Report on the financial statements of the European Monitoring Centre for Drugs and Drug Addiction (EMCDDA- Lisbon) for the financial year ended 31 December 1997, together with the Monitoring Centre's reply
Date: 1998-11-05
Institutions: European Court of Auditors
Subjects: European Monitoring Centre for Drugs and Drug Addiction, financial control, financial year, management audit, report

28.12.98

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Official  Journal  of  the  European  Communities

C  406/43

on  the  financial  statements  of  the  European  Monitoring  Centre  for  Drugs  and  Drug  Addiction
(EMCDDA  —  Lisbon)  for  the  financial  year  ended  31  December  1997,  together  with  the
Monitoring  Centre’s  reply

REPORT

(98/C  406/08)

1.1. This  report  is  addressed  to  the  Management  Board
of  the  European  Monitoring  Centre  for  Drugs  and  Drug
Addiction  in  conformity  with  Article  11(11),  of  Council
Regulation  (EEC)  No  302/93 (1).

reasonable  assurance  that  the  annual  accounts  for  the
financial  year  which  ended  on  31  December  1997  are
reliable  and  that  the  underlying  transactions,  taken  as  a
whole,  are  legal  and  regular.

1.2. The Court has examined the financial statements of
the  European  Monitoring  Centre  for  Drugs  and  Drug
Addiction  for  the  financial  year  ended  31  December
1997.  In  accordance  with  Article  11(8),  of  Regulation
(EEC)  No  302/93,  the  budget  was  implemented  on  the
responsibility of the Director. This responsibility included
the  drawing-up  and  presentation  of 
financial
statements (2)  in  accordance  with  the  internal  financial
provisions,  as  provided 
in  Article  11(12),  of
for 
Regulation (EEC) No 302/93, as modified by Article 1 of
Regulation  (EC)  No  3294/94 (3).  The  Court  of  Auditors
is  required  under  Article  188c  of  the  Treaty  establishing
the  European  Community  to  examine  these  accounts.

the 

1.3. The  Court  performed  its  audit  in  accordance  with
its  auditing  policies  and  standards.  These  have  been
adapted  from  generally  accepted  international  auditing
standards  to  reflect  the  specific  characteristics  of  the
Community  context.  Accordingly,  the  Court  carried  out
such  tests  of  the  accounting  records  and  other  audit
procedures  as  it  deemed  necessary  in  the  circumstances.
By  means  of  this  audit,  the  Court  obtained  a  reasonable
basis  for  the  opinion  expressed  below.

1.4. The observations set out in paragraphs 1.6, 1.7, 1.8
and 1.11 below reveal the application of practices that do
not  comply  with  the  provisions  of  the  Regulations.

MAIN  OBSERVATIONS  ON  THE  IMPLEMENTATION  OF
THE  BUDGET  OF  THE  EUROPEAN  MONITORING
CENTRE  FOR  DRUGS  AND  DRUG  ADDICTION  FOR  THE
FINANCIAL  YEAR  ENDED  31  DECEMBER  1997

Budgetary  and  general  accounts

1.6. The budgetary accounts are still being kept using an
(Excel)  table  and  not  a  software  package.  The  use  of  a
table  has  already  been  criticised  in  previous  financial
years  and  amendments  could  be  made  without  leaving
any trace (audit trail). As a result, the presentation of the
implementation  of  the  budget  as  at  30  September  1997,
as shown to the Court on the occasion of its on-the-spot
visit  in  December  1997,  underwent  changes  in  the
year-end  financial  statements.  Rather  than  entering
corrections  of  any  errors  at  a  later  date,  amounts  were
directly  amended,  added  or  cancelled.  This  practice
infringes  the  fundamental  principle  of  the  inviolability  of
accounting  entries.  In  addition,  the  EDMC  has  still  not
submitted  the  supporting  documents  relating  to  the
amendments  concerned.

1.5. Subject to the facts set out in paragraph 1.4 above,
this  examination  has  enabled  the  Court  to  obtain

(1)  OJ  L  36,  12.2.1993,  p.  6.
(2)  As  required  under  Article  11(10),  of  Council  Regulation
(EEC)  No  302/93,  the  accounts  for  all  the  Monitoring
Centre’s revenue and expenditure for the financial year 1997
were  drawn  up  on  16  April  1998  and  forwarded  to  the
Centre’s Management Board, the Commission and the Court
of  Auditors.  These  accounts  were  received  by  the  Court  on
17  April  1998.  A  summarised  version  of  these  accounts  is
presented  in  the  tables  attached  to  this  report.

