Special Report No 20/98 on the audit of physical checks of agricultural products receiving export refunds accompanied by the replies of the Commission (pursuant to Article 188c (4)(2), of the EC Treaty)
Date: 1998-10-15
Institutions: European Court of Auditors
Subjects: EU control, agricultural product, customs regulations, export refund, report

3.12.98

EN

Official  Journal  of  the  European  Communities

C  375/17

SPECIAL  REPORT  No  20/98

on  the  audit  of  physical  checks  of  agricultural  products  receiving  export  refunds  accompanied
by  the  replies  of  the  Commission

(pursuant  to  Article  188c  (4)(2),  of  the  EC  Treaty)

(98/C  375/03)

CONTENTS

Paragraph
reference

Page

EXECUTIVE  SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.  INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.1 — 1.7

General

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

1.1 — 1.3

Control  provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.4 — 1.5

Audit  scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1.6 — 1.7

2.  OBSERVATIONS  RELATING  TO  THE  COMMISSION’S  INSPECTIONS

2.1 — 2.6

Scope  and  objectives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.1 — 2.4

Deficiencies  in  Member  States’  checks  identified  by  the  Commission . . . .

Follow  up  action  on  deficiencies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2.5

2.6

3.  FINDINGS  OF  THE  COURT’S  AUDIT  IN  MEMBER  STATES . . . . . . . . . .

3.1 — 3.35

Risk analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.1 — 3.13

Use  of  databases  for  risk  analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.14 — 3.19

Monitoring  and  evaluation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.20 — 3.22

Effectiveness  of  checks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.23

Irregularities  detected  by  Regulation  (EEC)  No  386/90  checks . . . . . . . . .

3.24 — 3.28

Coordination  with  Regulation  (EEC)  No  4045/89  verifications . . . . . . . . .

3.29 — 3.30

Laboratory  testing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3.31 — 3.35

4.  CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4.1 — 4.5

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

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

18

19

19

19

20

20

20

21

21

21

21

23

24

24

25

26

27

27

29

30

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3.12.98

EXECUTIVE  SUMMARY

Context  of  the  audit

In  the  1996  EAGGF  year,  export  refunds  paid  to  exporters  of  agricultural  products  to
compensate  them  for  the  difference  between  the  internal  European  Union  price  and  the  lower
world  market  price  amounted  to  some  ECU  5 600  million,  (13 %  of  European  Union
expenditure  on  agriculture).  The  rates  of  export  refund  vary  according  to  the  nature  of  the
products  concerned  and  are  applied  to  the  quantities  exported.  Though  financed  by  the
European Union budget, Member States are responsible both for making the payments, and for
carrying  out  the  checks  to  confirm  the  legality  and  regularity  of  the  export  refunds.

Member  States’  customs  authorities  are  faced  with  the  difficult  problem  of  protecting  the
European  Union  budget  by  means  of  physical  checks  without  creating  undue  obstacles  to  the
flow of trade. In the 1996 EAGGF year , and across the whole of the European Union, Member
States’  customs  authorities  carried  out  100 000  physical  checks,  in  implementing  the  5%
minimum rate of physical verification fixed by legislation. For a substantial proportion of these
checks  laboratory  tests  were  also  compulsory.  The  administrative  costs  of  these  checks  both  to
customs authorities and to traders are significant. It is therefore imperative that checks are well
targeted  and  effectively  executed.  In  1994,  Regulation  (EEC)  No  386/90  was  amended
principally  to  introduce  the  possibility  of  risk  analysis  for  the  selection  of  consignments  for
physical  checks.  The  Court’s  audit  in  Member  States  concentrated  on  the  use  of  risk  analysis
and  the  evaluation  of  the  effectiveness  of  procedures  for  the  selection  of  consignments  for
physical checks.

Main  observations

In the general context, physical checks are an essential tool for customs services, but, depending
on the measure, they may not always be the most effective and appropriate method of control.
Because risk analysis is not obligatory there are considerable differences between Member States
in  the  procedures  for  selection  of  consignments  for  physical  control.  Optimum  use  of  risk
analysis is hampered by the mandatory requirement set out in the legislation to carry out fixed
rates  of  physical  control  at  every  customs  office  and  by  inadequate  information  databases  in
Member States. There has been no evaluation of the effectiveness of the procedures for selection
of  consignments  for  control  either  by  Member  States  or  the  Commission.  There  is  a  lack  of
coordination  with  a  posteriori  controls  carried  out  by  the  Member  States  under  Regulation
(EEC)  No  4045/89.

Main  recommendations

The  Commission  should  consider  creating  a  legal  framework  which  provides  for  a  balanced
combination  of  physical  controls  (at  the  point  of  export)  and  a  posteriori  controls.

Member States should be encouraged to place more emphasis on the quality and effectiveness of
physical checks rather than just ensuring that the rates of checking fixed by regulation are met.
To  improve  the  effectiveness  of  the  procedures  for  the  selection  of  consignments  for  physical
check, the Commission is encouraged to consider a number of recommendations. Above all, the
Court  suggests  that  the  use  of  risk  analysis  by  Member  States  should  be  made  obligatory.  The
legislative  requirements  relating  to  physical  checks  should  be  made  more  flexible  while  at  the
same  time  making  Member  States  more  accountable  for  the  effectiveness  of  those  checks.

In  more  general  terms,  risk  analysis  is  an  effective  resource  management  tool.  To  limit  it  to
export  refunds  is  too  restrictive.  To  manage  effectively  their  resources  Member  States  need  a
broader  legislative  framework  for  risk  analysis  which  would  permit  them  not  just  to  target
transactions  within  measures  but  to  allocate  resources  to  measures  on  the  basis  of  the
comparative  risks  to  the  EU  budget.

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1.  INTRODUCTION

Table  2

General

Export  refund  expenditure  by  Member  State  1996

Member  State

Amount

(million  ECU)

for 

them 

to  compensate 

1.1. Export  refunds  are  amounts  paid  to  exporters  of
agricultural  products 
the
difference between the internal European Union price and
the  lower  world  market  price.  The  rates  vary  according
to  the  product  description  and  are  applied  to  the
quantities  exported.  Though  financed  by  the  European
Union  budget,  Member  States  are  responsible,  through
their  appointed  paying  agencies, 
the
payments.  Member  States  are  also  responsible  for  checks
over  the  legality  and  regularity  of  those  payments  which
are  primarily  carried  out  by  their  customs  services.

for  making 

1.2. Although they are to be gradually phased out under
the  General  Agreement  on  Tariffs  and  Trade/World
Trade  Organisation  (GATT/WTO)  agreements,  export
refunds  still  account  for  some  13 %  of  European  Union
expenditure on agriculture. In the 1996 EAGGF year this
amounted to some ECU 5 600 million. Table 1 shows the
distribution of expenditure by product group and Table 2
by  Member  State  for  that  year.

Table  1

1996  appropriations  for  export  refunds  by  budget  line

Article

Description

Amount

(million  ECU)

B1-1 0 0

B1-1 1

Cereals

Sugar

B1-1 2 0

Olive oil

B1-1 5

B1-1 6 0

B1-1 7 0

Fruit  and  vegetables

Products  from  vine  growing  sector

Tobacco

B1-1 8 5 0

Rice

B1-2 0 0

B1-2 1 0

B1-2 3 0

B1-2 4 0

B1-2 4 1

B1-3 0

Milk  products

Beef  and  veal

Pigmeat

Eggs

Poultry

NA  II

Grand  Total

Source:  Sincom  1996.

312,6

1 230,0

59,3

73,4

40,8

2,4

33,3

1 605,2

1 559,0

101,4

12,1

127,0

490,9

5 647,5

Belgium

Denmark

Germany

Greece

Spain

France

Ireland

Italy

Luxembourg

Netherlands

Austria

Portugal

Finland

Sweden

United  Kingdom

Source:  Sincom  1996.

