Commission follow-up report on action taken in response to the Council recommendation on discharge in respect of the implementation of the general budget for 1996 - Member States' replies to the observations contained in the Court of Auditors' annual report for 1996
Date: 1998-11-23
Institutions: European Commission
Subjects: European Court of Auditors, activity report, budgetary discharge, general budget (EU), implementation of the budget

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 23.11.1998 
COM(1998) 679 final 

FOLLOW-UP REPORT 

on action taken in response to the Council 

recommendation on discharge in respect of the 

implementation of the general budget for 1996 

MEMBER STATES' REPLIES 

TO THE OBSERVATIONS CONTAINED IN THE COURT OF AUDITORS' 
ANNUAL REPORT FOR 1996 

CONTENTS 

Introduction 

Chapter 1 -  Own resources 

Chapter 2 -  Budgetary management 

Chapter 3 -  Common market organisation - plant products 

Chapter 4 -  Common organisation of the market - animal products 

Chapter 6 -  Regional sector 

Chapter 7 -  Social sector 

Chapter 8 -  European Agricultural Guidance and Guarantee Fund, 

Guidance Section (EAGGF-Guidance) 

Chapter 13 - Cooperation with developing and third countries 
(except central and eastern Europe) 

Page 
3 

4 

6 

7 

9 

11 

14 

16 

17 

Chapter 14 - Measures in favour of the countries of central and eastern Europe, 

the Newly Independent States (former Soviet Union) and Mongolia  20 

Chapter 15 - Commission 

Chapter 18 - Financial instruments and banking activities 

Chapters  19 to 21 - Statement of assurance concerning activities 

financed from the general budget 

Relevant special reports: 

1. No 3/96 on tourism policy and the promotion of tourism 

2.  No 2/97 concerning humanitarian aid of the European Union between 

1992 and 1995 

3.  No 3/97 concerning the decentralised system for the implementation of the 

PHARE programme (1990-1995) 

4.  No 4/97 on the audit of certain aspects of German reunification measures 

involving EAGGF compensation payments and export refunds 

5.  No 5/97  on management of the Community cereals trade involving 

export refunds,  special import arrangements and regional aid schemes 

6.  No 6/97  concerning TACIS subsidies allocated to the Ukraine 

23 

25 

27 

29 

29 

33 

34 

35 

35 

Introduction 

In accordance with Article 206(3) of the Treaty, the purpose of the Commission's follow-up 
report is to set out the measures it has taken in response to the Council's recommendations 
of 9 March  1998. Under this procedure, the Council recommends that Parliament grant a 
discharge to the Commission on the basis of the Court of Auditors' annual report for 1996. 

This  report  is  in  response  to  the  Council's  request,  in  the  introduction  to  the 
Recommendation of 9 March 1998, that a list be produced of the efforts made in the various 
sectors so that "lessons (may) be drawn for the future"  and that steps be taken to achieve 
"sound  financial  management  (which)  should  ensure that  money  is properly  spent and 
accounted for". 

In response to the Council's wishes, the Commission has focused  these efforts  on three 
main areas: 

Strengthening  the  evaluation  culture.  A  number  of  evaluations  are  conducted 
during  a  project's  life  cycle  (prior,  during  and  ex post).  While  some  are  carried  out 
directly  by  the  Commission,  in  various  sectors  they  are  often  the  result  of  close 
cooperation with the Member States. 

Incorporation  in Agenda 2000 of measures taken as a result  of these evaluations. 

Consideration of the results does indeed supplement this evaluation culture. 

Simplification of regulatory frameworks. It is with this in mind that  simplifications 

of complex legal systems have been proposed, in particular for the Structural Funds. 

These  few  examples  show  the  Commission's  determination  to  improve  project 
monitoring and control so that management may be improved in line with the provisions 
ofSEM2000. 

In  addition  to  these  efforts  to  improve  management,  publication  of  the  report  on the 
functioning  of  the  own  resources  system  and  the  white  paper  on the  recasting  of the 
Financial Regulation mark stages on the way towards the budget discipline desired by the 
Member States and the Commission. 

A 

CHAPTER 1 

OWN RESOURCES 

!• 

Inward processing and suspension system (IVIS) 

The Council 

recommends  that the criteria for assessing the economic  conditions  laid  down  for 
businesses  to  obtain  authorisations  should  take  account  of the interests  of  all  the • 
parties concerned. 

Commission fs reply 

The Council's recommendation is largely covered by present legislation. 

2.  Establishment and ex post facto recovery of traditional own resources 

The Council 

calls on the Commission to include a suspension  clause in preferential  agreements 
where the Community's financial interests have suffered. 

Commission's reply 

The Council is repeating an earlier request, to which the Commission has replied via its 
many  communications  concerning  preferential  agreements.  The  programme  on  the 
protection of the Communities' financial  interests and the fight against fraud  (1998-99), 
presented in May, also takes account of this type of concern in the field of customs and 
taxation. 

3.  Own resources deriving from gross national product (GNP) 

The Council 

urges  the  Commission  to  complete  work,  as  announced,  in  1998  for  all  Member 
States except Finland, Sweden and Austria, in respect of which work in respect of 
GNP should be completed in 1999. 

Commission fs reply 

By  Decision  97/619  (EC,  Euratom),  the  Commission  set  the  following  deadlines  for 
completion by the Member States of work still to be completed on reserves in respect of 
GNP: 

1 October 1998 for twelve Member States, 
1 October 1999 for Finland, Sweden and Austria. 

A 

As  soon  as  it  has  received  the  results  of  this  work  from  the  Member  States,  the 
Commission will  introduce the controls and procedures for the  lifting  of the reserves in 
question pursuant to Article  10(8) of the Regulation (EEC, Euratom) of 29 May  1989 on 
the system of own resources. 

fix 

CHAPTER 2 
BUDGETARY MANAGEMENT 

!• 

Budget forecasting of agricultural expenditure 

The Council 

calls upon the Member States and the Commission to collaborate in further refining 
agricultural expenditure estimates.  It will be important to ensure that the quality of 
such  estimates  does  not  deteriorate  following  agricultural  policy  reform  in  the 
context of Agenda 2000. 

Commission fs reply 

The Commission  endorses this request.  Since April  1997 the budget  authority  and the 
Commission have agreed to take account of a revision of the agricultural budget forecasts 
in a letter of amendment presented before the second reading of the budget in October 

2. 

Preparation of the 1999 farm budget 

The Council 

calls on the Commission to table in 1999, following the same procedure as in 1998, 
an agricultural budget that takes account of the over-estimates of the past. 

