Second report from the Commission on the operation of the inspection arrangements for traditional own resources (for the period 1993-96)
Date: 1997-12-08
Institutions: European Commission
Subjects: auditing, financial control, fraud against the EU, management audit, own resources

COMMISSION OF THE EUROPEAN COMMUNITIES 

+ * + 

Brussels, 08.12.1997 
COM(97)673  final 

SECOND REPORT FROM THE COMMISSION 

ON 

THE OPERATION OF THE INSPECTION ARRANGEMENTS 

FOR TRADITIONAL OWN RESOURCES 

(FOR THE PERIOD 1993 - 96) 

(Article 18(5) of Council Regulation (EEC, Euratom) No 1552/89 

Contents 

INTRODUCTION 

1. 

LEGAL FRAMEWORK 

1.1 
1.2 
1.3 

The "own resources" Decision 
Implementing regulation 
The rules governing inspections 

2.  HOW THE INSPECTION SYSTEM OPERATES 

AT COMMUNITY  LEVEL 

Checks on legislative and administrative provisions 
Documentary checks 

2.1 
2.2 
2.3  Monitoring inspection activities in the Member States 
2.4 

On-the-spot inspections in Member States 

3.  ON-THE-SPOT INSPECTIONS BY TH E COMMISSION 

IN 1993-96 

3.1 
3.2 

Procedures and execution of on-the-spot inspections 
Summary of the main results of inspections 
3.2.1  Comments on major malfunctions  identified 
3.2.2  Comments on specific instances of poor application of 

the regulations 

3.2.3  The reasonably satisfactory  operation of some regimes. 

3.3 

Follow-up to Commission inspection measures 

3.4 

3.3.1  Legislative aspects 
3.3.2  Accounting aspects 
Results of other forms of inspection 
3.4.1  Amounts written off 
3.4.2  Monitoring the recovery of traditional own resources 

in cases of fraud  and irregularities 

4.  ASSESSMENT OF HOW THE INSPECTION  ARRANGEMENTS 

OPERATE 

4.1 

4.2 

Changes to the system for collecting and inspecting 
traditional own resources 
General assessment and conclusions 
4.2.1  Why inspections are necessary and what purpose they serve 
4.2.2  Entry and customs status of goods at the 

Union's external borders 

5.  ANNEX 

1 

2 

2 
2 
3 

3 

5 
6 
7 
7 

9 

9 
11 
12 

15 
16 

17 

17 
18 
19 
19 

20 

21 

21 
23 
24 

24 

27 

INTRODUCTION 

Every three years the Commission compiles a report for the European  Parliament  and the 
Council  on the operation  of the inspection  system for  Community  resources,  pursuant  to 
Article  18(5)  of  Council  Regulation  (EEC,  Euratom)  No  1552/89  of  29  May  1989 
implementing  Decision  88/376/EEC/Euratom  on  the  system  of  the  Community's 
own resources1 ("Regulation  No 1552/89"). 

The first report,  concerning the period  1989-92, was submitted to the budgetary  authority 
on  4  January  19942.  This  report  presents  an  analysis  and  general  assessment  of  the 
operation  of  the  inspection  system  for  traditional  own  resources  between  January  1993 
and  December  1996.  In  an  attempt  to  provide  a  complete  overview  of  inspections  that 
took  place  over  several  years,  especially  as  regards  inward  processing,  generalised 
preferences  and external Community transit, the Commission has decided  to include in the 
report the results of the inspections carried out in  1996 and to outline follow-up  action on 
the various cases up to the end of February  1997. 

The  first  part  of  this  report  explains  its  objectives  and  structure  and  presents  the  legal 
basis for  the different  inspection  methods. The second  part  is a factual  description  of the 
inspection  system operating  at Community level, taken from  the first  report  and  amended 
where necessary. 

In the third part, the Commission gives a summary account both of the procedures and the 
results of the on-the-spot  inspections carried  out  during the period.  It  also reports  on the 
follow-up  action  to  these  inspections  in  terms  of  amendments  to  rules  and  accounting 
adjustments,  and on the results of other inspection methods. 

The fourth  part  details the  developments  underway  in the  inspection  system  as  a whole, 
before going on to evaluate the efficiency  of the system.  It also includes an assessment of 
the feasibility of carrying out unannounced  inspections  of the national administrations of 
the  Member  States3  and  for  the  European  Parliament4  provides  an  assessment  of  the 
situation  regarding the entry and customs status of goods at the external  borders  of the 
Union. 

The  report  also  has  an  annex  listing  the  cases  where  Article  17(2)  of  Regulation 
No  1552/89 has been applied. 

OJI  155, 7.6.1989. p.1. 

COM(93) 691 final 

lu .iixniifcinœ with the undertaking given bv the Commission when Council  Regulation  (EEC, Euratom)  No  1355/96 was  adopted amending 
Regulation No 1552/89 (OJ L 185,1 >  1988, p.24). 

In response to the request made by the European Parliament during the discharge procedure in respect of the 1994 budget 

1. 

LEGAL FRAMEWORK 

1.1 

The "own resources" Decision 

From  1988  to  1994,  the  legal  basis  for  the  Communities'  own  resources  system  was 
provided by Council Decision 88/376/EEC, Euratom of 24 June  1988. Article 2(1) of this 
Decision  defines  the  own  resources  that  are  entered  in  the  budget  of  the  Community. 
Traditional own resources (TOR) are defined  as revenue from: 

a) 

levies, premiums, additional  or compensatory amounts, additional  amounts or  factors 
and  other  duties  established  or  to  be  established  by  the  institutions  of  the 
Communities in respect of trade with non-member countries within the framework  of 
the common agricultural  policy, and also contributions  and other  duties provided  for 
within the framework  of the common organisation of the markets in sugar; 

b)  Common  Customs  Tariff  duties  and  other  duties  established  or  to  be  established  by 
the  institutions  of  the  Communities  in  respect  of  trade  with  non-member  countries 
and  customs  duties  on  products  coming under the  Treaty  establishing  the  European 
Coal and Steel Community. 

On  1  January  1995,  Council  Decision  94/728/EC,  Euratom  of  31  October  1994,5 
replaced the Decision of 24 June  1988 as the legal basis for the own resources system. 

1.2 

Implementing regulation 

The legal  arrangements  for  the  implementation  of Decision 88/376/EEC  were  created  by 
Regulation No  1552/89, which establishes the principle of establishment  of an entitlement 
to  own  resources  (Article  2), the  accounting  rules for  these  resources  (Article  6(2))  and 
the rules for making them available to the Commission (Article 10). 

This Regulation  contains provisions governing the obligation  of Member  States to  report 
to  the  Commission  cases of fraud  and irregularities  they have detected,  the  aim being  to 
monitor  recovery  procedures  more  closely  in  such  cases  (last  subparagraph  of 
Article 6(3)).  In addition, it contains provisions relating to exemption  from  the obligation 
to  make  own  resources  available  to  the  Commission  (Article  17(2));  inspections 
(Article  18(2) and  (3))  and  the Advisory  Committee  on the  Communities' own  resources 
(Article 20).6 

An important amendment to this Regulation was made in July  1996. It is intended to: 

•  define  and  clarify  certain financial and accounting provisions,  especially  the criteria  for 
establishing  and  making  available  the  entitlement  to  own  resources  from  sugar 
(automatic  entry 
in  Article  6(2)(a)  of 
Regulation  1552/89)  and  the  date  the  entitlement  to  TOR  is established,  especially  in 
cases involving infringement  proceedings; 

the  "A"  accounts,  as  specified 

in 

•  simplify  and streamline certain accounting procedures and 

•  strengthen  the  anti-fraud  measures  and  the  monitoring  arrangements  available  to  the 

Commission. 

i)  OJL 293.12.11.1994, p. 9. 

Council Regulation (EC, Euratom) No 1355/96, adopted on 13 June 1996, in force since 14 July 1996 

3 -

1.3 

The rules governing  inspections 

Council Regulation (EEC, Euratom, ECSC) No 165/74 of 21 January determining the 
powers and obligations of officials  appointed by the Commission71974  hereafter  referred 
to  as  "Regulation  165/74"  applies  to  inspections  carried  out  jointly  with  the  national 
administrations of the Member States.8 

These  joint  inspections  are  concerned  with  the  establishment,  recording  and  making 
available  of  TOR.  The  officials  appointed  by the  Commission  are bound  by  professional 
confidentiality  and  subject  to  other  obligations  in  the  exercise  of  their  powers  of 
inspection. 

2. 

HOW  THE  INSPECTION  SYSTEM  OPERATES  AT  COMMUNITY 
LEVEL 

The TOR system is subject  to  several types of control within the Commission:  apart  from 
the  internal  Commission  audits  carried  out  by the  Directorate-General  for  Budgets  in  its 
capacity as authorising department for budget  revenue, the system is monitored  as regards 
the  recovery  of  Community  entitlements  (Special  report  from  the  Financial  Controller 
pursuant  to  Article 29(3)  of the Financial Regulation)  and  as regards  the  safeguarding  of 
the  financial  interests  of  the  Community  (Annual  UCLAF  report  on  the  fight  against 
fraud). 