631,9

454,0

943,1

33,6

177,1

1 136,6

618,0

300,5

0,3

808,4

69,9

22,1

81,6

35,3

335,2

5 647,5

Grand  total

1.3. Member  States’  customs  services  are  faced  with  the
difficult  problem  of  protecting  the  European  Union
budget by means of physical checks and at the same time
presenting  as  few  obstacles  as  possible  to  legitimate
international  trade.  In  the  1996  EAGGF  year  European
Union  customs  services  dealt  with  some  2 000 000
declarations involving agricultural products which benefit
from  export  refunds.  Respecting  the  minimum  rate  of
5 %  fixed  by  legislation  results  in  100 000  physical
checks.  In  a  substantial  proportion  of  those  checks
laboratory  tests  are  compulsory.  The  costs  both  to
customs  administrations  and  trade  are  significant.  It  is
therefore  imperative  that  checks  are  well  targeted  and
effectively executed.

Control  provisions

1.4. The  system  of  control  of  export  refunds  is  three
is  provided  for  by  Council
tiered.  The  first  tier 
Regulation  (EEC)  No  386/90 (1)  on  the  monitoring
carried out at the time of export of agricultural products
receiving  refunds  or  other  amounts.  It  provides  for  the
physical check of consignments at the time of export with
the  objective  of  verifying  that  goods  and  quantities  are
correctly  declared.  The  second  tier,  foreseen  by  the  same

(1)  OJ  L  42,  16.2.1990,  p.  6.

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to evaluate the quality of the execution of physical checks
by  Member  States’  customs  services.

2.2. The Commission has been unable to evaluate either
the  effectiveness  of  the  procedures  for  the  selection  of
consignments for physical check or of the results in terms
of  irregularities  detected,  since  neither  the  majority  of
Member  States  nor  the  Commission  itself  have  any
record  identifying  the  number  and  value  of  irregularities
detected by Regulation (EEC) No 386/90 checks. Nor has
it, 
in  common  with  Member  States,  assessed  the
reliability  and  relevance  of  the  risk  criteria  defined  in
Regulation  (EC)  No  3122/94  in  order  to  make  physical
checks  more  effective  and  to 
improve  targeting  as
required  by  Article  3  of  the  same  Regulation.

2.3. To  ensure  coherence  in  the  overall  control  strategy
over  export  refunds  Article  5  of  Regulation  (EEC)  No
386/90  requires  Member  States 
to
coordinate  and  combine  checks  imposed  on  individual
operators with verifications carried out under Regulation
(EEC)  No  4045/89.  The  Court  considers  that  this
coherence  has  not  been  achieved  and  recommends  that
the Commission pay particular attention to this aspect in
its  clearance  of  accounts  inspections.

take  steps 

to 

2.4. Article  5(4)  of  Regulation  (EC)  No  2221/95
requires  customs  services  to  take  representative  samples
for laboratory analysis as part of the physical check if the
rate  of  refund  of  the  product  concerned  depends  on  a
particular  content.  Table  3  based  on  statistics  obtained
by  the  Court  from  the  Member  States  compares  the
number  of  physical  checks  which,  according  to  the
Regulation, should have led to a test in a laboratory with
the  number  of  tests  actually  performed.  In  Belgium,
France,  Germany  and  Spain  the  requirement  was  not
respected  in  a  substantial  number  of  physical  checks  of
milk  products  and  olive  oil.  Although  national  statistics
were  not  available  in  Ireland,  the  internal  audit  unit  of
instances  of
the 
non-compliance with this requirement. The Commission’s
inspection  reports  for  these  Member  States  did  not
indicate  that  this  compliance  failure  had  been  addressed.

Irish  customs  service  had 

found 

Regulation,  provides  for  documentary  checks  to  be
carried  out  by  the  paying  agencies.  The  third,  set  out  in
Council  Regulation  (EEC)  No  4045/89 (2),  provides  for
the  a  posteriori  verification,  inter  alia,  of  export  refund
transactions  on  the  basis  of  beneficiaries’  commercial
information.  This  regulation  was  the  subject  of  Special
Report  No  7/93 (3).

1.5. Regulation  (EEC)  No  386/90  has  been  amended  by
Council  Regulation  (EC)  No  163/94 (4)  principally  to
introduce  the  possibility  of  risk  analysis  for  the  selection
of  consignments 
for  physical  check.  Commission
Regulation  (EC)  No  2221/95 (5)  lays  down  detailed  rules
for  its  application.  Commission  Regulation  (EC)  No
3122/94 (6)  lays  down  optional  criteria  for  risk  analysis.
The  annex  summarises  the  principal  provisions.

Audit  scope

1.6. The  Commission  had  carried  out  inspections  in
Member  States  of  the  implementation  of  Regulation
(EEC)  No  386/90.  As  part  of  its  audit  the  Court  has
therefore  carried  out  an  evaluation  of  those  inspections.
The  Court’s  audit  in  Member  States  concentrated  on
aspects  other  than  those  covered  by  the  Commission’s
inspections,  in  particular,  the  use  of  risk  analysis  and
evaluation  of  the  effectiveness  of  procedures  for  the
selection  of  consignments  for  physical  check.

1.7. The  Court’s  audit  was  carried  at  the  Commission
and  in  the  following  Member  States;  Belgium,  Denmark,
France,  Germany,  Ireland,  Italy,  Netherlands,  Spain  and
the  United  Kingdom.  These  Member  States  were  selected
because  they  account  for  some  95 %  of  export  refund
expenditure.

2.  OBSERVATIONS  RELATING  TO  THE  COMMISSION’S

INSPECTIONS

Scope  and  objectives

2.1. The  principal  objectives  of 
the  Commission’s
inspections  in  Member  States  were  to  verify  that  the
required rates for physical checks had been respected and

(2)  OJ  L  388,  30.12.1989,  p.  18
(3)  OJ  C  53,  19.2.1994,  p.  1
(4)  OJ  L  24,  29.1.1994,  p.  2.
(5)  OJ  L  224,  21.9.1995,  p.  13.
(6)  OJ  L  330,  21.12.1994,  p.  31.

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Table  3

Number  of  physical  checks  and  laboratory  tests

Member  State

France

Germany

Belgium

Spain

Milk  products

Olive oil

Number  of  declarations

24 146

51 265

8 577

4 835

3 194

Number  of  physical  controls  to  be  submitted  for
analysis

3 401

4 089

1 461

1 357

Number  of  analyses  carried  out

1 516

3 359

666

120

798

678

Source:  Member  States’  statistics  1996.

Deficiencies  in  Member  States’  checks  identified  by  the
Commission

2.5. The  principal  deficiencies 
Commission’s 
the 
inspection  of 
Regulation  (EEC)  No  386/90  are  as  follows;

the
identified  by 
implementation  of

—  inaccurate statistics for rates of physical checks (B, F,

EL,  IT,  L,  P,  E,  UK),

—  inadequate  quality  of  physical  checks  (B,  IT),

—  lack  of  appropriate  examination  and  weighing

facilities  (B,  NL,  E),

—  the  Customs  services  had  given  prior  notice  to
exporters  of  checks  which  should  be  unannounced  if
they are to count under Regulation (EEC) No 386/90
(F,  IT).

Follow  up  action  on  deficiencies

2.6. The  Commission  has  addressed  letters  to  Member
States  detailing  the  deficiencies  found.  The  letters,  for
inspections  carried  out  between  February  1996  and  July
1997,  were  sent  out  between  December  1996  and
October  1997.  The  replies  were  received  by 
the
Commission  between  February  1997  and  December
1997. At the date of the Court’s final audit visit in April
1998  the  Commission  had  taken  no  action  to  evaluate
the
the  replies,  which 
Commission’s findings, nor had it taken any other follow
up  action.

instances  contest 

in  many 

3.  FINDINGS  OF  THE  COURT’S  AUDIT  IN  MEMBER

STATES

Risk  analysis

potential  material  irregularity.  It  can  be  used  to  target
scarce and costly resources so that transactions presenting
the  highest  risk  of  irregularity  are  checked  to  a  greater
degree than where the risk of irregularity is lower. It does
not  mean  that  checks  should  not  be  performed  on
potentially low risk transactions. There must always be a
degree  of  random  checking  both  to  maintain  a  deterrent
factor  and  to  identify  new  risks.

chemical 

involving  precise 

3.2. Rates  of  export  refund  are  differentiated  according
to  product  descriptions.  Some  of  these  descriptions  are
complex 
composition
requirements.  Sometimes  minor  differences  between  the
actual  product  composition  and  that  required  by  the
export refund nomenclature (ERN) result in the complete
loss  of  refunds  whereas  in  other  cases  the  loss  is
graduated.  For  example,  Cheddar  cheese  with  a  fat
content  in  dry  matter  (FCDM)  of  48 %  or  more  attracts
the  full  rate  of  refund  of  ECU  101,68 (7)  per  100  kg.  If
the  FCDM  is  47,9 %  no  refund  is  payable.  In  contrast
full milk powder of a fat content (FC) of 25,1 % or more
attracts ECU 102,6 per 100 kg, at 24,9 % FC the rate is
ECU  95,38.  The  degree  of  compliance  of  export  refund
claimants  also  naturally  varies.  Therefore,  regardless  of
whether  or  not  Member  States  have  opted  to  carry  out
the  global  rate  for  checks  where  risk  analysis  is  applied,
there  is  a  sound  argument  for  targeting  physical  checks
on  products  and/or  claimants  presenting  the  highest  risk
of significant irregularities.