Commission's reply 

The  Commission  stepped  up  its  efforts  to  avoid  over-estimates  in preparing  the  1999 
preliminary draft budget (see also reply to point 1  above). 

l\ 

CHAPTER 3 
COMMON MARKET ORGANISATION - PLANT PRODUCTS 

1.  Arable crops 

The Council 

would like the I ACS to be fully implemented in 1998. 

Commission's reply 

The integrated administration and control system (IACS), set up by Council Regulation 
No 3508/92  and Commission Regulation No 3887/92, was to be fully  operational  from 
1 January 1997 for the old Member States and 1  January 1998 for the new ones. 

The  installation  was broadly  satisfactory  given the  scale  of the work that the Member 
States  had  to  undertake  in  particular  for  the  "area"  evaluation  aspects.  The Member 
States  which  did  not  have  a  land  register  or  whose  land  register  was not  sufficiently 
reliable had more difficulties  in setting up the system. 

Today, with the exception of Greece and  Scotland which have major  problems, all the 
Member  States  have  an  operational  system,  even  though  some  (Finland,  Ireland  and 
Belgium)  still have to make improvements.  All the components of IACS are in place, 
namely a computerised  database, an alpha-numerical  system for  identifying  agricultural 
parcels, requests for aid and an integrated control system which includes: 

-  administrative  controls,  in  particular  cross-checks  of  parcels  in  order  to  avoid  any 
duplication in the granting of aid, and 

-  on-the-spot  checks  which can be carried  out  by  visiting  farms  or by remote  sensing 
techniques for areas. 

For the new Member States it will clearly not be possible to say whether their systems are 
operational until after the 1998 harvest, as they had until  1 January 1998 to complete the 
installation of the IACS. 

Because  the  IACS  had  proved  useful  and  effective,  it  was  extended  to  new  schemes 
(Regulation No 3072/95)  and  grain  legumes  (Regulation No 1575/96).  Other  schemes 
are linked to it such as hops, agri-environmental  measures, cotton and dried fodder.  In 
addition, the olive oil and vineyard registers are based directly on the "area" part of the 
IACS. 

This does not, of course, mean that no improvements  are necessary, as there is always 
scope  for  improvement  in  any  system.  For  this  reason  the  accounts  clearance 
departments  are carrying  out controls in the fifteen Member  States and examining the 
operation of the IACS. 

A 

2.  Common market organisations (CMO) in raw tobacco and wine 

The Council 

asks the Commission to take account of the Court's comments when drawing up its 
reform  proposals  in  the  context  of  Agenda 2000  in  order  to  improve  both  the 
management and monitoring of these CMOs. 

Commission rs reply 

1. 

Tobacco 

The Commission's proposals for the reform  of the common market organisation (CMO) 
were tabled on 28 January  1998.  The proposals take extensive account  of Parliament's 
opinion as expressed in the report on options previously drawn up on 18 December 1996. 

2.  Wine 

The Commission recently adopted a proposal for the reform  of the CMO in wine.  This 
proposal incorporates in a single legislative document all the existing provisions adopted 
by the Council in the wine sector.  From this point of view it should make a  significant 
contribution to simplifying and improving the management of this CMO. 

The prime objective of the proposal is to promote the competitiveness of the Community 
wine industry against the background of an expanding international market. 

Some  intervention  measures  will  be  withdrawn  and  the  others  redirected  in  order  to 
eliminate  artificial  outlets  for  non-marketable  products.  Only  intervention  measures 
designed  to  ensure  the  quality  of  wines  and  measures  to  preserve  traditional  markets 
other  than  wine  (wine  alcohol,  aromatised  wines,  grape juice,  etc.)  will  be  retained 
unchanged. 

The main  innovation  concerns conversion measures designed to adapt vineyards to the 
market, and the administration of a new system of planting rights paving the way for the 
development of vineyards in areas where it is clearly necessary without bringing about an 
increase  in  production  not justified  by  market  conditions.  To  qualify  for  these  two 
measures,  an  inventory  of  the  vineyard, will  have  to  be  produced  (where  appropriate 
based on the vineyard register), containing information on surface areas, varieties of vine 
and planting rights.  Introduction of this inventory will tighten controls. 

A 

CHAPTER 4 

COMMON ORGANISATION OF THE MARKET - ANIMAL PRODUCTS -
BEEF AND VEAL PREMIUM SCHEMES AND SELECTED 
BSE-RELATED  MEASURES 

1. 

Beef and veal premium schemes 

The Council 

shares the Court's  opinion that any future  reform  in this sector should be  preceded 
by a detailed ex ante analysis of its impact on farmers1 incomes, given the  significant 
consequences for the Community budget. 

Commission's reply 

The Commission agrees with the Council and the Court that the likely impact of a reform 
should be studied beforehand.  Such an analysis should also apply to the status quo. 

The Commission's analysis "Situation and Outlook - Beef Sector" published in May  1997 
showed  that  if  beef  policy  remained  unchanged,  enormous  domestic  surpluses  would 
result. These would clearly adversely affect  farmers' incomes. 

To  deal  with  this  problem  the  Commission,  in  Agenda  2000,  proposes  an  integrated 
package  of  measures.  The  beef  sector  cannot  be  studied  in  isolation  from  other  closely 
related sectors. 

The  Commission  is  therefore  carrying  out  an  income  analysis  of  the  Agenda  2000 
proposals  that  take  into  account  the  interrelationships  between  different  farm  sectors 
including that of beef. 

2.  Measures taken in connection with the BSE crisis 

The Council 

emphasises  the  need  for  further  close  collaboration  between  the  Commission  and 
the  Member  States  to  ensure  the  effectiveness  of  the  application,  control  and 
evaluation of the measures linked to the BSE crisis. 

Commission fs reply 

The  Commission  fully  agrees  on  the  necessity  for  the  Commission  and  the  Member 
States  to  maintain  close  collaboration  in  order  to  secure  the  efficiency  of  the 
implementation, control and evaluation of the measures linked to the BSE crisis. 

In the Commission's First Bi-annual BSE Follow-up Report presented to the Council and 
the European  Parliament  on 6 May  1998, the  Commission  gave a detailed  outline  of the 
actions taken  by  the  Commission  concerning  BSE/TSE  since November  1997  including 
the  developments  as  regards  the  Clearance  of  Accounts  procedures  for  BSE  measures 
specific to the United  Kingdom. 

In the period after the presentation of this report the Commission services, in light of the 
deficiencies  established  in  the  application  of  the  Over  Thirty  Month  Scheme  (Reg. 
No 716/96),  have  decided  to  propose  to  refuse  financing  of  some  of  the  expenditure 
declared  for  animals  processed  under  this  scheme.  By  letter  of  26 May 1998  the  UK 
authorities  were  informed  that  it  was  envisaged  to  propose  corrections.  The  UK 
authorities  now  have  the  right  to  request  a  conciliation  procedure  for  the  proposed 
corrections.  The  deadline  expires  30  working  days  after  the  receipt  of  the  official 
notification. 