The Commission is also required to reply to and take action on the observations  made by 
the Court of Auditors regarding inspections carried  out under Article  188a-c of the Treaty 
and  the  requests  made  by  the  European  Parliament  during  the  discharge  procedure  in 
respect of the execution of the budget. 

Since  responsibility  for  collecting  TOR  is  delegated  to  the  Member  States,  their  duties 
involve establishing  entitlements  to  own resources,  entering  the  amounts  correctly  in the 
accounts and making these resources available. The Commission,  which is accountable  to 
the  budgetary  authority  for  the  management  of  TOR,  must  ensure  that  these  tasks  are 
being  carried  out  in  accordance  with  Community  regulations.  This  interlinking  of  the 
Member  States'  and the Commission's responsibilities is a result of the current  division  of 
responsibilities among the institutions of the European Union. 

In  this  connection,  as  authorising  body  for  revenue,  the  Commission9  carries  out  three 
types of inspection  in addition to those that the Member  States themselves are required  to 
perform.  These are: 

•  checks on legislative and administrative provisions; 
•  documentary checks; 
•  on-the-spot  inspections in the Member States. 

7  OJ L 20, 24.01.1974, p. 1. 
8  Under Article 18(2) of Council Regulation No 1552/89 
9 

The controls carried out by the Commission are only some of the inspections carried out by the Community institutions  The Court of Auditors 
is empowered to carry out audits in this field and the European Parliament can also play an inspection role. 

The Community  control and inspection arrangements for TOR, as put in place under 
Regulation  No 1552/89  and implemented  by the Commission,  can be  represented 
schematically as follows: 

Checks on 
legislation 

Analysis of Member  States'  provisions for 
establishing, collecting and  making available  traditional 
own  resources  (Art.  4(l)(b)) 

Monthly statement 
A accounts 
(Art. 6(2)(a))** 

Accounting 
information 

Quarterly statement 
B accounts 
(Ail  6(2)(h))** 

>| Anal, of statements 

and  reports 

Summary account <>l" 
established 
entitlements -»  annual 
report (Art. 7) 

Half-yearly  report* on outcome of 
inspections in Member States 
(Art.  17(3)) 

Exemption from the obligation to place 
resources  at the Commission's  disposal 
in  cases  of force  majeure  or  specific 
cases if amount exceeds ECU  10 000 
(Art.  17(2)) 

Cases of fraud and irregularities 
involving entitlements of over 
ECU  10 000 
(Art. 6(3), second subparagraph)*** 

Analysis of specific 
cases 

J  Joint inspections (Art. 18(2)) 

Own inspections (Art. 18(3)) 

Documentary 
checks 

1 

u On-the-spot 

inspections in 
Member States 

With the entry into force of Regulation N° 1355/96, this became an annual report with effect from 14 July 1996. 
Article 6(3). following the entry into force of Regulation N° 1355/96. 
Article 6(4), following the entry into force of Regulation N° 1355/96. 

5-

The  Commission undertakes various kinds of inspections.  The  aim is not  to  examine a 
representative  sample,  in numeric terms,  of the volume  of  customs  transactions  (which 
amount to  many millions in a year10) but to  cover the various types  of transaction  which 
occur.  As  will  can  be  seen,  particularly  in  the  description  of  the  follow-up  of  the 
verifications,  this activity  although  by necessity  selective  is not  merely  limited  to  specific 
checks  on  individual  transactions  but  develops  a  systematic  value  in  the  following  two 
ways 

-  at  the  level  of  national  customs  systems  the  national  authorities  are  informed  of 
anomalies found  and invited to make the necessary  corrections to  national  procedures, 
practices and instructions which do not comply with community requirements 

-  at  community  level  the  analysis  across  the  various  administrations  of  the  standard  of 
implementation  of the  regulations  for  a particular  procedure  or  regime,  may  result  in 
amendments to the community legislation 

The traditional  own resources  inspection  system therefore  depends in a large measure on 
the  continuing  interaction  between  the three  major  categories  of inspection  listed  above: 
the  inspection  of  systems  operated  locally,  a  systematic  dialogue  with  national 
administrations  and the examination  of national procedures  and  accounting  requirements. 
The  Commission  intends  to  add  to  this  array.  In  co-operation  with  member  states,  the 
Commission  is  exploring  the  use  of  various  risk  analysis  techniques  to  be  defined  at 
is  to  enable  both  the  Commission  and  national 
community  level.  The  intention 
administrations to better target and co-ordinate their inspections  and to identify  the actual 
risks posed by traders and by various categories of goods. 

2.1 

Checks on legislative and administrative  provisions 

Pursuant  to  Article  4(1 )(b)  of  Regulation  No  1552/89,  Member  States  are  required  to 
notify  the Commission  of the  general laws, regulations  and administrative  and  accounting 
provisions  relating  to  the  establishment,  collection  and  making  available  to  the 
Commission  of  TOR.  They  are  also  required  to  inform  the  Commission  of  any 
amendments to these provisions. 

If the  Commission judges  any  national  provisions  to  be inadequate  to  ensure  the  proper 
collection of TOR,  it contacts the Member  State in question with  a view to  rectifying  the 
situation;  as  a  rule  this  suffices  to  find  solutions  without  having  to  have  recourse  to 
infringement  proceedings. 

10 

18 million yearly operations for the transit  regime only. 

-6 

2.2 

Documentary checks 

The object  of the  documentary  checks performed  by the  Commission  is the  analysis,  for 
compliance with the rules, of accounting reports and statements and of the annual reports 
on the results of Member States' inspections. 

Article  6  of  Regulation  1552/89  requires  accounts  for  own  resources  to  be  kept  by  the 
Treasury  or  other  body  appointed  in  each  Member  State.  Entitlements  established  in 
accordance with Article 2 of the Regulation, i.e. amounts due which have been notified  to 
the  debtor,  are  entered  in  these  accounts.  Each  month11  the  Member  States  send  the 
Commission  a  statement  of  the  established  entitlements  that  have  been  entered  in  the 
A accounts. 

The Commission  checks that  the  amounts  credited  by the Member  State to  the  Treasury 
account;  opened  in  its  name  correspond  to  those  appearing  in the  monthly  statement.  If 
necessary,  the  Commission  will  contact  the  Member  State  concerned  and  make  any 
corrections  that  are  required  by  amending  the  statements  and,  where  necessary,  will 
charge interest on late payments. 

Under  Article  6(2)(b)  of  Regulation  No  1552/89,  established  entitlements  that  have  not 
been  entered  in the A account because they have not  yet been  recovered  and  no  security 
has  been  provided  or  because  they  have  been  challenged  must  be  entered  in  a  separate 
account,  known as the "B account".  All the amounts entered  in these  separate  accounts 
are shown in quarterly statements sent to the Commission.12 

The Commission checks that each quarterly statement accords with the statement from the 
previous  quarter,  looking  at  entitlements  established,  corrections,  cancellations  and  sums 
recovered  in  the  course  of  the  quarter  covered  by  the  statement.  In  the  event  of  a 
discrepancy,  the  Commission  contacts  the  Member  State  concerned  to  ascertain  the 
reason. 

Under  Article  17(2),  Member  States  send  the  Commission  half-yearly  reports  showing 
amounts  written  off  These  are  cases  where  it  proved  impossible  to  recover  the 
established  entitlements, either because of force majeure or for  special individual reasons. 
The Commission has six months in which to communicate any comments on such cases to 
the Member State concerned. 

If  the  Commission  deems  that  the  Member  State  has failed  to  take  all  the necessary 
precautions  to safeguard the financial interests of the Community, the Member  State may 
be held  responsible  and  requested  to  make available to  the  Commission  an amount  equal 
to the non-recovered  entitlements.  If this amount  is not made available by the agreed  date, 
interest  for late payment can be demanded. 

1 '  The monthly statement  of the A account must be submitted to the Commission, at the latest, by the first working day after the 19th day of the 

second month following the month in which the entitlement was established. 

12  The quarterly statement of the B account must be submitted to the Commission, at the latest, by the first working day after the 19th day of the 

second month following the quarter in which the entitlement was established. 

By  1  May  each  year,  the  Member  States  are  required  by  Article  7  of  Regulation 
No  1552/89 to  provide the  Commission  with a summary account of all the  entitlements 
established  in  the  previous  year.  This  must  be  accompanied  by  a  report  on  the 
establishment and entry into the accounts of own resources. The Commission evaluates 
the information  in these reports, comparing it with other data from the different  sources at 
its disposal. 

2.3  Monitoring inspection activities in the Member States 

Under Article  17(3) of Regulation No  1552/89, the Member  States  send the  Commission 
a half-yearly  report  presenting the results of their own inspections. This report  contains 
aggregate  figures  and  the  questions  of  principle  relating  to  the  main  problems  posed  by 
application of Regulation No  1552/89, with particular reference to cases of litigation. 

This report also presents in detail the factors that prevented  a Member  State from  making 
available to  the  Commission  entitlements  of over  ECU  10 000  that  were  established  but 
not recovered. 

