Special Report No 7/98 in respect of the European Community Development Aid Programme regarding South Africa (1986-1996) accompanied by the replies of the Commission pursuant to the second sub-paragraph of Article 188 C (4) of the EC Treaty
Date: 1998-05-28
Institutions: European Court of Auditors
Subjects: EU programme, South Africa, democracy, development aid, report, sustainable development

31.7.98

EN

Official  Journal  of  the  European  Communities

C  241/81

SPECIAL  REPORT  No  7/98

in  respect  of  the  European  Community  Development  Aid  Programme  regarding  South  Africa
(1986-1996)  accompanied  by  the  replies  of  the  Commission

pursuant  to  the  second  sub-paragraph  of  Article  188  C  (4)  of  the  EC  Treaty

(98/C  241/03)

CONTENTS

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

83

Paragraph
reference

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 — 14

Background  on  the  European  Community  Development  Aid  Programme
regarding  South  Africa . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 — 8

The  Court’s  audit  policy  towards  EC’s  South  Africa  Aid  Programme . . . . . . .

1 — 14

IMPLEMENTATION  OF  THE  BUDGET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15 — 19

SYSTEM  FOR  IMPLEMENTING  PROJECTS  THROUGH  THE  CHANNELS

20 — 52

Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20 — 24

Observations  concerning  the  Channels  system . . . . . . . . . . . . . . . . . . . . . . . . . .

25 — 52

Design weaknesses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

25 — 27

Formulation  of  projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

28 — 30

Financial  and  treasury  management

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

31 — 32

Payment  and  reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

33 — 38

Project  monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

39 — 44

Closure  of  contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

45 — 52

THE  EUROPEAN  PROGRAMME  FOR  RECONSTRUCTION  AND
DEVELOPMENT  (EPRD)  1994-1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

53 — 85

The  EPRD  system . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

53 — 69

Government  projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

62 — 65

NGO  projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

66 — 69

Weaknesses  in  the  tools  and  procedures  for  implementation  of  the  EPRD . . .

70 — 85

Payment delays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Exchange  losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

71

72

Financing agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

73 — 78

Tendering  procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

79

Technical assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

80 — 85

COMMISSION  ORGANIZATION  AND  RESOURCES . . . . . . . . . . . . . . . . . . . .

86 — 92

84

84

90

90

95

95

98

98

99

99

100

100

101

102

102

103

104

104

104

105

105

106

106

106

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Official  Journal  of  the  European  Communities

31.7.98

CO-ORDINATION  IN  DEVELOPMENT  CO-OPERATION  BETWEEN  THE
COMMUNITY  AND  MEMBER  STATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

93 — 97

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

98 — 104

Paragraph
reference

Page

107

108

Annex . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

111

Table  of  Abbreviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

114

Replies  of  the  Commission . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

115

31.7.98

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C  241/83

Summary

Between  1986  and  1997  the  European  Community  provided  830,2  Mio  ECU  in  its  aid  programme
to  South  Africa.  Initially,  and  notably  from  1986  to  1991,  the  programme  funded  projects  to  assist
the victims of apartheid and was carried out in the face of active opposition from the South African
authorities. It succeeded, nonetheless, in making a positive contribution to peace and democracy. As
the  political  situation  in  South  Africa  evolved,  the  programme  continued  to  support  democracy  and
human  rights,  and  started  to  promote  social  and  economic  development.  In  1994  the  democratic
government  was  established,  the  Commission  Delegation  was  opened  in  Pretoria  and  a  cooperation
agreement  between  South  Africa  and  the  Community  was  signed.  The  European  Programme  for
Reconstruction  and  Development  (1994-99)  was  started.

This  report  examines  how  the  programme  was  implemented  and  managed  by  the  Commission  and
other  organisations  involved.  It  focuses  mainly  on  the  period  1993-97.

Many  of  the  key  findings  in  this  report  concern  weaknesses  on  which  the  Court  has  previously
commented  in  other  reports  on  development  cooperation  programmes.  They  are,  therefore,  of
general  relevance,  and  the  Commission  should,  without  delay,  take  steps  to  overcome  them.

As in other parts of the world, the implementation of the programme has been adversely affected by
there being too many layers of decision making and administration, with too many matters having to
come up to Commission headquarters in Brussels for final decision. This was one of the main causes
of  delays  and  deficiencies  in  project  implementation  and  monitoring.  In  particular  during  the  first
phases of the European Community and South African cooperation, it was found that projects were
often poorly formulated, timetables were unrealistic, and some conditions in contracts and financial
agreements  were  inappropriate.  Treasury  management  by  the  Commission  was  poor.  Reporting
procedures  were  inadequate,  and  monitoring  by  the  Commission  was  weak.  Apart  from  the  global
evaluation of the European Special Programme carried out in 1996, there was insufficient evaluation
of  the  effectiveness  of  the  actions  financed  through  non-governmental  channels.

The Commission underestimated the institutional strengthening that was needed by its South African
partners  to  enable  them  to  implement  the  programme  more  effectively  and  efficiently.  When  the
Commission  began  the  programme  with  the  new  government  in  1994,  like  other  donors  it  was
unrealistic  about  the  volume  of  funds  that  could  be  efficiently  and  effectively  absorbed  in  the  short
term  by  the  South  African  administration.  It  would  also  have  been  preferable  to  concentrate
resources  on  fewer  sectors  initially.

The European Programme for Reconstruction and Development is delayed in its implementation, and
disbursements  are  much  lower  than  planned.  The  Bursary  Programme  1993-95,  which  was  one  of
the main Community actions, was less effective than it could have been because of poor management
and  monitoring.  A  backlog  of  more  than  750  completed  or  inactive  contracts  going  back  to  1986
have  not  been  properly  closed  by  the  Commission.

Throughout  the  period  the  resources  allocated  by  the  Commission  for  the  management  of  the
programme,  and  their  organisation,  were  inadequate.  There  was  a  lack  of  appropriate  management
information  systems  and  procedures  were  not  clearly  defined.

The  Commission  should  establish  a  more  decentralised  management  approach  that  places  decision
making authority at the most appropriate level in the system and utilizes the limited resources of the
Commission  for  managing  and  controlling  the  use  of  Community  funds  in  an  optimal  manner.
Operational  and  financial  responsibilities  should  be  decentralised  away  from  the  central  services  in
Brussels to the field, and management resources should be reallocated accordingly. The Commission
should  simplify  procedures  and  reduce  delays.

The  Commission  should  address  more  realistically  the  constraints  in  its  own  services  which  affect
programme implementation and the absorption capacity of its South African partners. It should pay
greater  attention  to  strengthening  the  administrative  capacity  of  its  South  African  partners,  whether
governmental  or  non-governmental.

Donor  coordination  should  be  strengthened,  especially  with,  and  between,  the  Member  States.  In
future trade and cooperation agreements, the Commission and Member States should ensure that the
Union’s  commercial  policy  is  supportive  of  their  strategy  for  development  cooperation.

C  241/84

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Official  Journal  of  the  European  Communities

31.7.98

INTRODUCTION

Background  on  the  European  Community  Development
Aid  Programme  regarding  South  Africa

In  September  1985,  in  response  to  the  intensified
1.
political repression in South Africa, the Foreign Ministers
of  the  European  Community  (EC)  adopted  a  twin-track
policy  of  restrictive  and  positive  measures  to  foster
peaceful  transition  to  democracy (1).  The  restrictive
measures  involved  a  trade  embargo,  and  economic  and
political  sanctions.  The  positive  measures  launched  in
1986  involved  support  financed  from  the  general  budget
of  the  European  Community  to  victims  of  apartheid  and
disadvantaged communities (2).

2. From  1986  to  1997,  a  total  of  830,2  Mio  ECU  were
committed  to  the  EC  aid  programme,  for  projects  in  a

wide  variety  of  sectors.  The  programme  passed  through
different  phases  taking  into  account  changes  in  the
political  environment,  and  the 
introduction  of  new
objectives  and  arrangements  for  implementation.  Three
different  conceptual  phases  can  be  identified:  1986-1990
(Special  Programme  to  Assist  the  Victims  of  Apartheid),
1991-November  1994  (Special  Programme  for  South
Africa) and November 1994-1999 (European Programme
for  Reconstruction  and  Development  in  South  Africa).
Clear cut-off lines between these phases cannot be drawn:
project  execution  timeframes  overlapped  these  periods
and projects were integrated into successive programmes.
Figure  1  sets  out  chronologically  the  political  events  that
occurred,  the  measures  undertaken  by  the  European
Community in response to these events, and the legal and
operational  arrangements  that  were  established.  Figure  2
provides  further  information  on  each  phase.

(1)  Ministerial 

level  political  cooperation  meeting  on  10

September  1985.

(2)  EC development aid scheme regarding South Africa has been
funded  between  1986  and  1990  from  budget  line  B9530;
between  1991  and  1995  from  B7-5070  and,  since  1996,
from  B7-320.

Political situation

European Community measures towards South Africa

Co-operation legal & operative arrangement

FIGURE 1

EC - South Africa Chronology

Sept 85:
EC Foreign Ministers adopted policy toward South Africa;
which involves:

Trade embargo & economic & political
sanctions

Positive measures to support disadvantaged
communities & victims of apartheid.

— Ban on oil sales; sanctions on imports of iron,

steel and gold coins

— Ban on new European investments
— No military cooperation
— Discouragement  of  cultural,  scientific  &

sporting links

1986
— European  Parliament  &  Council  decided  to
create a budget line in favour of beneficiaries
in South Africa.

— Establishment  of  the  Special  Programme  to

Assist Victims of Apartheid.

— No specific legal basis; legal framework was defined
mainly by the budgetary comments of the European
Parliament, by the Financial Regulations and by the
projects contracts.

— Aid  routed  through  European  NGOs  and  local

Channels (SACC, SACBC, KT & ICFTU).

— Projects implemented by local NGOs.
— No direct involvement of the Commission.
— Relax financial control & reporting

1985 Apogee of apartheid

July 85: South Africa Govern-
ment  proclaimed  National
State of Emergency.

1986

Political  difficulties  for  the
harassment,
beneficiaries; 
banning  orders, 
imprison-
ment.

1988
Bomb  attacks  on  Channels
and 
beneficiaries’
offices.

project 

Feb 90
— Apartheid starts to decline
— Unbanning  of  political  op-
position organizations
— Release  of  political  pri-

soners. 

1991 Abolition of the apartheid and
racial laws: ‘Group Areas Act’
& ‘Land Acts’.

Gradual  removal  of  trade  embargo  and  other
sanctions.

The  EU  aid  scheme  is  renamed  the  Special  Pro-
gramme for South Africa. The SPSA aimed tran-
sition  to  democracy,  incorporating  development
objectives.

— Aid routed directly through local Channels (SACC,

SACBC, KT & ICFTU).

— Projects implemented by local NGOs.

Feb 91
— The  Commission  opened  in  Pretoria  a  Programme
Coordination  Office  (PCO).  Staff  under  ECA  con-
tracts.

— EC  involvement  in  identification  &  project  moni-

toring.

.

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Political situation

European Community measures towards South Africa

Co-operation legal & operative arrangement

Dec 93
Council Decision adopting CFSP Joint Action in
support of democratic transition in South Africa.
European Union Electoral Unit for monitoring 94
elections. 

Dec 93
— European Parliament declaration on South Africa.
— Signature  of  the  ‘Establishment  Agreement’  for  the

EC Delegation in

Pretoria.

1994

The ending of restrictions on military cooperati-
on completes the removal of sanctions.

March 94
EC Delegate presents his credentials.

April 94
— National & Provincial elec-

tions

— Government  of  National

Unity

Nov 94
SA Parliament adopts the Re-
construction  &  Development
Programme (RDP)

Apr 94
Council  adopts  a  package  of 
immediate
measures; offers to negotiate rapidly a coopera-
tion agreement.

Oct 94
Signature  of  a  simplified  Co-operation  agree-
ment; 

Nov 94
— The aid scheme is renamed as European Pro-
gramme  for  Reconstruction  &  Development
(EPRD).

— The scheme supports policies and reforms un-
dertaken  by  the  SA  Government  under  the
RDP for improving living conditions.

May 94
EC Delegation offices are opened in Pretoria.

Nov 94
South Africa Government becomes the EC's interlocu-
tor  on  development  policy;  projects  implemented
through  Government  services  (Central,  Regional  &
Local) and NGOs.

Dec 94
Council approves the co-operation agreement.

Dec 94
PCO  is  closed;  responsibilities  are  taken  over  by  the
Delegation

May 95
Signature of the Declaration of Intent; EU com-
mitment to the Government RDP

Jun 95
Start of negotiations on a bilateral trade and co-
operation  agreement  for  the  establishment  of  a
free-trade area.

Jun 95
Council  Decision  95/207/EC  granting  Com-
munity guarantee against losses under loans for
projects in SA, EIB operations.

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Political situation

European Community measures towards South Africa

Co-operation legal & operative arrangement

May 96
The  Constitutional  Assembly
adopts 
the  South  Africa
Constitution

Nov 96
Council  Regulation  No  2259/96  on  development  co-
operation with SA; legal basis for administrative, finan-
cial & operative arrangements. 

Apr 97
South  Africa  becomes  a  member  of  the  Lomé
Convention.

May 97
Signature of the Indicative Programme

1999 End of timeframe for the RDP

End of timeframe for the EPRD

End of timeframe for Council Regulation No 2259/96

Source: Court of Auditors & Evaluation of the European SPSA (SPM, 1996).

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C  241/88 

EN 

Official  Journal  of  the  European  Communities 

31.7.98

FIGURE  2

EC  development  aid  scheme  regarding  South  Africa

Phase  I  —  1986-1990

Aim: 

Main  areas  targeted: 

Special  Programme  for  the  Victims  of  Apartheid  (SPVA)

To foster transition to a peaceful, stable, democratic and non racial South
Africa  by  assisting  the  victims  of  political  repression.

—  Humanitarian  &  social  initiatives;
—  Training  &  education;
—  Legal assistance.

Implementing organisations: 

—  European  NGOs.
—  South  African  Channels:  SACC,  SACBC,  KT  &  ICFTU.

Organisational
arrangements:

The Commission was not involved in the definition, appraisal, monitoring
&  implementation  of  the  projects.
Legal  responsibility  laid  on  European  NGOs.

Appropriations  committed 

108,6  Mio  ECU

Phase  II  —  1991-Nov  1994

Aim: 

Main  areas  targeted: 

Special  Programme  to  South  Africa  (SPSA)

To  foster  transition  to  a  democratic  and  prosperous  South  Africa  by
integrating  development  objectives  and 
supporting  disadvantage
communities

—  Tertiary  &  adult  education;
—  Vocational training;
—  Primary  health  care;
—  Community  &  rural  development;
—  Human  rights  &  democracy.

Implementing organisations: 

—  South  African  Channels:  SACC,  SACBC,  KT  &  ICFTU
—  No  intervention  of  European  NGOs.

Organisational
arrangements:

The  Commission  was  involved  through  the  Project  Coordination  Office
(PCO)  in  the  identification.  assessment  and  monitoring  of  projects.

Appropriations  committed: 

230,7  Mio  ECU

Phase  III  —  Nov  1994-1999

European  Programme  for  Reconstruction  and  Development  (EPRD)

Aim: 

Main  areas  targeted: 

To  foster  transition  to  a  democratic  and  prosperous  South  Africa  by
supporting  policies  and  reforms  undertaken  by  the  South  African
Government  under  the  Reconstruction  and  Development  Programme
1994-1999

—  Education  &  training;
—  Health;
—  Rural  &  Urban  development;
—  Economic  co-operation,  trade  &  investment  promotion,  support  for

small,  medium  and  micro  enterprises;

—  The  promotion  of  good  governance  and  democratisation.

Implementing organisations: 

—  Central,  provincial  en  local  government  structures;
—  Transitional  National  Development  Trust  (TNDT)  &  local  NGOs.

Organisational
arrangements:

is  directly 
The  Commission 
monitoring  through  the  EC  Delegation  in  Pretoria.

involved 

in  project  management  and

Appropriations  committed: 

479,5  Mio  ECU  (at  31.12.1997)

Source:  Court  of  Auditors.  Evaluation  of  the  European  SPSA  (SPM,  1996),  accounts  of  the  Commission  1986-1996.

31.7.98

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C  241/89

local  organisations  called 

3. The  first  phase  covered  the  period  1986-90.  A  total
of  108,6  Mio  ECU  was  committed  to  over  400  projects
in  areas  of  humanitarian  and 
legal  assistance  and
education.  The  vast  majority  of  these  projects  were
the
promoted  by 
‘Channels’ (3): 
an
Kagiso 
interdenominational  body  formed  by  the  churches  and
trade  unions  in  South  Africa,  the  South  African  Catholic
Bishops’ Conference (SACBC), the South African Council
of  Churches  (SACC)  and,  to  a  lesser  extent,  by  the
European-based 
International  Conference  of  Trade
Unions  (ICFTU).

three 
the 

Trust 

(KT) 

and 

the  Channels: 

4. During  this  phase  there  was  no  direct  link  between
contractual
the  Commission 
responsibility  towards  the  Commission  for  the  projects
lay  with  European  non-governmental  organisations
(NGOs) which were responsible for forwarding the funds
to  the  Channels  in  South  Africa  and  for  financial  and
narrative  reports.  The  programme  was  carried  out  in  the
face  of  active  opposition  from  the  South  African
Government  and 
the  beneficiaries  were  normally
opponents  of  the  regime  and  subject  to  harassment,
banning  orders  and  imprisonment.  The  Commission
its  normal  financial  control  and  reporting
adapted 
requirements  to  the  realities  of  the  situation  and  treated
the  projects  with  a  high  degree  of  confidentiality.