3.1. Risk  analysis  can  be  defined  as  the  use  of  pertinent
data to identify transactions presenting the highest risk of

(7)  Rates  quoted  are  those  in  force  for  December  1997.

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3.3. Although  the  option  has  been  provided  for  by
legislation  since  1  January  1995,  at  the  time  of  the
Court’s  audit  only  four  Member  States,  Denmark,
France, Germany and United Kingdom were applying the
5 % rate of physical check covering all product sectors by
customs  office  associated  with  risk  analysis.  Apart  from
Italy,  the  remaining  Member  States  visited  all  claim  to
use,  to  some  extent,  risk  criteria  for  the  selection  of
consignments  for  physical  check.

year.  A  prime  motive  for  this  is  to  avoid  disallowance
under  the  clearance  of  accounts  procedure (8)  for  failure
to  meet  the  prescribed  levels.

3.4. Current  legislation  provides  for  the  use  of  risk
analysis as an option. Thus, Member States use markedly
different approaches for the selection of consignments for
physical  checks.  The  use  of  risk  analysis  should  be  made
obligatory.

3.5. Whether  or  not  Member  States  have  opted  for  risk
analysis,  the  imposition  by  legislation  of  minimum  rates
for  physical  checks  means  that  some  selections  are  made
simply  to  comply  with  the 
legislative  requirements
regardless  of  the  risks  presented.  To  be  sure  of  achieving
a  fixed  annual  rate,  administrative  procedures  are  aimed
at maintaining a regular rhythm of checks throughout the

3.6. The  value  of  refunds  claimed  is  one  of  the  key  risk
criteria  identified  by  Regulation  (EC)  No  3122/94.  Yet
the  Regulation  requires  the  rate  of  checking  to  be  based
upon  the  numbers  of  declarations  presented,  not  on  the
value  of  refunds  claimed.  This  leads  to  distortion  of
control  effort.  The  majority  of  export  declarations  are
presented  in  respect  of  non-Annex  II  (NA  II)  goods (9)
which  attract  much  lower  rates  of  refund  in  relation  to
their  weight  than  basic  products.  For  example  about
10 %  of  refunds  paid  in  the  Netherlands  in  the  1996
EAGGF  year  were  in  respect  of  NA  II  goods  yet  they
accounted  for  some  53 %  of  the  checks.  In  contrast
refunds  on  beef  in  the  same  year  accounted  for  some
21 %  of 
refunds  but  only  6 %  of  checks.  As
demonstrated  in  Table  4  a  similar  distortion  can  be  seen
in  the  pattern  of  checks  in  other  Member  States.

Distribution  of  control  effort  for  NA  II (9)  and  milk  products

Table  4

Member  State

Percentage  share  of  refunds

Percentage  share  of  checks

NA  II

Milk

NA  II

Milk

Germany

Netherlands

Spain

United  Kingdom

Ireland

Belgium

France

9

10

15

20

8

7

4

20

59

12

33

12

24

23

46

53

28

57

34

31

29

15

17

13

17

10

10

16

Source:  Member  States’  paying  agency  and  customs  service  data  1996.

from 

initially 

(8)  Member  States  finance  payments  to  beneficiaries  under  the
EAGGF 
their  own  budgets  and  are
subsequently  reimbursed  by  the  EC  Commission.  The
Commission’s  audit  of  this  expenditure  is  called  ‘Clearance
of  acounts’.  As  a  result  of  this  audit  the  Commission  may
disallow  expenditure  where,  for  example,  it  considers  that
the  payments  have  been  irregular  or  that  the  Member  State
has  failed  to  fulfil  its  control  obligations.  In  such  instances
the  charge  is  to  the  national  not  the  EU  budget.

(9)  Goods  not  included  in  Annex  II  to  the  Treaty  establishing
the  EEC  as  referred  to  in  Aricle  38  and  which  are  in  fact
processed  products.

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3.7. Where  a  Member  State  opts  for  the  use  of  risk
analysis the rate for physical checks is a minimum of 5 %
per  customs  office  per  calendar  year  with  a  minimum  of
2 %  per  product  sector.  Goods  are  taken  into  customs
control  not  only  at  the  major  ports  but  also  at  inland
customs  offices  responsible  for  the  premises  where  they
are  packed  for  export.  The  nature  of  trade  differs
considerably  between  major  ports  where  a  wide  variety
of  products  from  a  wide  range  of  exporters  is  taken
under  customs  control  and  inland  customs  offices  where
often a limited range of products from a few exporters is
involved.  For  such  customs  offices,  the  selection  of
consignments for physical check on the basis of a smaller
statistically  representative  sample  is  an  alternative  to  the
obligatory 5 %  rate  which  might  be  considered.

it 

3.8. Under  the  legislation,  risk  analysis  should  form  an
integral  part  of  the  selection  procedure  but 
is
sometimes  used  only  as  background 
information.
However, the extent to which risk analyses are integrated
into the procedure for selection for physical check varies.
In  the  UK  and  to  a  partial  extent  in  Denmark,  the  risk
criteria  used  are  recorded  for  each  consignment  and  the
risk  analysis  leads  directly  to  the  recommendation  for
physical check of individual consignments. In Spain there
is  no  formal  risk  analysis  but  if  a  risk  is  identified,  for
example,  on  the  basis  of  an  irregularity  detected  by
laboratory  analysis,  a  filter  is  set  which  leads  to  the
automatic  selection  of  export  declarations  for  physical
check  for  the  product  and/or  exporter  in  question.  In
Germany  risk  analysis  has  led  to  the  fixing  of  rates  of
checking  at  the  level  of  product  sectors.  i.e.  beef,  milk
etc.,  the  selection  of  the  individual  consignments  being
left  to  the  local  customs  offices.  Such  a  system  is  too
general  to  be  effective  on  its  own.  In  Belgium  and  the
Netherlands risk analyses have only been drawn up for a
limited  number  of  products  and  at  best  they  serve  as  an
information  note  to  customs  offices.  Thus  all  of  these
Member  States  could  claim  to  use  risk  analysis  in  some
way  although  the  methodology  used  by  the  UK,  and
partially  by  Denmark,  is  both  more  transparent  and
accountable.

Ideally, to ensure consistent treatment, the selection
3.9.
procedures  should  be  centralised  within  each  Member
State, with provision for some local input, since the same
products  from  the  same  exporter  can  be  presented  for
customs  control  at  more  than  one  customs  office  of
export.  This  particular  system  is  in  operation  only  in
Spain  (but  see  paragraph  3.20).

3.10. Regulation (EC) No 3122/94 provides for optional
criteria  to  be  used  in  the  procedure  for  the  selection  of

consignments  for  physical  check.  They  relate  to  the
products,  trade,  export  refund  nomenclature,  exporters,
irregularities, 
the
arrangements  for  the  granting  of  export  refunds.  The
Regulation does not however make any recommendations
on  the  relative  importance  of  these  criteria.

arrangements 

customs 

and 

3.11. The  degree  of  sophistication  of  the  procedures  for
the selection of consignments varies considerably between
Member States. Some are well documented where the use
of  the  criteria  can  be  readily  identified  (Spain,  Denmark
partially  and  the  United  Kingdom),  others  are  informal
with  no  record  of  the  criteria  used  for  the  selection  of
particular consignments (Belgium, France, Ireland and the
Netherlands).