Finally, the Commission  monitors the Member States' anti-fraud activities in the field of 
TOR, on the basis of information  it receives from  these States. This information  is mostly 
on cases of fraud  reported  to the Commission under the mutual assistance arrangements13 
and under Article 6(3) of Regulation No  1552/89. Given the very large number of cases of 
fraud  or  irregularity  involving  amounts  over  ECU  10  000  that  are  reported  to  the 
Commission  (more than 2 000 every year), the Commission  has implemented  a follow-up 
mechanism  that  involves  processing  all  the  "fraud  reports",  but  with  special  attention 
given to  a limited  selection  of "serious  cases", which  are monitored  in detail  until  finally 
settled. 

As  soon  as  the  Commission  learns  that  a  case  of  fraud  or  irregularity  involving  a 
significant  amount  has  been  detected  but  not  reported  as  required  by  Regulation 
No  1552/89,  it  reminds  the  Member  State  in  question  of  its  obligations  as  regards  the 
protection  of  the  financial  interests  of  the  Community.  The  Commission  also  gathers 
information  from  the Member  States  on the  state  of  play  regarding  amounts  established 
and any amounts recovered, or the reasons why recovery has not been  effected. 

2.4  On-the-spot inspections in Member States 

the  monitoring  of  national 

Although  documentary  checks  and 
legislative  and 
administrative  provisions  relating  to  TOR  have  their  place  among  the  instruments  for 
verifying  the application  of the Community rules, no monitoring system  could be properly 
effective  and viable without the possibility of "on-the-spot" inspections. This provides the 
Commission  with  the  opportunity  to  verify  and,  where  necessary,  tighten  application  of 
Community  rules  on  TOR  by  the  Member  States,  and  to  cross-check  the  conclusions 
deriving from  the other forms of control. 

13  Council Regulation (EEC) No 1468/81 (OJ L 144, 2.6.1981, p. 1). 

8-

The Commission operates two types of on-the-spot  inspections, both  carried  out  in close 
collaboration with national officials.  The first is the  ujoint  inspection",  which has been in 
existence  since  the  Community  own  resources  system  was  created  by  the  Decision  of 
21 April  1970.  Inspections  of this type are carried  out  in accordance  with  the  provisions 
of Regulations No  1552/89 and No 165/74. 

The  Council  later  introduced  a  new  method  of  inspection  under  Article  18(3)  of 
Regulation  No  1552/89: the "autonomous  inspection",  which  is carried  out  on  the  sole 
initiative  of the Commission.  This type of inspection  enables the Commission  to  act  with 
the minimum  delay when it has identified  a need for  an inspection targeted  at a particular 
topic.  The  Commission  itself  decides  the  scope  of  the  inspection  and  the  locations 
involved.  However,  the  assistance  of the  national  administration  concerned  is  sought  in 
the  arrangement  and  operation  of  the  inspection  particularly  to  obtain  access  to  the 
necessary  documents.  The  scope  of  autonomous  inspections  and  general  arrangements 
for  their conduct were set out in a Commission  statement  entered  in the Council minutes. 
In terms of procedure,  the preparations  for  own inspections  are similar to  those for joint 
inspections,  apart  from  the  fact  that  Member  States  are  not  informed  of  the  annual 
inspection programme. 

The  inspection  strategy  initially  involves  analysing  the  extent  to  which  the  system  in 
operation  conforms  to  Community  regulations from  two  points  of view:  action  taken  by 
the  national  administrations  before  the  goods  are  released  and  the  ex post  inspection 
measures  and/or  the  discharge  of  customs  procedures.  Subsequent  to  this  analysis,  the 
Commission  officials  carry out  checks (either on a sample of documents  or by  inspecting 
all  the  documents  individually,  depending  on  the  particular  circumstances)  to  assess 
whether the  system  is functioning  as it is designed  to.  All supporting  documents  must  be 
made available to the appointed officials  during the inspections. 

9-

3. 

ON-THE-SPOT INSPECTIONS BY THE COMMISSION  IN 1993-96 

3.1 

Procedures and execution of on-the-spot  inspections 

Certain procedures  have been agreed  in the interests  of openness  and  clarity.  At the end 
of  each  year,  a  detailed  draft  annual  programme  is  drawn  up  in  agreement  with  the 
competent  national  departments.  The Commission  informs  all  Member  States  of the  final 
version  of  the  programme  via  the  Offices  of  the  Permanent  Representatives.  Although 
prime  responsibility  for  implementing  this  programme  lies  with  DG XIX  as  authorising 
department,  other  Commission  departments  may  be  involved,  depending  mainly  on  the 
subject under investigation. 

The inspections must be carried out according to a clearly-defined  procedure: 

•  Approximately  one  month  before  each  inspection  mission,  the  Commission  sends 
confirmation  of  the  date  of  the  inspection  by  post  to  the  Office  of  the  Permanent 
Representative  of the Member  State  concerned  and  organises  an internal  coordination 
meeting between the different  Commission departments involved, in order to clarify  the 
targets for the inspection in question. 

•  Each inspection in a Member  State begins with a coordination  and preparation  meeting 

between the Commission officials  and the national officials  concerned. 

•  After  the inspection  has taken place, a closing meeting is held, at which the  competent 
authorities are informed  of the results of the inspection; the Member  State is  formally 
notified  of this information  at the earliest possible opportunity. 

•  Finally,  the  report  is  presented  to  the  Advisory  Committee  on  Own  Resources14,  a 
procedure  which  guarantees  equal  treatment  for  all Member  States.  After  it  has  been 
scrutinised  by this committee, the report is returned  to the Commission,  which takes a 
final  position on it and notifies the Member State concerned. 

The  Commission  carried  out  a  total  of  81  inspections  during  the  period  under 
consideration (1993-96), broken down as follows  {the first figure  indicates the number of 
joint  inspections,  the second denotes the number of own inspections): 

Year 

B 

DK 

D 

EL 

E 

F 

IRL 

1 

L 

NL 

P 

UK 

A 

FIN 

s 

Total 

iw;< 

1994 

1995 

1996 

1/ 

1/-

1/-

1/-

l/-

•71 

1/ 

1/1 

1/1 

1/-

21-

1/ . 

1/1 

1/-

1/1 

1/1 

2/1 

1/1 

-12 

1/1 

1/-

1/1 

1/-

2/1 

1/-

1/1 

1/-

1/-

-/1 

1/-

1/1 

1/1 

1/-

1/1 

1/-

-12 

1/-

1/1 

1/-

1/1 

1/-

1/1 

1/1 

1/-

1/1 

1/-

1/1 

1/1 

21-

1/-

12/5 

13/9 

13/7 

16/6 

1/-

1/-

1/-

1/-

Total 

41-

4/1 

3/4 

4/1 

3/5 

4/4 

41-

5/3 

41-

4/5 

4/1 

5/3 

21-

21-

21-

54/27 

'4  This Committee, which was set up by Article 20 of Regulation No 1552/89, is composed of representatives  from the Member  States  and from 

ihe Commission 

10 

The results of the inspections carried out by the Commission are analysed in Part  3.2. 

The table below shows the subjects inspected during the period  1993-96 and the Member 
States concerned: 

N° 

Subject 

EC/Andorra Agreement 

Postal packages 

Separate accounts 

Establishment,  recording and  making available of own 
resources 

Sugar levy 

Import of calves for fattening 

Ex-GDR transitional measures 

Inward processing 

Outward processing 

Member  States 
concerned 

Eand  F 

All Member States 

Year(s) 

1994 

1993,1994 

B,  D,  EL, E, F,  IR, 1, L,  A, P,  UK 

1993 -1995 

All Member States 

1995,  1996 

D,F,landNL 

1993,  1994 

1 

D 

All Member States 

1993 

1993 

1994-96 

B, D, F, 1,  L,  NL,  UK 

1995,  1996 

"POSEICAN" programme 

E 

1993,1994,  1996 

Generalised System of Preferences 

B, D,  EL, E,  IRL,  1 and UK 

1993,  1995-96 

All Member States 

D, F, 1, L,  NL,  UK 

1994,  95,  96 

1995,  1996 

External Community Transit system 

Warehousing systems 

Repayment,  recovery and centralisation 

Deferred payments 

Delays in  making entitlements  available as  a  result of 
strikes 

NL 

D 

P 

Write-offs 

AT containers 

B, D, EL, F,  IR, 1, L,  A,  P 

D,  NL, B 

Communication  of  fraud reports and mutual  assistance 
forms 

B,  IR, 1, E,  EL,  F 

1994 

1994 

1993 

1996 

1996 

1996 

1. 

2. 

3. 

4. 

5. 

6. 

7. 

8. 

9. 

10, 

11. 

12. 

13. 

14. 

15. 

16. 

17. 

18. 

19. 

11 

3.2 

Summary of the main results of inspections 

The 81 inspections carried  out by the Commission during the period  1993-96 produced  a 
total of 352 observations.  This gives a broad  picture of how the national  administrations 
apply Community financial and customs regulations. 