5.
In  1990,  the  political  situation  in  South  Africa
evolved  positively  and  the  trade  embargo  and  economic
and political sanctions were gradually lifted. In 1991, the
EC  aid  programme  entered  a  second  phase  and  was
reorientated  to  take  into  account  development  objectives
and  new  sectors.  The  involvement  of  European  NGOs
came  to  an  end  and  the  Commission  concluded  project
contracts directly with the Channels in South Africa. The
political situation did not yet permit the establishment of
an EC Delegation in Pretoria. The Commission, however,
opened  a  Programme  Coordination  Office  (PCO)  in
February  1991  staffed  by  technical  assistants  under
European  Association  for  Cooperation  (ECA)  contracts,
in  order  to  provide  support  to  partners  and  to  monitor
projects.

6. The third phase of the EC programme of assistance to
South  Africa  began  in  November  1994  following  the
democratic 
the
the 
Government of National Unity and the conclusion of the

establishment 

elections, 

of 

(3)  The  term  ‘Channels’  is  used  to  describe  these  associations
because  the  Commission  channelled  through  them  the  funds
of  the  Programme  to  the  implementing  organisations.

the  EC  and 

sustainable  development  and 

Cooperation  Agreement  between 
the
Republic of South Africa (4). The aim of this phase, called
the  European  Programme 
for  Reconstruction  and
Development  (EPRD),  is  to  contribute  to  South  Africa’s
to
harmonious  and 
consolidate  democratic  society.  The  South  African
Government  is  now  the  interlocutor  of  the  EC  in  the
development  policy  dialogue.  Project  implementation  has
been  opened  as  a  priority  to  central,  regional  and  local
government  departments; 
the
traditional  Channels,  local  NGOs  are  financed  directly
for  sectoral  programmes  and  a  Transitional  National
Development  Trust  (TNDT) (5)  has  been  established  to
direct  funds  to  local  NGOs  for  small  projects.

instead  of 

further, 

for 

the  agreement 

In  December  1993, 

7.
the
establishment of the Delegation of the EC in South Africa
was  signed.  The  Delegation  offices  were  opened  in
Pretoria  in  May  1994  and  the  PCO  was  closed  in
December 1994. Finally, in November 1996, the Council
adopted  a  regulation  on  development  cooperation  with
South  Africa (6),  which  set  out  the  legal  basis  for  the
EPRD  operations;  500  Mio  ECU  was  earmarked  to
finance  the  EPRD  during  the  period  1996-99.  The
National  Indicative  programme  was  signed  by  the  South
African  Government  and  the  Commission  in  May  1997.

8. Since  November  1994,  EC-South  Africa  relationships
have  also  developed  in  other  political,  commercial  and
economic  areas.  In  June  1995  negotiations  of  a  bilateral
trade agreement for the establishment of a free-trade area
were  opened.  Such  an  agreement  is  of  major  importance
for  the  development  of  the  South  African  economy,
progress  has  been  slow  and  discussions  were  ongoing  at
the  date  of  adoption  of  this  report.  In  April  1997,  South
Africa  became  a  member  of  the  Lome´ Convention
concluded between the EC and the Africa, Caribbean and
Pacific  (ACP)  countries (7).

(4)  The  Agreement  was  signed  in  Pretoria  in  October  1994  and
approved  by  the  Council  on  19  December  1994  (OJ  L  341,
30.12.1994).

(5)  The  TNDT  is  the  first  step  towards  the  creation  of  a
National  Development  Agency  which  will  ensure  NGOs
funding  in  the  future.

(6)  Council  Regulation  (EC)  2259/96  of  22  November  1996  on
development  cooperation  with  South  Africa  (OJ  L  306,
28.11.1996).

(7)  The  EC  aid  programme  to  South  Africa  will,  however,
continue  to  be  financed  from  the  EC  General  Budget  as
South  Africa’s  accession  to  the  Convention  is  limited.

C  241/90

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Official  Journal  of  the  European  Communities

31.7.98

The  Court’s  audit  policy  towards  EC’s  South  Africa  Aid
Programme

—  52).  Particular  attention  was  paid  to  the  Bursary
Programme implemented by Kagiso Trust, which was
the  largest  EC  operation  carried  out  in  South  Africa
(Annex);

9.
In  1991  the  Court  reviewed  the  Commission’s
administration  of  the  programme  to  date  and  identified,
after  taking  into  account  the  management  and  control
constraints under which the Commission and its partners
were  working,  a  number  of  weaknesses:  incomplete  files;
lack  of  progress  reports;  the  weak  role  of  the  European
NGOs  in  project  implementation,  and  poor  financial
management  (over-funding  of  projects,  large  outstanding
balances  and  non-recovery  of  unused  amounts).

10.
In 1993 and 1994, the Court examined the financial
accounts  regarding  the  South  African  aid  programme.
The  Court  pointed  out  to  the  Commission  that  financial
management was weak: the Commission did not have up
to  date  information  on  the  volume  of  funds  in  the  bank
accounts  of  the  Channels;  unnecessarily  large  amounts
were  being  held  in  these  accounts  and  there  was  no
policy  for  the  treatment  of  interest  earned.  In  addition,
there  was  a  backlog  of  more  than  750  projects  dating
back  to  1986  which  had  not  been  closed  and,  in  some
cases,  final  payments  were  still  outstanding.  The  services
of  the  Commission  appeared  not  to  have  the  capacity  to
deal  with  this.

11. The findings of the above audits were communicated
to  the  Commission  but  were  not  published  in  Court
reports.  In  order  to  follow  up  these  findings,  and  the
Commission’s  response  to  them,  in  1996  the  Court
started  a  comprehensive  audit  of  programme  to  South
Africa.

12. A  mission  to  South  Africa  was  carried  out  in  1997,
involving  meetings  and  documentary  checks  at  the  EC
Delegation,  at  the  Government  Departments,  at  the
Channels  organisations,  at  the  NGOs  and  at  other
organisations.  A  sample  of  projects  were  visited  on  the
spot,  final  beneficiaries  were  interviewed  and  physical
achievements  were  checked.

13. The  Court’s 
elements:

enquiry 

covered 

the 

following

(a)  the  procedures  and 

the
Commission  and  by  the  Channels  for  managing
projects  approved  during  the  period  1993-94  which
were  still  being  implemented  in  1997  (paragraphs  20

systems  applied  by 

(b) the  procedures  and 

the
Commission, South African Government departments,
NGOs  and  other  organisations  for  projects  financed
under  the  EPRD  (paragraphs  53  —  85);

systems  applied  by 

(c)  the  organisation  of 

the  Commission 

services
(paragraphs  86  —  92)  and  how  the  co-ordination
between  the  Community  and  the  Member  States  in
the sphere of development is working in South Africa
(paragraphs  93  —  97).

14.
In the following pages, a number of shortcomings in
the  financial  management  and  control  of  the  EC’s  aid
programme  are  set  out.  This  notwithstanding,  it  should
be emphasised as a general conclusion that, in spite of the
difficult  conditions  in  which  the  programme  was  carried
out,  the  EC  was  able,  during  the  first  two  phases,  to
support  projects  which  contributed  to  the  democratic
transition  in  South  Africa  and  which  relieved  victims  of
apartheid  and  disadvantaged  communities (8).  With  the
start  of 
for  development
cooperation  with  South  Africa  is  beginning,  an  era  in
which basic principles of cost-efficiency, financial control
and  accountability  must  be  observed  by  both  the
Commission  and  the  South  African  partners.

the  EPRD,  a  new  era 

IMPLEMENTATION  OF  THE  BUDGET

15. The impact on the budget of aid to South Africa for
the whole of the 1986 to 1997 period is shown in Figure
3.  Out  of  the  total  of  818,9  Mio  ECU  committed
between  1986  and  1997,  only  456,0  Mio  ECU  (56 %)
was  disbursed.  At  the  end  of  1997  the  commitments  still
to  be  settled,  consisting  mainly  of  projects  under  the
EPRD,  totalled  352,6  Mio  ECU (9).

(8)  See  the  Evaluation  of  the  European  Special  Programme  on

South  Africa.  SPM  Consultants;  October  1996.

(9)  Of  the  original  amounts  committed,  10,2  Mio  ECU  were

decommitted.

31.7.98

EN 

Official  Journal  of  the  European  Communities

C  241/91

Use  of  funds  allocated  for  programmes  in  South  Africa  1986—1997

FIGURE  3

Year

Budget
heading

Description

Commitments

Payments

Appropria-
tions
available

Appropria-
tions
committed

%

Appropria-
tions
available

Amounts
paid

%

Mio  ECU

Cancellations
against
previous
commitments

Amounts  still
to  be  paid
Accumulated
figures

1 

2 

3 

4 

5 

6=5/4 

7 

8 

9=8/7 

10 

11=5-8-10

1986 

1987 

1988 

1989 

1990 

9 5 3 Progr.  of  positive  measures
regarding  South  Africa

9 5 3 Progr.  of  positive  measures
regarding  South  Africa

9 5 3 0 Progr.  of  positive  measures
regarding  South  Africa

9 5 3 0 Progr.  of  positive  measures
regarding  South  Africa

9 5 3 0 Progr.  of  positive  measures
regarding  South  Africa

10,0 

6,6 

66 

5,0 

3,4 

68 

23,4 

18,6 

79 

16,6 

13,1 

79 

29,9 

29,9 

100 

23,4 

22,7 

97 

23,5 

23,5 

100 

19,5 

18,6 

95 

30,0 

30,0 

100 

37,8 

34,4 

91 

1991 

B7-5 0 7 0 Progr.  of  positive  measures

58,0 

58,0 

100 

47,7 

47,7 

100 

regarding  South  Africa

1992 

B7-5 0 7 0 Progr.  of  positive  measures

80,0 

80,0 

100 

66,5 

66,4 

100 

regarding  South  Africa

3,2

8,7

15,9

20,8

16,4

26,7

40,3

1993 

B7-5 0 7 0 Progr.  of  positive  measures

90,0 

89,8 

100 

72,9 

60,4 

83 

0,6 

69,2

regarding  South  Africa

1994 

B7-5 0 7 0 Progr.  of  positive  measures

102,5 

102,1 

100 

80,5 

58,0 

72 

0,1 

113,2

regarding  South  Africa

1995 

B7-5 0 7 0 European 

programme 

for

125,0 

123,3 

99 

92,3 

45,1 

49 

0,3 

191,1

reconstruction  and
development  in  South  Africa

1996 

B7-3 2 0 European 

programme 

for

130,0 

129,2 

99 

110,0 

28,5 

26 

1,3 

290,5

reconstruction  and
development  in  South  Africa

1997 

B7-3 2 0 Cooperation  with  South  Africa 

127,8 

127,8 

100 

60,5 

57,8 

96 

7,9 

352,6

Total 

830,2 

818,9 

99 

632,6 

456,0 

72 

10,2

Appropriations committed and still not paid

U
C
E
o
M

i

400

400

350

350

300

300

250

250

200

200

150

150

100

100

50

50

0

0

86 

86 

87 

87 

88 

88 

89 

89 

90 

90 

91 

91 

92 

92 

93 

93 

94 

94 

95 

95 

96 

96 

97

97

Year

Source: Commission revenue and expenditure account 1986-1997

 
C  241/92

EN

Official  Journal  of  the  European  Communities

31.7.98

in 

the 

last 

the  EPRD 

three  years 

16. Over 
the  amount  of
commitments remaining to be settled rose markedly. This
highlights  a  number  of  interrelated  points  which  are
examined  further  in  this  report.  The  increase  with  the
the  availability  of
introduction  of 
commitment  appropriations  has  run  ahead  of 
the
capability  of  the  Commission  and  the  South  African
authorities  to  spend  the  funds.  The  absolute  level  of
payments  declined  considerably  from  1994  to  1996,
despite the continued increase in payment appropriations
available.  The 
rate  of  utilisation  of  payment
appropriations in 1995 and 1996 was very low, reflecting
the  problems  encountered  in  implementing  the  EPRD.
levels  of  commitment  and  payment
The  budgeted 

appropriations  indicate  that  the  Commission  did  not
anticipate  these  problems.

in  1995.  Figure  5  sets  out 

17. Figure 4 shows the evolution of the EC commitment
and  payment  appropriations  granted  to  the  Channels
between  1993  and  1996;  this  figure  shows  the  drastic
the  payment
decline 
the 
appropriations  by  Channel;  KT  was 
largest
(82 %  of  payment
the  EC 
beneficiary  of 
appropriations), followed by the SACBC (14 %). Figure 6
presents the sectoral breakdown of the projects; the most
important 
the
commitments,  were  the  Bursaries  for  tertiary  education,
Community  development  and  Education  and  vocational
training.

totalled  77 %  of 

sectors,  which 

funds 

FIGURE 4

Appropriations by beneficiary Channel (Mio ECU) 1993-1996

Kagiso Trust

SACBC

Total

Commitments

Payments

Commitments

Payments

Number of projects

62,3
55,6
5,9
—
123,8

29,0
34,3
20,9
4,6
88,9

1993
1994
1995
1996
Total

12,9
4,2
—
—
17,1

8,1
4,8
1,4
0,3
14,6

1993
1994
1995
1996
Total

126
61
2
—
189

SACC

ICFTU

Commitments

Payments

Commitments

Payments

Commitments

Payments

1,6
2,5
—
—
4,2

0,7
1,6
0,4
0,2
3,0

1993
1994
1995
1996
Total

1,2
0,6
—
—
1,8

0,7
0,4
0,2
0,0
1,3

1993
1994
1995
1996
Total

78,1
62,9
5,9
—
146,8

38,6
41,1
23,0
5,2
107,9

1993
1994
1995
1996
Total

1993
1994
1995
1996
Total

Source: SINCOM

FIGURE 5 

Payment appropriations granted by Channel 1993-1996

SACC 
3 %

ICFTU 
1 %

SACBC 
14 %

Source: SINCOM

KT 
82 %

31.7.98

EN

Official  Journal  of  the  European  Communities

C  241/93

Breakdown by sector of commitment appropriations granted to Channels, 1993-1996 (%)

FIGURE 6

Sector
Bursaries for tertiary education
Community development & women
Education and vocational training
Miscellaneous
Primary health care
Administrative cost of the channels
Rural development & agriculture
Media
Trade union support
Total

Source: SINCOM & SAPMAN.

40,9 %
22,6 %
14,2 %
5,5 %
5,1 %
4,8 %
2,8 %
2,7 %
1,3 %
100,0 %

FIGURE 7

EPRD budget outturn 1994-1996

Government

NGO

TOTAL

Commitments

Payments

Commitments

Payments

Commitments

Payments

16,9
77,7
114,8

209,5

Government

5,9
11,7
2,1

19,7

10,2
39,3
14,4

63,9

NGO(s)

7,2
18,8
2,6

28,6

27,1
117,0
129,2

273,4

Total

13,1
30,5
4,7

48,4

Mio ECU

45

40

35

30

25

20

15

10

45
40
35
30
25
20
15
10
5
0

5

0
1994

1994 

1995

1995 

1996

1996

Vastleggingen
Betalingen

Vastleggingen
Betalingen

Commitments
Payments

80

140

120

100

140
120
100
80
60
40
20
0

20

40

60

0
1994

1994 

1995

1995 

1996

1996

Vastleggingen
Betalingen

Vastleggingen
Betalingen

Commitments
Payments

0

0
1994

1994 

1995

1995 

1996

1996

Vastlegginge
Betalingen

Vastleggingen
Betalingen

Commitments
Payments

1994
1995
1996

Total

140

140

120

120

100

100

80

80

60

60

40

40

20

20

Allocation of aid (commitments) between government and NGO 1994-1996

FIGURE 8

1994 Commitments

1996 Commitments

NGO
38 %

NGO
11 %

Total Commitments 
1994-1996

NGO
23 %

Government
62 %

Government
89 %

Government
77 %

Source: SINCOM

C

2
4
1

/

9
4

E
N

O

f
f
i
c
i
a
l

J
o
u
r
n
a
l

o
f

t
h
e

E
u
r
o
p
e
a
n

C
o
m
m
u
n
i
t
i
e
s

3
1
.
7
.
9
8

 
 
 
 
 
 
31.7.98

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Official  Journal  of  the  European  Communities

C  241/95

18. The  variation  in  Community  commitments  and
payments  for  the  new  programme  (EPRD)  between  1994
and  1996  is  shown  in  Figure  7.  This  shows  how  the
growth  since  1994  of  unspent  commitments  is  almost
entirely  explained  by  the  situation  of  the  Government
projects.  Of  the  16  Government  projects  funded  during
the  period,  only  five  had  actually  got  underway  by  the
beginning  of  1997.  Figure  8  shows  how,  following  the
normalisation  of  development  cooperation  with  South
Africa,  the  financing  of  NGO  projects  assumed  a  more
modest  role,  falling  from  38 %  in  1994  to  only  11 %  in
1996.  However,  it  should  be  noted  that  implementation
of  the  projects  that  are  directly  cofinanced  with  the

government  is,  in  fact,  partially  delegated  to  NGOs.  In
the  indicative  programme  signed  in  May  1997 (10)  the
amount 
cooperation
accounts  for  25 %  of  the  EPRD  annual  financial
package.

for  decentralised 

earmarked 

19. The  sectoral  allocation  of  the  EPRD  programmes
funded  between  1994  and  1996  is  shown  in  Figure  9.
Projects  in  the  ‘Good  governance  and  Democratisation’
and  ‘Education  and  Training’  sectors  are  the  most
significant.