3.12. There are also differences between customs offices
within  particular  Member  States.  For  example, 
in
Denmark,  Veijle  has  a  transparent  computerised  system
which  takes  account  of  criteria  such  as  trader  and
product risk, value of refunds, etc. The system leads to an
automatic  risk  rating  on  the  basis  of  points  allocated  for
each of the criteria. In other customs offices in Denmark,
such as Esbjerg and Aalborg, the risk analyses were based
on  fewer  criteria  and  less  information.  Disparities  were
also  noted  between  customs  offices  in  Ireland.

3.13. Each customs office of export must ensure that the
achievement of the 5 % check rate can be verified at any
time.  There  is  no  legislative  provision  for  recording  the
risk  associated  with  the  individual  consignment.  Without
this information it is impossible to judge the effectiveness
of  selections  for  deterring  or  detecting  irregularities.
Spain,  Denmark  in  part  and  the  United  Kingdom  are  the
only  Member  States  to  record  the  risk  associated  with
each export declaration by means of a code or weighting
factor.

Use  of  databases  for  risk  analysis

refund 

Information  on  export 

3.14.
irregularities,
whether  they  are  detected  by  Regulation  (EEC)  No
386/90 checks or by other means, is used for risk analysis
in  the  following  ways;  as  a  direct  element  of  the
calculation  of  a  risk  factor  for  individual  consignments,
as  in  the  United  Kingdom  system;  in  the  form  of  a
database  which 
the
Netherlands,  Spain);  or  in  the  form  of  information  notes
(Belgium,  Denmark,  France).

consulted 

can  be 

(Ireland, 

the 

for
information 
3.15. Where 
consultation in the form of a database or an information
bulletin,  there  is  no  record  that  it  has  been  taken  into
account  in  the  selection  of  consignments  for  physical
check.

available 

is 

C  375/24

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Official  Journal  of  the  European  Communities

3.12.98

In the United Kingdom (10), where the incidence of
3.16.
irregularity  in  the  database  is  taken  into  account  but  not
the  value,  at  least  20 %  of  the  irregularities  concerned
late  presentation  of  export  documents  and  there  were
many  instances  where  the  irregularity  was  of  a  purely
clerical  nature  with  no 
the
misdescription 
irregularities,  25 %  were  voluntary
declarations,  8 %  were  annotated  as  having  no  financial
impact  and  in  some  50 %  the  value  of  the  irregularity
had  not  been  recorded.  Taking  account  of  irregularities
which  have  no  relevance  for  physical  checks  or  those
with no financial impact leads to unnecessarily high rates
of  checking  for  both  the  products  and  traders  concerned
with  the  associated  costs  for  both  customs  and  trade.

impact.  Of 

financial 

3.17. Similarly in the Netherlands, where the irregularity
database  is  available  for  consultation  by  customs  offices,
around  14 %  of  the  irregularities  were  in  respect  of
minor  weight  differences  (less  than  50  kg).  Further  the
declared  and  found  export  refund  nomenclature  codes
were  not  recorded  in  a  consistent  manner  nor  was  the
nature of the irregularity always clear. This detracts from
the usefulness of the database as a tool in the selection of
consignments  for  physical  check.

Irregularities  detected  by  laboratory  analysis  of
3.18.
customs  samples  are  recorded 
in  Member  States’
irregularity  databases.  They  are  therefore  available  for
consideration within risk analysis procedures. In contrast,
the  incidence  of  testing  of  products  which  are  found  to
meet the export refund requirements is not. Risk analyses
therefore  cannot  take  account  of  the  positive  assurance
achieved  by  repeated  satisfactory  results.

3.19.
In  most  of  the  Member  States  visited  the  customs
laboratories  maintained  databases  of  details  and  results
of all tests carried out which should be made available to
customs  services  for  risk  analysis  purposes.

Monitoring  and  evaluation

3.20. All Member States have records of the numbers of
physical checks carried out at the customs offices. Where
however  there  are  recommendations  for  physical  checks
which  are  made  centrally  or  based  on  centrally  fixed
criteria  and  weightings,  such  as  in  Spain  and  the  United
Kingdom, there are no systems in place to ensure that the
recommended check is in fact carried out, or, if not, that

(10) The  United  Kingdom  risk-analysis  system  is  detailed  and
transparent  and  therefore  attracts  more  comment  than  those
Member  States  where  there  is  no  use  of,  or  no  transparent
risk analysis.

the 

the reasons are documented. For example, in one customs
office  in  Spain  in  the  period  1  March  to  30  June  1997,
75 %  of 
recommended  checks  on  olive  oil
exportations  were  not  carried  out  and  yet  there  was  no
documented  reason  for  not  so  doing  nor  was  there  any
feedback  to  the  central  office  responsible  for  setting  the
parameters  which  resulted 
in  the  recommendations.
Similarly  in  the  United  Kingdom  in  1995,  37 %  of
physical checks were carried out in the not-recommended
in  the
category,  34 % 
recommended (11).  In  fact,  the  29 %  represented  only
3,8 %  of 
for
examination. There had been no documented justification
for  non-adherence  to  the  recommendations  and  no
management  feedback.

in  the  optional  and  29 % 

lines  recommended 

the  declaration 

In  Germany,  the  centralised  system  for  risk
3.21.
analysis  results  in  a  high,  medium  or  low  risk  being
allocated  to  each  product  group  with  an  associated  rate
of  minimum  check.  The  system  was  introduced  in  1997
but  did  not  provide  for  monitoring  the  results.  A
comparison  of  the  rates  of  checking  for  1996  and  1997
for  one  customs  office  in  Germany  showed  that  the  risk
recommendations,  high  for  beef  and  medium  for  milk
products,  had  not  significantly  altered  the  pattern  of
checks  in  the  desired  direction.

3.22. None  of  the  Member  States  visited  had  evaluated
the  effectiveness  of  the  selections  made  for  physical
check.  Even  had  the  Member  States  wished  to  carry  out
evaluations they could not have done so because none of
them had management information systems giving details
of  export  declarations,  risk  categories,  controls  carried
out  and  results  of  checks  in  terms  of  the  values  of
irregularities detected.

Effectiveness  of  checks

to  carry  out  an  evaluation  on 

In the absence of the necessary data the Court was
3.23.
also  unable 
the
effectiveness  of  physical  checks.  Nevertheless,  for  those
Member  States  where  information  was  available  for
product groups at the national level, a comparison of the
rates  of  check  with  rates  of  detection  of  irregularities
brings  into  question  the  effectiveness  of  Member  States
targeting.  Even  at  this  level  there  is  evidence  that
substantially  more  checks  are  being  directed  at  product
sectors  where  the  value  of  irregularities  detected  is

(11) The  United  Kingdom  does  not  contest  the  figures  but  points
out  that  a  flaw  in  the  computer  system  may  have  caused  a
number 
‘not
recommended’.

‘recommended’ 

to  default 

lines 

the 

to 

3.12.98

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Official  Journal  of  the  European  Communities

C  375/25

considerably 
lower  than  other  product  sectors.  For
example  in  the  United  Kingdom,  in  1996,  57 %  of  all
checks  were  in  respect  of  NA  II  goods  with  irregularities
detected  accounting  for  some  16 %  of  the  total  value  of
irregularities;  whereas  17 %  of  the  checks  were  on  milk
products  with 
irregularities  detected  accounting  for
43 %.

United  Kingdom’s  figures  were  taken  from  a  database
which included irregularities which were in fact voluntary
declarations.  The  Netherlands  authorities  supplied  a
global figure being unable to attribute the irregularities to
product sectors. The other Member States were unable to
supply  any  figures.

Irregularities  detected  by  Regulation  (EEC)  No  386/90
checks

3.24. Details  of  irregularities  detected  by  Regulation
(EEC)  No  386/90  checks  in  each  product  sector  in  the
EAGGF  year  ending  15  October  1996  were  requested
from each of the Member States visited. Only Ireland and
the  United  Kingdom  provided 
information  as
requested  and,  as  referred  to  in  paragraph  3.16,  the

the 

3.25. On the basis of the figures which were supplied by
the  three  Member  States,  the  value  of  irregularities
detected is low, ranging between 0,003 % and 0,06 % of
refunds  paid  with  a  total  value  of  ECU  1,4  million
against refunds paid of some ECU 1 934 million. Table 5
details 
the  refunds  paid,  numbers  of  checks  and
irregularities  detected  in  those  Member  States.