Inspection results 93/96 

Miscellaneous 
22% 

CW/FZ 
3% 

B accounts 
6% 

Postal packages 
4% 

Sugar 
3% 

REM/REC 
5% 

(The figures  indicate the percentage  of suspected anomalies accounted for  by each area) 

IP 
CW/FZ 
OP 
GSP 
REM/REC 
Transit 

Inward processing 
Customs warehouses/Free zones 
Outward processing 
Generalised system of preferences 
Remission / recovery 
External Community transit 

Postal 
packages 
B accounts 

Sugar 

Recording in accounts of goods 
sent by post 
Separate  accounts  under  Article  6(2)  of 
Regulation 1552/89 
Levies under the common organisation of 
sugar markets 

The inspections have resulted  in the discovery  of major  malfunctions  in some regimes,  to 
the  correction  of the  poor  application  of  regulatory  requirements  in  some  specific  cases 
and to the identification  of reasonably satisfactory  operation in some other regimes. 

-  12-

3.2.1 Comments on major malfunctions identified. 

In  some  instances  these  inspections  have  enabled  the  Commission  to  detect  problems 
early.  The full significance  of these malfunctions  has only been established later. 

•  External community transit and TIR 

by 

For instance in the external community transit  and  TIR regimes the presence of grave 
deficiencies  has  been  confirmed 
initiatives  undertaken  by  other  community 
institutions - particularly the first Commission of Enquiry of the European Parliament.15 
Inspections  carried  out  in  1994,  1995  and  1996  in  all  Member  States  in  the  area  of 
external  Community  transit  and  the  TIR  system  brought  to  light  48 anomalies, 
primarily  concerning  delays  in  initiating  the  recovery process,  often  linked  to  the 
failure  to  discharge  operations  and  deficiencies  in  the  ex post  control  methods  for 
transit  documents. In all Member  States, it was discovered  that import duties on goods 
placed  under  this  system  were  not  entered  in the  accounts  ex post  after  the  expiry  of 
the  14-month deadline specified  in Article 379 of Regulation No 2454/93. 

A major  difficulty  was detected for the discharge of transit documents issued by certain 
Community  customs offices  for  goods from  non-member  countries  sent by  sea to  free 
zones  situated  in a sea port.  The authorities  which manage  such zones  do  not  require 
document T to be presented along with the goods. 

As  regards  comprehensive  guarantees,  the  checks  revealed  several  examples  of 
irregular  practices  which  offer  no  guarantee  that  the  total  amount  of  duties  owed  as 
own resources is actually covered.  This was also the case as regards the calculation by 
the  Danish  administration  of  the  flat-rate  guarantee  for  goods  that  constitute  a  high 
fraud  risk, such as cigarettes. 

Accounting  data  is currently being collected  within the Member  States with  a view to 
assessing  the  financial  implications  for  TOR  of  delays  caused  in  the  establishment  of 
entitlements and determining the amounts of late payment interest due. 

•  preferential  tariff schemes 

In  the field of  preferential  tariff  schemes,  the  Commission  continued  the  inspections 
based  on  Article  18  of  Regulation  No  1552/89  that  were  initiated  in  1992.  These 
complement  the  inspection  activities  it  is carrying  out  as part  of the  follow-up  to  the 
observations made by the Court of Auditors, especially in its  1991 annual report.16 

1 s  Mr Kellet-Bowmann's alarming report that  four years after the removal of the Community's  internal frontiers an frightening discrepancy exists 
between the community-wide organisation of international crime and the fragmentary  nature of  the various  national administrative and legal 
systems  This  report  was  adopted by  the  Commission  of  Enquiry  on the Community  Transit  system  on  20  February  1997  etc  made a 
number of recommendations to the Commission intended to ensure the proper working and security of the regime 

^ 

The results  of this follow-up action on cases  involving amounts above a certain  level and recovery  cases  following  notifications  made in the 
context  of  mutual  assistance  were  dealt  with  in  two  reports  on the  recovery  of  TOR  in  cases  of  fraud  or  irregularity  (COM(95) 398  final, 
6.9.1995, and COM(97) 259/2, 9.6.1997). 

- 13 

These  inspections  focused  on compliance with the rules governing  preferential  import 
schemes,  with  particular  attention  paid  to  abuses  involving  falsified  or  invalid 
certificates, the minimum number of ex post  inspections and the application of the rules 
on the  automatic  refusal  to  grant  preferential  tariff  rights  in  cases where  replies to  ex. 
post inspection requests are not provided within the time allowed. 

The  checks  made  revealed  64  anomalies,  which,  for  the  most  part,  were  problems 
regarding  the  application  of  the  rules  on  evidence  of  origin  and  the  rules  on 
administrative cooperation and mutual assistance. The  results  indicate  that  the  main 
problem  is  the  implementation  of  the  ex post  inspection  procedure,  the  criteria  for 
which are not interpreted uniformly.  The analysis and conclusions drawn from it are set 
out in detail below and have already been the subject  of a letter from,  the  Commission 
dated 23 July 1997. 

The separate or B account: 

In  accordance  with  the  undertakings  given  by  the  Commission  in  a  report  dated 
4 January  1994 to carry  out  systematic, targeted  inspections,  18 missions were  carried 
out  during  the  reference  period  in  11  Member  States  to  verify,  at  local  level,  the 
arrangements  made  for  keeping  separate accounts.  The  minor  anomalies  detected  in 
the  course  of these  inspections were  rectified,  especially  those  irregular  practices  that 
caused  delays  in  making  available  own  resources.  The  powers  of  courts  in  some 
Member  States  can  extend  as  far  as  refusing  the  establishment  of  TOR  in  disputed 
cases;  or  else  the  discharge  of  operations  can  be  suspended  indefinitely  where  the 
revenue officials  responsible for enforced  recovery fail to take action. 

In  report  96.6.1,  point  3.2,  the  Commission  pointed  out  that  duties  should  not  be 
entered  in the  separate  account  merely  on  the  strength  of  a  telephone  call  from  the 
person  liable  challenging  the  establishment,  and  requested  that  the  competent 
authorities  provide a description  of the procedures for  cases in dispute.  This issue has 
yet to be resolved.  It also noted that in a port,  before  May  1995 (the date at which an 
electronic  declaration  system  was  installed),  post  clearance  recovery  notices  did  not 
constitute  a  genuine  notification  of the  debt  to  the  party  liable.  The  authorities  were 
requested  to  bring  their  procedures  into  line  with  the  Community  regulations  and 
provide  the  Commission  with  the  information  necessary  to  determine  the  financial 
effects  of  the  delayed  entry  into  the  accounts  of  the  amounts  collected  since 
1 January 1993. 

14-

The procedures for collecting TOR 

The procedures for  establishing entitlements,  entering  them  in  the  accounts and 
making them available were checked in all Member  States in  1995 and  1996. Several 
cases of amounts not being established  or being established  very late where no special 
circumstances  existed  were  detected  in  the  Netherlands,  Spain,  Belgium  and  Italy. 
These  defaults  in  the  system,  more  often  than  not  the  result  of  poor  communication 
between  the  customs  authorities  and  inspection  departments  or  the  inadequacy  of 
national  procedures,  prompted  requests  for  corrections  to  be  made  and  late  payment 
interest to be paid. 

Other authorities were requested to review their procedures, in particular as regards ex 
post  recovery,  following  an  inquiry  or  in  connection  with  out-of-court  settlements  as 
practised  in the  United  Kingdom,  and  to  provide  the  necessary  information  to  enable 
the  Commission  to  determine  financial  liability  in  cases  when  the  party  liable  has  not 
been notified  by the authorities. 

Staying  in the  area  of  accounting  for  own  resources  the  centralisation of aggregate 
deferred payments  carried  out  by  the  Koblenz  Bundeskasse  (Trier  office),  starting 
from  1 January  1990,  was  checked  by  the  Court  of  Auditors,  which  found  serious 
delays  in  making  own  resources  available.  The  Commission  then  developed  a 
procedure for verifying  the aggregate delays from  the actual entry in the accounts, and 
thus extrapolated the amounts of late payment interest due. 

As regards  the  customs clearance procedure for postal packages,  the 38  inspections 
carried  out  in  all  the  Member  States  revealed  that,  as  pointed  out  by  the  Court  of 
Auditors  in  its  1991  Annual  Report,  the  date  on  which  these  amounts  were  made 
available was not based on the date on which they were established  but on the date the 
debt was entered  in the accounts (aggregated  at the beginning  of the month  following 
clearance).  This  practice,  which  was  in  violation  of  the  accounting  and  financial 
provisions  in  force  during  the  reference  period,  led  to  a  request  for  late  payment 
interest for the three years preceding the discovery of the anomaly and until such a time 
as  the  national  accounting  procedures  are  brought  into  line  with  Community 
regulations. 