FIGURE  9

EPRD:  Allocation  by  sector  1994-1996

Sector

Projects

Commitments

in  Mio  ECU

in  %

Good  governance  and  democratisation

Education  and  training

Rural  development

Multi-sectoral  projects

Health

Housing

SMEs

Urban  development

Trade  and  Investment  promotion

Source:  SINCOM.

Total

9

7

5

2

10

1

2

1

2

39

72

54

40

28

26

25

20

6

3

26,3

19,7

14,6

10,2

9,5

9,1

7,3

2,2

1,1

274

100,0

SYSTEM  FOR  IMPLEMENTING  PROJECTS  THROUGH
THE  CHANNELS

Introduction

20. The Channels system which operated during the first
two  Phases  of  the  EC  aid  programme  has  been  replaced
by  the  arrangements  under  the  EPRD.  During  1997,
however,  there  remained  some  projects  started  in  1994
and  1995  which  were  still  being  implemented.  The  key
observations  on  the  Channels  system  are  presented  here
in  order  to  highlight  those  weaknesses  in  the  system
which 
future  Community
programmes,  whether  in  relation  to  South  Africa  or
elsewhere.

should  be  avoided 

in 

21. The  observations  presented  below  deal  mainly  with
procedures,  systems  and  management  arrangements.
There is a need also to consider the achievements and the

impact  of  the  programme  run  through  the  Channels
system.  There  is,  however,  little  firm  information  on
which  to  base  an  assessment,  because  few  evaluations
have been carried out. Apart from one overall evaluation
the
the  period  1986-94  carried  out 
covering 
Commission  by  consultants  in  1995 (11),  out  of  more
than  700  projects,  only  four  have  been  evaluated
the  Bursary  Programme (12).  No  sectoral
including 
evaluations  have  been  carried  out.

for 

22. The  consultants  who  carried  out 
the  overall
evaluation  in  1995  reported  that,  in  general,  the  Special
Programme  up  to  1995  was  a  success,  relevant  to  the
needs  of  the  target  population,  had  had  a  significant
positive  impact  on  political  developments  in  the  country,
and  contributed  to  the  demise  of  apartheid.  They

(10) National  Indicative  Programme  signed  by  the  Commission

and  the  South  African  government  on  14  May  1997.

(11) ‘Evaluation  of  the  European  Special  Programme  on  South

Africa’,  SPM  Consultants,  October  1996.

(12) See  paragraph  10  in  the  Annex  on  the  Bursary  Programme.

C  241/96

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Official  Journal  of  the  European  Communities

31.7.98

that 

considered 
the  Programme  was  particularly
successful  during  the  early  years  (before  1991),  when
projects  were  initiated  from  below  and  there  was  a  high
degree  of  involvement  in  and  ‘ownership’  of  projects  by
levels  of  creativity  and
beneficiaries,  with  high 
enthusiasm.  It  was  noted,  however,  that,  notably  after
1991  and  as 
far  as  operational  procedures  were
concerned,  there  was  much  irritation  and  frustration
stemming  from  the  involvement  of  too  many  parties  in
the  management  chain,  a  lack  of  common  understanding
of  who  had  authority  over  what,  unclear  and
misunderstood  procedures,  and  a  shortage  of  staff.  The
Commission  was 
slow,  bureaucratic
seen  as  a 
organisation,  which  took  too  long  to  approve  projects

and  process  payments.  Reporting  requirements  were
unclear,  involved  duplication  of  work,  and  generated
little  substantive  feedback.

23. Figures  10  and  11  sketch  the  responsibilities  of  the
different  parties  for  approving,  paying  and  implementing
projects  funded  through  Channels.  These  procedures
developed  in  an  ad-hoc  manner,  according  to  the  clauses
in  the  standard  project  contracts  concluded  between  the
Commission  and  the  Channels.

31.7.98

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C  241/97

FIGURE 10

EU Projects funded through Channels Organizations

Approval and payment procedures

Project Holder:  
NGOs & CBOs

Applications for
funding

Channels

Screening of funding
applications

Proposals for funding

European
Commission

(PCO/Delegation &
Central services)

Appraisal of funding
proposals

(Central services)

Financing proposal:
project definition &
contract

Member States
Embassies in
South Africa &
Expert Group

Analysis of financing
proposals

Source: Court of Auditors

Project holder Bank
Account

Disbursement to
project holders

Fulfilment of
conditions set up by
Channel-holder
contract

Channels

Bank Call-Account

EC funded projects

Payment of 1st
Instalment

Signature of contract
between Commission
& Channel

Payment of 2nd
Instalment

Submission of Interim
report

Payment of last
Instalment

Submission of
Final report

Commitment of funds

Commission Decision
adopting the project
financing agreement

Operative -
implementation
procedures

Figure 11

Agreement on
proposals to be
financed

C  241/98

EN

Official  Journal  of  the  European  Communities

31.7.98

FIGURE 11

EU Projects funded through Channels Organizations

Operative implementation procedures

Project Holder

Channels

European
Commission

Approval of project
procedures

Figure 10

Establishment of
detailed conditions

Project contract

Definition of Project  

Financing
Agreement

Implementation

Guidance
Assistance &
Monitoring

Feedback

Reporting

Assessment

Supervision

Supervision

Approval of reports
& payments

Source: Court of Auditors

24. The  distinctive  feature  of  the  system  was  that  there
was  no  direct  link  between  the  European  Commission
and  the  project  holders;  all  relations  passed  through  the
Channels  which  were  the  sole  interlocutors  with  the
Commission.  This  entailed  filtering  funding  applications,
concluding contracts, managing and disbursing EC funds,
monitoring  and  assisting  holders  and  reporting  progress.

Payment
procedures

Figure 10

Observations  concerning  the  Channels  system (13)

Design  weaknesses

25. The  Channels  system  had  key  weaknesses  which
financial
hindered 

adequate 

control 

sound 

and 

(13) (Observations  concerning 
included  in  the  Annex).

the  Bursary  Programme  are

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management  and  which  caused  shortcomings  in  the
implementation  of  the  projects.  Firstly,  there  were  too
many organisations and levels of the Commission services
involved  in  the  administration  of  the  system  (project
holders,  the  Channels,  the  Commission  Delegation  and
Central  Services)  with  overlapping  responsibilities  and
insufficient information flows and coordination. Decision
making was slow, with the result that both payments and
the  implementation  of  actions  were  delayed.

extensions without analysing what had been achieved, the
plan  to  complete  the  projects  or  the  real  possibilities  to
respect  the  new  deadlines.  From  the  documentation
contained  in  the  Commission’s  files  it  was  not  always
possible  to  check  that  the  contracts  were  extended  in
accordance with the proper procedures and that deadlines
fixed  for  the  financial  commitments  had  been  respected.
Projects  were  identified  for  which  the  timetable  was
extended  after  the  initial  one  had  expired.

26. Secondly,  the  Channels  and  the  Commission  over  a
short  period  had  to  identify,  appraise,  execute  and
monitor  a  large  number  of  small  projects (14).  Most  of
them  were  managed  by  NGOs  and  Community  Based
Organisations 
limited  administrative
capacity. As a result, the number of decisions to be taken,
checks  and  financial  transactions  to  be  handled  was  very
high.  The  Commission  did  not  have  adequate  resources
to  deal  with  this  workload.

(CBOs)  with 

30. Extending  contract  deadlines  placed  a  considerable
administrative  workload  on  the  holders,  the  Channels
and  the  Commission.  For  example, 
in  1996  192
extension  operations  were  processed  through  the  system,
with  each  one  having  to  be  approved  in  Brussels.
Similarly, the contracts did not provide for any procedure
for  modifying  the  project  budget;  minor  changes  had  to
be  approved  by  the  Commission’s  central  services  in
Brussels and be the subject of contract riders. This led to
payment  and  operational  delays.

system  highlight 

27. Finally,  the  results  of  the  examination  of  the
Channels 
the  endemic
some  of 
the  Commission’s  management  of
weaknesses 
development  cooperation  programmes  on  which  the
Court  has  commented  repeatedly  in  its  reports.

in 

Formulation  of  projects

28. From  the  outset  projects  were  poorly  formulated:
essential  elements  (such  as  the  budget,  total  donors’
contributions  and  a  timetable  for  the  activities)  were  not
clearly  defined  or  were  completely  absent,  terms  of
reference were incomplete and confused. Despite attempts
by the Commission to improve matters by introducing in
1993 the use of logical frameworks (15) for project design
and implementation, these weaknesses remained up to the
end  of  the  Channels  system.

implementation 

the
29. Unrealistic 
contracts  were  the  source  of  problems.  Almost  all
projects  requested  the  extension  of  the  original  timetable
on  several  occasions.  The  Commission  approved  these

timetables 

in 

Financial  and  treasury  management

In  1994  and  1995  the  Court  pointed  out  in  letters
31.
to  the  Commission  that  it  had  not  monitored  adequately
the management of the funds transferred to the Channels.
It  had  failed  to  ensure  that  the  Channels  submitted
financial  reports  reconciling  the  funds  transferred  by  the
Commission  to  their  EU  project  bank  account,  the
amounts disbursed to the project holders, and the interest
accrued.  Excessive  balances  had  built  up  notably  in  the
KT  project  account,  and  considerable  interest  earned,
about  which  the  Commission,  both  in  Brussels  and  in
South  Africa,  had  wholly 
information.
Following the intervention of the Court, the Commission
took some action. By 1997 the situation had improved in
the  case  of  the  largest  Channel,  KT,  but  not  in  those  of
the  other  Channels.

inadequate 

(14) Between  1993-95  the  Commission  approved  189  projects
with  the  Channels,  most  of  them  for  amounts  of  less  than
0,2  Mio  ECU.  To  this  number  should  be  added  the  running
projects  approved  in  previous  years.  Around  700  projects
remained  open  during  the  considered  period.

(15) The  logical  framework  is  a  management  tool  aimed  at
improving  project  designing,  planning  and  monitoring.  It  is
used  by  major  development  aid  donors.

(ZAR)  applying 

32. The contracts with the project holders provided that
payments  were  to  be  made  in  ECU  and  converted  into
local  currency 
the  monthly  rates
published  in  the  EC  Official  Journal  to  the  expenditure
incurred  in  the  same  month.  This  provision  was  both
inappropriate and impractical since it would have obliged
the  Channels  to  keep  a  bank  account  in  ECU  (not
permitted  by  the  South  African  monetary  authorities),

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and  to  identify  the  monthly  payments  for  each  project,
on  which  to  base  disbursements.  In  practice,  the
Channels  converted  funds  received  from  the  Commission
immediately  into  ZAR  and  deposited  the  proceeds  in  a
local  currency  bank  account.  Although  the  Commission
was  aware  of  this,  it  did  not  modify  the  terms  of  the
contracts accordingly.

Payment  and  reporting

33. Project  payment  and  reporting  procedures  in  the
contracts  were  deficient  and  did  not  permit  adequate
monitoring  by  the  Channels  and  the  Commission.

34. The  contracts  with  the  project  holders  neither
specified  the  period  to  which  reports  should  refer,  nor
fixed deadlines for submission. Reporting was exclusively
linked  to  payments;  as  a  result,  the  project  holders  only
provided  reports  when  they  requested  disbursements.  If
an organisation did not request a payment, no report was
provided.  In  addition,  the  contracts  did  not  set  out
sufficiently  what  the  narrative  and  financial  reports
should  contain.

the  recurrent  costs  of 

In  many  cases,  however, 

35. The  majority  of  the  Channels’  projects  involved  the
the  beneficiary
funding  of 
organisations. 
reporting
problems  arose  because  the  contract  period  did  not
correspond  to  the  financial  year  of  the  organisation,
which  is  the  normal  period  for  accounting  for  and
reporting  on  the  activities  financed  by  the  contract.
Further, when in effect the Commission was providing an
annual grant to an organisation, it signed a new contract
before  the  previous  ones  had  been  reported  on  and
cleared.  For  some  organisations,  the  Commission  had
open  at  the  same  time  separate  contracts  funding
different  years.

36. Reporting  required  cumbersome  and  complicated
reconciliations. The difficulty of financial reporting meant
that  the  Commission’s  services  often  rejected  the  reports
submitted.  This  caused  frequent  interruptions  and  delays
in  payments,  leading  to  uncertainty  for  the  holders,
jeopardizing  the  execution  of  activities  and  hindering
effective  monitoring.

37. An  analysis  of  project  execution  at  31  December
1996  shows  that:

(a)  of  the  189  projects  approved  between  1993  and
1995,  around  75  had  the  last  instalment  outstanding
for several years. This could be an indication that the

projects  were  overfunded,  and  that  there  are  unused
balances  at  the  project  holder  —  it  is  part  of  the
closure exercise (paragraphs 40 — 52) to identify this.
On the other hand it could indicate that in some cases
holders  preferred  to  lose  the  final  10 %  payment
rather than produce a final report. From the point of
view of the holder this may be seen to be a reasonable
option,  taking  into  account  the  small  payment  due
and  the  trouble  of  producing  and  getting  the  reports
approved;

(b) more  than  50  projects  had  not  submitted  or  had  not
had  the  interim  report  approved;  these  were  projects
which  had  received  an  advance  of  50 %  or  60 %  of
the  project  amount  on  the  signature  of  the  contract
but  for  which  the  second  instalment  had  not  been
paid.

the  project  reports  submitted  were
38. Most  of 
accompanied  by  audit  reports  on  the  accounts.  These
reports  were,  however,  of  limited  value,  since  they  did
not  tackle  the  key  problems  relating  to  the  EC  funding;
for  example,  the  period  to  be  covered  by  the  report,
other  grants  and  double  financing.  In  the  case  of  the
Bursary  Programme,  the  audit  exercise,  the  key  control
mechanism,  was  of  limited  value  because  of  the  lack  of
adequate  terms  of  reference  to  the  auditors  and  the
absence  of  follow-up  of  findings  in  the  audit  reports  (see
Annex,  paragraph  4).

Project  monitoring

39. The  Commission  did  not  monitor  the  projects
adequately.  This  was  because  of  the  weaknesses  of  the
reporting  procedures  mentioned  above,  the 
lack  of
project  tracking  computer  tools  and  failures  of  the
Commission  information  system.

40. The  monitoring  of  SACC  and  SACBC  projects,  for
which very little information is available, was particularly
weak.  Of  14  SACC  and  SACBC  projects  approved  in
1993  and  1994  and  totalling  7,66  Mio  ECU,  the
documentation  held 
in  the  Commission’s  files  was
insufficient  to  assess  the  current  status  of  the  projects.
Indeed the Commission did not know whether 8 projects
of  the  14  were  still  active.  In  only  2  cases,  progress
project reports had been submitted. In spite of the lack of
information,  the  Commission  had  extended  project
implementation  time  frames  on  several  occasions.

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41. The  Commission’s  monitoring  of  KT  projects  was
also inadequate, although some improvements were made
after  1995.

42. As  a  consequence  of  weak  monitoring, 
the
Commission  was  unable  to  react  promptly  to  holders’
and  Channels’  queries.  Numerous  projects  suffered
delays, were in a stand-by situation for long periods, had
been  definitively  halted  or  were  unable  to  meet  their
objectives.  As  far  as  the  Bursary  Programme  was
concerned,  lack  of  supervision  and  of  reliable  figures
reduced effectiveness and sustainability. Although around
34 000  bursaries  were  granted,  the  opportunity  to  grant
inefficient
8 700  more  was  missed  because  of 
management, 
72  Mio  ZAR
and  more 
(approximately  12,5  Mio  ECU  at  December  1996
exchange rates) in reimbursements were not paid into the
SA  national  bursary  scheme  (see  Annex,  paragraph  17).

than 

the  Commission 

to  monitor
43. The  ability  of 
adequately the implementation of projects  was weakened
by  the  poor  state  of  its  information  systems.  It  did  not
have  a  satisfactory  computerized  database  containing
implementation  and  reporting (16).
details  of  project 
Documentation  in  project  files  was  not  up  to  date,  and
reports  and  correspondence  were  sometimes  missing.
Information  between  the  Channels,  the  Commission
Delegation  and  Central  Services  was  not  always  passed
on.  The  Commission  did  not  have  a  copy  of  all  the
contracts  signed  between  the  Channels  and  the  project
holders, and thus was not aware of those cases where the
project  scope  and  financial  conditions  differed  from  its
contract  with  the  Channel.

of 

financial 

44. A 
unsatisfactory
consequence 
monitoring  was  that  projects  which  were  approved  but
which never started, or projects which started but became
inactive,  still  remain  unnecessarily  opened 
the
Commission  accounts.  Thus  about  10  Mio  ECU  in
respect  of  projects  committed  between  1993  and  1995
but  which  never  started,  or  became  inactive,  remained  in
the  accounts  at  31  December  1996,  overstating
outstanding liabilities.

in 

priority  to  closing  a  large  backlog  of  more  than  750
contracts,  in  respect  of  which  a  total  of  441,7  Mio  ECU
had  been  committed,  going  back 
to  1986.  The
Commission  informed  the  Court  at  the  end  of  1995  that
it aimed to close some 350 outstanding contracts by July
1996,  and  that  a  technical  assistant  had  been  employed
to  reinforce  the  capacity  of  its  services  to  carry  out  this
task.