(3)  OJ  L  341,  30.12.1994,  p.  7.

the 

financial
1.7. The  Court’s  Report  concerning 
statements  of  the  Monitoring  Centre  for  the  financial
year  1996 (4)  contained  a  reservation  concerning  the
fitting-out  of  the  Monitoring  Centre’s  premises,  which
was  funded  outside  the  budget,  and  another  reservation
regarding  ECU  0,04  million  charged  to  the  budget  and
ECU  0,1  million  divided  up  among  various  items  on  the
balance  sheet.  As  the  Monitoring  Centre  has  not  yet
supplied  satisfactory  supporting  documents  for  all  these
balances,  the  Court  still  cannot  withdraw  its  reservation
on  the  financial  statements  for  the  financial  year  1996.

(4)  OJ  C  393,  29.12.1997,  p.  35.

C  406/44

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Official  Journal  of  the  European  Communities

28.12.98

1.8. At the end of the financial year, an amount of ECU
1,82  million  was  shown  under  the  account  ‘transfers  in
progress’.  The  bank’s  debit  notes  for  some  of  these
payments, for a total of ECU 0,36 million (of which ECU
0,05 million was already pending in January 1997), were
not  presented  by  the  Monitoring  Centre  during  the
Court’s  audit.  Reconciliations  of  the  bank  balances  were
not  carried  out  in  a  satisfactory  manner.

Contracts  and  the  ACPC

1.9. A  significant  number  of  the  contracts  audited  were
awarded  by  private  treaty  and  following  a  restricted
invitation  to  tender.  The  EDMC  should  make  more
extensive  use  of  open  tendering  procedures.

Imprest  account

1.10.
In  spite  of  the  efforts  it  has  made  during  previous
years  the  EDMC  is  still  making  many  payments  via  an
imprest account. The amount of payments carried out by
means  of  the  imprest  account  amounted  to  36 %  (ECU
2,4  million)  of  the  payments  for  the  financial  year  (ECU
6,7 million). The regularisation of payments made by the
imprest  account  should  be  accompanied  by  a  summary
(approved  by  the  Authorising  Officer  and  Financial
Controller)  of  what  is  to  be  charged  to  each  budget
item.

fitting-out  work  on 
its  headquarters.  This  subsidy,
together  with  the  bank  interest  earned  on  it,  was  spent
entirely outside the budget. This practice, which is not in
line  with  the  provisions  of  the  Financial  Regulation,  had
already  been  criticised  in  the  Court’s  previous  Reports.
Furthermore,  given  the  fact  that  the  subsidy  was
insufficient  to  cover  the  total  cost  of  the  work  carried
out,  the  Monitoring  Centre  financed  part  of  it  from  its
own  funds  (ECU  0,2  million  in  1996  and  ECU  0,1
million  in  1997),  also  outside  the  budget.  The  Centre
thus  carried  out  ECU  0,3  million  of  expenditure  outside
the budget, which was only submitted for the approval of
the  Financial  Controller  at 
final
regularisation.  The  ACPC  only  gave  an  opinion  on  the
choice  of  contractors  in  1995,  when  work  began.

time  of 

the 

Other  observations

1.12. Article  16  of  the  Financial  Regulation  enshrines
the principle of the separation of duties of the authorising
officers  and  the  accounting  officers.  At  the  Monitoring
Centre,  the  accounting  department  is  responsible  for
preparing  commitment  proposals  and  payment  orders.
The  internal  control  procedures  are  inadequate  and
should be strengthened, in particular so as to ensure that
the  duplication  of  payments  observed  during  the  audit
ceases.

Article  13  of 
the  Monitoring  Centre’s  Financial
Regulation  provides  for  publication  of  the  budget  in  the
Official Journal of the European Communities.  This  was
not  done.

Headquarters

In  1995,  the  Portuguese  Government  paid  the
1.11.
Monitoring  Centre  a  subsidy  of  ECU  0,61  million  for

The  balances  of  the  VAT  accounts  in  the  balance  sheet
are  not  correct.  The  monitoring  of  the  accounts  is  not
effective.

This  report  was  adopted  by  the  Court  of  Auditors  in  Luxembourg  at  the  Court  meeting  of
5 November  1998.