Number  of  Regulation  (EEC)  No  386/90  checks  reported  by  Member  States  in  1996

Table  5

Belgium

Germany

Netherlands

Ireland

Spain

United  Kingdom

Italy

France

Refunds
million  ECU

Number  of  declarations

Number  of  checks

Value  of  irregularities
(in  ECU)

478,8

893,8

774,6

839,6

166,4

375,8

264,6

1 119,6

16 497

306 847

377 353

28 221

76 882

121 997

122 134

298 578

1 642

24 370

17 152

2 391

9 193

4 162

475 380

29 020

926 532

National  total  not  available

22 706

Total

4 913,2

1 348 509

81 616

Source:  Member  States  paying  agency  and  customs  data.

3.26. Under  Council  Regulation  (EEC)  No  595/91 (12)
Member  States  are  required  to  notify  to  the  Commission
all irregularities in excess of ECU 4 000. The notifications
are  also  required  to  identify  the  method  of  detection.
These  are  defined  as  a  posteriori  control,  customs
controls,  fiscal  controls,  Commission  initiative,  controls
other  than  customs  controls  and  other  controls.  Member
States  are  inconsistent  in  determining  the  methods  of
detection  and  the  Commission  does  not  verify  their
accuracy.  For  example,  some  Member  States  classify
irregularities  detected  by  laboratory  analysis  of  samples
taken  by  customs  as  inter-service  controls,  others  as
customs  controls.  It  is  therefore  not  possible  to  identify

(12) OJ  L  67,  14.3.1991,  p.  11.

from  the  Commission’s  database  (IRENE)  irregularities
detected  by  Regulation  (EEC)  No  386/90  checks.

3.27. Nevertheless,  even  taking  the  maximum  possible
figure  from  the  Commission’s  database  the  level  of
irregularities  detected  by  Regulation  (EEC)  No  386/90
checks  is  low  in  comparison  to  other  methods  of
detection.  In  1997,  out  of  a  total  of  563  cases  with  a
total  value  of  ECU  34  million,  the  maximum  possible
was  121  cases  (21,5 %)  with  a  value  of  some  ECU  2
million  (5,9 %).  Irregularities  detected  by  a  posteriori
controls  account  also  for  around  20 %  of  the  number  of
cases  but  33 %  of  their  value.  Table  6  shows  the  details
of  refund  irregularities  detected  by  each  Member  State
according  to  the  method  of  detection.

C  375/26

EN

Official  Journal  of  the  European  Communities

3.12.98

Export  refund  irregularities  reported  under  Regulation  (EEC)  No  595/91  in  1997

Table  6

Detection  methods

Other  methods  of  detection

Operational checking

Fiscal checking

Customs  checking

Commission initiative/inquiry

Checking  other  than  customs

Total

B

DK

D

EL

E

F

A

B

A

B

A

B

A

B

A

B

A

B

A

B

27

51

3

43

118

211

456

1 174

2 355

2 548

7 098

8 759

21

51

187

1 174

3

7

7

87

199

796

115

5 688

10 296 118

5 431

2

29

18

1 692

Total

563 34 058

17

1 082

12 325 323 14 172

2

1

1

2

6

0

18

18

52

2

18

7

1 392

1 749

1 305

30 266

4

2

52

17

88

27

4 446

36 335

A  posteriori  accounting  checks

110 11 668

Detection  methods

I

NL

A

P

FIN

S

UK

A

B

A

B

A

B

A

B

A

B

A

B

A

B

Other  methods  of  detection

2

61

3

2

2 355

2 166

1

0

4 208

5

29

1

14

0

3 441

4

16

50

1 382

21

11

8

14

4

8

472

2 513

Total

20

7 962

22

1 493

33

22

12

2 985

1

1

32

32

5

5

23 484

33

13 245

33

45 966

Operational checking

Fiscal checking

Customs  checking

Commission initiative/inquiry

Checking  other  than  customs

A  posteriori  accounting  checks

A  =  Number  of  cases.
B  =  Sum  in  thousands  ECU.
Source:  UCLAF.

do 

speaking, 

3.28. This low level of irregularity detection by physical
control can be read in different ways. It could imply that,
comply  with
operators 
generally 
Community  legislation  or  that  the  controls  are  an
effective  deterrent.  Conversely,  it  could  also  suggest  that
physical  checks  are  inadequately  targeted  or  executed
and,  as  a  result,  ineffective.  The  level  of  export  refund
irregularities  detected  by  other  means,  the  Commission’s
findings  on  the  adequacy  of  Members  States  checks  and
the  findings  of  this  report  in  respect  of  targeting  of
checks,  all  point  to  the  latter.

No 4045/89 a posteriori controls is insufficiently defined.
It  is  mostly  interpreted  by  Member  States  restrictively  as
the  exchange  of  results  between  the  responsible  officials.
Even  this  is  not  done  on  a  systematic  basis.  In  some
Member  States  not  even  the  risk  categories  accorded  to
exporters  under  the  two  Regulations  are  exchanged
(Denmark,  France,  Ireland,  the  Netherlands,  the  United
Kingdom).

Coordination  with  Regulation 
verifications

(EEC)  No  4045/89

3.29. The  provision  for  coordination  and  combination
of  Regulation  (EEC)  No  386/90  and  Regulation  (EEC)

3.30. What could be more effective is a planned control
strategy  designed  to  ensure  that  controls  under  the  two
Regulations  are  complementary; 
for
particular export refund criteria which method of control
is  the  more  effective;  to  determine  the  extent  to  which
one  control  can  compensate  for  the  other  and  to  avoid
duplication.  This  approach  would  be  particularly
appropriate  to  large  exporters  with  a  regular  trade,  for
the  most  part,  in  the  same  goods.

to  determine 

3.12.98

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Official  Journal  of  the  European  Communities

C  375/27

Laboratory  testing

refunds  paid  on  exports  of  Pecorino  between  1992  and
mid-1997  have  been  regular.  The  maximum  amount  at
risk based on payments in the 1996 EAGGF year is in the
order  of  ECU  4  million  p.a.

They 

include 

requirements. 

compositional 

3.31. Physical  checks  of  all  products  where  the  rate  of
refund  applicable  to  those  products  is  dependent  upon
laboratory  analysis.  Most
composition  must 
products are not manufactured specifically to meet export
refund 
are
manufactured  to  commercial  specifications  designed  to
ensure  that  the  customer  receives  what  he  orders.  They
are  for  the  most  part  subject  to  quality  control
procedures  by  the  producers  covering  both  quantity  and
composition on a scale which far exceeds that which can
be achieved by customs controls. The Commission should
consider  introducing  a  provision  for  customs  laboratory
testing of products to be reduced subject to accreditation
by  Customs  services  of  the  producer’s  laboratory,  testing
methods and records coupled with periodic unannounced
compliance  tests.  This  system  would  be  particularly
appropriate  for  NA  II  and  milk  products.

3.32. The Commission should also consider reducing the
requirement  for  obligatory 
laboratory  testing  where
positive  assurance  is  available  on  the  basis  of  repeated
satisfactory  results  on  the  same  product  from  the  same
exporter.  For  example,  in  the  United  Kingdom  over  a
period  of  two  years  6,6 %  of  all  laboratory  tests  in  that
period,  all  of  which  were  satisfactory,  were  on  one
exporter’s  range  of  six  products.  Similarly, 
in  the
Netherlands, tests on one exporter’s limited range of NA
II  products  accounted  for  25 %  of  all  tests  with  an
irregularity  detection  rate  of  0,7 %.