46.
In  January  1996  the  deadline  for  closure  of  the  350
projects  was  extended  to  end-December  1996.  The
overall  target  was  then  to  close  604  projects  out  of  the
664  projects  dating  from  1986-93  by  the  end  of  1997.

in 

47. By  the  end  of  June  1997,  however,  none  of  the
contracts 
the  backlog  had  been  closed.  The
Commission  encountered  serious  procedural  difficulties
during  1996,  largely  because  of  inadequate  planning  and
definition  of  the  task,  and  the  failure  to  devote  sufficient
resources to it. A review by the Court of a sample of 250
closure  sheets  that  were  prepared  in  1996  showed  that
there were numerous unexplained anomalies, and that the
supporting  information  presented  was  quite  inadequate
for  decision-making  purposes.

48.
In  order  to  increase  the  capacity  of  the  services  to
close  the  old  projects,  the  Commission  decided  in  March
1996  to  engage  private  sector  audit  firms.  It  took  the
Commission,  however,  more  than  a  year  to  engage  these
auditors,  contracts  with  two  separate  firms  finally  being
signed  in  May  and  July  1997  respectively.

49. During  1997  the  services  concerned  established
revised  procedures  requiring  more  justification  for  the
actions  proposed,  which  include  recovery  or  write-off  of
outstanding balances held by implementing organisations,
and  the  cancellation  of  unneeded  commitment  balances.
New  targets  were  fixed,  with  final  closure  of  all
non-active  projects  from  the  period  1986-1994  to  be
achieved  by  the  end  of  1998.

Closure  of  Contracts

45. Following  audits  in  1994  and  1995,  the  Court
pointed  out  to  the  Commission  that  it  should  give

(16) The  South  Africa  Project  Management  (SAPMAN),  a
spreadsheet  application  used  by  the  Commission,  did  not
contain  reliable  information,  since  it  was  not  regularly
up-dated.  The  application  was  abandoned  in  December
1995.

50. A  corollary  of  the  lack  of  progress  in  closing
contracts  is  that  little  progress  was  made  during  the
closure  exercise  in  recovering  surplus  funds  held  by
NGOs  in  Europe  or  in  South  Africa.  During  missions  to
European  NGOs  in  1995  and  1996  such  surpluses  were
found 
the
in  a  number  of  cases.  Contrary 
Commission’s own internal rules, however, which require
that  recovery  orders  be  established  as  soon  as  a  debt  is
identified,  with  a  ‘pm’  mention  if  the  amount  cannot  be

to 

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precisely  evaluated,  recovery  orders  were  only  issued  in
respect  of  one  NGO.

this 

large  backlog  of  projects  reflect 

51. The  problems  encountered  by  the  Commission  in
closing 
the
weaknesses of financial management of the South African
programme.  Consistently,  and  despite  the  size  and
political importance of the programme with South Africa,
the  Commission  did  not  allocate  sufficient  resources  and
did not have sufficiently robust and effective management
procedures  so  as  to  enable  the  new  and  expanding
programme to be prepared and implemented, at the same
time as the closure exercise. The priority accorded to the
new  programme  always  meant  that  the  limited  resources
were  drawn  away  from  the  closure  exercise.

55. This  was  why,  in  1994,  the  EC,  like  other  donors,
joined  the  reconstruction  and  development  programme
launched  by  the  South  African  government.  More  than
5 000  million  ZAR  (approximately  1 150  Mio  ECU)
annually  from  the  national  budget  were  pooled  with
international  aid  to  form  the  RDP  Fund,  with  a
specially-created central administrative structure, the RDP
Office.  However,  the  latter  soon  proved  to  be  unsuitable
and  in  March  1996,  following  criticism  of  the  low  level
of  programme  implementation,  the  RDP  Office  was
closed 
programme
responsibilities 
implementation  transferred  to  the  Ministry  of  Finance
and  the  sectoral  ministries.

and 

for 

its 

52. Further,  the  closure  exercise  was  badly  prepared,
with  inadequate  objectives  and  milestones,  procedures
were  unclear,  roles  and  responsibilities  of  those  involved
were  not  sufficiently  defined  and  agreed,  and  there  was
no common understanding on what was needed to enable
projects  to  be  closed.  As  a  result,  the  limited  resources
available  were  not  used  efficiently  or  effectively.

56. At  that  time  South  Africa’s  central  administration
underwent  major  restructuring,  with  important  changes
at  the  top  levels.  The  government  departments  which
initiated  the  execution  of  development  programmes  had
only limited experience of working with international aid
organisations.  The  South  African  administration  faced
serious  difficulties  in  bringing  its  systems  and  procedures
into  line  with  the  various  donor  requirements.  New
structures  had  only  just  been  created  at  provincial  and
local  level  and  others  were  still  at  the  planning  stage.

THE  EUROPEAN  PROGRAMME  FOR  RECONSTRUCTION
AND  DEVELOPMENT  (EPRD)  1994-1996

The  EPRD  system

53. Following the democratisation of the country a new
approach to cooperation became necessary. At that point
it  became  a  matter  of  funding  a  programme  of  direct
cooperation  with  the  South  African  government.

to 

launch 
in  association  with 

54.
In a climate of considerable optimism all the donors,
including  the  European  Community  (EC)  and  the
large-scale
Member  States,  were  eager 
development  programmes 
the
largest  donor (17),  had
government.  The  EC, 
the 
supported  the  South  African  forces  for  democracy
throughout the apartheid era and now wanted to increase
its  support  for  the  new  government  in  a  legitimate  way.
Within  a  relatively  short  period  the  Commission  thus
approved  several  programmes  for  substantial  amounts  in
several  areas  of  activity.

(17) The  Council  Regulation  (EC)  No  2259/96  of  22  November
1996 provides in Article 10 for a financial reference amount
of  500  Mio  ECU  for  the  period  1.1.1996-31.12.1999.

the  Land  Reform  Pilot  Project, 

In  this  context,  the  EC  —  and  other  donor
57.
organisations  —  should  have  been  more  realistic  about
the  volume  of  funds  that  could  be  efficiently  and
effectively absorbed by the South African administration.
In  the  case  of  individual  programmes,  such  as  the  health
the
sector  and 
Commission  should  have  recognised  that  until  the
provincial  and  district  structures  through  which  the
programme  was  to  be  implemented  were  established,  the
funds for the programme could not be absorbed. Further,
in  light  of  the  limited  resources  and  sectoral  capabilities
of the staff of the Commission Delegation, it would have
been  preferable  for  the  Commission,  with  the  agreement
of  the  South  African  authorities,  to  have  concentrated
fewer  resources  on  a  more  limited  number  of  sectors.

58. At  the  time  when  the  programme  was  launched  in
1994  the  Commission  was,  in  fact,  also  facing  serious
problems.  The  headquarters  department  in  Brussels  was
required to simultaneously monitor and close the projects
funded  via 
(paragraphs  20  —  52),
programme  the  EPRD  and  examine  the  related  files  and
negotiate the legal framework for the new relationship of

the  Channels 

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cooperation  with  South  Africa (18).  There  was  a  similar
lack  of  resources  at  the  Delegation  (paragraph  90).

funding  of  NGOs  and  CBOs  was  severely  disrupted  in
1995  and  1996.  Some  of  them  were  obliged  to  cut  back
on  staff  and  activities.

59. The problems of managing such a broad programme
with  the  limited  resources  available  led  the  Commission
to change its approach to the financing of NGO projects
and  activities.  The  NGOs  were  encouraged  to  get
together and to combine their applications for finance for
action 
sector  —  health,  urban
development,  rural  development,  etc  —  in  programme
form.

in  a  particular 

In  adopting  this  approach  the  Commission  should,
60.
however,  have  paid  particular  attention 
the
organisational  structures  responsible  for  implementing  it
and  ought  to  have  ensured  that  they  had  the  necessary
skills  and  resources.  Of  the  three  sectoral  programmes
audited  by  the  Court  two  had  substantial  weaknesses  at
the  level  of  the  structures  responsible  for  the  overall
programme:

to 

(a) in the case of the ‘Urban sector network’ programme,
the  Coordination  Office 
a
coordinating  structure  in  the  form  of  a  NGO  which
had  neither  internal  rules  nor  adequate  resources  and
was  unable  to  monitor  the  programme  components
regularly;

(PCO)  proposed 

(b) in  the  case  of  the  health  sector  programme,  the
activities  of  three  NGOs  operating  in  the  same  region
were  combined  under  one  contract.  Responsibility  for
managing  and  monitoring  the  whole  programme  was
unilaterally  assigned  to  one  of  the  NGOs  by  the
Commission.  It  was  difficult  for  the  former  to
produce  the  required  progress  reports,  as  the  other
partners  had  different  management  systems  and
structured  their  accounts  differently.  Moreover,  the
NGO  did  not  have  the  resources  required  to  monitor
the  operations.

61.
In the case of the smaller projects carried out by the
NGOs  and  the  community-based  organisations  (CBOs),
the  Minister  responsible  for  the  EPRD  was  instructed,  in
1994,  to  find  a  solution  that  would  allow  these  projects
to  be  funded  within  a  coordinated  framework  and
proposed  the  creation  of  an  independent  body,  TNDT.
However,  the  establishment  of  TNDT  was  slow  and  the

(18) The  task  force  responsible  for  the  negotiations  was  not  set

up  until  March  1995.

Government  projects

62.
In  the  health  part  of  the  first  series  of  programmes
cofinanced  with  the  Government,  in  1994,  the  Court
audited  the  National  HIV/AIDS  Programme,  the  District
Health  Systems  Support  Programme  and  the  Technical
assistance  programme  for  restructuring  the  national
health  system,  which  amounted  to  19,4  Mio  ECU  in
total.  At  the  time  of  the  audit  none  of  the  projects  had
progressed  very  far.  The  programmes  had,  in  fact,  been
started  before  the  structures  that  were  essential  for  their
implementation  had  been  put  in  place.  For  example,  the
districts on which the new health system was to be based
were  not  fully  established  until  the  second  half  of  1996,
which  delayed  the  actual  introduction  of  the  measures  at
the  province  level.  It  also  resulted  in  the  South  African
authorities  asking  for  the  execution  phase  of  the  three
programmes  to  be  extended  to  the  end  of  1997.

63. The Human rights programme was approved by the
Commission  in  December  1994  on  the  basis  of  a  study
carried  out  by  external  consultants.  The  financing
agreement with the South African government was for an
amount  of  15  Mio  ECU  and  was  not  signed  until  May
1996.  This  government  programme  is  being  carried  out
by  NGOs  and  a  special  foundation  was  set  up  to
administer  it.  The  programme  was  launched  after  a  very
long delay and in March 1997, at the time of the Court’s
audits,  the  project  had  barely  got  under  way.

64. The  aims  of  the  project  are  somewhat  vague.  The
1996/1997  action  plan  was  based  on  the  results  of  the
study  mentioned  above,  which  was  carried  out  in  1994;
the  amount  of  expenditure  required  was  very  much  an
estimate  and  was  not  supported  by  a  breakdown  of  the
calculations.  The  situation 
in  the  country  changed
between  1994  and  1996  and  updating  of  the  objectives
and resources to be employed was found to be necessary.
This  assessment  was  acknowledged  by  the  people
responsible  for  implementing  the  programme,  who  had
also  included  an  initial  exploratory  phase  of  clarifying
needs  and  objectives  in  their  action  plan.  However,  they
thought  it  important  for  the  project  to  start,  and
proposed  to  make  the  necessary  adjustments  at  a  later
stage  rather  than  wait  for  the  results  of  this  first  stage.
The  Commission  should  monitor  developments  on  this
programme carefully.

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65. The  Parliamentary  Support  Programme  (total  cost
36 Mio ECU) is cofinanced by three partners. The actual
start of the programme was planned for the end of 1996.
In  March  1997  it  had  still  not  started  because  the  staff
required  to  manage  it  had  still  not  been  fully  recruited.
Moreover  the  actual  arrangements  for  implementing  this
jointly-funded  programme  were  not  satisfactory.  At  the
time  of  the  Court  audits  the  three  donors’  contributions
had not yet been combined within a single budget. It was,
therefore,  not  possible  to  understand  and  verify  how  the
South  African  government’s  contribution  (19,35  Mio
ECU)  was  to  be  incorporated  and  allocated  to  the
programme.  The  work  programme  which  had  recently
been tabled by the South African authorities covered only
the  Community  contribution  (16  Mio  ECU).  It 
is
important  that  the  Commission  verifies  the  reality  of  the
joint  funding  for  this  programme.

NGO  projects

the  Commission,  without 

66. For  the  NGOs  these  were  the  first  projects  to  be
funded  directly  by 
the
intermediary  Channels.  Their 
lack  of  experience  of
Community  procedures,  the  difficulty  of  obtaining  the
necessary advice from the Delegation and the problems of
communicating  with  Commission  headquarters  produced
start-up  delays  for  all  the  projects  visited  by  the  Court.
NGOs must present an annual work programme in order
to  obtain  payment  of  Community  funds,  but  they  had
not  been  given  adequate  instructions  (notably  in  the
financing  agreements)  regarding  the  nature  and  level  of
breakdown  of  the  information  required.  In  most  cases
this  resulted  in  the  Commission’s  referring  the  files
submitted back to the NGOs. In some cases programmes
were  accepted  by  the  Delegation  after  lengthy  exchanges
of  information  with  the  NGOs,  only  to  be  rejected
subsequently  by  Brussels,  so  that  they  then  had  to  be
resubmitted.  This  two-tier  approval  procedure  is  not  an
efficient 
limited
project-management 
it  also  caused
excessive  delays  in  implementation.

resources  and 

Commission’s 

use 

the 

of 

67. The  Participatory  Health  Care  Programme  (1,12
Mio  ECU)  covered  the  essential  needs  of  the  most
disadvantaged  people  in  the  townships  around  Cape
Town.  The 
initial  stages  of  the  programme  were
particularly  affected  by  the  weaknesses  mentioned  in  the
previous  paragraph.  In  addition,  the  viability  of  the
programme,  which  was 
stage  of
implementation  in  March  1997,  was  also  at  risk.  The
contract  that  was  signed  with  the  Commission  in  fact
stipulated  that  the  hospitals  for  which  finance  was

final 

the 

in 

provided  were  to  be  incorporated  into  the  South  African
government health-care structures, but this was not done.
Further funding by the international donors then became
essential,  so  as  not  to  imperil  the  continuation  of  the
services  that  had  been  available  till  then.

68. The  provision  of  low-cost  housing  for  people  with
low incomes was one of the main objectives of the Urban
Sector  Network  programme  (5,9  Mio  ECU).  Of  the  4
350 houses that were to be provided in the first year only
879  could  be  handed  over,  because  the  Commission  and
the  difficulties  of
its  partner  had  under-estimated 
implementing  a  housing  loans  policy  throughout  the
country.  The  progress  of  the  programme  was  also
disturbed  by  the  slowness  of  the  community  payments.
At  the  time  of  the  Court’s  audit  certain  NGOs  in  the
network  had  been  obliged  to  suspend  the  activities
associated with the programme pending the disbursement
of  funds.

69. The  start  and  execution  of  the  micro-projects
programme  financed 
jointly  with  the  Microprojects
Programme  Trust  in  1995  (12,6  Mio  ECU)  were  also
disrupted by the excessive length of time required for the
Commission to sign the financing agreement and disburse
the funds. As of March 1997 68 micro-projects had been
approved,  but  the  level  of  progress  was  very  low.  The
project  managers  had  been  obliged  to  make  use  of
overdraft  facilities  pending  the  Commission  payment,  so
as  not  to  hold  up  execution  of  the  financed  measures.

Weaknesses  in  the  tools  and  procedures  for  establishing
the  EPRD

70. Weaknesses  in  the  tools  and  procedures  used  by  the
Commission were the root cause of the substantial delays
that  were  noted  at  every  stage  of  EPRD  implementation
and  also  had  a  negative  impact  on  execution  of  the
programmes.

Payment delays

71. Most  of  the  projects  visited  by  the  Court  had  been
affected  by  the  endemic  slowness  of  payments:  in  the
view of those concerned the Commission was the slowest
of  the  donors.  These  delays  were  essentially  due  to  the
excessive  time  taken  by  the  Commission  to  approve
interim  reports  and  updated  work  plans.  Where  the
Commission  is  the  principal  or  sole  source  of  finance,

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partners  may  experience  serious  financial  difficulties.  In
the  case  of  the  Micro-project  and  Urban  Sector  Network
programmes  the  managers  were  obliged  to  resort  to
overdraft  facilities  in  order  to  avoid  suspending  project
activities.