For  the  Court  of  Auditors

Bernhard  FRIEDMANN

President

28.12.98

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Official  Journal  of  the  European  Communities

C  406/45

Table  1

Balance  sheet  for  the  financial  years  1996  and  1997

Assets

1997

1996

Liabilities

1997

1996

(ECU  1 000)

Fixed  assets
Fixed  assets

Stocks
Office  equipment

Sub-total

Sub-total

Current  assets
Commission  subsidy
Balance  sundry  accounts  receivable
Portuguese  Government  advance
VAT  to  be  recovered

Cash  accounts
Bank
Imprest  accounts
Transfers  in  progress
Cash

Sub-total

Sub-total

3 409

3 409

12

12

2 668
207

172

3 047

1 209
800
(1 820)
1

190

3 345

3 345

1

1

160
371
298
213

1 042

2 977
534
(629)
1

2 883

Fixed  capital
Own  capital (1)
Balance  for  the  financial  year

Sub-total

3 421
(1 569)

1 852

3 346
885

4 231

Current  liabilities
Appropriations  carried  over  by
Budgetary  Authority
Automatic  carry-overs  of
appropriations
Sundry  accounts  due
Portuguese  Government
VAT  to  be  recovered
Re-use  accounts
Counterpart  Commission  subsidy

Sub-total

135

1 930

2 429

21

172
15
2 668

4 806

119
93
213
51

3 040

Total  assets

6 658

7 271

Total liabilities

6 658

7 271

(1)  The  amount  corresponds  to  total  fixed  assets  and  stocks  excluding  the  fitting-out  work  carried  out  (approximately  ECU  1  million).
Source:  Prepared  by  the  Court  on  the  basis  of  the  Monitoring  Centre’s  data.

C  406/46

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Official  Journal  of  the  European  Communities

28.12.98

Table  2

Balance  for  the  financial  years  1996  and  1997

(ECU  1 000)

1997

1996

Revenue
Commission  Subsidy
Subsidy  to  be  recovered  from  the  Commission
Miscellaneous revenue

3 632

90

Total  revenue

3 722

Expenditure
Staff  —  Title  I
Payments
Appropriations  carried  forward

Buildings,  equipment,  etc.  —  Title  II
Payments
Appropriations  carried  forward

Operating  —  Title  III
Payments
Appropriations  carried  forward

2 517
6

884
43

829
1 881

Out-turn  for  the  financial  year
Out-turn  carried  over  from  previous  year
Adjustment  to  out-turn  from  previous  year (1)
Appropriations  carried  forward  and  cancelled
Exchange-rate  differences

Total  expenditure

6 160

(2 438)
885
(81)
92
(27)

Balance  for  financial  year

(1 569)

5 848
160
131

6 139

1 764
128

497
540

781
1 896

5 606

533

369
(17)

885

(1)  Amount  included  in  the  subsidies  to  be  received  under  the  financial  year  1996  but  not  subsequently  collected.
Source:  Prepared  by  the  Court  of  Auditors  on  the  basis  of  the  Monitoring  Centre’s  data.

28.12.98

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CENTRE’S  REPLY

Paragraphs  1.1  to  1.5

Court’s  disposal  should  the  latter  feel  it  necessary  to
examine 
the  remaining
transactions.

in  greater  depth  any  of 

The  EMCDDA  takes  note  of  the  Court  of  Auditors’
observations;  it  has  taken  or  will  take  all  the  necessary
steps  to  correct  the  specific  anomalies  the  Court  has
brought  to  our  attention  (see  detailed  replies  below  to
each  of  the  points  raised)  and  welcomes  the  finding  that
the accounts for 1997 are reliable and that the underlying
transactions,  taken  as  a  whole,  are  legal  and  regular.

Paragraph 1.8

Paragraph  1.6

The  decision  to  use  the  Excel  computer  program  up  to
now is explained by the fact that there has been no viable
alternative  whatsoever.  This  program  is  a  very  practical,
tool.  The
inexpensive  and  widely  used  computer 
EMCDDA  has  been  working  with 
the  European
Commission  and  other  agencies  on  the  finalisation  of  a
program which would meet its needs, and hopes that this
initiative, on which it depends, will enable it eventually to
operate  as  desired.

Given  the  configuration  of  the  Excel  system,  it  is  true
that  in  1997  there  were  seven  factual  errors  (out  of  a
total  of  several  thousand  budget  transactions)  in  the
accounting  entries  which  were  then  manually  corrected
before  the  end  of  the  financial  year.  These  errors  were
identified  at  source  by  the  EMCDDA,  and  all  the
corresponding  explanations  and  supporting  documents
will  be  made  available  to  the  Court  of  Auditors.

It  should  however  be  explained  that  general  accounting
transactions are recorded on the special CUBIC program,
in which it is impossible to make the kind of amendments
or corrections which the Court of Auditors refers to. The
inviolability  of  the  accounting  entries  is  thus  guaranteed.

Debit notes cannot exist if the corresponding requests for
payment  have  not  yet  been  submitted  by  the  creditors.  It
is true that on 31 December 1997 a total of 89 transfers
in  progress  had  not  yet  been  regularised  (69  of  which
were  from  the  Imprest  Account),  amounting  to  ECU
362 736.  Most  of  these  transactions  had  already  been
settled  by  30  September  1998,  and  the  EMCDDA
undertakes  to  regularise  all  of  them  by  31  December
1998.  The  bank  balances  are  reconciled  on  a  monthly
basis  and  duly  checked.  The  supporting  documents  will
be  made  available  to  the  Court  of  Auditors.