3.33. Export  refunds  for  Pecorino  cheese  from  Italy  in
the  1996  EAGGF  year  amounted  to  some  ECU  14
million. The rate of refund depends in part on whether or
not  the  cheese  is  made  exclusively  from  sheep’s  milk.  If
the cheese is made wholly or in part from cow’s milk the
refund  rate  is  reduced  by  some  30 %.  The  presence  of
cow’s  milk  can  be  detected  by  laboratory  analysis.
Routine  laboratory  analysis  methods  are  allowed  by
Commission  Regulations  (EEC)  No  690/92 (13)  and  (EC)
No  1081/96 (14)  provided  the  detection  limit  is  0,5 %  or
lower.  The  routine  method  used  by  the  Customs
laboratory  in  Sardinia  from  1992  to  mid-1997  had  a
detection 
therefore
inappropriate. As a result, there can be no assurance that

limit  of  1,25 % 

and  was 

3.34. Article  13  of  Commission  Regulation  (EEC)  No
3665/87 (15)  states  that  no  refund  shall  be  granted  on
products  which  are  not  of  sound  and  fair  marketable
quality  or  on  products  intended  for  human  consumption
whose 
or
or 
substantially  impair  their  use  for  that  purpose.  Article
5(1) of Regulation (EC) No 2221/95 requires the customs
office  of  export  to  be  mindful  of  this  requirement.

characteristics 

condition 

exclude 

3.35. The  conformity  of  products  with  legal  health
requirements  can  be  controlled  by  laboratory  tests.  Yet
apart  from  one  customs  laboratory  in  Germany,  such
tests  were  neither  systematically  requested  by  Member
States’  customs  services  nor  systematically  carried  out.

4.  CONCLUSION

In  the  general  context,  physical  checks  are  an
4.1.
essential tool for customs services, but, depending on the
measure,  they  may  not  always  be  the  most  effective  and
appropriate  method  of  control.  Given  the  volume  of
exports  and  the  difficulty  of  obtaining  representative
samples  from  containerised  consignments  the  task  of
customs  offices  in  performing  effective  controls  without
creating  undue  obstacles  to  the  flow  of  trade  is  a  very
difficult  one.  There 
improve
coordination  between  these  controls  and  those  carried
out  under  Regulation 
(EEC)  No  4045/89.  The
Commission  should  therefore  consider  creating  a  legal
framework which provides for a balanced combination of
physical  and  a  posteriori  controls.

is  also  a  need 

to 

4.2. Member  States  are  encouraged  to  place  more
emphasis  on  the  quality  and  effectiveness  of  physical
checks rather than just ensuring that the rates of checking
fixed  by  regulation  are  met.

4.3. The  Commission’s  inspections  in  Member  States
have concentrated on the number and quality of physical
checks.  However  the  effectiveness  of  the  procedures  for
the  selection  of  consignments  for  physical  check  has  not
been  addressed.  The  Commission  should  carry  out  such
evaluations periodically.

4.4. The  Commission 
is  encouraged  to  consider  a
number  of  recommendations  aimed  at  improving  the
effectiveness  of  the  procedures  for  the  selection  of
consignments  for  physical  check.  Above  all  the  Court
suggests  that  the  legislative  requirements  relating  to

(13) OJ  L  74,  20.3.1992,  p.  23.
(14) OJ  L  142,  15.6.1996,  p.  15.

(15) OJ  L  351,  14.12.1987,  p.  1.

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physical  checks  be  made  more  flexible  whil  at  the
same  time  making  Member  States  more  accountable  for
the  effectiveness  of 
those  checks.  The  principal
recommendations  relating  to  Regulation  (EEC)  No
386/90  are  as  follows:

—  the method of detection of export refund irregularities
should  be  recorded  in  Member  State  databases  and
should 
identify,  where  appropriate,  the  pertinent
control  regulation.  The  same  information  should  be
included  for  irregularities  notified  to  the  Commission
under  Regulation  (EEC)  No  595/91,

—  the  use  of  risk  analysis  by  Member  States  should  be
made  obligatory.  Where  the  nature  of  the  trade  is
unsuitable for risk analysis, provision should be made
for  physical  checking  to  be  based  on  statistically
representative samples,

—  the  necessity  for  rates  of  physical  checks  to  be  fixed
by  legislation  should  be  re-examined.  Member  States
should  be  required  to  submit  to  the  Commission  for
approval  annual  strategic  control  plans  including  risk
analysis  and  target  rates  of  checks  by  risk  category,

—  the  Commission  should  give  guidance  to  Member
States  on  the  meaning  of  the  use  of  risk  analysis,

—  a  simple  but  uniform  system  of  recording  the  risk
associated  with  each  consignment  should  be  provided
for  by  legislation,

—  Member  States  should 

introduce  monitoring  and
feedback  systems  to  ensure  that  targeted  checks  are
carried  out  or  satisfactory  explanations  for  not  doing
so  are  recorded,

—  Member  States  should  be  required  to  submit  annual
evaluations  of  the  execution  and  effectiveness  of
Regulation  (EEC)  No  386/90  checks (16),

—  Article 5(1) of Regulation (EC) No 2221/95 should be
strengthened  to  require  routine  testing  of  the  sound
and  fair  marketable  quality  on  all  samples  submitted
for  laboratory  analysis,

—  customs  services  should  be  able  to  reduce  the  level  of
laboratory  testing  where  reliance  can  be  placed  on
manufacturer’s  accredited  quality  control  procedures
and  records  or  where  positive  assurance  is  available
from  repeated  satisfactory  results.

implications  particularly 

In  more  general  terms,  risk  analysis  is  an  effective
4.5.
resource  management  tool.  To  limit  it  to  export  refunds
is  too  restrictive.  Member  States  customs  services  are  the
control  bodies  for  other  European  Union  measures  with
the  area  of
financial 
traditional  own  resources.  In  some  Member  States  they
also  control  some  internal  measures  such  as  production
aids. To effectively manage their resources Member States
need  a  broader  legislative  framework  for  risk  analysis
which  would  permit  them  not  just  to  target  transactions
within measures but to allocate resources to measures on
the  basis  of  the  comparative  risks  to  the  EU  budget.

in 

This  report  was  adopted  by  the  Court  of  Auditors  in  Luxembourg  at  its  meeting  of  14  and  15
October  1998.

For  the  Court  of  Auditors

Bernhard  FRIEDMANN

President

(16) Annual plans are required for other control measures such as
those  carried  out  for  agricultural  expenditure  in  general
under  Regulation  (EEC)  No  4045/89  and  for  olive  oil  in
particular  under  Commission  Regulation  (EEC)  No  27/85.

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ANNEX

PRINCIPAL  PROVISIONS  OF  THE  CONTROL  REGULATIONS

The  principal  provisions  of  these  Regulations  are  as  follows:

(a)  Unannounced  physical  checks  —  Article  3  of  Regulation  (EEC)  No  386/90

Member  States  shall  carry  out  unannounced  physical  checks  at  the  time  the  goods  are  taken  into
customs control at the rate of 5 % per product sector per customs office. This rate may be replaced by
5 %  per  customs  office  covering  all  sectors  with  a  minimum  of  2 %  by  product  sector  provided  the
transactions  are  selected  for  inspection  on  the  basis  of  risk  analysis.  The  rate  shall  apply  to  a
representative  choice  of  export  declarations.

(b) Sampling  for  laboratory  analysis  —  Article  5(4)  of  Regulation  (EC)  No  2221/95

If the rate of refund depends on a particular content Member States shall, as part of the physical check,
take  samples  of  the  exported  products  for  laboratory  analysis  to  determine  whether  or  not  they
correspond  to  the  description  in  the  export  refund  nomenclature.

(c)  Substitution  checks  —  Article  3a  of  Regulation  (EEC)  No  386/90

Where  goods  have  been  taken  into  customs  control  at  a  customs  office  which  is  not  the  office  of  exit
from  the  Community,  the  customs  office  of  exit  shall  carry  out  at  least  one  substitution  check  per  day
based  on  risk  analysis  if  a  customs  seal  has  not  been  applied.

(d) Sound  and  fair  marketable  quality  —  Article  5(1)  of  Regulation  (EC)  No  2221/95

The Customs office of export must be mindful of the provisions of Article 13 of Commission Regulation
(EEC)  No  3665/87  concerning  the  sound  and  fair  marketable  quality  of  the  goods;

(e)  Verification  of  rate  of  physical  checks  —  Article  7(1)  of  No  (EC)  Regulation  2221/95

Each  customs  office  of  export  shall  ensure  that  the  check  rate  of  5 %  can  be  verified  at  any  time;

each  customs  office  of  exit  shall  ensure  that  the  number  of  declarations  to  be  taken  into  account  for
substitution  checks  as  well  as  the  number  of  substitution  checks  carried  out  can  be  identified  at  any
time.