Exchange  losses

72. For  several  NGOs  the  amounts  received  in  ZAR
were,  in  general,  lower  than  the  amounts  due  under  the
terms  of  the  contracts,  where  amounts  are  specified  in
ecus.  Analysis  of  some  twelve  project  payments  showed
that  these  differences  were  the  result  of  a  private  South
African  bank  applying  extremely  unfavourable  exchange
rates (19). On a total of 10,8 Mio ECU of disbursements,
the equivalent of 74,9 Mio ZAR at the INFORECU rate,
the  NGOs  received  only  72,8  Mio  ZAR  after  conversion
at the bank’s own rate. The difference of 2,1 Mio ZAR is
the  equivalent  of  0,4  Mio  ECU  at  the  INFORECU  rate,
3,7 % of the total disbursal. In some cases the difference
was  as  much  as  7 %.  Comparative  analysis  of  some  of
the  payments  for  government  projects  showed  that  the
rates  applied  by  the  Reserve  Bank  were  much  more
favourable.  Since  these  are  very  significant  amounts  for
the  NGOs, 
the
possibility  of  adopting  alternative  procedures,  so  that
NGOs  receive  the  amount  specified  in  the  contracts (20).

the  Commission  should  examine 

Financing agreements

73. Poor drafting in the financing agreements (NGO and
government) also disrupted the start and execution of the
EPRD. The clauses covering, inter alia, payments, reports
and  project  accounts  appear  in  various  parts  of  the
agreements  and  in  many  cases  lack  both  clarity  and
consistency.  The  inconsistency  is  particularly  great  in  the
case  of  the  December  1994  financing  agreements,  which,
although they apply to direct funding of NGOs, included
the  contract  clauses  used  under  the  old  Channels  system.
The  wording  of  the  financing  agreements  was  not
properly  checked  and  material  errors  were  not  detected

(19) There being no real demand for the ECU in South Africa, the
banks  are  able  to  set  their  own  exchange  rate,  which  may
differ considerably from the rates quoted on the international
money  markets.

(20) Payment by the Commission in ZAR would make it possible
to  minimise  these  losses  and  the  possibility  is  not  excluded
by  the  Financial  Regulation.

the  approval  procedure (21).  The 
during 
financing
agreements  concluded  with  the  NGOs  in  1995  and  1996
only  provided  for  payment  of  advances  of  80 %  of  the
annual  budgets  and  did  not  cover  the  procedures  to  be
observed for payment of the year’s balance of 20 %. The
Court  identified  at  least  two  payments  of  balances,  for  a
total  of  746 171  ECU (22),  which  had  been  effected
without the Commission’s having identified the omission,
and  suggested  amending  the  agreements  in  question.

74. On  none  of  the  projects  reviewed  by  the  Court  had
the  NGOs  provided  the  bank  guarantees  required  by  the
financing  agreements.  The  South  African  banks  refuse  to
give such guarantees for NGOs, because the latter do not
have the requisite level of own funds. Instead of bringing
the  terms  of  the  agreements  into  line  with  reality,  the
Commission  asked  a  bank  to  issue  ‘certificates’  which
were  in  no  wise  equivalent  to  guarantees.

75. As for the projects adopted during the two phases of
the  Special  programme,  partners  are  required  by  the
terms of the financing agreements to convert the month’s
project  expenditure  into  ecu  by  means  of  the  monthly
rates  published  in  the  Official  Journal  of  the  European
Communities 
is
inappropriate  and  was  not  followed  for  any  of  the
projects  audited.  The  Commission  should  modify  these
contract  conditions  with  something  that  is  practical  and
appropriate.

(paragraph  32).  This  provision 

76. The Delegation certainly tried very hard to make up
for  the  drafting  weaknesses  of  the  contracts,  but  it  was
unable  to  remedy  all  the  shortcomings.  The  texts  of
financing  agreements  have  improved  significantly  since
October  1996,  but  effort  is  still  required  in  order  to
rationalise  the  provisions  of  the  contracts  and, 
in
particular,  to  resolve  the  difficulties  to  which  the
payment  procedures  are  prone.

77. Major  amendments  of  financing  agreements  were
adopted  by  the  Delegation  during  meetings  with  the
partners  or  were  authorised  by  means  of  a  simple
exchange of notes (23), without any formal amendment of

(21) For  example, 

the  Parliamentary  Support  Programme
in  the  body  of  the  financing
(AFS/1996/9)  stipulates 
agreement  that  the  Ministry  of  Finance  represents  the
Republic  of  South  Africa,  even  though  the  agreement  was
signed  by  the  Speaker  of  the  Parliament.

(22) Projects  Urban  Sector  Network 

(94/75070/060)  and

Micro-project  Programme  Trust  (95/75070/005).

(23) See,  for  example,  the  projects  Participatory  Primary  Health
Care  Programme, 
the
Microprojects  Trust  and  the  Land  and  Agricultural  Policy
Center.

the  Urban  Sector  Network, 

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31.7.98

the  text  of  the  agreement.  Brussels  headquarters,  too,
often  ratified  amendments  without  formally  amending
the  text  of  the  agreement.

78. The Court has already highlighted weaknesses in the
procedures 
financing
for  amending  provisions  of 
agreements,  in  some  of  its  earlier  reports (24).  This
situation  is  indicative  of  weakness  in  the  Commission’s
control  system  and  is  mainly  due  to  the  lack  of  clear
instructions  regarding  the  procedure  to  be  followed  and,
in  particular,  the  division  of  responsibilities  to  be
observed  as  between  Brussels  headquarters  and  the
delegations.

Tendering  procedures

from 

those 

79. The  Community  rules  and  procedures  that  apply  to
project  procurement  and  tendering  are  different  from
those  applicable  to  central  and  local  administrations
under  South  African  law.  A  major  difficulty  is  that  the
South  African  rules  give  preference  to  South  African
firms,  and  particularly 
‘previously
to 
disadvantaged  communities’,  whereas  Community  rules
require  open 
for  European  Community
companies  and,  under  certain  conditions,  also  for  other
third  countries.  This  was  a  source  of  difficulties  among
the  government  projects  which  the  Court  audited  on  the
spot  and,  in  the  particular  case  of  the  National  HIV
AIDS  programme,  it  led  to  considerable  delays  and
severely disrupted the execution of the programme. There
were  also  problems  with  the  implementation  of  the
Parliamentary  Support  Programme.

tendering 

Technical assistance

80. EU funded technical assistance is both well perceived
and  remains  an  important  component  of  the  overall  EU
aid programme to South Africa. Nevertheless, it is a high
cost  resource,  particularly  where  expatriate  technical
assistants  are  recruited  from  Europe.  At  present  the
Government  Departments 
such  assistance
remain  largely  unaware  of  its  cost  because  it  is  not
financed  directly  from  project  funds.

receiving 

(24) See  paragraphs  15.27  —  15.31  of  the  Court  of  Auditors’
Annual report concerning the financial year 1991 (OJ C 330,
15.12.1992)  and  Special  Report  No  1/98  in  respect  of
cooperation  with
bilateral 
non-Member  Mediterranean  Countries 
(OJ  C  98,
31.3.1998).

technical 

financial 

and 

81.
In  South  Africa  there  is  a  significant  amount  of
skilled  expertise  available  in  many  fields  and  there  is
considerable  scope  to  recruit  technical  assistance  locally,
applying  local  terms  and  conditions  which  are  more
technical
cost-effective 
assistance.  In  general  terms,  the  Commission  should  first
determine  whether,  for  particular  assignments, 
local
expertise  is  available  and  appropriate  for  the  task  and,
only where it is not, turn to the recruitment of expatriate
technical assistance.

for  European 

those 

than 

82. The  precise  duties  and  responsibilities  of  EU
financed technical assistants seconded to work in various
Government  Departments  have  not  been  sufficiently
defined  by  the  Commission,  especially  as  regards  their
responsibilities 
the
towards 
Government  Departments.

the  Delegation 

and 

83.
In  the  case  of  a  Government  Health  Project  the
intended  role  and  function  of  a  technical  assistant  to
develop and implement a management accounting system,
was  diverted  for  14  months  to  that  of  coordinator,  with
the  result  that  the  original  objective  had  not  been
achieved  at  the  time  of  the  audit.  Also,  for  a  period  of
nearly 3 months, this technical assistant acted in a senior
line  management  role  within  the  Health  Department,
without  the  agreement  of  the  Commission.

84. Technical assistance has not always been provided at
the  right  time.  Normally,  the  contract  time  period  of
technical  assistance  should  be  in  line  with  the  project
timetable.  In  the  case  of  the  Land  Reform  Project,  for
example, the administrator provided for under a technical
support  programme  was  only  appointed  12  months  after
the  signing  of  the  Financing  Agreement.  The  South
African  authorities  had  to  start  the  project  without  his
assistance.

85. More  attention  needs  to  be  paid  to  ensuring  that
sufficient  technical  assistance  is  provided  at  a  local  level,
and  not  only  at  central  level.  For  example,  regional
beneficiaries  involved  in  the  Land  Reform  Project  would
have  obtained  easier  direct  access  to  advice,  instead  of
having to route their queries through elaborate committee
processes.

COMMISSION  ORGANISATION  AND  RESOURCES

86. This  report  has  emphasised  in  several  instances  the
unusual  and  particular  nature  of  the  South  African  aid

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it 

combines 

scheme; 
relevance,
administration complexity, volume of funds and diversity
of  actions.

political 

high 

87. All these factors called for high quality organisation
and  reinforced  management  resources,  which  were  not,
however,  provided.  Firstly,  between  1986  and  1991,  the
Commission  could  not  set  up  a  structure  on  the  spot  for
the administration of the scheme. In 1991 the Programme
Coordination  Office  was  opened,  but  only  with  limited
technical  responsibility.  It  was  not  until  1994  that  the
Commission  established  in  Pretoria  a  full  Delegation.

88. Secondly,  the  Commission  failed  to  give  enough
priority  to  the  management  of  the  South  African  aid
insufficient  management  resources  were
programme: 
allocated,  there  were 
inadequate  written  procedural
instructions  and  the  organisation  set  up  was  inadequate.
At  Commission  headquarters  in  Brussels,  the  South
African Unit has been insufficiently staffed, with frequent
staff  movements  and  gaps  in  posts.

89.
In  South  Africa,  the  tasks  and  responsibilities  of  the
PCO, and the procedures that it was to follow, were not
clearly  set  out.  This  contributed 
to  management
shortcomings  and  deficient  monitoring.

90. Even  when  the  Delegation  was  established 
in
Pretoria  in  early  1994,  the  Commission  did  not  provide
sufficient staff for the duties involved. For more than one
year  the  Delegation  consisted  of  the  Head,  his  assistant
and  a  secretary;  the  Development  Counsellor  was  not
appointed  until  1995  and  the  posts 
in  the  staff
organigramme  were  not  all  filled  until  the  end  of  1996.

(c)  the  monitoring  system  does  not  provide  sufficient
information  for  assessing  the  current  status  of  the
projects:  actual  disbursements;  reporting  deadlines;
progress  made 
constraints
encountered,  etc;  under  these  circumstances  it  is  not
possible  to  ensure  adequate  project  monitoring,
supervision  and  continuity  in  the  service.

towards  objectives, 

92. A  particular  point  that  affects  the  organisation  of
the  Delegation  in  South  Africa  is  the  need  to  maintain  a
presence  in  both  Pretoria  and  Cape-Town,  where  the
National  Parliament  alternates  meetings.  The  Delegation
has  opened  an  office  in  Cape-Town  where  the  Head  is
frequently  obliged  to  remain  in  order  to  deal  with
political  affairs.  That  has  led  to  delays  in  the  resolution
of important matters, especially affecting the development
cooperation. There is a need to nominate a Deputy Head
of  Delegation  in  Pretoria  responsible,  in  particular,  for
development  cooperation  and  project  monitoring.

CO-ORDINATION  IN  DEVELOPMENT  CO-OPERATION
BETWEEN  THE  COMMUNITY  AND  MEMBER  STATES

stipulates 

that  Community 

93. Article 130u of the Treaty on European Community
(TEC) 
development
co-operation  policy  shall  be  complementary  to  the
policies  pursued  by  the  Member  States.  With  this  aim,
and seeking for coherence and effectiveness, Article 130.x
of  the  same  treaty,  requests  the  co-ordination  and
consultation  between  Community  and  Member  States.
Since  1993,  the  Council  and  the  Commission  have  taken
significant  steps  in  this  direction:  a  pilot  experience  was
launched  in  six  countries (25)  and  a  series  of  resolutions
and  conclusions  were  issued (26).

91.
In  addition,  the  lack  of  written  instructions  and
guidelines  has  led  to  shortcomings  in  the  management
routines  of  the  Delegation;  inter  alia:

(a)  there  is  no  clear  division  of  responsibilities  between
the  staff  of  the  Delegation,  so  that,  for  example,  it  is
not  clear  who  is  responsible  for  monitoring  which
project;

94.
In  South  Africa,  meaningful  coordination  should  be
regarded  as  a  major  issue.  Firstly,  14  of  the  15  Member
States  are  represented  in  the  country  and  face  similar
links  and  co-ordination,
problems;  secondly,  strong 
which  were  developed  during  the  earlier  more  difficult
political  periods,  are  already  in  place.

(b) information systems are weak: project documentation
is not put together in a single file; in several instances
information  has  not  been  processed  and  various
reports  and  other  documentation  have  been  lost;

(25) Bangladesh, Ivory Coast, Costa Rica, Ethiopia, Mozambique

and  Peru.

(26) See  notably  the  ones  issued  on  2.12.1993;  6.5.1994  and

15.7.1996.

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95. Council  Regulation 
(EC)  No  2259/96  of  22
November 1996 on development cooperation with South
Africa (27) regards coordination as a central instrument to
guarantee  optimal  effectiveness  of 
the  aid.  The
Regulation  invites  the  Commission  to  take  all  necessary
measures; these would involve the organization of regular
meetings,  the  establishment  of  a  system  for  the  exchange
of  information  and  the  transmission  to  the  Member
States  of  a  cooperation  strategy  paper  and  project
outlines.  Finally,  the  Regulation  extends  the  need  for
coordination  to  other  donors.

96. Current  coordination  mechanisms  in  South  Africa
consist  of  regular  meetings  and  of  exchange  of
information  on  the  programmes  implemented.  These
mechanisms  have  permitted  a  significant  involvement  of
the  Member  States  in  the  definition  and  inception  of  the
Community  programmes.  Documentation  has  been
regularly  sent  by  the  Commission  to  Member  State
representatives  and  Community  operations  have  been
discussed 
exchange  of
information  regarding  Member  States’  actions  has  not
been formalised and little progress has been made on the
establishment  of  a  common  data  base.  Insufficient
information  has  hindered  the  achievement  of  a  more
effective  coordination.

in  detail.  However, 

the 

97. To  strengthen  coordination,  the  Commission  and
Member  States  should  take  practical  steps  to  implement
the  provisions 
the  above-mentioned
Regulation:

laid  down 

in 

(a) setting  out  detailed  procedures  for  consultation  and
exchange  of  information  and  for  the  adoption  of
common  approaches;  these  procedures  should  ensure
that  information  flows  in  both  directions  between  the
Community and the Member States, including meeting
schedules, compilation of a data base, transmission of
reports,  and  common  appraisals;

(b) defining  and  enhancing  the  role  to  be  played  by  the
Commission  Delegation;  adequate  resources  must  be
provided  so  that  the  Delegation  can  fulfil  this  role;

(27) OJ  L  306,  28.11.1996.

(c) developing  common  sectoral  strategies;  efforts  should
be  directed  to  improving  the  administrative  capacity
of  the  South  African  government  to  deal  with  and
coordinate  international  donors;

(d) extending  coordination  to  other  donors  and  adopting
a  consistent  approach,  which  should  entail  common
requirements,  agreed
accounting  and 
auditing
disbursement 
procedures.

schedules 

reporting 

joint 

and 

CONCLUSION

In  September  1986 

98.
the  European  Community
decided  to  support  actively  organisations  that  were
providing  assistance  to  the  victims  of  apartheid,  and  to
contribute significantly to the efforts to secure a peaceful
transition  to  democracy.  As  such,  it  was  a  unique
programme,  opposed  by  the  South  African  Government,
and  controversial  in  Europe.  The  Commission  showed
considerable  imagination  and  foresight  in  promoting  the
programme.  It  was  responsive  to  the  needs  of  the  target
population.  The  Special  Programme  is  regarded  by  those
in  South  Africa  who  were  involved  with  it  as  having
made  a  positive  contribution  during  the  period  of
transition. As a result, the European Community built up
considerable  political  goodwill  with  the  new  democratic
leadership  of  South  Africa  (paragraphs  1  —  5  and  22).

