difficulties of interpretation with regard to financing, in particular in the case of  Objectives 3 and 4 of the Structural Funds reform. Accounting problems with the deflator concept  should have been anticipated. 0.4. For the whole of the external aids, be it developing countries or East European countries,  counterpart fund rules and responsibilities are not clear, so that misunderstandings as to how the  funds are to be used persist. Similar legislative oversights have occurred more recently, in  particular with regard to aid to the countries of Central and Eastern Europe. 0.5. Accounting and control requirements are not always sufficiently considered when aid schemes  are proposed. This greatly complicates management of the schemes and creates sometimes insuperable  difficulties for proper accounting. 0.6. The Court was obliged to record certain organizational failures which affect the accounting  and control of EC finances, both centrally, at the Commission, and in Member State or third-country  administrations with responsibility for handling EC funds. These shortcomings may be observed in  the structure and staffing of the departments responsible for financial management, accounting or  control, and they result in an absence of the necessary information, badly kept documentation and  files, inadequate supervision, inadequate (or completely non-existent) manuals of procedure and no  separation of key functions. The general quality of the internal control systems is thereby  impaired. 0.7. One of the Commission's main computerized accounting systems (Sincom - budget/expenditure  accounts) has not been conceived in the most appropriate way; the procedures for modifying  programmes are defective and there is a high risk of loss of control. Moreover, the system is too  complex because its development was not preceded by any substantial simplification of the financial  rules and regulations. 0.8. Accounting arrangements for Structural Fund expenditure treat payments of advances and fund  transfers to intermediaries as if they were final payments to ultimate beneficiaries. The use of  constant prices in operational programmes and the resulting indexation calculations complicate the  accounting and financial management, necessitate an increasing volume of work and cause mistakes  and other difficulties. In regions affected by industrial decline, large financing operations still  concern measures that were approved just before the reform of the Funds, which proportionately  reduces the effect of this reform. Greater attention should be paid to monitoring the use of  Community aid and to developing sample checks on the certificates supplied by the national  administrations or on the eligibility of measures financed with Community funds. 0.9. Controls over the way in which third parties carry out contract work for the Commission are  often insufficient. Regarding aid to eastern Europe, the tasks of planning, implementation and  control of the programmes are largely contracted out to consultants, which means that authorizing  officers and the Financial Controller are required to improve their checking so as to ensure the  regularity of the expenditure. The management of the European Year of Tourism by an outside  contractor was also inadequately supervised. 0.10. Inadequacies in the accounting and internal control were observed in the Commission  departments responsible for development aid. These inadequacies concern the organization of the  financing, some of the procedures used by the authorizing officers, the Financial Controller and  the accounts departments, as well as the operating of the computerized system for managing the  appropriations. There is still no proper separation between the authorizing and accounting  functions for the European Development Funds. The lack of suitably qualified staff prevents  delegations from adequately accounting for and monitoring aid project imprests. There is no regular  reconciliation between the delegation accounts and the Commission central accounts, between which  several discrepancies have been noted by the Court. 0.11. Contrary to the provisions of the Financial Regulation, the practices in use at the  Commission for the collection of funds due to the Community, including own resources, do not  distinguish between the proposal to establish a debt and the issue of the relevant recovery order,  thus hampering effective control of receipts. Difficulties in relation to the establishment and  collection of own resources arise because of shared management between the Community and Member  States. 0.12. The Commission's checks on the administrative organization and internal control procedures in  the Member States are too limited for the Commission to be able to judge the accuracy of the  accounting for Community revenue at national level. In the field of traditional own resources,  Court audits have revealed that the national administrative systems do not ensure that total own  resources are made available in time. The separate accounts in Member States, consisting of  established entitlements not yet collected, were found to be unsatisfactory. 0.13. Despite its responsibility, under Article 205 of the EEC Treaty, for the implementation of  the budget, the Commission has in many cases failed to ensure that national accounting and control  arrangements for EC expenditure are adequate. Unfortunately, as the Court has frequently observed,  national administrations tend to give low priority to accounting and control of Community finances.  The Court's audit of EAGGF-Guarantee expenditure in Member States over the past year has found many  supporting documents to be missing or inadequate. Major differences were discovered between  national accounting records and amounts declared to the Commission by one Member State; in another  there were unexplained discrepancies between central book-keeping and data source systems.  Moreover, some national controllers depend too much on documentary examinations of registers, while  neglecting independent third-party evidence and firms' financial records and doing too little  stock-checking and quality testing. 0.14. In the Commission's services, the Court's auditors have difficulty in finding full supporting  documentation for financial operations, often as a result of poor filing, which must be a  significant factor in the weak administration of contracts and of aid schemes in general. For  closely similar actions, files have widely varied content and structure, while arrangements for  storage of and access to documentation, which constitutes an essential part of the financial  management, are also of very unequal quality. 0.15. The Commission has taken a number of recent initiatives to try and improve matters. Within  the context of the major changes in the EAGGF-Guarantee, it has proposed the establishment of an  integrated administration and control system for compensatory aids linked to the amount of land  cultivated or the number of animals owned by farmers. The Court's audit experience with regard to  the quality of land registers, crop registers and animal marking schemes shows that it is very  difficult and expensive at present to control these types of aid. 0.16. There are some legal limitations on the Commission obtaining detailed information on the  nature and effectiveness of control measures applied by the Member States to EC operations. The  Court of Justice has recently ruled (Case C-303/90) that the Commission was not competent to issue  a 'code of conduct`, in application of a Council regulation provision concerning national controls  on Structural Fund actions, since it would thus impose on Member States obligations with regard to  control matters going beyond those specifically laid down in the regulation itself. It would  therefore appear that every detail of what information on national controls the Commission requires  and how and when it is to be communicated have to be incorporated into a Council regulation, unless  Member States are prepared to provide the information voluntarily.>REFERENCE TO A FILM>  Observations on the Commission's revenue and operating  appropriations and on the European Development Funds   PART ICHAPTER 1  (*) Own resources >TABLE>