Inward Processing 

Checks  on  the  inward  processing  arrangements,  focusing  on  the  granting  of 
authorisation,  the application  of economic conditions, equivalent  compensation  and the 
discharge  of the  procedure  were  carried  out  in  all  Member  States  in  1994,  1995 and 
1996.  A total  of  109 one-off  anomalies were detected.  These anomalies  demonstrate 
that  the system  must  be reformed,  for  its uniform  application  is not  guaranteed,  which 
results  in  unequal  treatment.  Where  there  was  no  direct  consequence  for  the 
Community  budget,  steps  have  been  taken  to  bring  the  national  provisions  into  line 
with  Community  rules.  Where  recovery  was  delayed  because  operations  were  not 
discharged,  late  payment  interest  has  been  demanded  or  is  in  the  process  of  being 
calculated,  after  exchanges  of  information  with  the  Member  States  concerned.  The 
Court  of Auditors also made fundamental  comments on the system. 

-  15-

3.2.2  Comments on specific instances of poor application of the regulations 

The most  common  observations where those made  as a result  of  specific  cases  of  poor 
application  of  the  regulations.  These  inspections  provided  a  means  to  correct  these 
individual  errors  and  where  they  had  affected  the  community  budget  to  request  the 
payment  of  interest  on  delays.  Those  benefits  do  not  include  the  solutions  which  have 
been introduced at the regulatory level and which are outlined below. 

•  The procedures for  establishing and paying the sugar levy were inspected four  times 
at  both  local  and  central  level  during  the  period  in  question;  these  inspections 
uncovered  certain one-off anomalies, although none had any financial  relevance, except 
in one Member State where appropriate checks are being made. 

•  The  customs warehousing system  was  inspected  in  six  countries  in  1995  and  1996. 
The  results  of  the  inspections  revealed  some  instances  of  late  recovery  and 
management  deficiencies  with  possible  financial  implications.  Inspections  in  this  area 
will continue in future years. 

•  The  application  of  the  temporary  import  system for  containers  was  checked  in 
Belgium,  Germany  and  the  Netherlands  in  1996.  The  Commission  noted  the  lack  of 
real  controls  on  the  duration  of  stay  of  containers  and  urged  the  Member  States  to 
meet their obligations in this respect. 

•  The inspections in  1993,  1994 and  19%  of the application  of the specific tariff-based 
measures  to  promote  the  Canary  Islands  under  the  POSEICAN  programme 
(Programme  of  options  specific  to  the  remote  and  insular  nature  of  the  Canary 
Islands)17  uncovered  some  anomalies,  particularly  as  regards  the  collection  of 
anti-dumping  duties  and  the implementation  of common  commercial  policy  measures. 
The  Commission  is  currently  considering  the  question  of  certain  anti-dumping  duties 
that have not been collected. 

•  Following  a mission to  Portugal  in May  1993,  and  on the basis  of  observations  made 
by  the  Court  of  Auditors,  the  Commission  examined  the  effect  of  two  strikes  by 
customs officials  on  the  making  available  of  TOR.  The  simplified  procedure  system 
adopted  by the  Portuguese  administration  in order  to  maintain  the flow of goods  was 
inspected  in detail  and it was demonstrated  that  the delays in establishing  entitlements 
up to the end of the strike were acceptable. A method was devised for fixing  a notional 
date  for  making  TOR  available  to  the  Commission  and  for  calculating  late  payment 
interest  on aggregate declarations. 

•  As a result of the inspections carried  out, solutions were found  to the technical flaws in 
the  application  of  the  EC/Andorra Agreement.  Steps  have  been  taken  to  make  the 
necessary corrections.  A new customs clearance procedure has since been put in place, 
transferring  to the Andorran authorities the responsibility for  clearance of goods bound 
for the Principality. 

Ilu> mSUOAN  programme  w;i:;  initialed on  tho basis  of  Article  9 ol  Council  Regulation  (ŒC)  No 1911/91 (OJ L  1/1, 29 6 1991), whirl 
temiinated the derogations for the Oanaty Islands that were provided for in the Spanish Act of Accession 

16 

•  Cases of failure  to submit fraud reports and mutual assistance forms,  in violation of 
Article  6(3)  of  Regulation  No  1552/89  were  detected  in  several  Member  States; 
specific  observations  were  made,  some  of  them  relating  to  the  interpretation  of  the 
rules.  Apart  from  these  one-off  shortcomings,  the  substantial  deficiencies  that  were 
detected  in  the  management  of  the  transit  procedure  and  the  implementation  of  the 
mutual  assistance  measures  were  dealt  with  in  much  more  detail,  as  discussed  in  the 
next section. 

•  Individual  cases  of  delays  in  making  available  own  resources  in  certain  cases  of 
payment  by  instalments  and periodic  aggregate declarations were  noted,  leading  to 
demands for late payment interest and requests to bring accounting procedures into line 
with Community rules. 

•  Monitoring of incomplete declarations was the target  of inspections  in a number  of 
countries.  They  revealed  that  four  Member  States  (Denmark,  Sweden,  Finland  and 
Ireland)  have  installed  electronic  customs  clearance  systems,  which  release  importers 
from  the  obligation  to  submit  supporting  documents  such  as  invoices  or  preferential 
certificates  in  addition  to  the  customs  declarations.  Commission  departments  are 
currently  examining  this  phenomenon,  taking  as  a  principle  that  the  Community's 
financial interests  can  effectively  be  safeguarded,  in  particular  where  preferential 
arrangements are concerned. 

•  Inspections  in  the  Netherlands  in  1994  looked  at  the  application  of  the  rules 
concerning  repayment,  recovery  and  centralisation,  especially  as  for  those  cases 
where  decisions  are  taken  by  the  Member  States  themselves.  The  outcome  was  a 
demand for late payment interest in addition to the recovery of the duty involved. 

3.2.3.  The reasonably satisfactory operation of some regimes. 

The inspections enabled the Commission to establish the reasonably  satisfactory  operation 
of some regimes 

•  The  outward processing  arrangements were  inspected  in  seven  Member  States  in 
1995 and  1996. Apart from  certain deficiencies in the monitoring of operations  and the 
issuing  of  authorisations,  few  anomalies  were  detected;  the  national  administrations 
were requested to correct those that had budgetary implications. 

•  The  inspections  carried  out  by the  Commission  enabled  it to  satisfy  itself  that  certain 
specific  arrangements were operating correctly.  One such  system  is that for  imports of 
calves  for  fattening,  under  which  importers  qualify  for  a  reduced  levy;  during  an 
inspection  in Italy in  1993, the Commission  ascertained  that  the basic  rules  were being 
observed.  The temporary measures applicable in the territories of the former  (il)R, 
which  allow  certain  Eastern  European  countries  to  continue  to  enjoy  preferential 
tari lis,  were extended  until  1994. The measures were verified  at  both  local  and  central 
level  in  1993,  and  the  Commission  was  able  to  rectify  certain  minor  anomalies  and 
otherwise  satisfy  itself  that  the  system  was  being  implemented  in  compliance  with 
Community regulations. 

17 

3.3. 

Follow-up to Commission inspection measures 

3.3.1  Legislative aspects 

Where it has found  flaws or loopholes in national regulations or administrative provisions, 
the Commission has systematically asked the Member States concerned to bring their rules 
into line with Community requirements.  Such adjustments,  which have been made in both 
customs law and the financial field, are another appreciable spin-off from inspections. 

Commission inspections  are also an important  source of information  on the way in which 
Member  States  apply the rules, particularly  in the customs field, and  can be of use to  the 
Commission  departments responsible for the legislation. 

•  As  a  result  of  Commission  inspections,  national  rules  on  establishing  and  making 
available  own  resources in  respect  of  the  customs  clearance  of  postal  parcels  have 
been  adapted  to  bring  them  into  line  with  Community  legislation.  The  lack  of 
consistency  between  the  concepts  of  entry  in  the  accounts  and  establishment  of 
entitlements,  which the  Court  of Auditors  identified  in its annual  report  for  1991, has 
been  resolved  following  the  entry  into  force  of  Council  Regulation  No  1355/96 
amending  Regulation  No  1552/89. 
in 
Regulation (EEC)  No 2454/93  laying  down  provisions  for  the  implementation  of  the 
Community  Customs  Code  favour  the  use  of  a  single  entry  in  the  accounts.  This 
simplification  of the  establishment  of own  resources  allows  the  national  authorities  to 
be considered the declarant or, where applicable, the debtor. 

The  rules  on  postal  traffic  contained 

•  The  inward  processing  arrangements  also  attracted  comments  from  the  Court  of 
Auditors in its annual report for  1995. Existing procedures clearly need to be reviewed, 
given  the  flaws  that  have  been  detected  in  the  granting  of  authorisations,  the 
application  of  economic  conditions  and  equivalent  compensation,  and  the  discharge 
arrangements.  In  1996 the  Commission  adopted  a report  on  the  operation  and  future 
shape  of  the  inward  processing  arrangements18  and  is  now  evaluating  the  results  of 
consultations  with  industry  at  a  seminar  in  September  1996  on  tailoring  customs 
arrangements to the needs to businesses. 