99. The Community, therefore, was in a key position in
1994  to  develop  relations  between  South  Africa  and
Europe in the economic and cooperation spheres. It took
immediate  steps  to  do  so.  Like  other  donors,  however,
the  Commission,  in  order  to  show  without  delay  its
solidarity  with  and  support  for  the  new  government,
approved  through  the  EPRD  more  programmes  spread
over  a  wider  number  of  sectors  than  could  be  effectively
managed  in  the  short  term.  The  constraints  on  the
capacity of the Commission to handle such a portfolio of
actions  and  of  the  new  government  to  absorb  the  funds
within  the  timescales  foreseen  were  not  sufficiently  taken
preliminary
into 
ground-work  done 
institutional
strengthening  was  necessary  before  projects  could  be
implemented  effectively,  and  what  role  the  Community
should  play  in  assisting  the  South  African  authorities  in
this regard (paragraphs 56 — 57). As a result, substantial
implementation  delays  were 
the
implementation  of  the  EPRD.  Similar  problems  have
already  been  identified  by  the  Court  in  other  areas  of

sufficient 
identify  what 

account.  Nor  was 

encountered 

to 

in 

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development  cooperation,  as  PHARE (28)  and 
Mediterranean (29).

the

(e) implementation  efficiency  has  been  adversely  affected
by  the  slowness  of  Commission  payment  procedures,
shortcomings  in  financing  agreements  and  the  failure
to  agree  on  the  tendering  procedures  to  be  applied.

the
100. Efficient  and  effective 
Community’s  programmes  of  assistance  to  South  Africa
has  throughout  the  whole  period  from  1986  to  1997
been  adversely  affected  by  the  inadequate  procedures,
systems  and  resources  applied  by  the  Commission:

implementation  of 

101. Many  of  the  shortcomings  highlighted  in  this
report  are  similar  to  those  set  out  in  Court  reports
concerning other external actions, for example the Special
Reports  on 
the
MED-Programmes (31),  and  observations  concerning
NGO  cofinancing (32).  The  Commission  should,  without
delay,  take  steps  to  overcome  these  weaknesses.

the  PHARE  programme (30),  on 

(a)  initially,  the  Commission  sought  to  apply  ‘light  and
flexible’  procedures,  but  without  defining  what  these
consisted  of  and  setting  out  clearly  to  the  partners
what  would  be  acceptable  (paragraph  4);

(b) as  the  situation  improved  and  it  was  possible  to
operate  in  a  more  open  way,  the  opportunity  to
establish appropriate procedures and systems was not
taken.  Although  the  administration  of  the  projects
was entrusted to the Channels, the Commission, in an
attempt  to  ensure  strict  control,  retained  in  the
central services the authority for the approval of each
individual  project,  contract  and  contract  amendment,
report,  and  payment.  Since  the  Commission  failed  to
provide  sufficient  resources  to  carry  out  and  check
properly  and  promptly  all  these  operations,  the
approach  followed  was  unworkable  and  failed  to
provide  adequate  management  and  control;

(c)  the  specific  exercise  to  close  the  750  open  projects
with  NGOs  and  CBOs,  going  back  to  1986,  was
poorly  designed  and  implemented,  so  that  the  limited
resources available were used inefficiently (paragraphs
45  —  52);

(d) as far as the EPRD is concerned, the chronic problem
of  insufficient  resources  to  manage  a  programme  of
its size and diversity has been made worse by the lack
of  operating  instructions  for  staff  in  the  delegation
and  in  Brussels,  and  staff  movements  (paragraphs  87
—  92);

102. The Commission should seek, therefore, in the area
of development cooperation generally, to establish a more
effective  decentralised  management  approach  that  not
only  places  decision  making  authority  at  the  most
appropriate  level  of  the  system,  but  also  strengthens
ownership  on  the  part  of  the  beneficiary  organisations
and  encourages  a  greater  degree  of  partnership.  Within
its  own  organisation,  a  degree  of  operational  and
financial responsibility should be decentralised away from
central services to the field, where decisions can be taken
closer to the actions concerned. Such an approach should
also  aim 
the
Commission  for  managing  and  controlling  the  use  of
Community  funds  in  an  optimal  manner.  Such  an
approach  would  require:

limited  resources  of 

to  utilise 

the 

(a)  establishing a clear framework and terms of reference
for the operation and financial implementation of the
programmes,  including  precise  and  straightforward
reporting  requirements;

(b) determining what decisions are best taken at the level
of  implementing  organisations,  the  Delegation,  and
the  central  services  in  Brussels,  and  what  are  the
pre-conditions  in  terms  of  capacity  and  resources  for
such  a  decision  making  structure;

(c)  as one of the above pre-conditions, being able to rely
on  the  management  and  control  systems  of  the
implementing  organisations:  to  achieve  this,  the
Commission  needs  to  assess  existing  systems  and
provide  support  for  their  improvement;

(28) See  paragraphs  2.4  —  2.12  of  the  Special  Report  No  3/97
concerning  the  decentralised  system  for  the  implementation
of  the  PHARE  programme  (period  1990-1995)  OJ  C175,
9.6.1997.

(29) See  paragraphs  150-151  of  the  Special  Report  No  1/98  in
respect  of  bilateral  financial  and  technical  cooperation  with
non  Member  Mediterranean  Countries.

(30) Special  Report  No  3/97  concerning  the  decentralised  system
for  the  implementation  of  the  PHARE  programme  (period
1990-95)  (OJ  C  175,  9.6.1997).

(31) Special  Report  1/96  (OJ  C  240,  19.8.1996).
(32) Annual  Report  concerning  the  financial  year  1990  (OJ  C

324,  13.12.1991).

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(d) focusing  monitoring  on  the  overall  execution  and
results  of  the  programmes,  complemented  by  selected
checks  of  individual  actions.

103. The  EPRD  forms  one  part  only  of  the  relations
between  the  EU  and  South  Africa.  The  negotiation  of  a
Trade  and  Cooperation  Agreement  which  will  establish,
after  a  transitional  period,  a  free  trade  area (33)  with  the
Community  is  a  matter  of  great  importance  for  South
Africa.  The  volume  of  development  aid  from  the
Commission  to  South  Africa  is  considerable  —  South
Africa  benefits  from  one  of  the  largest  single  country
financial and technical cooperation programmes with the
Community.  However,  the  economic  and  social  progress
of  the  country  depends  to  a  greater  extent  on  the
successful  development  of  efficient  producers  able  to
compete  in  international  markets  in  the  many  sectors
(natural  resources,  agriculture) 
it  has  a
comparative  advantage.  The  trade  negotiations  are  long
and  complex,  and  were  not  completed  at  the  end  of

in  which 

1997.  In  this  context,  it  is  important  to  ensure  that
European 
coherent  with
development  strategy.

commercial 

policy 

is 

new 

government, 

coordination 

104. Member States have very keen interest in and have
been  closely  involved  in  the  trade  negotiations.  It  is
disappointing  to  note,  however,  that,  in  the  context  of  a
new financial and technical cooperation programme with
a 
the
Commission and the Member States is limited. They have
had  a  significant 
into  the  definition  of  the
Community  programmes,  but  there  has  been  a  lack  of
information provided by Member States on their actions.
This limits the possibilities to define a coherent European
Union  programme  of  assistance.  Further,  greater  efforts
are needed, not only between the European Union donors
but also with other donors, to agree common approaches
on  procedural  and  accountability  requirements.

between 

input 

This  report  was  adopted  by  the  Court  of  Auditors  in  Luxembourg  at  its  meeting  of  27  and  28
May  1998.

For  the  Court  of  Auditors

Bernhard  FRIEDMANN

President

(33) Subject  to  a  number  of  protocols  protecting  certain  key
imports  of  products  from  the

sectors  from  tariff-free 
Community.

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ANNEX

BURSARY  PROGRAMME

Programme  objectives  and  description

1. The  objective  of  the  Bursary  Programme  was  to  assist  higher  education  students  from  disadvantaged
communities  and  to  contribute  to  the  establishment  of  a  national  bursary  scheme.  It  provided  bursaries
consisting  of  a  grant  (60 %)  and  of  a  loan  (40 %)  to  be  repaid  by  the  students  to  the  Tertiary  Education
Fund  of  South  Africa  (TEFSA).  Other  components  of  the  Programme  targeted  the  improvement  of
administration  and  student  support  services  of  historical  black  Tertiary  Institutions  (TI) (1).  Between
1993-1995 the EC allocated to the Programme 59,9 Mio ECU, of which 45,5 Mio ECU has been disbursed.
Around  34 000  bursaries  were  granted.

2. The  Programme  was  managed  by  the  Kagiso  Trust  (KT),  which  established  a  Bursary  Office  for  its
administration. The bursaries were disbursed through the TI to which the Office advanced funds according
to the amounts awarded to each student. At the end of the exercise, the TI forwarded to the Office an audit
report  stating  the  amounts  of  the  grants  and  the  loans  provided  by  beneficiary,  the  actual  figure  expended
and  the  remaining  amount  to  be  refunded.

3. A  Bursary  Programme  Committee  was  set  up  to  establish  policy  criteria  and  to  oversee  the
administration  of  the  programme.  The  Committee  consisted  of  representatives  of  the  TI,  the  Ministry  of
Education,  TEFSA,  KT  and  the  EC  Delegation.

Control  system

4. The  financial  control  of  the  programme  chiefly  relied  on  the  submission  by  the  TI  of  audit  reports.
However,  this  mechanism  did  not  function  satisfactorily:

(a)  deadlines  for  the  submission  of  the  audit  reports  were  not  established  and  a  penalty  clause  in  case  of

non-submission  was  not  foreseen;

(b) until  1995  the  Bursary  Office  did  not  request  from  the  TI  the  reports  due  for  1992,  1993  and  1994;

(c)  comprehensive  instructions  were  not  given  to  the  auditors;  the  reports  were  not  consistent  and  in  most
cases  did  not  meet  the  control  objectives.  In  several  cases,  the  auditors  themselves  did  not  consider  the
exercise as an audit in the strict sense, in some cases the scope of the work was restricted, in some only
qualified  opinions  were  formulated  or  none  at  all;

(d) there  was  a  lack  of  follow-up  of  the  reports  by  the  Bursary  Office.  Unacceptable  reports  were  not
rejected  (for  example  those  issued  by  the  TI’s  own  internal  auditors)  and  those  containing  a  qualified
opinion  or  containing  observations  were  not  cleared  up.

5. No  other  control  mechanisms  were  operated.  The  Bursary  Office  did  not  carry  out  annual
reconciliations  between  Commission,  KT  and  TI  accounts  to  establish  the  balance  of  funds  available.  As  a
result,  around  11  Mio  ECU  (18 %  of  the  funds  available)  remained  unused (2).

6. One  particular  weak  element  in  the  control  system  was  the  absence  of  an  audit  review  of  the  Bursary
Programme as a whole, which was not provided for in the contract concluded between the Commission and
KT.

(1)  Tertiary  Institutions  are  universities;  technikons;  and  teacher  training,  technical  and  vocational  colleges.
(2)  This amount corresponds to 10,67 Mio ECU of Community commitments not disbursed to KT and approximately 0,5

Mio  ECU  in  funds  unexpended  in  the  TI’s  accounts.

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Programme supervision

7. The poor functioning of the control system was made worse by the lack of effective supervision. Firstly,
the  Bursary  Office  did  not  review  the  procedures  and  systems  of  each  TI.

8. Secondly, the Bursary Committee did not function properly and did not follow up matters of a financial
nature.  The  Committee  held  fewer  meetings  than  foreseen,  there  was  inadequate  segregation  of  duties  (the
secretary of the Committee, was, at the same time, the director and financial manager of the Bursary Office)
and  data  examined  mixed  up  projections  and  actual  figures.

9. Thirdly,  neither  KT  main  office  nor  the  Commission  supervised  the  work  performed  by  the  Bursary
Office. Until the end of 1996 they were not aware of the absence of reliable figures on expenditure and of
the  non-repayment  of  the  loans  by  the  students.

Evaluation

10.
In 1994 a mid-term external evaluation of the Bursary Programme was conducted. The evaluation did
not assess financial management and did not tackle the loan repayment problem. The recommendation that
the  financial  overview  role  of  the  Bursary  Committee  should  be  strengthened  was  not  followed  up.

11. No  final  external  evaluation  of  the  Programme  has  been  carried  out  nor  is  foreseen.

Achievement  of  objectives

12. The  1994  evaluation  underlined  the  success  in  reaching  the  targeted  group  and  concluded  that  the
Programme  provided  financial  assistance  to  disadvantaged  students  and  was  contributing  to  the  redress  of
racial and gender imbalances. This conclusion was drawn in 1994 and needs to be further confirmed for the
period  1995-96.

In a number of respects, however, effectiveness, sustainability and visibility of the Programme have not

13.
been  satisfactorily  achieved.

Effectiveness

14. Effectiveness was reduced as a consequence of poor financial management. As explained in paragraph
5,  11  Mio  ECU  remained  unspent;  this  could  have  financed  more  than  8 700  additional  bursaries.

15. Further,  funds  arrived  very  late  in  the  school  year  to  final  beneficiaries.  As  a  result,  the  TI  and  the
students  were  obliged  to  advance  the  expenditure,  sometimes  taking  out  private  loans.

Sustainability

16. Sustainability of the Programme has not been ensured in that no priority was given to the repayment of
the  loan  component  of  the  bursaries.

17. At the end of 1996, only 1,13 % of loans had been repaid; this represents a loss of more than 72 Mio
ZAR  (approximately  12,5  Mio  ECU  at  December  1996  exchange  rates)  for  the  national  bursary  scheme.
The  feasibility  of  recovering  the  loans  is  dramatically  decreasing  with  time;  this  undermines  the
sustainability  of  the  Programme  and  puts  at  risk  the  financial  capacity  of  the  national  scheme.

(3)  The  European  Union/Kagiso  Trust  Bursary  Programme,  an  evaluation.  British  Council.  August  1994.

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Programme  ownership

18. The beneficiary students did not receive an annual statement of account (loan granted, interest accrued,
etc.)  to  record  and  confirm  their  financial  position.  They  were  poorly  informed  on  the  mechanisms  of  the
scheme  and  were  not  involved  at  any  stage  in  its  administration.  As  far  as  the  final  beneficiaries  are
concerned,  there  was  a  lack  of  programme  ownership,  which  is  a  chief  element  for  ensuring  successful
development programmes.

Visibility

19.
In  most  of  the  TIs  visited  by  the  Court,  neither  the  TI’s  staff  nor  the  beneficiary  students  were  aware
that  the  European  Union  was  the  source  of  the  funds.  KT  did  not  make  public  the  source  of  funding  until
the end of 1996, when problems arose because the Programme came to an end. The Commission’s Financial
Controller  pointed  out  the  lack  of  visibility  in  1995,  but  no  steps  were  taken  to  redress  it.

20. The  Commission  did  not  develop  an  information  strategy  (via  brochures,  press  releases  or  other
actions)  for  the  dissemination  of  the  EC  origin  of  the  funds.  Visibility  is  necessary  to  reinforce  partnership
and  the  cooperation  relationships  both  in  South  Africa  and  in  Europe.

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Table  of  abbreviations

ACP

CBOs

CFSP

EC

ECA

EDF

EIB

Africa,  Caribbean  and  Pacific

Community  Based  Organisations

Common  Foreign  and  Security  Policy

European  Community

European  Association  for  Cooperation

European  Development  Fund

European  Investment  Bank

EPRD

European  Programme  for  Reconstruction  and  Development

EU

European  Union

ICFTU

International  Conference  of  Free  Trade  Unions

KT

Kagiso  Trust

NGOs

Non  Governmental  Organisations

PCO

RDP

SA

Programme  Coordination  Office

Reconstruction  and  Development  Programme

South  Africa

SACBC

South  African  Catholic  Bishops’  Conference

SACC

South  African  Council  of  Churches

SAPMAN

South  Africa  Project  Management  System

SPSA

SPVA

Special  Programme  to  South  Africa

Special  Programme  for  the  Victims  of  Apartheid

SINCOM

Syste`me  Informatique  de  la  Comptabilite´ de  la  Commission

TEFSA 

Tertiary  Education  Fund  of  South  Africa

TI 

Tertiary  Institutions

TNDT

Transitional  National  Development  Trust

ZAR

South  African  Rand

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REPLIES  OF  THE  COMMISSION

INTRODUCTION

The  Court’s  audit  policy  towards  EC’s  South  Africa  Aid
Programme

14. The  Commission  takes  note  of  the  global  positive
assessment  of  the  Court  on  its  programmes  in  South
Africa  in  spite  of  the  difficult  conditions  prevailing  there
during  the  first  two  phases,  and  agrees  that  the  basic
principles  underlined  by  the  Court  are  those  which  must
— and in fact do — form the guidelines for its activities.
In  order  to  ensure  financial  control  and  accountability  a
certain  amount  of  procedural  groundwork  is  required
which can create delays in implementation, given that our
development  partners  are  not  familiar  with  donor’s
different
sometimes 
requirements, 
administrative approach.

have 

or 

a 

IMPLEMENTATION  OF  THE  BUDGET

15  —  19. As  regards  the  disbursement  rate  of  payment
appropriations  for  the  projects  relating  to  the  period
1986-1990  —  a  percentage  of  85 %  was  achieved.
During  the  project  closure  exercise,  unspent  amounts
have  been  identified  (up  to  4.2  MECU)  and  are  being
decommitted.

Concerning  the  commitments  for  projects 
launched
during  1991-1994  a  disbursement  rate  of  70 %  was
achieved.  During  this  period 
large  exchange  gains
ECU/Rand  occurred.  This  prevented  liquidation  of  total
contract  amounts  in  ECU.  Due  to  lack  of  personnel  it
was  not  always  possible  to  close  the  projects  and  to
decommit  rapidly.

became  apparent  that  the  Departments  were  unable  to
make  initial  payments  to  the  projects.  This  held  up  the
execution  of  these  projects  for  12  to  18  months  at  least.
This  problem  was  addressed  in  1996,  when  it  was
decided  that  the  corresponding  Financing  Agreements
should  be  amended  by  riders  to  allow  the  payment  of
advances  on  the  basis  of  approved  annual  work  plans.  It
took  five  months  for  the  South  African  Government  to
sign  the  riders.  In  1997,  after  adapting  the  Financial
Agreements  it  was  possible  to  double  the  amount  of
payments  compared  with  the  previous  year.