The proposal of corrections for the first 15 months of the scheme does not mean that the 
Commission services have ceased to monitor the application of this scheme. Missions are 
carried  out  on  a regular  basis  and  recommendations  for  improvements  continue  to  be 
made. A reserve on the financing for the period after 3 August 1997 has also been made. 

As  regards  other  BSE  measures,  such  as  the  calf  premium  schemes  and  the 
supplementary aids (Reg. Nos  1357/96 and 2443/96), the Clearance of Accounts Unit has 
included these measures in missions undertaken in the framework  of a bovine premiums 
enquiry,  which  will  be  completed  in  1998.  Missions  have  been  made  to  a majority  of 
Member  States  including  the  most  important  ones  in  terms  of  expenditure  for  these 
measures,  i.e.  France, United  Kingdom  and Germany.  Where  serious  deficiencies  have 
been  detected  in  the  implementation  of  measures  financed  by  EAGGF,  financial 
consequences will  be proposed upon completion of the enquiry in an ad hoc decision in 
accordance with Art. 5(2)(c) of Regulation No 729/70. 

10 

\ 

CHAPTER 6 
REGIONAL  SECTOR 

!• 

Budgetary and financial data 

The Council 

notes  the  progress  made  by  the  Commission  in  collaborating  with  the  Member 
States  with  a  view  to  improved  implementation  of  budgetary  appropriations  and 
would  like further  progress to be made to avoid  any  increase in the amount  still to 
be  settled  and  the  end-of-year  concentration  of  commitments  and  payments. 
The Council invites the Commission  and the Member States to make further  efforts 
to this end. 

Commission's reply 

There  has  been  a  significant  increase  in  cooperation  between  the  Commission  and  the 
Member  States  following  the  introduction  of  the  "budget  network"  for  the  Structural 
Funds. The main task of this network, made up of financial correspondents in the Finance 
Ministries, has been to provide the Commission  with  forecasts  of requests  for  payment. 
The Member  States are currently  in the process of providing  the Commission  with their 
forecasts  of  requests  for  payment  for  1998-2001, relating  to  the  present  programming 
period. 

The level and rate of growth of commitments outstanding  under the  Structural  Funds (of 
which  almost  90%  originated  in  the  current  programming  period,  measured  on 
31 December  1997)  can  be  regarded  as  normal,  given  that  they  relate  to  multiannual 
measures  where  the  payment  of  commitments  is  spread  over  several  years.  Under  the 
present  financial  management  system  (commitment  by  tranches  and  payments  on 
account), commitments generally increase much more rapidly than payments. 

It should be pointed  out that the ECU  1 000 million  cut in payment  appropriations  made 
by  the  budgetary  authority  in  the  1997  budget  increased  the  volume  of  commitments 
outstanding  at the end of  1997, since the funds  available proved  insufficient  to meet the 
requests  for  payment.  Payments amounting  to  ECU  1  200 million  had  to  be  postponed 
until  1998. 

Finally,  there  has  been  a  significant  easing  of  the  problem  of  the  concentration  of  the 
implementation  of  commitments  and  payments  at  the  end  of  the  financial  year:  the 
proportion  of payments made in December  fell  from  48% in  1994 to  20% in  1997, and 
for commitments the rate fell from 60% to 32%. 

2. 

The closure of intervention schemes 

The Council 

nevertheless  asks  the  Commission,  in  partnership  with  the  Member  States,  to 
pursue  a  more  active  policy  as  regards  closure  of  programmes,  to  optimise  its 
checks,  especially  on-the-spot  checks,  and  to  make  more  effort  to  make  long-term 
assessments  of  the  impact of  completed  co-financed  projects.  It  recommends  that, 
in  drawing  up  its  proposals  for  the  period  beginning  in  2000,  the  Commission 
should  learn  from  experience,  define  simpler  rules,  and  clarify  the  division  of 
A11 

responsibilities between the various administrative levels.  In particular, the Council 
considers that overlapping objectives, programmes and programme periods, as well 
as  extensions  and  closure  procedures,  have  all  contributed  to  the  administrative 
overload. 

Commission's reply 

The  Commission  shares  the  Council's  wish  to  see  programmes  closed  as  quickly  as 
possible and is endeavouring to accomplish this task in the shortest possible time. 

However, this plan occasionally encounters inevitable problems of implementation in the 
field,  which  can  lead  to  programmes  being  extended.  The  Commission's  response  has 
been to set limits enabling these extensions to be kept within reasonable bounds. 

The  Commission  takes  full  account  of  the  various  points  raised  by  the  Council  in  this 
connection in its legislative proposals for the period beginning in 2000. 

Assessment  will  henceforth  be incorporated  ex ante in the  compilation  of plans  and  the 
quantification  of objectives to be attained, mid-term in the case of reprogramming, and ex 
post in order to capitalise on the experience obtained. 

As  regards  checks,  the  Commission  carries  out  as  many  on-the-spot  checks  as  staffing 
levels permit and tries to make them as effective  as possible.  The legislation proposed by 
the  Commission  for  the  new  programming  period  clearly  sets  out  the  respective 
responsibilities  of  the  Commission  and  the  Member  States  for  programme  monitoring, 
financial  management, checks and assessment. 

Regulation  (EC) No  2064/97  of  15 October  1997 on strengthening  the management  and 
control  system  for  operations  co-financed  by the  Structural  Funds  already  requires  that, 
on  closure,  the  requests  for  final  payment  from  the  Member  States  should  be 
accompanied by an independent statement on the validity of these requests. 

In  the  Commission's  view,  the  application  of  this  Regulation,  the  gradual  use  of  the 
model  annual  report  and  the  details  provided  by  the  22  statements  on  the  eligibility  of 
expenditure should in future  significantly  improve the closure operation. 

As stated by the Commission  in its reply to the Court of Auditors (paragraph 6.38  of the 
Annual  Report  for  1996), overlapping  between  programming  periods  did  not  cause  any 
serious administrative problems in the Member States. 

3. 

The  implementation  of  measures  in  favour  of  undertakings  and  of  SMEs  in 
particular 

The Council 

invites  the  Commission  to  take  steps  to  ensure  that  services  offered  to  the  SMEs 
correspond  to  their  genuine  requirements.  It  is  pleased  that  the  Commission  in 
December 1997  launched  an  assessment  of  the  impact  of  the  Structural  Funds  on 
the  SMEs  and  requests  that  the  outcome  be  communicated  to  the  two  arms  of  the 
budgetary  authority. 