18  Communication No 96/C 194/07, OJ C 194, 5 7.1996, p.6. 

18-

•  As regards  the preferential  schemes,  it  was  found  that  application  of the  system  for 
withdrawing  tariff  advantages from  beneficiary  countries which fail  to  reply in time or 
do not provide satisfactory  answers was hampered by differences  between the Member 
States'  interpretations  of  the  concept  of  "justified  suspicion",  and  the  lack  of 
Community  rules  on  the  subject.  This  concept  is  important  for  the  defence  of  the 
Community's financial interests.  After  examining  the  problem,  the  Commission  will 
shortly  be publishing  explanatory  notes  on the  protocols  on the  rules  of  origin  in  the 
Europe Agreements  so that firms have a clearer idea of how to  interpret  certain  parts 
of these protocols. 

•  Turning to the external Community transit procedure, in particular delays in initiating 
recovery,  all  the  Member  States  -  except  France  and  Luxembourg,  where  the 
time-limits  laid  down  in  Community  legislation  are  generally  observed  -  have  been 
asked  to check  that  Article 379 of the Provisions implementing  the Code  is applied  in 
all  customs  offices  over  a  period  of  three  years.  The  Commission  considers  that  in 
cases where operations are not discharged  or there are doubts as to the place where an 
infringement  took  place - problems that  are often  caused  by a lack  of diligence  by the 
office  of destination  or  delays  in launching  inquiries - it is up to  the  Member  State of 
departure  to  take  the  necessary  measures,  i.e.  to  notify  the  guarantor  of  absence  of 
discharge by the  prescribed  deadline  and to  enter the  debt  in the  accounts  against  the 
principal. Failure to take such measures may result in financial liability. 

3.3.2'.  Accounting aspects 

Over the reference  period  (1993-96), additional  entitlements  (principal  amounts) totalling 
ECU 64 636 72619  were  identified  and  paid  to  the  Commission  following  comments  it 
made in reports on independent  or joint inspections.  Nearly 98% of this sum is accounted 
for by an adjustment  in respect of Community transit operations in just one Member State. 

Interest  for  late payment  was also charged  for  delays in making  available traditional  own 
resources detected  during Commission  inspections.  Over the period  1993-96, interest  for 
late  payment,  paid  or  still  owed  by  Member  States,  totalled  ECU 26 395 213.19  Of  this 
total,  ECU  I 234 84919 is due  as a result  of observations by the Court  of Auditors  in its 
annual reports, on which the Commission has taken financial  action, and over  80% relates 
to penalty interest in connection with aggregated deferred  payments in a single office. 

It  must  be  stressed  that  these  figures  are  still  incomplete,  since  the  establishment  of 
entitlements  as  a  result  of  Commission  inspections  depends  on  national  procedures  for 
collecting the necessary accounting  information. 

•'rovisional figure at 20 August  1997 

19 

3.4 

Results of other forms of inspection 

It  is therefore  plain  that  on-the-spot  checks  can  uncover  problems  in  national  collection 
systems. However,  there is a great  deal of synergy between different  inspection  methods. 
On-the-spot  checks  are  generally  targeted  on the  basis  of  other  forms  of  inspection  and 
are a way of confirming the initial conclusions of the latter. 

3.4.1  Amounts written off 

The  number  of  reports  received  from  Member  States  on  cases  where  amounts  were 
written  off  under  Article  17(2)  of  Regulation  (EEC)  No  1552/89  was  much  lower  than 
expected.  Indeed  it  was  so  low  as  to  suggest  that  this  provision  is  not  being  applied 
uniformly.  Reports  were  received  from  only  five  Member  States  (France,  Germany, 
Netherlands,  Spain  and  the  United  Kingdom).  The  German  authorities  subsequently 
informed  the  Commission  that,  in  view  of  the  German  legislation  on  long  periods  of 
limitation, some cases had been reported by mistake and were now being withdrawn. 

The  action  taken  on  the  32  cases  actually  reported  to  the  Commission  over  the  period 
1993-96  (involving  a  total  of  ECU 8 762 001)  is  described  in  a  table  in  the  Annex.  It 
shows that  Germany withdrew  four  cases (involving  ECU 401 316) in which  attempts  at 
recovery  are  still  being  made  and  the  United  Kingdom  cancelled  one  case  reported  by 
mistake (involving ECU 23  103). The Commission has examined  the remaining 27 cases 
-  involving  a  total  of  ECU 8 337 582  -  to  determine  whether  the  Member  States 
concerned  showed sufficient  diligence in attempting to recover entitlements. 

The general outcome is as follows: 

Art. 17.2: Cases handled (by number) 

Art. 17.2: Cases handled (by value) 

Lack of 
diligence  ^ 

37% 

Under 
scrutiny 
37% 

Lack of 
diligence 
53% 

Under 
scrutiny 
43% 

Sufficient 
diligence 
26% 

Sufficient 
diligence 
4% 

20 

In more detail: 

a) 

in 10 cases, a lack of diligence was found: 
1 case was rejected as inadmissible; 

in 2 cases payments were made; 

in 2 cases  a suspected  infringement  form 
was drawn up; 
5  cases  were  confirmed  after  being 
challenged and payment was requested. 
10 cases are still under scrutiny. 
in  7  cases,  the  authorities  were  found  to 
have acted with diligence. 

b) 
c) 

Amounts at stake 
(ECU) 

% of total 
amount 

% of number of 
cases 

4428 487 
356 381 

95 883 

488  162 

53.1  % 

4.3 % 

1.1% 

5.9 % 

37% 

3.7% 

7.4% 

7.4% 

3 488 061 

41.8% 

18.5% 

3 550 966 

358 129 

42.6 % 

4.3 % 

37% 
26% 

These figures show  that,  subject  to  the cases  still under  scrutiny,  the  national  authorities 
failed to take proper action in more than one third of the cases reported  and that relatively 
large  sums  were  involved  in  these  cases  (53% of  the  total  value).  National  authorities 
could  usefully  concentrate  their  efforts  on  recovering  entitlements  in  cases  where  the 
financial  stakes are high. 

Although these results only cover reports submitted by a minority of Member  States, they 
point  to  real,  substantive  problems  in  the  collection  measures  employed  by  national 
authorities  and  in  the  uniform  application  of  the  whole  system.  In  response  to  this 
worrying  state of affairs,  the Commission  has since adopted  a number of measures which 
are described in detail below. 

3.4.2  Monitoring  the  recovery  of  traditional  own  resources  in  cases  of  fraud  and 

irregularities 

The  Commission  has  presented  the  budgetary  authority  with  two  reports  on  its 
monitoring  of  Member  States'  anti-fraud  activities  for  1994,  covering  respectively 
70%  and  30%  of  amounts  evaded  in  cases  of  fraud  and  irregularities  reported  to  the 
Commission between the first half of 1989 and the first half of 1993.20 

The  first  report,  based  on  a  sample  of  cases  involving  amounts  over  ECU  500  000, 
included  a  statistical  analysis,  which  revealed  that  large-scale  fraud  tended  to  revolve 
around  certain  agricultural  products,  chiefly  from  Eastern  Europe,  and  that  the  most 
common types of fraud  were removal from  the transit procedure and false  declarations on 
release  for  free  circulation.  Where  fraud  involved  industrial  goods  -  mainly  textile 
products,  hi-fi recording equipment  and TV sets from  South-East  Asia - there was a wider 
spread  both  in the  number  of  cases  and  in the  amounts  at  stake.  The  report  found  that, 
because of the complexity of the cases in question, only a tiny proportion  of amounts were 
recovered  and recovery rates varied from  one Member State to another. 

20  Commission reports on the recovery of traditional own resources in cases of fraud and irregularities  (sample A94 -  COM(95) 398 final, sample 

B94 - COM(97) 259/3, presented on 6 September  1995 and 9 June 1997). 

21 

The  "B94"  report  covered  the  Commission's  monitoring  - up  to final clearance  -  of  six 
particularly  difficult  cases involving over ECU  124 million in entitlements.  Three of these 
cases  are the  subject  of  debate between  the  Commission  and  the Member  States,  and in 
one case the Commission has issued a reasoned  opinion under the Article  169 procedure. 
During the first half of  1997 the Commission rejected  requests from  a number of Member 
States  for  remission  or  repayment  in respect  of  imports  of  Turkish  television  sets.  As a 
result of these rejections, actions have been brought before the Court of First Instance. 

Both  reports concluded  that the low recovery rates are due to the  sophisticated  nature of 
cross-border fraud and the complexity  of certain  agreements with non-member  countries. 
However,  the reports  also highlight the unsuitability  of national  recovery  procedures  and 
the  disparities  between  them,  the  slowness  of  legal  proceedings  and  the  lack  of 
cooperation between Member States under the mutual assistance arrangements. 

4. 

ASSESSMENT  OF  HOW  THE 
OPERATE 

INSPECTION  ARRANGEMENTS 

4.1 

Changes to the system for collecting and inspecting traditional own resources 

In general, the lack of consistency in reports submitted by the Member States tends to 
obscure  their  inspection  and  fraud-prevention  efforts.  A number  of improvements  to  the 
Commission's  information  system  have  been  agreed  with  the  Member  States.  On 
20 March  1997  the  Commission  adopted  a  decision  designed  to  make  reports  more 
consistent  by introducing  standard  models for  the  monthly  and  three-monthly  statements 
of  accounts  for  traditional  own  resources,  the  description  of  fraud  and  irregularities 
involving more than ECU  10 000 and the annual report mentioned above. 