Another  reason  for  the  low  execution  rate  was  the
change 
following
democratic elections bringing about major reorganisation
of  the  staff  responsible  for  our  programmes.

administration 

government 

in 

These delays could not be anticipated by the Commission
since their origin was within the competence of the South
Africa government.

slow 

times 

start-up 

There  were  also 
large
programmes, which could not be fully anticipated at that
time  for  which  partial  solutions  have  now  been  found
(e. g.  preparing  tender  dossiers  and/or  work  plans  before
the  financing  agreements  are  signed  in  order  to  be  ready
to  launch  the  programme  immediately).

for 

SYSTEM  FOR  IMPLEMENTING  PROJECTS  THROUGH
THE  CHANNELS

Introduction

the
the  Court  rightly  points  out,  and  with 
As 
introduction  of  the  new  European  Programme  for
Reconstruction  and  Development  (EPRD)  in  1995,  it  is
true  that  payment  levels  declined  sharply.  Between  1994
and  1996  the  major  unspent  commitments  were  in
government  projects  for  the  years  1995-1996,  when  the
disbursement  percentage  commitments/payments  reached
only  29 %.  This  is  to  a  large  extent  due  to  the  initial
expectation  by  South  Africa  that  the  EC  funds  could  be
used  to  reimburse  expenditure  already  incurred  by  the
implementing  Departments  or  public  bodies.  The  South
Africa  administration  realised  only  in  a  later  stage  that
their 
legislation  did  not  allow  a  pre-financing  of
Community  projects  by  national  funds,  it  subsequently

22. The  changes  in  the  way  the  Commission  was
operating  in  South  Africa  from  1991  onwards  led  to
difficulties  which  were  and  are  addressed.  Shortage  of
staff  was  often  an  obstacle  to  quick  reactions.  It  has
always  been  a  problem  for  the  South  Africa  programme.
Staffing  levels  are  gradually  being  increased,  but  this
takes  time.  The  streamlining  of  administrative  processes
(see  responses  to  points  39  and  66)  and  aid  delivery
mechanisms  is  also  expected  to  have  a  positive  effect  on
the reported weaknesses. It is also considered that a more
focused  programme  with  clear  priorities 
in  our
co-operation  with  the  South  African  Government  would
lead  to  a  higher  level  of  efficiency  in  development
achievements.

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Observations  concerning  the  Channels  system

Design  weaknesses

25  —  26. After  the  period  of  ‘light  and  flexible’
management due to the particular circumstances in South
Africa  —  1986-1991  —  the  Commission  had  to  tighten
the  management  procedures  for  the  next  round  of
development  projects  in  South  Africa.  Unfortunately,  as
mentioned  above,  the  necessary  human  resources  were
not  rapidly  available,  causing  delays  in  the  day  to  day
execution  of  the  programme.

27. The  special  difficulties  of  South  Africa,  and
especially  the  problems  resulting  from  the  Apartheid  era,
encountered by the Commission and the learning process
in  which  it  was  engaged  were  quite  different  from  other
programmes. In addition, it should be mentioned that the
Channels themselves are under constant change. The role
NGOs  play  in  the  development  sphere  is  still  a  sensitive
matter 
in  the  South  African  political  context.  The
Commission has consistently sought to adapt itself to this
dynamic  situation,  the  approach  being  to  act  as  much  as
possible  through  well  equipped  and  well  organised
intermediaries 
Transitional  National
as 
Development  Trust  (TNDT)  or  INTERFUND)  which
were  identified  via  an  appraisal  study  launched  in  1997,
and  which  will  have  to  be  reinforced  (capacity-building)
when  necessary  (see  also  point  66).

(such 

Formulation  of  projects

28. There was no delegation in South Africa at the time.
The  Programme  Co-ordination  Office  (PCO)  did  not
have enough staff with experience in project preparation.
In 1993/94, efforts in South Africa were concentrated on
the  forthcoming  elections,  and  it  was  difficult  to  train
partners  at  that  time  in  project  management.  Project
proposals  were  thus  by  necessity  often  accepted  in  the
format  in  which  they  had  been  prepared,  and  were
indeed  sometimes  poorly  formulated.

for 

29 — 30. Project time frames were invariably too short,
failing to allow sufficient start-up time and even sufficient
implementation  and  reporting.  Additional
time 
information  was  often  requested  before  agreeing  to
extend  time  frames,  but  communication  between  the
Commission  headquarters  and  individual  projects,  often
in  remote  areas,  was  not  easy,  and  replies  or
justifications,  not  always  understood  by  the  project
managers,  often  took  months  to  be  submitted.  Extension
of  contract  deadlines,  which  places  a  considerable
is  a
administrative  workload  on  all  concerned, 

requirement  of  budgetary  discipline.  The  particular
exercise referred to in this paragraph was due to the lack
of human resources, which made it impossible to observe
all  the  deadlines  during  the  budget  year.  And  it  must  be
remembered  that  time  frames  were  extended  in  order  to
give  the  required  budgetary  cover,  i.e.  to  keep  the
commitment open, and to allow the project to report and
receive  funds  if  these  were  due.

Financial  and  treasury  management

31. The rather weak follow-up of the partners’ accounts
was, to a large extent the result of the extremely difficult
circumstances  under  which  the  programme  started.  As
the  Court  rightly  points  out,  the  programme  started  in
the  face  of  severe  active  opposition  from  the  South
African  Government.  In  order  not  to  put  its  partners  in
danger, the Commission had to adapt management to the
reality of the situation. The fact that the Commission did
not 
the  strictest  reporting  and
follow-up  requirements  as  from  1991  on  is  due  to
various  reasons.  These  range  from  a  lack  of  resources  to
the positive experience of partners’ financial management
during  the  previous  years.  This  was  recognised  by  the
evaluation  team  in  their  report  on  the  European  Special
Programme  (ESP)  (Oct.  96).

immediately  apply 

The  Commission  recognises  that  the  monitoring  of  the
funds  could  be  improved,  certainly  in  relation  to  the
Southern  African  Catholic  Bishops’  Conference  (SACBC)
and  South  African  Council  of  Churches  (SACC).  The
closure exercise in South Africa by the Technical assistant
the
(period:  1986 
Commission  to  identify  unused  funds  which  are  being
recovered. The ongoing closure review by the audit firms
(period:  1991-1994)  will  allow  the  Commission  a
detailed  insight  of  the  actual  situation  on  outstanding
funds.  To  facilitate  the  recovery  of  these  funds,  the
Commission  is  considering  opening  an  account  in  South
Africa  to  receive  them.

to  1991)  has  already  helped 

32. As  the  Court  rightly  observes,  the  strict  observance
of  the  conversion  system  was  impractical.  The  Court’s
report  relates  to  not  amending  contracts.  It  is  true  that
the  Commission  did  not  modify  the  contracts  to  fit  the
practice  at  that  time:  this  was  not  an  ideal  situation,  but
given  the  priorities  at  that  time  and  the  pressures  of
managing  so  many  contracts  with  so  few  resources,  this
issue  was  not  addressed.

Payment  and  reporting

33-38. As far as reporting is concerned; a timeframe for
the  project  was  always  indicated  following  the  budget

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table.  Normally  the  reporting  should  have  been  done
during  this  timeframe  (unless  an  extension  had  been
granted).  However,  the  signature  of  the  contract  often
occurred  much  later  than  the  indicated  starting  date  of
the  project.  As  the  payment  arrived  only  after  that
signature  the  whole  project,  and  consequently  the
reporting,  was  delayed.  Most  projects  only  started  after
the  first  payment  had  been  received.

The  reporting  required  by  the  Commission  was  not  too
difficult  for  the  beneficiaries.  It  required  only  a  narrative
report  (2  or  3  pages  were  acceptable)  and  a  financial
report  indicating  —  according  to  the  budget  in  the
contract — what had been spent of the advances paid by
the  Commission.  Especially  for  the  earlier  projects  the
Channels  due  to  their  requirements  often  rejected  the
reports.  As  the  projects  were  often  located  in  remote
areas  and  the  reports  transferred  via  local  offices  to  the
headquarters  of  the  Channels,  considerable  time  was  lost
in  this  process.

The  fact  that  decision-making  was  rather  slow  in  the
Commission  obliged  the  Channels  to  introduce  requests
for continuation of a project well in time. This could give
the impression that the funding for the initial project and
the  second  or  extension  project  were  executed  together.
Wherever  possible  the  Commission  took  into  account  a
certain  closing  date  for  the  first  project  —  based  on  the
audit  reports  of  the  project  -and  only  from  that  date
onwards  the  next  project  could  start.  With  the  large
number of ongoing projects it was not always possible to
track  the  different  contracts  for  the  same  project  in  due
time.

34. During the first two phases the projects were for the
most  part  quite  small.The  system  of  linking  reporting  to
payments  was  appropriate  for  that  type  of  project,
especially  given 
the  shortage  of  Commission  staff
dedicated  to  South  Africa.  Of  course,  some  projects  did
not  submit  their  reports,  but  they  would  have  been  even
less  likely  to  do  so  without  any  financial  incentive.

35. As reporting was linked to payments and to the time
frame  of  the  project,  as  mentioned  above,  this  did  not
always  correspond  with  the  financial  year.  The  projects
had  not  asked  for  this  linkage.  On  a  few  occasions,  new
funding agreements were signed before ongoing ones with
the  same  organisation,  had  been  closed,  but  care  was
always  taken  that  there  was  no  overlap  of  funding.

financial  statement  be  prepared  showing  expenditure
against  the  budget  lines  in  the  contract,  and  that  a  short
narrative  report  should  give  information  on  the  activities
carried  out.

37. The  Court  observes  that  the  last  payment  is  often
outstanding. The current closure exercise will bring some
clarifications on this. Preliminary results indicate that any
overfunding  was  at  the  level  of  the  Channels,  which
could  often  be  explained  by  exchange  rate  differences  at
that time. The overfunding — or exchange gain — stayed
then  with 
the
Commission.

the  Channel,  until 

recovered  by 

However  with  the  arrival  of  the  democratic  government
in  1994  there  was  a  change  in  the  approach  to  NGO’s
and  also  in  the  funding  habits  of  donors  who  turned
more  towards  government  led  projects.  The  NGO’s
received less funding and often the projects closed before
all  objectives  were  achieved  thus  not  allowing  them  to
present the final report, a condition for the disbursement
of the last instalment. Hence the abandonment of the last
instalment.

The  reporting  on  grants  provided  by  other  donors  was
not  explicitly  indicated  in  the  earlier  projects  and  the
Commission  services  often  had  the  impression  that  the
projects  just  tried  to  keep  things  going  with  the  grants
that  came  in.

The  Court  rightly  points  out  that  the  closure  exercise
should  give  some  insight  as  to  why  a  certain  number  of
projects  have  not  submitted  a  final  report,  or  even  in
some  cases  interim  reports.  In  the  Commission’s  opinion
its  reporting  requirements  can  not  considered  to  be
particularly  cumbersome,  even  though  the  approval
circuit  may  seem  for  the  projects  to  be  rather  lengthy.

38. Audited  financial  statements,  while  sometimes  of
limited  use  regarding  the  precise  use  made  of  EU  funds,
nevertheless  give  a  good 
indication  of  the  general
the  organisation  and  reveal
financial  situation  of 
incidences  of  misuse  of  funds.  In  the  particular  case  of
the  Bursary  Programme,  because  of  the  unsatisfactory
situation, the Commission took action in 1996 and it was
decided  to  stop  funding  the  bursary  programme  through
Kagiso Trust (KT) and to fund ongoing students through
TEFSA (the Tertiary Education Fund of South Africa (see
Annex).

Project  monitoring

36. The  Commission  was  always  as  flexible  as  possible,
within  the  constraints  of  the  Financial  Regulation,  in  the
knowledge that many of the projects had limited capacity
for  reporting.  Thus,  the  minimum  required  was  that  a

39. The  Commission  is  currently  improving  procedures
and has constituted a task force within the Delegation in
order  research  solutions  to  improving  the  information
system.

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40. Thirteen of the fourteen projects referred to have all
expired  and  are  marked  for  closure,  except  for  one
project of SACC. Project time frames have been extended
in  order  to  retain  the  possibility  of  further  action  if
required.

requirements,  the  tender  was  cancelled  and  the  two
contracts  were  awarded  by  direct  agreement.

42. Delays  were  incurred,  as  stated  by  the  Court;
however,  they  were  not  always  caused  in  the  way
described.  It  should  in  this  context  be  noted  that  neither
with 
the  Programme
Co-ordination Office (P.C.O) was any expertise available
in  financial  matters  relating  to  the  Commission.

channels,  nor  with 

the 

As  far  as  the  Bursary  Programme  is  concerned,  the
situation raised by the Court has now changed, since the
visit  of  Commission  representatives  to  the  project  in
October  1996,  when  remedies  were  proposed  and
accepted. In 1997 TEFSA has taken over the management
of the projects, remedied the situation and is beginning to
collect  the  back  payments  —  see  comments  to  point  38.

43. The  initial  management  information  system  was
abandoned  at  the  end  of  1995,  but  a  new  tool  was
introduced  at  the  beginning  of  1996,  namely  GELIBU
(Gestion  des  lignes  budge´taires)  for  South  Africa.  This
supplement  to  the  information  system  used  by  the
Accounting  Service  SINCOM  allows  for  tracking  of  the
project  status,  as  well  as  providing  all 
financial
information.  It  is  correct  that  the  Commission  did  not
have  a  copy  of  the  contracts  between  the  Channels  and
the  project  holders,  preferring  for  practical  reasons  at
that  time  to  limit  contractual  relations  to  the  Channels.
This  system  was  modified  in  1995.

44. The  second  wave  of  the  project  closure  exercise  is
now  well  under  way  and  will  address  the  problem  of
outstanding balances. It should be noted that 4 MECU of
the  10  MECU  outstanding  can  be  attributed  to  one
project, Uthombo Pride (92-75070-397), which it has not
been  possible 
to  decommit  because  of  on-going
protracted  legal  proceedings.

clear  definition  of 

45-52. The  procedural  difficulties 
the  Commission
encountered  during  1996  have  been  solved  during  the
second  half  of  1997  and  the  situation  on  the  closure  of
ESP  projects  as  outlined  in  the  Court’s  report  has
definitively improved. Inter service agreements have led to
a 
tasks.
Computerised  tools  to  overcome  the  shortcomings  of
existing  systems  have  been  developed.  This  has  allowed
the  finalisation  of  closure  dossiers  of  all  projects  of  the
1986-1991  period,  415  in  total.  Of  these,  125  projects
have already been closed, the remainder being in the final
stages  of  closure.

responsibilities  and 

The  second  wave  of  closures  (period:  1991-1994)  is
ongoing  with  the  assistance  of  two  audit  firms  in  South
Africa.  Although  there  were  delays  in  producing  the
closure  review  reports  by  these  firms,  the  Commission
still  intends  to  respect  its  deadlines  to  close  180  projects
by the end of June and to close all non-active projects by
the  end  of  1998.  In  order  to  overcome  the  restricted
logistical  means  of  the  Delegation,  measures  are  being
applied to reinforce its equipment and resources. To date,
32  projects  have  been  closed,  and  23  are  in  the  final
stages.  These  projects  have  followed  a  ‘natural’  life  cycle
and  were  proposed  for  closure  after  receipt  of  closure
reports,  mainly  from  KT.  These  projects  will  still  be
reviewed  by  the  audit  firms  but  will  not  need  further
action  assuming  the  auditor’s  findings  correspond  with
the  closure  report  of  the  partner.

THE  EUROPEAN  PROGRAMME  FOR  RECONSTRUCTION
AND  DEVELOPMENT  (EPRD)  1994-1996

The  EPRD  system

Closure  of  Contracts

47. Meetings  were  held  in  April  1996  in  Pretoria  and
July 1996 in Brussels where  planning  and responsibilities
were  defined.  A  definitive  format  of  the  required
information  to  close  the  projects  was  decided  in  1997.

48.
In  addition,  the  recruitment  of  the  private  sector
audit  firms  necessitated  a  restricted  tender  launched  in
July  1996  with  a  deadline  for  submission  of  offers  of  25
September  1996.  Because  the  offers  did  not  meet  the

57. As mentioned in points 18 and 27, it was politically
and  technically  difficult  to  prejudge  the  implementing
capacities  of  the  new  Mandela  administration.  The
Commission also had to operate within the framework of
the  1994  co-operation  agreement  and  the  1996  Council
Regulation. The latter determines the level of funds to be
allocated  to  South  Africa  and  specified  large  sectors  of
intervention.  This  opened  the  door  to  many  requests
from  various  South  Africa  Departments.  This  issue  has
been examined with the SA government and as a result a
Multiannual  Indicative  Programme  (MIP)  was  agreed
upon  with  a  concentration  on  basic  social  services
(Education  and  Health),  laying  the  foundation  for  direct

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budget-support  mechanisms.  Unfortunately  most  of  the
departments  involved  in  the  sectors  prioritised  by  the
MIP are facing major difficulties in the implementation of
the  programme.  Therefore,  the  Commission  is  now
seeking,  in  agreement  with  the  NAO,  to  redirect  its
activities 
financial  and  managerial
capacity-building  programmes  in  key  departments  and
towards sectors where the governmental partner has well
recognised  and  established  implementing  capacities,  be  it
at national or provincial level. In parallel, operations with
non-governmental  partners  will  be  reinforced.

towards 

large 

In  the  case  of  the  health  programmes,  the
60. b)
combination  of  several  NGOs  was  unsuccessful  and
therefore  that  method  of  grouping  was  not  repeated.