(f)  Scrutiny  of  payment  applications  —  Article  2b  of  Regulation  (EEC)  No  386/90

Member  States  shall  scrutinise  the  payment  applications  and  supporting  documents  to  justify  the
payments  in  question.

(g)  Coordination  of  controls  —  Article  5  of  Regulation  (EEC)  No  386/90

Member  States  shall  take  steps  to  coordinate  the  controls  of  individual  operators  and  combine  them
with  those  carried  out  under  Council  Regulation  (EEC)  No  4045/89.

(h) Risk  analysis  criteria  —  Article  1  of  Regulation  (EC)  No  3122/94

Where Member States have opted for the use of risk analysis under Article 3(2) of Regulation (EEC) No
386/90 they may notably rely on the criteria to select export declarations which are listed in Article 1 of
Regulation  (EC)  No  3122/94.

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REPLIES  OF  THE  COMMISSION

EXECUTIVE  SUMMARY

refunds.  Controls,  whether  physical  or  administrative,
should  be  carried  out  in  the  most  effective  way.

The  Commission  considers  that  rates  of  control  should
continue  to  be  fixed  by  regulation,  even  when  Member
States  use  risk  analysis.  A  minimum  rate  of  2 %  for  the
physical  control  of  each  product  has  been  adopted  in
order  to  ensure  that  a  representative  number  of  all
exports  is  checked.  Each  customs  office  is  required  to
check at least 5 % of all exports, so a proper application
of risk analysis leads each office to check 2 % of low-risk
products,  and  a  considerably  higher  percentage  of
high-risk  products.

Member  States  have  a  general  requirement  to  detect  and
prevent  fraud,  so  the  regulations  governing  physical
checks  do  not  preclude  other  checks  which  are  effective
is  coordination
in  particular  circumstances.  There 
between customs offices and the services responsible for a
posteriori controls and the Commission constantly strives
to  improve  this.  The  Court  suggests  means  of  providing
the  information  necessary  for  an  evaluation  of  the
selection  procedures.  The  Commission  will  consider  the
suggested  means,  seeking  to  avoid  any  disproportionate
administrative  burden  on  Member  States.

legislation 

The  Commission  considers  that  a  reasonable  balance
between  the  different  controls  cannot  be  achieved  by
legislation  alone.  The  Commission  is  concerned  that
existing 
implemented  by  all
is  properly 
Member States, who are already fully accountable for the
effectiveness  of  their  checks.  It  will  examine  all  the
Court’s  recommendations,  in  particular  that  of  making
obligatory 
the  modulation  of  control  percentages
according  to  the  risk  each  product  presents  and  that  of
the  recording  of  risk  factors.

The  Commission  agrees  that  the  technique  of  risk
analysis  should  be  applied  under  all  control  systems  and
will  continue  to  explore  means  of  extending  its  use.
Legislative  frameworks  should  be  envisaged  in  a  prudent
manner,  as  risk  analysis  must  always  include  elements  of
flexibility to take into account different conditions and to
maintain  a  level  of  unpredictability  in  the  selection  of
operations  for  control.

1.  INTRODUCTION

General remarks

Audit  scope

1.6. The  scope  of  the  Commission’s  enquiry  was,  under
the  clearance  of  accounts  procedure,  to  analyse  the
implementation  of  Regulation  (EEC)  No  386/90  by
Member States and concerned customs controls operating
during  1996  and  1997.  The  Court’s  audit,  for  which
most  visits  took  place  at  a  later  date  than  those  of  the
Commission,  was  of  a  more  specific  nature  and  focused
principally  on  the  different  aspects  of  risk  analysis
implemented  by  customs.

A  national  risk  analysis  approach  in  the  sense  of
Regulation  (EC)  No  3122/94  was  applied  in  the  United
Kingdom  from  1  January  1995.  Other  Member  States
introduced  their  risk  assessment  system  at  a  later  date
(such  as  Germany  from  1  January  1997  and  Denmark
from  1  July  1996).

2.  OBSERVATIONS  RELATING  TO  THE  COMMISSION’S

INSPECTIONS

is 

there 

irregularities 

in  detecting 

for  checking  as 

2.2. There  has  not  yet  been  an  overall  evaluation  of  the
effectiveness  of  the  procedures  adopted  for  the  selection
of  exports 
insufficient
information  available.  However,  the  assessment  of  the
success 
through  physical
controls  is  an  important  element  in  analysing  risks  and,
as  this  success  is  closely  linked  with  actions  in  the  fight
against  fraud,  specific  attention  is  given  to  it  under  the
implementation  of  Regulation  (EEC)  No  595/91.  The
Commission  has  always  paid  particular  attention  to  risk
analysis  in  its  fraud  prevention  strategy.  The  Task  Force
for Fraud Prevention (UCLAF) analyses the risks of fraud
and 
information
available.  This  analysis  is  examined  with  the  Member
States  in  special  meetings  to  discuss  specific  cases  and  in
full  session.  Specific  courses  of  action,  possibly  involving
tighter  physical  inspections  and  controls  of  documents
and sampling, are suggested to the Member States on the
basis  of  these  analyses.

irregularities  on  the  basis  of  the 

The Commission agrees that risk analysis is a major tool
for  orienting  controls  on  aid  schemes  such  as  export

2.4. The  Commission  agrees  that  regular  control  on
export  is  based  upon  a  combination  of  physical  control
and  administrative  control.  Both  types  of  controls  are

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in 

follow-up 

trigger  a 

complementary  and  findings  in  one  type  of  control
should 
the  other.  The
Commission’s  experiences  gained  during  several  missions
are  that  the  Member  States  are  already  taking  initiatives
to  strengthen  their  control  structures  in  this  respect.  In
order  to  improve  coherence,  the  clearance  of  accounts
unit places a great deal of emphasis on the importance of
the  information  flow  between  the  customs  and  the
services  responsible 
for  ex-post  verifications  under
Regulation  (EEC)  No  4045/89,  in  particular  given  that
customs  undertake  the  ex-post  scrutinies  of  export
refunds  in  most  Member  States.  This  subject  is  raised  in
the  meetings  of  expert  groups,  and  examined  in  the
course  of  audits  on  the  spot.

2.5. The  Commission’s  audit  focused  on  the  controls
over a sample of export declarations concerning the more
significant  products  from  selected  customs  offices.  Its
own  risk  analysis  precluded  a  verification  of  every  single
sector.  In  all  customs  offices  visited  by  the  Commission,
full  attention  was  given  to  verifying  that  all  the  elements
of  the  controls  (including  laboratory  analyses)  were
performed before the controls were considered as eligible
to  count  towards  the  5 %  requirement.

2.6.  to  2.7. The  delay 
in  the  finalisation  of  the
Commission’s  audit  was  caused  by  other,  unforeseen,
priorities.  The  Commission  is  now  in  the  process  of
calling  bilateral  meetings  with  all  of  the  Member  States
concerned  prior  to  finalising  its  conclusions  within  the
clearance  of  the  accounts  procedure.  It  should  be  noted
that  some  of  these  conclusions  may  be  modified  within
this  procedure,  particularly  as  regards  the  seriousness  of
each deficiency.

3.  FINDINGS OF THE COURT’S AUDIT IN THE MEMBER

STATES

3.3. Council  Regulation  (EC)  No  163/94  provides  for
the option to replace the rate of 5 % per sector by a rate
of 5 % covering all sectors if the Member State applies a
selection  system  on  the  basis  of  risk  analysis.  Until  now
the  Commission  has  received  notifications  from  seven
Member  States  that  they  have  adopted  the  option  of  a
selection  system  based  on  risk  analysis.

3.4. The  Commission  will  examine  the  Court’s  request
to  render  risk  analysis  obligatory.

selection  should  not  be  made  simply  to  reach  the
minimum  rate  of  inspection  regardless  of  the  risks
presented  by  different  exports.