From  1997 - i.e. for the  1996 financial  year - Member  States will draw up a single report 
on  the  outcome  of  their  inspections,  rather  than  two  half-yearly  reports,  in  accordance 
with the new,  amended  version  of Article  17(3) of  Council  Regulation  No  1552/89.  The 
new  summary  report  to  be  sent  to  the  Council  and  Parliament  in  the  course  of  1997 
should  give the budgetary  authority  a clearer picture  of the Member  States'  activities in 
this  field. 

Improvements  are  expected  in  the  recovery of  traditional  own  resources  in  cases  of 
fraud and irregularities when a new programme for collecting and transmitting electronic 
data  on  fraud  and  irregularities  ("Ownres")  comes  into  operation  at  the  end  of  1997.  It 
will enable fraud  reports to be incorporated  automatically  and updated,  in particular  - and 
this is its most novel feature - in connection with recovery. 

22 

The uneven application of the Article  17(2) mechanism, which was also highlighted by 
the Court  of Auditors,  detracts from  the transparency  and  fairness  of the traditional  own 
resources  system.  Following  discussions  under  phase  III  of  the  SEM  2000  (Sound  and 
Efficient  Management)  programme,  the  Commission  put  forward  a  proposal  on 
3 July 1997  for  an  amendment  to  Council  Regulation  (EEC)  No  1552/89  aimed  at 
tightening up the procedure for write-offs,  which applies to entitlements not recovered by 
a set deadline, and helping the Commission make a fair  assessment  of the diligence shown 
by Member States.21  This proposal will also increase Member States'  liability for  amounts 
found  to be irrecoverable as a result of an administrative error by their authorities. 

The Commission  is to  propose  changes to the existing rules on the external  Community 
transit procedure  (Articles  378  and  379  of  the  Provisions  implementing  the  Customs 
Code),  in  particular  concerning  the  definition  of  the  customs  authority  responsible  for 
recovery  in  cases  where  the  principal  provides  evidence  of  the  place  where  the 
infringement  occurred,  and  the  amendment  of  Directive 76/308/EEC  regarding  mutual 
assistance22 for the recovery of claims.  The question  of transport  by sea to free  zones will 
be settled under the new Community transit arrangements. 

The  Commission  is taking  a general  look  at  the  administration  of the preferential  tariff 
arrangements, 
in  addition  to  the  problems  outlined  above.  It  has  presented  a 
communication analysing the reasons why these arrangements have not operated  properly. 
This  communication  addresses  the  aspects  of  legal  certainty,  the  recovery  of  own 
resources, the fight against fraud  and the effectiveness  of the Union's commercial policy.23 
It  sets out  a plan of action designed  to find solutions to the problems arising in this area, 
more especially the problems encountered in the recovery of own resources. 

As regards  the  actual  organisation  of  inspections,  on  10 January  1997 the  Commission 
adopted  a proposal  for  a Council  Regulation  replacing  Regulation  No  165/74.  The  new 
proposal,  which  is  designed  to  take  account  of  legislative  and  administrative  changes,24 
was laid before the Council and Parliament on 28 January  1997.25 

''  mM(97)  343 final, 3.7.1997. 

'''' 

rin-.ié proposals are contained in the Commission communication "Action plan for transit in Europe  A new customs policy" (COM(97) 188 final, 
points 4 4 ? and 4 4 3 of the Annex "Assifjnino liability for customs debt fairly, m a way that protects the various financial interests involved" and 

Sli.Minlininii debt recovery pioceduies", pp  7>\ and '«'4) 

•M 

iU)M(i)/)  40',' lin.il, Z< /  1ÏK»/, in u»v;poiu;n to tho loqueul by tho (.'.ounr.il in lis Decision of i!8 

19!)b\()JC  1/0, p 1 

•'',  1 hose charujes were announced in the Commission's first report on the functioning of the inspection arrangements (COM(93) 691 final, p  38) 

25  COM(96) 717 final and COM(96) 717 final/2 (corrigendum). 

23 

The  proposal  brings  together  in  a  single  text  the  implementing  provisions  for  the  two 
inspection procedures open to the Commission - joint inspections with the Member  States 
under  Regulation No  165/74 and the on-the-spot  checks it conducts  on its own  initiative 
under Regulation No 1552/89. 

It  also  provides  for  the  Commission  to  give  inspection  mandates  not  only  to  its  own 
established  officials,  but  also  to  other  staff  (temporary  staff  or  national  experts  on 
secondment),  along the  same lines as Council  Regulation  (Euratom,  EC) No 2185/96  of 
11 November  1996 on on-the-spot  checks and inspections carried  out by the Commission 
in order to  protect  the European  Communities' financial  interests  against  fraud  and  other 
irregularities.26 

Acting  on  the  commitment  it  made  at  the  interinstitutional  consultations  preceding  the 
amendment  of  Regulation  No  1552/89,  the  Commission  has  examined  Parliament's 
proposal  for  the  introduction  of  unannounced  own  resources  inspections  of  national 
government  departments. 

Through  its  contacts  with  national  government  departments,  the  Commission  has 
established  that  opposition  to  such  a  provision  in  the  Council  is  almost  unanimous. 
However,  it must be said that  similar provisions have been introduced  for  the  purpose  of 
protecting  the  Union's  financial  interests,  under  the  supervision  of  UCLAF.27  The 
introduction  of such a system - in a field where unannounced  inspections have an obvious 
purpose  -  has  answered  many  of  the  well-founded  concerns  expressed  by  MEPs  about 
cases of serious administrative  anomalies requiring  direct  intervention.  Under  the present 
rules  on independent  Commission  inspections  (Article  18(3)  of Regulation  No  1552/89), 
the Commission must give advance warning, but  it is authorised  to  intervene at  relatively 
short  notice  in  exceptional  circumstances.  Such  intervention  can  be  compared  to  an 
unannounced  inspection. 

However,  if  the  Commission  is  to  give  a  proper  appraisal  of  national  inspection 
arrangements,  it  must  prepare  the  ground,  acting  in  close  cooperation  with  national 
government  departments.  On the basis  of past  experience,  the  Commission  believes  that 
the  degree  of  cooperation  it  has  established  with  Member  States  is  such  that  it  can 
virtually  guarantee  that  appropriate  action  will  be  taken  in  the  event  of  any  serious 
malfunction  that has financial implications. 

26  OJI  292, 1511 19Q8,p2 
71 

:Uv m pruneau Conned ReçudataiH ft'uratom. I'C) No 2186796, ( )J I  292, 15 11 1996, p 2 

24 

4.2  General assessment and conclusions 

4.2.1  Why inspections are necessary and what purpose they serve 

Whenever action needs to be taken with regard to the practical operation of the traditional 
own  resources  system,  the  Commission  has  a  whole  armoury  of  different  measures  to 
draw on: it can make one-off corrections, request that appropriate instructions be given to 
remedy  shortcomings  in  national  procedures  and  practices  or,  in  the  case  of  persistent 
malfunctions,  clarify  the  interpretation  of  Community  legislation  and  work  towards 
improving it. 

As this report  has shown, the Commission  makes full  use of all the means at its disposal. 
Given  the  level  of  resources  which  can  reasonably  be  allocated  to  inspections  of  the 
traditional own resources system, these measures are fairly  effective. 

The  most  visible  effects  are the financial corrections  it  makes  where  legislation  has been 
applied  incorrectly,  and  the  collection  of  interest  for  late  payment  to  offset  the  loss  of 
revenue  incurred.  Moreover,  inspections  are  still  the  best  way  of  checking  that  customs 
legislation  is  properly  enforced  and  identifying  any  problems  that  crop  up.  The  report 
gives several examples where results have given rise to proposals designed to simplify  and 
restructure the legislative  framework. 

As far  as  the  future  is  concerned,  the  Commission's  inspection  activities  will  clearly  be 
justified  for  as long  as the  own  resources  system  exists in its present  form.  The  specific 
checks  performed  by  the  authorising  officer  under  Regulation  No  1552/89,  both  in 
scrutinising  own  resources  (Article  18)  and  analysing  information  sent  by  the  Member 
States  on  the  organisation  of  their  inspections  (Article  4(1)  of  the  Regulation)  and  the 
results  of  these  inspections  (Article  17(3))  give  us  a  good  understanding  of  the  real 
situation  on  the  ground  and  a  fairly  precise  picture  of  the  system  for  collecting  own 
resources. 

The Commission  intends to lay particular  emphasis  on  the accounting  treatment  given  to 
amounts  evaded  and  irregularities  and  on  the  various  stages  of  recovery,  i.e.  the 
establishment,  entry  in the accounts  and  making available  of  entitlements.  It  also  intends 
to add to the control measures already applied in connection with the TIR. 

4.2.2  Entry and customs status of goods at the Union's external borders 

On  the  basis  of  information  obtained  during  the  inspection  activities  described  in  this 
report,  the Commission  is able to answer the request made by Parliament28 concerning the 
entry  and  customs  status  of  goods  at  the  Union's  external  borders,  following  the 
observations  made by the Court  of Auditors  in its  annual  report  for  1994. The  following 
paragraphs constitute the Commission's official  reply. 