A  12 

Commission 's reply 

The  Commission  confirms  its  intention  of  sending  the  two  arms  of  the  budgetary 
authority the findings of the thematic assessment of the impact of the Structural Funds on 
SMEs, launched in December  1997.  The final report should be approved by the end of 
1998. 

A  13 

CHAPTER 7 
SOCIAL SECTOR 

L  Execution of the budget of the European Social Fund 

The Council 

calls upon the Commission to simplify  the legal framework for structural measures 
in future in order to speed up their implementation. 

Commission's reply 

The Commission agrees with the Court about the complexity of the financial channels set 
up  to  administer  the  Structural  Funds  and  acknowledged  this  fact  in the  Explanatory 
Memorandum to the proposal  for a Council Regulation  laying down general provisions 
on the  Structural  Funds, adopted  by the  Commission  on  18 March  1998.  It  feels  that 
decisive improvements can and should be made to the present arrangements and therefore 
proposed  a  simpler  system  for  financial  commitments  and  a  new  mechanism  for 
payments, based on the reimbursement of actual and certified expenditure. 

Despite the  complexity  of the present  system, the  ESF's  implementation  rate  for  1996 
was 100%.  The same take-up rate was measured in 1997. 

The  Commission  will  continue  its  efforts,  in  partnership  with  the  Member  States,  to 
ensure  that  the  funds  given  to  the  Member  States  are  channelled  towards  the  final 
beneficiaries as quickly as possible, thus keeping the use of prefinancing to a minimum. 

2.  Audit of particular aspects of the European Social Fund 

The Council 

shares the Court's desire for participation by the economic and social partners to be 
strengthened  and for  assessment  of  results  to  be expanded.  Furthermore,  it  also 
calls on the Commission to simplify the legal framework for Community initiatives. 

Commission's reply 

1.  The  Court  of  Auditors'  comments  on  participation  by  the  economic  and  social 
partners  in  the  monitoring  committees  are  not  specific  to  the  ESF  but  relate  to  the 
Structural Funds as a whole.  In the case of Objectives 3 and 4, for which the ESF is the 
lead  fund,  the  Commission  has  succeeded  in  persuading  the  Member  States, who  are 
responsible  for  appointing  the  members  of  the  monitoring  committees, to  ensure  that 
these partners are adequately represented. 

2.  A mid-term  assessment  covering  ESF  programmes  in the  1994-99 programming 
period was carried out and the results used in the reprogramming of operations in 1997. 
The  lessons  learned  from  this  exercise  and  from  the  final  assessment  (completion 
expected in the first quarter of 1999) which will also be very useful when the next period 
of partnership with the national  authorities  is being presented, have not only led to an 
assessment  of  ESF  operations  but  have  also  created  a  genuine  "assessment  culture" 
within the Member States. 

14 

3.  One of the fundamental characteristics of the Community Initiative Programmes is 
the creation of transnational partnerships, yet projects continue to be selected at national 
level.  For the second wave of selections of Employment arid Adapt projects in 1997, the 
Commission  avoided  this  problem  by  assisting  promoters  of  projects  pre-selected  at 
national  level  in  their  search  for  foreign  partners.  This  meant  that  final  approval  at 
national level could be given to the projects of all partners virtually simultaneously. 

(\  15 

CHAPTER 8 
EUROPEAN AGRICULTURAL GUIDANCE AND GUARANTEE FUND, 
GUIDANCE SECTION (EAGGF-GUIDANCE) 

1.  Control and assessment of aid under the EAGGF, Guidance Section 

The Council 

asks the Commission to spell out the rules for replacing ineligible expenditure.  It 
wants  the  Commission  and  the  Member  States  to  make  a  greater  effort  to 
implement the IACS.  It recommends that more care be taken with prior assessment 
of projects and that physical inspections be increased. 

Commission's reply 

The EAGGF Guidance Section part-finances  expenditure associated with projects which 
implement the measures approved in the programming documents in accordance with the 
appropriate procedures. 

Under the principle of subsidiarity, the Member States are in theory free to select these 
projects and are responsible for monitoring them.  If these measures are judged ineligible 
part-financing is not granted. 

However, the Member States may declare any other expenditure eligible that meets the 
part-financing  conditions, provided that the commitment  under the programme  and the 
statement  of  expenditure  are  completed  within  the  time  allowed.  Specific  rules  on 
substitution  are not  set out in detail  since they  are the  same as the rules  for  the initial 
selection of the projects, with which the Member States are fully  familiar. 

The prior assessment  of projects  is the responsibility  of the Member States, which also 
bear the main responsibility for physical inspections. 

The  checks  carried  out  by  the  Commission  are  mainly  to  ensure  that  the  monitoring 
systems set up by the Member States are operating satisfactorily. 

A  16 

CHAPTER 13 

COOPERATION WITH DEVELOPING AND 
THIRD COUNTRIES (EXCEPT CENTRAL 
AND EASTERN EUROPE) 

!• 

Implementation of the budget 

The Council, 

as far as humanitarian aid is concerned, calls on the Commission to continue taking 
the  necessary  measures  to  avoid,  as  far  as  possible,  recourse  to  carry-overs  of 
unutilised payment appropriations.  It is pleased that the emergency aid reserve was 
not used in 1997 and hopes that recourse to mobilisation of payment appropriations 
from this reserve can also be avoided in future by making more use of transfers of 
payment  appropriations  from  other budget lines under heading 4 of the  financial 
perspective (External Actions). 

Commission's reply 

In  accordance  with  the  instructions  contained  in  paragraph  15 of  the  Interinstitutional 
Agreement  of  29 October  1993,  the  Commission  asks  to  draw  on  the  emergency  aid 
reserve only when it has to cover specific aid requirements exceeding the amount entered 
in the  budget  as  a result  of  events which  could  not  be foreseen  when the  budget  was 
established. It does not present a proposal until it has examined the scope for reallocating 
appropriations within heading 4. 

While  this  reserve  did  not  need  to  be drawn  on  in  1997  as the  appropriations  in this 
heading had been under-utilised to some extent, in  1998 the Commission was forced  to 
ask  for  an  increase  of  ECU  150 million  in  commitment  appropriations  and  ECU  100 
million in payment appropriations in a supplementary and amending budget presented as 
early  as  April.  When  it  appeared  that  the  Council  would  not  establish  a  draft 
supplementary and amending budget before the summer, the Commission had to propose 
that the  same amounts be drawn from  the emergency  aid reserve; the two arms of the 
budgetary authority accepted this alternative solution. 