Obviously,  a  failure  to  achieve  the  regulatory  number  of
checks  will  lead  to  disallowance,  as  will  a  failure  to
spread  checks  throughout  the  year  as  Regulation  (EEC)
No  386/90  requires  that  controls  are  representative.

legislation,  even  when  the  risk
3.6. Under  present 
analysis  option  is  applied,  a  key  element  of  the  control
structure is to carry out controls in such a way that they
cover  a  representative  selection  of  all  exports  (including
lesser  value  operations  or 
lesser  risky  ones).  The
requirement  to  control  5 %  of  all  exports  from  each
customs office, with a minimum of 2 % per sector, leads
to  a  substantial  increase  in  the  control  efforts  for  the
higher  risk  products.  More  than  5 %  of  the  higher  risk
products  should  be  controlled.

The  issue  of  the  control  of  non-Annex  II  goods  has  been
addressed by Regulations (EC) No 3122/94 and (EC) No
2221/95,  which  provide  in  most  cases  for  a  separate,
simplified  procedure  with  a  control  rate  of  2 %.

3.7. Even in the cases mentioned by the Court, a certain
risk  remains  because  inland  offices  normally  deal  with  a
small  number  of  big  exporters  who  often  also  benefit
from 
simplified  or  home  procedures  and  who
simultaneously  apply  different  customs  regimes  for  their
different  activities.  There  is  a  risk  that  they  will  submit
the  export  declaration  to  customs  after  the  goods  have
already  been  loaded,  or  have  already  left  the  premises.
Regular visits by customs to these companies are essential
to  reduce  the  risk  of  abuse  of  the  procedures  adopted.
The  Commission  is  reluctant  to  initiate  proposals  to  the
Council  which  could  remove  the  requirement  for  a
minimum  number  of  controls  in  each  customs  office.

3.9. to 3.10. Qualifying some elements as less important
in the legislation can generate a counter-productive effect
on  the  level  of  control  over  those  elements.

3.11.  to  3.22. The  Commission  is  not  in  a  position  to
reply  to  the  Court’s  findings,  because  this  aspect
remained outside the scope of its own audit. The answers
from  the  Member  States  to  the  Court  will  be  examined
once  they  are  received  by  the  Commission.

3.5. The  experience  of  the  Commission  was  that  the
controls  aimed  to  get  general  assurance  on  the  regularity
of  the  exports  as  a  whole.  The  Commission  agrees  that

The  Commission  will  discuss 
the  different  points
concerning  risk  analysis  raised  by  the  Court  of  Auditors

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with  the  Member  States  in  the  appropriate  management
committees.  Such  an  exchange  of  views  will  enable  the
Member  States  to  take  into  account  experiences  gained
by others, and to improve their own systems. At the same
legislation  will  be
time,  any  necessary  changes 
identified.  However,  in  general,  it  is  not  desirable  to
make  systems  too  cumbersome,  or  too  sophisticated,  as
this  might  render  them  inapplicable  or  inflexible  in
practice.

in 

3.24.  to  3.28. The  Commission  is  considering  how  to
improve  the  notification  of  methods  for  the  detection  of
irregularities  reported  by  the  Member  States  pursuant  to
Article  3  of  Regulation  (EEC)  No  595/91  and  their
incorporation in the IRENE database, particularly with a
view  to  identifying  the  irregularities  detected  during  the
inspections  conducted  pursuant  to  Regulation  (EEC)  No
386/90.

that 

controls 

physical 

between 

to  3.30. The  Commission  agrees 

3.29. 
the
and
coordination 
administrative ex-post controls could be improved. Cases
of  non-compliance  found  by  one  control  procedure
should  be  followed  up  under  the  other.  A  difference  in  a
fat  content  found  in  cheese  samples  might  concern  the
export
whole  production 
transactions.  The  frequency  with  which  credit  notes  are
issued  by  a  trader  for  differences  in  weight  should  guide
customs to intensify controls on quantities at the moment
of  export.  The  Commission  has  insisted  on  this  point
many  times,  most  recently  during  an  Experts’  Group  for
ex-post  control  services  in  June  1998.

lot  and 

several 

thus 

3.31.  to  3.32. Because  of  the  risks  presented  by  an
exporter  certifying  the  nature  of  his  own  exports,  the
Commission  does  not  share  the  opinion  that,  in  the
circumstances  described  by  the  Court,  official  customs
laboratory  testing  could  be  reduced  by  a  system  of
accreditation  of  producers’ 
to
production  records,  including  product  control,  is  already
provided  for  under  both  Article  8(2)  of  Regulation  (EC)
No  2221/95  and  Article  1(2)  of  Regulation  (EEC)  No
4045/89. Furthermore, the Annex to Regulation (EC) No
2221/95  provides  for  a  flexible  verification  system  for
certain  non-Annex  II  goods  where  sampling  is  not
obligatory  (see  point  3(a)(bb),  third  subparagraph).

laboratories.  Access 

3.34.  to  3.35. The  Commission 
is  discussing  this
difficult and sensitive issue with the Member States in the
trade  mechanisms  Management  Committee.

4.  CONCLUSION

4.1. The  Commission  agrees  that  regular  control  on
export  is  based  upon  a  combination  of  physical  control
and  administrative  control.  Both  types  of  controls  are
complementary  and  findings  in  one  type  of  control
the  other.  The
should 
Commission’s  experiences  gained  during  several  missions
are  that  the  Member  States  are  already  taking  initiatives
to  strengthen  their  control  structures  in  this  respect.

trigger  a 

follow-up 

in 

Controls  are  implemented  by  different  administrative
organisations  in  each  of  the  countries  and  obey  different
public and administrative national legislation (Article 8(1)
of  Regulation  (EEC)  No  729/70).  The  Commission
prefers  to  maintain  the  existing  level  of  subsidiarity,  but
will  continue  to  stress  the  importance  of  Member  States
setting  up  or  deepening  the  coordination  between  their
different  control  bodies.

4.2. The  Commission  makes  considerable  efforts  to
to  physical  checks  over
encourage 
exports.

improvements 

4.3. The  audit  by  the  Commission  aimed  to  establish
how  the  control  requirement  for  physical  control  on
export  was  carried  out  during  1995  and  1996.  Applying
risk  analysis,  as  defined  in  the  amended  version  of
Regulation  (EEC)  No  386/90,  as  a  practical  tool  for
selecting the export operations to be physically controlled
was,  at  that  time,  not  an  operational  system  in  place  in
the  majority  of  Member  States. 
the
Commission  has  found  that  customs  services  in  Member
States  which  had  not  introduced  risk  analysis  were  well
aware  of  risk  criteria  in  their  selection  and  examination
of  individual  export  transactions.  It  will  continue  to  pay
close  attention  to  the  effectiveness  of  all  customs  control
procedures  in  the  Member  States.

In  general, 

4.4. The Commission will examine carefully the Court’s
recommendations,  in  particular  those  relating  to  records
and  reports,  whilst  avoiding  any  excessively  cumbersome
systems  as  this  might  render  them 
inapplicable  or
inflexible  in  practice  —  see  reply  3.11  to  3.22.  The
different structures in place in the Member States and the
nature  of  the  beneficiaries  and  exports  are  such  that
flexibility  in  organising  and  carrying  out  of  controls  is
essential.  For  this  reason,  Regulation  (EEC)  No  3122/94
mentions a wide range of elements of risk including those
which  relate  to  the  products,  the  beneficiaries,  the
procedures  and  the  previous  findings,  which  should
enable  the  Member  States  to  set  up  workable  systems  of
risk assessment. Article 3 of the Regulation provides that
experience be used to adjust the systems and the selection

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of  parameters,  in  order  to  make  physical  checks  more
effective  and  to  improve  their  targeting.

and seminars to exchange mutual experiences on physical
controls  and  risk  analysis  issues.

the  customs
4.5. The  Commission, 
the  Member  States,  has  drawn  up
authorities  of 
guidelines  on  risk  analysis 
in  customs  controls.  In
addition, the Commission has organised various meetings

together  with 

The  guidelines  include  definitions  of  risk,  risk  analysis,
risk  assessment,  risk  areas,  risk  indicators  and  risk
profiles.