Experiences  gained  on  earlier  projects  in  the  context  of
organisational  structures  for  co-ordinating  activities  have
been applied to new projects. Much attention is now paid
to  the  capacity  of  such  organisations.  New  programmes
are always based upon either an appraisal study or, in the
case  of  an  organisation  with  which  the  Commission  has
already  worked,  an  evaluation  of  the  previous  project.

61. The  TNDT  project  started  slowly,  partly  because
one major partner left, but is now a model for successful
implementation  and  monitoring.  The  Commission  is
satisfied  with  the  work  carried  out  by  this  organisation.

Government  projects

62. The  three  health  programmes  also  started  slowly.
These  were  in  fact  the  first  programmes  funded  through
the  government.  There  was  a  natural  learning  curve.
Some  problems  occurred  with  tender  procedures,  but
much  effort  was  put  into  making  these  programmes
work.  At  the  present  moment,  the  3  projects  have
reached  a  level  of  execution  of  over  90 %  and  are  in  a
final  stage  of  implementation.

63. The project started very slowly. Now it is well under
way  and  a  mid-term 
is  currently  being
undertaken.

review 

64. The  aims  were  kept  vague  because  the  actual
situation  under  the  new  government  was  in  itself  not
clear (points 15 — 19, 27 and 57). The project therefore
needed  to  be  designed  for  initial  flexibility.  A  mid-term
review  is  currently  being  prepared  for  the  Human  Rights
Programme.

MECU  on  women  and  development,  and  the  remaining
was  to  be  provided  by  the  South  African  Parliament
budget.  The  South  African  Parliament  has  decided  that
their  contribution  would  be  done  in  a  flexible  and
gradual  way.  This  explains  why  the  first  work  plan  was
based  on  the  Commission’s  contribution  only.  The
successful  implementation  of  the  part  financed  by  the
Swedish  government 
should  also  be  noted,  and
co-ordination  meetings  with  the  Commission  are  being
held.  The  staff  have  been  appointed  and  the  project  is
being  executed.  External  expertise  was  recruited  recently
to  help  the  project  management  to  establish  in  detail  the
objectives  of  the  project  and  how  to  achieve  them  in  the
most  cost-effective  way.  The  intention  of  the  joint
funding  will  appear  in  the  next  work  plan.

NGO  projects

66. The  Court 
the  difficulties
rightly  mentions 
encountered  by  NGOs  in  providing  the  Commission
services  with  information  needed  to  justify  the  release  of
funds  and  the  delays,  which  resulted  from  this  situation.
It  was  recognised  that  very  often  the  NGO’s  did  not
realise that advice was available from the Delegation. The
Commission  has  taken  a  series  of  measures  to  improve
this  situation:

—  ‘Guidelines  for  the  Implementation  of  EU  funded
Projects  in  South  Africa’  have  been  drawn  up  and
distributed in early 1998 to all partners (Government
services,  NGOs,  etc  . . .).  These  provide  clear  and
operational guidance on inter alia how to elaborate a
financing  proposal,  a  work  plan,  a  tender  dossier,  on
payments  and  fund  flows,  reporting,  etc. . .  Seminars
are  being  organised  to  promote  the  use  of  the
Manual;

—  A  capacity-building  programme  targeted  at  NGOs
operating  in  the  framework  of  the  MIP,  to  be
implemented  by  a  specialised  NGO, 
is  under
approval. 
immediate  short-term
It  will  provide 
technical assistance and support to these NGOs when
specialised  NGO
needed; 
Programme  Management  Unit  is  also  under  appraisal
(project  INTERFUND);

setting-up  of  a 

the 

—  The  Commission  is  currently  examining  means  to
bring  about  greater  decentralisation  of  decision
making  to  the  Delegation.

This  set  of  measures  should  significantly  improve  the
implementation  of  programmes  particularly  with  non
State  partners.

65. The  initial  cost  of  the  programme  was  estimated  at
36  MECU.  The  Commission  has  accepted  to  contribute
up  to  16  MECU,  the  Swedish  Co-operation  up  to  0.5

68. The  housing  loan  initiative  was  undertaken  on  a
province-by  province  basis.  Secondly,  the  provision  of
housing  was  the  responsibility  of  Government,  which,  in
the  aftermath  of  the  election,  was  overly  optimistic  as

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regards  the  speed  of  implementation.  Nevertheless,  it  has
to  be  stressed  that,  although  in  the  first  year  only  879
houses  could  be  delivered,  there  were  over  1 800  in  year
2,  notwithstanding  the  absence  of  bridging  funds.

Despite  difficulties  faced  by  certain  NGOs,  the  overall
programme remained on schedule. Another component of
this  programme  was  the  servicing  of  sites  (one  of  Urban
Sector  Network’s  principal  responsibilities)  with  the
objective  of  a  total  of  7185  sites  in  the  first  year.  The
project  actually  achieved  a  total  of  7529.

the 

financing 

agreement 

signature  of 

69. Mention  is  made  of  the  excessive  time  required  for
the 
and
disbursement of the first instalment to the Micro-projects
Programme  Trust  (MPT).  This  type  of  problem  will  be
minimised  in  future,  as  we  are  now  encouraging  the
projects  where  possible  to  prepare  their  tenders  and/or
work plans prior to signature of the financing agreement,
so  that  everything  is  ready  to  start  almost  immediately
after  signature.

Part  of  the  problem  is  also  to  be  related  to  MPT,  which
did  not  provide  the  Commission’s  services  with  the
required  information.  This  was  partly  due  to  inadequate
communication between the Commission and the project,
which  since  then  has  been  substantially  improved.

Exchange  losses

72. Exchange  rate  fluctuations  were  a  problem.  In  the
earlier  years  appreciation  of  the  Rand  meant  that  the
South  Africans  had  substantial  exchange  gains.  That  is
why  at  a  certain  moment  the  Commission  decided  to
calculate  the  different  payments  in  South  African  Rand
(ZAR) and to convert into ECU at the rate of the month
in  which 
the
depreciation or appreciation of the ZAR the beneficiaries
receive  more  or  less  ZAR  than  intended.  That  is  the
reason why final payments are now again made in ZAR,
despite the fact that the Commission would prefer to use
the  ECU.  The  problem  of  rates  applied  by  private  banks
is  a  source  of  concern  and  is  being  discussed  with  the
government.

the  payment  was  executed.  With 

Financing agreement

73. The  financing  agreements  have  now  been  modified
to  include  very  detailed  and  clear  clauses  relating  to
payments.  It  is  true  that  in  one  or  two  cases  (one  of
which  was  the  Urban  Sector  Network)  a  pragmatic
solution  was  put  forward  as  a  basis  for  payment  of  the
20 %  balance,  as  the  text  of  the  agreement  was  rather
unclear.

74. The  system  of  bank  guarantees  for  NGOs  or  the
‘certificates’  has  been  abandoned.

Weaknesses 
implementation  of  the  EPRD

the 

in 

tools 

and  procedures 

for

75. See  reply  to  point  32.

70. As  was  explained  in  point  66,  the  Commission  has
now  a  manual  providing  guidelines  on  every  stage  of
EPRD  implementation.

Payment delays

77. For  the  last  two  years  at  least,  riders  have  been
required  for  all  significant  amendments  to  financing
agreements.

identified  by 

78. This  weakness  was  also 
the
Commission  and  a  clearer  picture  has  been  presented  to
all parties involved in the recently released guidelines (see
also  point.66).  The  amendment  of  financing  agreements
is  described  in  the  financing  chapter  and  indicates  the
respective  responsibilities  and  the 
‘route’  that  such
amendments  should  follow.

In  the  two  cases  quoted,  the  Urban  Sector  Network
71.
and the Micro-projects Programme, there were particular
problems with the work plans presented, which had to be
referred  back  to  the  projects.  This  added  considerably  to
the  approval  time.  As  regard  the  internal  Commission
circuits  concrete  steps  are  currently 
to
decentralise  and  simplify  procedures  in  order  to  reduce
delays  consistent  with  the  principles  of  budgetary
discipline.

in  hand 

Tendering  procedures

79. As  early  as  in  1995,  the  European  Commission  and
its  South  African  negotiating  counterpart  agreed  to  use  a
slightly  revised  version  of  the  standard  EDF  tendering
rules for the first financial packages of the EPRD, known
as  the  ‘Draft  General  Regulations’.  The  major  difference
between  the  standard  EDF  tendering  rules  and  the  Draft
General  Regulations  and  Draft  General  Conditions  of

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Contract is precisely that in the latter no price-preference
is  given  to  South  African  companies.  Procurement  for
community  financed  development  projects 
in  South
Africa has also been regulated by Council Regulation No
2259/96  of  22  November  1996,  on  development
co-operation  with  South  Africa.  Article  7  of  this
Regulation  requires  that  participation  in  invitations  to
tender  and  contracts  shall  be  open  on  equal  terms  to  all
natural  and  legal  persons  in  the  Member  States,  South
Africa  and  the  ACP-States  and  in  duly  substantiated
cases,  other  developing  countries.

This  also  applies  to  the  origin  of  the  suppliers.  Without
any  changes  to  the  existing  agreement,  the  ACP-EC
Council  of  Ministers  decided  on  24  April  1997  the
accession  of  the  Republic  of  South  Africa  to  the  Lome´
Convention.  Some  issues  and  Articles  regulated  in  the
Convention  are  not  applicable 
to  South  Africa.
Concerning tendering rules, the decision confirms that no
price-preference  shall  be  given  to  South  African  entities.
In  its  efforts  to  harmonise  tendering  rules,  the  European
Commission  instructed  its  services  on  February  24,  1998
to  apply  uniform  procurement  thresholds  for  all  budget
line activities. This decision implies that projects governed
by  Financing  Agreements  signed  after  this  decision,  must
revised
be 
thresholds,  as  agreed  with  Financial  Control.

in  accordance  with 

implemented 

the 

The issue of conflicting tender regulations arose on a case
by  case  basis,  with  some  Departments  being  less  flexible
than  others 
in  the  choice  of  the  procedure.  The
Commission  initiated  discussions  with  the  Government
and  it  was  agreed  (and  stipulated  in  the  Multiannual
Indicative  programme  signed  in  May  1997)  that  EC
tender regulations would apply for each new programme.
For  older  programmes,  the  same  line  is  followed  in
principle,  but  in  some  cases,  South  Africa  is  still  facing
difficulties.  This  will  certainly  be  solved  with  the
amendment  of  the  Reconstruction  and  Development
Programme  Fund  Act  which  governs  external  public
donors funds. This Amendment will allow each donor to
use  its  own  procedures,  and  should  soon  enter  into
force.

Technical assistance

81.
It  may  be  true  that  skilled  expertise  is  available  in
South  Africa,  but  often  the  projects  need  high  level
Technical  Assistants  with  experience 
in  EU  funded
projects.  These  can  be  recruited  more  cost-effectively
from  Europe  in  a  variety  of  cases.  Nevertheless,  the
Commission  always  very 
the
possibility  of  recruiting  local  expertise  prior  to  taking  a
decision.

examines 

carefully 

82. At  the  time  of  the  visit  of  the  Court,  the
Commission  had  already  organised  an 
in-depth
consultation  with  the  TA’s  in  order  to  develop  precise
instructions  on  responsibilities  and  definition  of  tasks.

83. The  lack  of  experience,  both  from  the  side  of  the
Department  and  of  the  expert,  have  resulted  in  the
situation  described.  The  situation  has  since  been
corrected.

location  of 

technical  assistance 

85. The 
(central,
provincial,  local)  and  the  decision  taking  process  are
decided  on  the  basis  of  appraisal  studies  and  discussions
between 
the
the  Government,  beneficiaries 
Commission.

and 

COMMISSION  ORGANISATION  AND  RESOURCES

86  —  88. See  conclusion

89 — 90. The observations of the Court are fully shared
by  the  Commission,  which  is  currently  trying  to  find
solutions  (see  conclusion).

is  currently  awaiting 

91. a) The  Delegation 
the
replacement of 2 senior staff members, and a provisional
distribution  of  tasks  and  responsibilities  has  been  put  in
light  of  the  experience,  grade  and
place. 
background,  of  these  new  staff  members,  the  new
organization  chart  will  be  finalised.

In  the 

b  and  c) A  distinction  should  be  drawn  between  the
Special  Programme  (1986-1994)  where  close  monitoring
was 
impossible,  and  the  European  programme  for
Reconstruction and Development (EPRD 1995 onwards),
where  monitoring  is  ensured  through  close  contacts
between  the  delegation  and  the  programmes.  Certain
elements  of  the  monitoring  process  could  be  further
developed.  To  this  end,  a  task  group  has  been  created
within  the  Delegation  (see  point  39)  and  will  propose
solutions in the near future. To the extent that funds can
be  mobilised  to  implement  the  proposed  solutions,  this
should  lead  to  a  much  improved  situation.

is  currently  under  examination 

92. The  possibility  of  nominating  a  Deputy  Head  of
Delegation 
the
Commission  and  will  be  taken  into  account  in  the
appointments  of  the  staff  referred  to  in  the  above
paragraph.

in 

CO-ORDINATION  IN  DEVELOPMENT  CO-OPERATION
BETWEEN  THE  COMMUNITY  AND  THE  MEMBER
STATES

95. The  Commission 
Council  Regulation 
expressed  by  the  Court.

is  currently 

in  accordance  with 

implementing  the
the  views

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96. The  observations  address 
the  Member  States
activities.  The  Commission  will  handle  this  in  the  South
Africa  Committee  of  the  Council.

97. The  Commission  has  and 
is  taking  proactive
measures  to  reinforce  the  co-ordination  in  Pretoria  along
the  lines  mentioned  by  the  Court.

CONCLUSION

however  remained  inactive  and  lessons  have  been  learnt
from  the  difficulties  experienced.  On  many  occasions,
Headquarters  and  the  Delegation  have  had  a  common
assessment of the problems they were facing. This has led
the  Commission  to  simplify,  rationalise  and  codify  its
modus  operandi 
for  most  standard
documents,  a  manual  of  procedures  has  been  elaborated,
implementation  problems  are  regularly  reviewed  and
discussed with the SA Government, new instruments such
as  direct  budget  aid  are  being  tested,  etc.).  At  the  same
time  measures  have  been  and  are  being  taken  to  ensure
that  the  South  Africa  Unit  and  the  Delegation  are  better
staffed.

(models  exist 

98—104. As  the  Court  has  acknowledged,  it  was  for
political  reasons  that  the  Commission  was  formally
represented  in  South  Africa  through  its  Delegation  only
after  1994.  It  then  entered  into  a  process  of  continuous
support  and  technical  adaptation  to  the  complex  and
changing  circumstances  of  South  Africa.  This  took  place
in a context, both for the Commission and, in some cases
for  the  South  Africa  authorities,  of  scarce  human
resources  and  budgetary  constraints.  Furthermore,  the
conduct  of  the  EU/SA  negotiations  for  a  long-term
contractual  framework  from  June  1995  has  imposed  an
additional  important  burden  on  Commission  services,
which  could  not  foresee  at  that  time  that  those
negotiations would be so complex and lengthy and which
in fact are still ongoing. Management resources were and
remain at a critical level and the Commission agrees with
impact  on
the  Court 
implementation  efficiency.  The  Commission  has  not

this  situation  had  an 

that 

The  Commission  is  currently  undertaking  an  exercise
with a view to bringing together the executive part of all
the  external  actions  in  one  common  service  in  order  to
harmonise  the  execution  and  follow  up  of  the  external
aid  programmes.  The  Commission  is  also  engaged  in  a
process  of  decentralisation  and  simplification  of  its
co-operation.  The  case  of  South  Africa  is  being  duly
taken into account. At the same time, the Commission is
negotiating a Bilateral Agreement on Trade, Development
and  Co-operation  with  South  Africa,  which  will  contain
provisions  on  development  co-operation.  It  will  also
prepare  with 
the  Member  States  a  new  Council
Regulation  for  the  post-1999  era.  In  both  cases,  the
these
Commission 
opportunities  to  improve  its  relationship  with  South
Africa in terms of aid delivery, partnership, reliability and
decentralisation. 
and
The  Court’s 
recommendations form an important contribution to that
process.

take  advantage  of 

conclusions 

intends 

to 

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ANNEX

BURSARY  PROGRAMME

It  is  true  that,  given  insufficient  human  resources,  the  Commission  relied  too  much  on  the  KT  Bursary
Office for the management of this programme and that this management proved to be inadequate. This was
realised  in  Brussels  upon  receipt  of  inadequate  reports  from  KT.  A  mission  from  Brussels  concentrated  on
these problems, and decided towards the end of 1996 to cease funding students through KT and decided to
complete  the  funding  foreseen  through  TEFSA.  TEFSA  has  since  verified  and  reconciled  all  KT  data  from
1992  to  1996.  This  reconciliation  has  enabled  them  to  work  more  efficiently  on  the  loan  recovery
component  of  the  agreement,  although  it  is  too  early  to  produce  statistics  at  the  moment.

TEFSA’s loan recovery capacity improves annually and as they are confident of continued support from the
government,  the  sustainability  of  the  programme  will  be  ensured  through  them  as  it  was  envisaged  in  the
financing agreement.