The  Commission  would  also  point  out  that  it  carries  over  payment  appropriations  in 
exceptional circumstances only and in accordance with the conditions set out in Article 7 
of the Financial Regulation. 

17 

The Council 

as  regards  cooperation  with  Mediterranean  countries,  shares  the Court's  opinion 
that the procedure applied by the Commission, aiming to stagger over two or more 
years the commitment  in the accounts  of the total  amount of a financing decision 
taken  by  the  Commission  on  a  project,  does  not  comply  with  the  Financial 
Regulation.  It therefore calls on the Commission to ensure that the total amount for 
a project which was the subject of a financing decision is committed in the accounts 
as soon as the decision has been taken.  The Council also asks it to set out the rules 
more  precisely  when  the  Financial  Regulation  is  fully  overhauled.  The 
implementation  of  Community  expenditure  must  respect  the  principles  of  the 
Financial Regulation and reflect the availability of appropriations. 

Commission's reply 

As it  stated in its reply to the comments made by the Court  of Auditors in its Annual 
Report for  1996, the Commission feels that the practice followed in this area respects the 
terms of the Financial Regulation,  since the Commission's decisions are conditional  on 
the  availability  of  appropriations  and  this  clause  is  included  in  the  corresponding 
financing  agreements. 

In  this  connection,  as  part  of  the  overall  recasting  of  the  Financial  Regulation,  the 
Commission  intends  to  propose  a better  definition  of the  commitment  of expenditure, 
taking account of the three basic components which must always be present in any such 
commitment,  namely  the  commitment  decision,  the  book  commitment  and  the  legal 
commitment. 

It  is  the  last  of  these  (which  is  the  act  placing  the  Institution  under  an  obligation  in 
respect of third parties and which gives rise to its debt to them) which gives legitimacy to 
the inclusion in the financing  agreements  of the clauses making the implementation  of 
projects conditional on the availability of funds. 

2. 

Information technology and management information systems 

The Council 

calls on the Commission to notify  it of the results of the information  management 
strategic  planning  study  for  DG  IB  and  to  introduce  better  checks  on  the 
development  of  computer  applications,  in  order  to  avoid  in  future  unsatisfactory 
situations as in the case of MIS. 

Commission's reply 

A stocktaking of data-processing applications has been under way since the beginning of 
1997.  It has led to the development of guidelines for the use of the MIS system. 

On this basis, an administrative  and data-processing  support  structure has been  set up. 
These developments have brought about a partial improvement in a highly unsatisfactory 
situation. 

Major  efforts  are  still  required,  however,  if  the  data-processing  applications  are to  be 
developed to an acceptable level. 

A  18 

3. 

"Fondo  especial  de  promociôn  de  las  exportaciones  de  Honduras  y 
Nicaragua" (FEPEX1 

The Council 

calls  on  the  Commission  to  review  its  relations  with  the  BCIE  and  to  recover 
without delay the amounts unduly credited by the BCIE to its own accounts.  The 
Council also notes with interest the measures taken by the Commission to improve 
monitoring  of  the  BCIE's  application  of  and  compliance  with  the  Financing 
Agreement. 

Commission's reply 

The Commission has reviewed its perspectives and relations with BCIE. This review has 
resulted in ECU 549 773.09 being transferred to the Commission in June 1998. A further 
analysis  of  the  funds  currently  being  used  for  development  purposes  and  which  will 
become free by the year 2010 is being carried out. This analysis will be completed before 
the end of the year 2000, when the destination of the funds remaining will be finalised. In 
the  meanwhile,  BCIE  has been  asked  to  maintain  a  separation  between  its  funds  and 
those advanced by the Community. 

4.  Bridging loans 

The Council 

considers  that  it  should  not  be  necessary,  except  in  the  most  exceptional 
circumstances,  to  have  recourse  to  bridging  loans  between  projects  to  ensure the 
availability  of funds.  For that reason it calls on the Commission to give priority to 
improving internal procedures so that project funds are obtained in good time. 

Commission's reply 

The  Commission  has  issued  an  instruction  that  recourse  to  a  bridging  loan  must  be 
exceptional and authorisation must be given before  it is used. Those projects requiring a 
rapid disbursement of funds have been given a higher priority. 

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CHAPTER 14 

MEASURES IN FAVOUR OF THE COUNTRIES OF CENTRAL AND EASTERN 
EUROPE, 
THE NEWLY INDEPENDENT STATES (FORMER SOVIET UNION) 
AND MONGOLIA 

1-  Budgetary implementation 

The Council 

reiterates  its  invitation  to  the  Commission  to  pursue  the  measures  aimed  at 
improving  budgetary  implementation  of  programmes  in  general,  assessing  more 
accurately  the  size  of  commitments  outstanding  and,  in  particular,  limiting  their 
growth.  It calls on the Commission to comply with the provisions of the Financial 
Regulation  regarding  the  entering  of  advances  in  the  accounts  and  to  improve 
monitoring of the interest on such advances. 

Commission's reply 

The  Commission  is  continuing  the  internal  measures  it  introduced  in  January  1997 to 
reduce the backlog of budgetary commitments outstanding.  Measures such as a reduction 
in the time  allowed  for  concluding  contracts  once the financing agreements  have been 
signed,  automatic  adjustments  to  programme's  grants  to  reflect 
their  stage  of 
implementation,  and the closure  of the older programmes, have helped  to  improve the 
situation. 

The Commission would also point out that in the "seventh series" of amendments to the 
Financial  Regulation  it  proposed  the  introduction  of  total  or  partial  automatic 
cancellation of commitments for operations not completed by the final date (Articles 1(7) 
and 36(2)).  The Commission considers that adoption of this rule will also promote better 
management of current commitments and help clear the burden of the past. 

As regards the entry of advances in the accounts, the Commission has always regarded 
the sums paid to contractors as final payments.  However, it believes it will be possible to 
examine this  question  as part  of the overall review of the Financial  Regulation, which 
should include changes to Title IX on management of external aid. 

Finally,  as  regards  the  monitoring  of  interest  derived  from  advances, the  Commission 
takes the view that the proposals  introduced  as part of the  "seventh  series" in the new 
Article  22(4a)  offer  an  appropriate  legislative  solution  providing  a  fully  transparent 
means of dealing with such interest. 

Major  efforts  have  been  made  to  improve  the  operation  of  the  Phare  and  Tacis 
programmes and have led to a more rapid commitment of funds at programme level and a 
strict observance of the duration of financing agreements.  The latter has led to a visible 
improvement  in  the  situation  as  regards  commitments  outstanding,  something  the 
Commission  monitors very  closely.  By the end of  1997, outstanding  commitments  in 
relation  to  Tacis  (ECU  700 million  at  the  end  of  1996)  had  been  reduced  to 
ECU 550 million, and those of the Phare programme had been stabilised. 