Paragraph 1.9

During  1997,  the  EMCDDA  awarded  47  contracts  in
total,  28  of  which  (60 %  of  the  total)  by  invitation  to
tender,  17  by  direct  negotiation  (36 %  of  the  total),  and
two  by  means  of  an  order  sent  to  the  OPOCE  (4 %  of
the total), under the latter’s framework agreement. While
these  figures  still  offer  room  for  improvement,  it  should
be noted that the EMCDDA has since taken a number of
steps (calls for expressions of interest, advertising, etc.) to
try  to  broaden  a  market  which  is  itself  extremely
restricted, in particular because of its highly technical and
specialised  nature  which  prevents  comparison  with  a
traditional  commercial  market.

Paragraph  1.7

Paragraph  1.10

This paragraph of the Court of Auditors’ report relates to
transactions  which  were  regularised  at  the  end  of  1996.

The  supporting  documents  were  made  available  to  the
Court in 1997 and 1998. The Court itself recognised that
this  analysis  had  enabled  it  to  clarify  some  of  the
balances  in  question.  The  EMCDDA  remains  at  the

it 

The  Court  of  Auditors  rightly  observes  that  payments
made  from  the  Imprest  Account  amounted  to  36 %  of
total  payments  in  1997.  Although  this  might  still  seem
excessive, 
is  nonetheless  a  significant  reduction
compared  with  the  previous  year,  since,  for  example,
while  salaries  may,  according  to  the  regulations,  be  paid
from  the  Imprest  Account,  this  practice  ceased  as  from
1997.  The  EMCDDA  will  endeavour  to  continue  this
trend  in  the  years  to  come.

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28.12.98

Paragraph  1.11

Here  the  Court  of  Auditors  repeats  an  observation  made
in  its  report  for  the  1996  financial  year.  The  EMCDDA
has  already  recognised,  in  its  replies  to  the  Court  of
Auditors’ report for the previous year, that it would have
been  more  correct  to  have  incorporated  this  expenditure
into  its  budget.

At  its  meeting  on  29  and  30  June  1995,  the  EMCDDA’s
Management  Board  accepted  the  subsidy  offered  by  the
Portuguese  Government  and  adopted  the  procedure  for
utilising  these  appropriations.

The  Financial  Controller  gave  agreement  ex  ante  on  the
placing  of  this  expenditure  outside  the  budget  and  ex
post on its regularisation. It is true that the ACPC gave a
favourable  opinion  on  the  choice  of  contractors  for
carrying  out  the  work.

The  EMCDDA  has  accepted  and  adopted  the  Court  of
Auditors’  recommendation  that,  from  now  on,  all
transactions,  including  transactions  of  an  exceptional
nature  such  as  that  mentioned  above,  should  be  entered
under  headings  specifically  opened  to  this  effect  in  the
budget.

Paragraph  1.12

Following  the  observations  made  on  this  point  by  the
Court  of  Auditors  in  its  previous  report,  the  EMCDDA

has taken all the necessary steps, as from the beginning of
1997,  to  ensure  the  separation  of  duties;  it  now  has  a
transparent and effective internal budgetary and financial
procedure  in  place.  This  overall  arrangement  has  finally
been approved by the Management Board and is working
well.  It  should  be  noted  that  its  implementation,  which
required  additional  duties  and 
further
recruitment,  has  been  subject  to  the  corresponding
decisions  of 
their
implementation  (time  needed  for  recruitment).

the  Management  Board  and 

therefore 

The  Court  of  Auditors  noted  a  small  number  of  cases  of
payment  duplication,  notably  in  favour  of  the  Focal
Points.  These  cases,  which  resulted  from  a  change  in  the
submission  of  payment  requests  on  the  instigation  of  the
Financial  Controller,  were  immediately  identified  by  the
EMCDDA’s internal audit team and corrected by making
deductions from subsequent payments due to the national
Focal  Points.  At  the  time  of  audit,  this  situation  had
already  been  fully  resolved.

The publication of the EMCDDA’s budget in the Official
Journal  of  the  European  Communities  is  a  coordinated
effort involving six other agencies, the aim being to find a
way of reducing the disproportionately high costs of such
a publication.

The  problem  with  the  balances  of  the  VAT  accounts
results  from  a  charging  error.  This  was  corrected  the
moment  it  was  identified  and  therefore  no  longer  affects
the  accuracy  of  the  balance  of  the  VAT  accounts  in  the
1997  balance  sheet.