:iiling of  1 /  April 1996 and as partof the discharge procedure in respect ot the 1994 general budget 

-25 

When  goods  enter  Community  customs  territory,  the  departments  responsible  carry  out 
documentary  checks  as well  as inspections under  customs  legislation.  As part  of  its  own 
resources  inspections  and  its  analysis  of  information  sent  by  Member  States,  the 
Commission examines whether these checks are properly carried out. 

Taking  into  account  the  comments  made  above,  the  results  of  the  Commission's 
inspections  show  that,  in  general,  the  checks  carried  out  by  customs  authorities  on  the 
entry of goods are of an acceptable standard, given the huge number of basic transactions 
that take place each year - in the region of several hundred million, all customs  procedures 
and destinations combined. 

The  Commission  has  noted- that  Member  States  increasingly  decide  on  the  detailed 
inspection  arrangements  to  be  applied  (at  customs  clearance  or  post-clearance)  on  the 
basis  of  the  trade  flows  in  question  and  the  administrative  set-up  of  their  departments. 
This  explains  why  inspection  techniques  differ  from  one  Member  State  to  another.  The 
Commission  believes that  by developing  risk-analysis  methods  this  state  of affairs  can  be 
remedied and targeted  controls made more  effective. 

The  Commission  has  already  responded  by  adopting  certain  measures  designed  to  offer 
the  Community's  financial  interests  a high  level  of protection,  in  the  absence  of  internal 
borders, by ensuring that the procedures  and inspections  applied  to  imports  of goods  are 
equally effective  throughout the Community customs territory. 

In  this  context,  European  Parliament  and  Council  Decision  No  210/97/EC  of 
19 December  1996  adopting  an  action  programme  for  customs  in  the  Community 
(Customs 2000)29 laid  down  a clear legal framework  for  measures already  undertaken,  in 
particular  the  monitoring  operations  on  Member  States  in  1994,  which  were  aimed  at 
examining the procedures for inspecting sea borders and free zones. 

Other  initiatives to be implemented  under this programme include the  computerisation  of 
customs  departments  at  Community  level,  essential  for  the  rationalisation  of  procedures, 
and  the  development  of  guidelines  in  the  field  of  risk  analysis.  On  this  last  point,  the 
Commission,  in  close  cooperation  with  the  Member  States'  customs  authorities,  is 
studying the possibility of establishing common principles for  applying these techniques at 
Community level.30 
It  also hopes to  define  common  criteria  for  permitting  operators  to 
use  simplified  procedures  as  well  the  targeting  and  co-ordination  of  controls.  It  is  also 
planning to draw up Community-wide "risk profiles". 

i\ll  X\  4 2 199/ 

1 lu* initial lesults  aie being studied by the special at/ hoc sub gioup on internal audit set  up by  the Advisory  Committee  on Own Resources 
under phase III of the "Sound financial management" initiative 

26 

The aim of checks on  the  customs status of goods presented  at  customs is to  prevent 
non-Community  goods being granted  the status  of goods in free  circulation  resulting  in a 
failure to collect own resources. Inspections by the Commission and the Court of Auditors 
have  revealed  that,  in  the  case  of  goods  transported  by  sea  and  -  in  certain  simplified 
external  transit  procedures  -  by  air  or  sea31,  the  present  procedure  has  a  number  of 
shortcomings and does not really guarantee that own resources will be collected. 

To remedy this state of affairs,  Member States have been asked  for  additional  information 
on  anomalies  which  might  have  an  impact  on  the  Community  budget.  At  its  meeting in 
February  1995,  the  Community  Customs  Committee  -  Transit  Section  adopted 
administrative  arrangements  for  the ex post  inspection  of  such  procedures,  which  should 
improve the situation. 

The Commission is also considering  a draft  amendment  of the  regulations  to  simplify  the 
procedures applied to the transit  of non-Community goods by sea and tighten  controls on 
the  customs  status  of  such  goods.  This  measure  also  forms  part  of  the  action  plan  for 
transit adopted by the Commission on 30 April  1997 and sent to the budgetary authority.32 

*. 

This  report  is  one  of  several  which  the  Commission  has  laid  before  the  budgetary 
authority  on  the  inspections  it  carries  out  on  revenue,  including  the  summary  of  the 
Member  States'  annual  reports  on the  results  of their  inspections  under  Article  17(3)  of 
Regulation No  1552/89, the special report  of the Financial Controller under  Article  29(3) 
of  the  Financial  Regulation  and  UCLAF's  annual  report  on  the  fight  against  fraud. 
Mention  should  also  be  made  of the  reports  on  action  taken  to  follow  up  comments  by 
Parliament. 

More generally, these reports supplement the accounting and budgetary information  which 
the  Commission  is  required  to  supply  under  Article  78  of  the  Financial  Regulation,  in 
particular  the  consolidated  revenue  and  expenditure  account  containing  a  statement  of 
established  own resources by Member  State and an annex showing  potential  entitlements 
relating to fraud  and irregularities. 

The  next  report  on  the  functioning  of  the  inspection  arrangements  for  traditional  own 
resources will cover the period  1997-99 and appear in first half of the year 2000. 

31  Articles 314 ff. of the provisions implementing the Code. 

32  COM (97) 188 final. 

- 2 7-

ANNEX 

Application of Article 17(2) of Regulation No 1552/89 

Reference 

Member 

Reasons given for release 

Entitlements 

Commission position 

Status of case 

period 

State 

from obligation 

(half-year) 

at stake 

(ECU) 

1st half 1993 

D 

Firm wound up 

15 250 

Rejection 

Case withdrawn by D 

UK 

Case reported by mistake 

23105 

Cancellation 

Closed 

'2nd half 1993 

D 

Bankruptcy 

48 329 

Information requested 

Case withdrawn by D 

Debtor insolvent 

18 734 

Information requested 

Case withdrawn by D 

NL 

UK 

Bankruptcy 

Bankruptcy 

Bankruptcy 

25 350 

Sufficient diligence 

Closed 

19114 

Lack of diligence 

Amount paid. Closed 

14021 

Sufficient diligence 

Closed 

1s1  half  1994 

D 

Circumstances to be explained 

319 003 

Information requested 

Case withdrawn by D 

NL 

Bankruptcy 

62 894 

Sufficient diligence 

Closed 

Bankruptcy 

44 744 

Sufficient diligence 

Closed 

Firm ceased trading 

136135 

Sufficient diligence 

Closed 

UK 

Trader ceased business 

37 344 

Lack of diligence 

UK refuses to pay. 
Suspected infringement form 
drawn up. 

Liquidation 

76 769 

Lack of diligence 

Amount paid. Closed 

2nd half 1994 

1st half  1995 

E 

F 

E 

NL 

UK 

Trader ceased business 

37151 

Sufficient diligence 

Closed 

Debtor insolvent 

902 857 

Lack of diligence 

In progress 

Liquidation 

37 834 

Sufficient diligence 

Closed 

Debtor insolvent 

1  555 753 

Further information requested 

In progress 

Debtor insolvent 

401345 

Further information requested 

In progress 

Circumstances to be explained 

675 227 

Information requested. 

In progress 

Bankruptcy 

450 818 

Lack of diligence 

UK does not accept 
Commission's position 
I Jnder review 

^iwlhf ill 1995 

UK 

Bankruptcy 

1  802 954 

Information requested 

In progress 

Bankruptcy 

576 925 

Lack of diligence 

UK does not accept 
Commission's position 
Under review 

Bankruptcy 

Bankruptcy 

481  063 

Information requested 

In progress 

116 862 

Lack of diligence 

Bankruptcy 

88  463 

Lack of diligence 

Subtotal 

25 cases reported 

7 968 042 

UK does not accept 
Commission's position 
Under review 

UK does not accept 
Commission's position 
Under review 

- 28 

Reference 

Member 

Reasons given for release 

Entitlements 

Commission position 

Status of case 

period 

State 

from obligation 

(half-year) 

at stake 

(ECU) 

Subtotal 

25 cases reported 

7 968 042 

1st half  1996 

UK 

Debtor insolvent 

356 381 

Inadmissible 

UK reply expected 

2nd half 1996 

NL 

Bankruptcy 

138 953 

Information requested 

open 

1996 (whole 
year) 

F 

Debtor insolvent 

215 995 

Under scrutiny 

open 

Bankruptcy 

Bankruptcy 

Bankruptcy 

10 777 

Under scrutiny 

23 830 

Under scrutiny 

36112 

Under scrutiny 

Debtor insolvent 

11911 

Under scrutiny 

B 

DK 

open 

open 

open 

open 

Total 1993/96 

32 cases reported 

8 762001 

Art. 17(2) Number of cases by Member State  1993/96 

Number  of cases 

ISSN 0254-1475 

COM(97) 673  final 

DOCUMENTS 

EN 

09 

Catalogue  number  :  CB-CO-97-689-EN-C 

ISBN  92-78-28742-3 

Office  for Official  Publications of the European  Communities 

L-2985  Luxembourg 

M