A  20 

2.  Observations  on  operations  carried  out  in  the  agricultural  sector  in  the 
Central and East European countries and the newly independent States 

The Council 

calls  on  the  Commission  to  improve  cooperation  with  the  beneficiary  countries, 
particularly  with  regard  to  coordination  of  national  strategies  with  Community 
programmes,  to  facilitate  access  to  credit  through  close  collaboration  with  the 
banking sector and to regard land reform as a priority. 

Commission's reply 

In the case of the Tacis programme, coordination  of national  strategies with  Community 
programmes has been strengthened since  1997 by the creation of the Joint Tacis Advisory 
Committee for the selection of projects. 

In  the  agricultural  sector,  the  question  of  access  to  credit  is  still  a  major  problem  in  a 
number  of  countries  (particularly  in  Russia,  Armenia  and  Georgia)  and  is  a  priority 
objective  for  the  projects  designed  to  improve  the  land  market  and  the  land  register 
currently financed  under several programmes. 

In  the  case  of  the  Central  and  Eastern  European  countries,  the  Special  Preparatory 
Programmes  are  responsible  for  coordinating  national  strategies  with  Community 
programmes on administrative questions.  At operational level, this coordination has now 
been  stepped  up  through  the  creation  of  the  Central  Financing  and  Coordination  Units 
(see point 3 below). 

Because of the unstructured  nature of agriculture in several countries (Hungary,  Slovakia 
and the Czech Republic in particular), farmers  continue to find it difficult  to obtain credit 
from  the  banking  sector.  Against  this  background,  Community  measures  are  aimed  at 
improving the situation of the farming  sector, particularly from  an administrative point of 
view,  ready  for  the  introduction  of  the  common  agricultural  policy,  in  accordance  with 
the priorities adopted in the new Phare guidelines. 

The  main  objective  of  the  projects  receiving  finance  is  to  improve  land  registration. 
Parallel projects  are designed to make farmers  more aware of these questions through the 
setting  up  of  specific  Funds  for  the  financing  of  agricultural  programmes  (e.g.  Rural 
Credit Guarantee Fund in Hungary). 

The Council 

stresses the importance of the Phare and Tacis programmes, the former  particularly 
in  the  context  of  the  preparation  of  these  countries  for  accession,  and  calls  on  the 
Commission  to  take  account  of  experience  acquired  in  the  evaluations  aiming  to 
improve the programmes. 

Commission's reply 

Over the  last two years the  Commission  has initiated  a number  of assessments  covering 
Community projects by country or by sector. 

In some countries - Georgia, for example - these measures have been very  successful. 

f\  21 

Despite  this  success,  the  question  of  small  farms  still  requires  special  attention  and 
continues to be one of the priority problems for the Commission. 

A  22 

CHAPTER 15 
COMMISSION 

!•  General subsidies (Title A-3 of the Commission budget) 

The Council 

asks the Commission, which broadly accepts the Court's recommendations, to speed 
up current reforms so that these arrangements  are applied  uniformly  for the next 
financial  year. 

Commission's reply 

The  Commission  has  continued  its reforms  aimed  at  strengthening  and  improving  the 
administration  and  management  of  Community  expenditure,  including  in  the  area  of 
Community financial assistance. 

In July  1997 the Commission set up a working party to draw up minimum standards for 
the  award  and  monitoring  of  grants.  The  working  party  confirmed  the  exemplary 
practices of the Commission's departments and summarised  them in a Vade-mecum on 
Grant  Management.  The  Final  Report  of  the  working  group  (SEC  1191 final) was 
adopted by the Commission on  14 July  1998 and sent to the two arms of the budgetary 
authority for information. 

The new binding rules take effect  from  1  January 1999. 

The  Court  of  Auditors'  conclusions  as  set  out  in  15.1.23  (b)  and  (c)  have  been 
incorporated  in  the  Vade-mecum  on  Grant  Management.  The  content  of  the  Court's 
recommendation  in  15.1.23  (a)  corresponds  to  the  budgetary  authority's  instructions 
regarding grants under Titles A-30 and A-31, and to Commission practice.  In addition, 
under  the  new  rules  all  applications  for  Community  grants  must  be  assessed  by 
Commission officials  from at least two different  departments in the light of the applicable 
provisions on content. 

23 

(\ 

2.  Office  for Official  Publications  of the European Communities  (Article A-342 

of the Commission budget and Annex IIP 

The Council 

calls for all the necessary reforms to be undertaken to improve the operation of the 
Office, in accordance with the Court's comments. 

Commission's reply 

In its conclusion the Court highlighted four points: 

•  unsuitability  of  the  regulatory  framework  governing  the  Publications  Office  (point 

15.2.52) 

A new draft Regulation which takes account of the Court's comments has already 
been drawn up by the Publications Office  Management  Committee and now has 
to  be  revised  by  the  legal  departments  before  it  can  be  adopted  as  a  formal 
Commission proposal. 

•  Requirement  to  present  a  complete  operating  account  and  balance  sheet  (point 

15.2.53) 

These  documents figured for  the first time  in  the  Publications  Office's  annual 
management  report  for  1997,  which  was  presented  to  the  institutions  at  the 
beginning of April 1998. 

•  Court's  call  for  the  widest  possible  competition,  particularly  for  contracts  for 

publication of the Official  Journal (point 15.2.54) 

The  contracts  for  the  production  of  the  Official  Journal  are  currently  being 
renewed  and  the  institutions'  representatives  opted  for  the  open  tendering 
procedure  with  technical  conditions  which,  while  they  call  for  sufficient 
experience to cope with a publication of this size, will open the way to a greater 
number of potential tenderers. 

•  Importance  of  a  clearer  distinction  between  publications  pertaining 

to  the 
Communities'  information  policy  and  those  for  which  a  more  efficient  commercial 
policy  should  be  introduced,  and  the  value  of  reducing  free  distribution  of  these 
publications in the interests of a more efficient  commercial strategy (point 15.2.55) 

The Publications Office has reminded originating institutions of the importance of 
a sound and coherent policy  in this field and will continue to work towards the 
aims set by the Court. 

In short, the Publications Office  has already taken positive action on most of the Court's 
recommendations and has taken account of the rest in its current activities. 

A 

24 

CHAPTER 18 
FINANCIAL INSTRUMENTS AND BANKING ACTIVITIES1 

1-  Control  of contributions  in the form  of subsidised  loans in the regions  of Italy 

affected  bv an earthquake 

The Council, 

restricting  itself  to  the  budget  discharge  aspects,  understands  the  difficulties 
inherent in implementing this type of action, in view of the conditions in which such 
action  is carried  out, and  invites  the Commission  on the basis  of this  experience  to 
coordinate its action better in future with the local authorities. 

Commission's reply 

The  Commission  has  taken  due  note  of  the  Council's  observation  and  will  try  to 
coordinate closely its action with the local authorities. 

2- 

European Investment Fund 

The Council 

is  concerned  at  the  persistence  of  this  problem,  which  has  been  raised  on many 
occasions,  and  invites  the  parties  concerned  to  pursue  their  efforts  to  find 
an appropriate  solution,  perhaps  based  on  the  provisions  of  Article  248  of  the 
Amsterdam Treaty, whilst respecting the Fund's legal status. 

Commission's reply 

The  Commission  has  always: been  concerned  to  ensure  that  the  Court's  audit  rights  are 
respected,  with  due regard  for  the  competences  of the  individual  institutions  and  bodies 
concerned.  It  therefore  very  much  regrets  that  the  European  Investment  Fund  and  the 
Court  have  not  so  far  been  able  to  reach  a satisfactory  agreement  on the  procedures  for 
audit by the Court. 

In  an  attempt  to  mediate  and  to  lay  the  foundations  for  cooperation  in  operational 
matters,  the  Member  of  the  Commission  with  responsibility  for  the  budget  took  the 
initiative  of  organising  a  meeting  between  the  Chairman  of  the  Fund's  Finance 
Committee  and  the Member  responsible  for  the  Court  of Auditors. In the  course  of  this 
meeting held on 5 May  1998 it was decided to provide the Court of Auditors with  further 
documents concerning the EIF. The Commission took on this task, which was completed 
by 7 May  1998. This process of discussion and opening up continued on 25 May with an 
exploratory  meeting  on  working  methods  between  the  Fund,  its  private  audit  company 
(KPMG) and the Court of Auditors. 

In  accordance  with  the  provisions  of  the  Treaty,  the  discharge  covers  only  the 
implementation of the Community budget.  Borrowing and lending operations are therefore 
not covered by the discharge, except as regards aspects linked to the implementation of the 
budget. 

A  25 

The Commission intends to continue doing all in its power to assist the Court in gaining 
access to sufficient  information for it to fulfil  its mission. 

A  26 

CHAPTERS  19 TO 21 

STATEMENT OF ASSURANCE CONCERNING  ACTIVITIES 
FINANCED FROM THE GENERAL BUDGET 

1. 

Implementation of the budget 

The Council 

is  concerned  at  the  problem  of  "dormant  commitments"  and  reiterates  its  request 
that  the  Commission  follow  this  aspect  of  budget  implementation  vigilantly, 
endeavouring to abandon commitments which no longer represent obligations of the 
institution. 

Commission's reply 

The  Commission  is  continuing  its  campaign  to  alert  its  departments  to  the  problem  of 
"dormant  commitments".  The  authorising  departments  are  accordingly  kept  abreast  of 
developments  in the  overall  situation  on  a regular  basis  and  are  requested  to  conduct  a 
continuous  examination  of  open  commitments  with  a  view  to  cancelling  unjustified 
balances. 

The  Commission  would  also point out that  in the  "seventh  series" of amendments to the 
it  proposed  the  introduction  of  total  or  partial  automatic 
Financial  Regulation 
cancellation of commitments for operations not completed by the final date (Articles  1(7) 
and 36(2)). 

The  Commission  considers  that  adoption  of  this  rule  will  also  promote  better 
management of current commitments and help clear the burden of the past. 

2. 

EAGGF Guarantee Section 

The Council 

asks the Commission  to ensure that external control of paying  bodies is carried  out 
in an efficient  and reliable way. 

Commission's reply 

The  Commission  has paid  great attention  to  the  quality  of the  external  audits  of  Paying 
Agencies  in  the  certification  of  accounts  process.  Every  one  of  the  92  external  audit 
reports for the  1996 and  1997 clearance of accounts was examined by two  officials. 

Between  the  submission  of  accounts  and  the  clearance  of  these  accounts  all  Member 
States were visited. During these visits the work of the external auditors was examined in 
detail  to  ensure  that  the  quantity  and  quality  of  their  work  was  adequate  and  that  it 
provided a sound basis for the certificate.  Where the work performed  was inadequate the 
Commission  insisted  that  extra  work  was  carried  out.  The  accounts  of  the  Paying 
Agencies  were  not  cleared  until  a valid  certificate  and  acceptable  audit  report  had  been 
received and  evaluated. 

In addition the Commission has produced guidelines to assist the external auditors and to 
achieve  a  uniform  standard  and  approach.  In  July  1997  guidelines  for  the  audit  of 
27 A 

debtors,  stocks  and  securities  were  issued.  In  July  1998 new  guidelines  for  the  audit  of 
delegated  bodies,  audit  of  on-the-spot  controls  and  statistical  sampling  and  error 
evaluation will be issued as well as revisions to the guidelines on the audit of debtors and 
stock.  Expert  groups  have  been  organised  in  1997 and  1998 with  representatives  of the 
Certifying  Bodies to discuss these guidelines and other relevant issues. 

Where  there  is  evidence  that  the  quality  or  independence  of  a  Certifying  Body  is 
insufficient,  the  Commission  will  insist  that  a  different  Certifying  Body  is  appointed. 
However, to date, no such evidence has been  forthcoming. 

3. 

Structural Funds 

The Council 

asks  the  Commission  to  continue  the  action  it has  undertaken  in the framework  of 
the SEM 2000 initiative and to ensure the effective  and rapid implementation  by the 
Member States of Council Regulation No 2064/97 of 15 October 1997 to improve the 
management  and  control  of the Structural  Funds; to propose  solutions  to the  other 
problems,  at  the  latest  when  the  regulations  for  the  next  programming  period  are 
re-examined,  placing  the  emphasis  on  simplification  of  the  rules,  on  the 
strengthening  of  controls,  in  particular  on-the-spot  controls  (art.  24  regulation 
n°4253/88),  and  finally  on  the  focusing  of  Community  aid  on  clearly  identifiable 
projects. 

Commission's reply 

The Commission remains fully  committed to pursuit of the SEM 2000 initiative. 

The  Commission  attaches  great  importance  to  the  full  and  effective  implementation  of 
Regulation  No 2064/97  in  the  Member  States.  Its  regulatory  proposals  for  the  new 
programming  period  include  substantial  improvements  concerning  financial  control  and 
financial  corrections. 

A  28 

RELEVANT SPECIAL REPORT» 

1. 

Special report No 3/96 on tourism policy and the promotion of tourism 

The Council 

requests  the  Commission  to  setup  a  reliable  system  for  administering  the 
appropriations  concerned,  paying  particular  attention  to  the  eligibility  of 
expenditure,  project  assessment  and  coordination  with  other  measures financed 
from the Structural Funds. 

Commission ' reply 

Significant  improvements  have  been  made  since  the  Court's  special  report  3/96  as 
regards control structures and procedures for monitoring and evaluating direct actions in 
the area of tourism. 

Interdepartmental  coordination  has also been reinforced  and, in that context,  particular 
efforts  are  being  made  to  ensure  fuller  cooperation  on  tourism  projects  with  the 
Directorates General responsible for the Structural Funds. 

In July the Commission presented its final report to the Court of Auditors and European 
Parliament on its audit of past tourism actions. 

2. 

Special report No 2/97 concerning humanitarian aid of the European Union 
between 1992 and 1995 

The Council 

attaches particular importance to the following aspects which are highlighted in the 
Court  of Auditors'  report  and will  look  at them  among others  in  the  light  of the 
evaluation referred to in the previous paragraph: 

A  29 

Strengthening cohesion of measures 

The Court recommends strengthening the cohesion of the measures undertaken on 
the basis of the different  relevant Regulations with a view to enhancing operational 
effectiveness.  In this regard, the Council took note of the Court's recommendations 
concerning a general policy document. 

Commission's reply 

On the question of the drafting  of a general policy document to lay down the guidelines 
and principles of humanitarian action, the Commission is of the opinion that the adoption 
by the Council on 20 June 1996 of Regulation No  1257/96 concerning humanitarian aid, 
and  the  Commission  communication  on  the  links  between  relief,  rehabilitation  and 
development, fill the gaps criticised by the Court of Auditors and constitute a clear legal 
framework. 

The Council Regulation clearly sets out the objectives and principles of humanitarian aid, 
the operations eligible for financing  and the criteria applicable to NGOs.  It also lays the 
foundations  for  further  cooperation  and  coordination  with  the  Member  States, 
international organisations and donor third countries. 

The Commission also feels that the political line followed by the European Community is 
clear and forms  an integral part of the Commission  decision establishing the European 
Community Humanitarian Office, established procedures and the Framework Partnership 
Agreement approved by the Commission itself, which includes political aspects as well 
as administrative and legal provisions. 

It should also be noted that, since the publication of the Court's report, the Commission 
now has a "Strategy Paper" (an annual working document) describing the guidelines the 
Commission will follow in the humanitarian  field. 

Finally,  the  Commission  deplores  the  fact  that  the  Treaty  of  Amsterdam  contains  no 
mention of or specific provision on humanitarian aid. 

-  Coordination of EU policies and activities 

Though linked to the abovementioned issue, the Council is convinced of the need for 
further improvement of the coordination of policies and activities and in particular 
for ensuring the linkages between relief, rehabilitation and long-term development. 
It will follow closely the Commission's efforts  in this field and will at its meeting in 
November 1997  have  a  further  exchange  of  views  aiming  at  developing  detailed 
guidelines  on  strengthening  the  linkages  between  relief,  rehabilitation  and 
development, as provided for in the relevant Council conclusion of 28 May 1996. 

Commission's reply 

Despite  the  major  improvements  already  achieved  in  the  field  of  interdepartmental 
cooperation, the Commission agrees with the Council that coordination of policies needs 
to be further improved in order to rationalise Commission action. 

With  the  aim  of  creating  a  synergy  between  its  departments,  on  30 April  1996  the 
linking  relief,  rehabilitation  and 
Commission  adopted 

its  Communication  on 

A  30 

development.  The  enactment  of the principles  set out  in this  Communication  continues 
to be one of the Commission's main priorities. 

The  Commission  has  already  set  up  a number  of  interdepartmental  Task  Forces  and/or 
coordinating structures whose work has led either to the creation of comprehensive  action 
frameworks 
integrating  all  aspects  of  external  aid  (e.g.  Afghanistan,  Guatemala, 
Bosnia-Herzegovina), or to the withdrawal  of ECHO, to be replaced  by the  Commission 
departments in charge of rehabilitation and/or development (e.g.: Liberia, Haiti). 

-  Coordination  and  cooperation  between the various  actors in the  field  of humanitarian 

aid 

The  Council  acknowledges  the  need  for  greater  coordination  and  cooperation 
within  the  Commission  and  between  the  Commission,  the  Member  States,  the 
United  Nations  and  other  relevant  international  organisations,  as  laid  down  in 
Article  10  of  the  basic  Regulation,  and, whenever  possible,  the  recipient  countries, 
as  well  as  for  strengthening  cooperation  with  NGOs.  The  Council  in  particular 
noted  the  suggestions  concerning  the  use  of  the  instrument  of  global  plans  to 
improve  coordination  and  complementarity,  and  the  need,  in  general,  to  promote 
harmonisation  of  donor  procedures  to  improve  the  effectiveness  and  efficiency  of 
humanitarian  assistance. 

As  far  as  coordination  and  cooperation  between  the  Commission  and  the  Member 
States  are  concerned,  the  Council  highlights  the  role  of  the  Committee  on 
Humanitarian  Aid  set  up  by  the  basic  Regulation  and  welcomes  the  initial 
discussions  in this Committee on the relationship with the United Nations and other 
international  organisations. 

Commission's reply 

As  regards  complementarity  and  coordination  between  EU  and  national  aid,  the 
Commission  has undertaken  a great many coordinated  or joint  actions, including  ground 
operations,  mostly  involving  the  mutual  exchange  of  information  at  the  level  of 
headquarters  and  the  Delegations  or  Embassies;  this  includes,  in  particular,  the 
systematic  dispatch  of  a  14-point  telex  to  the  Department  of  Humanitarian  Affairs  in 
Geneva  and  the  creation  of a database covering  almost  three quarters  of Member  States' 
interventions, systematic coordination with Member  States' representatives on the spot in 
the  course  of  field  operations, as well  as the  coordination  provided  by  the  "task  forces" 
on the ground, and working as far  as possible with the EU Member  States concerned and 
others involved in relief work. 

In May  1998, the  Commission  organised the first Humanitarian  Aid  Committee  mission 
to  Bosnia-Herzegovina.  From  12  to  17 May  1998,  representatives  of  all  the  Member 
States  (with  one  exception)  therefore  had  the  opportunity  to  visit  a  large  number  of 
humanitarian  projects  financed  by the EU and to meet representatives of local  authorities 
and others involved in humanitarian aid. 

This  joint  mission  was  so  successful  that  the  Commission  is  planning  to  repeat  the 
experiment in the  future. 

A  31 

-  Revision of the Framework Partnership Agreement (FP A) 

The  Council  takes  note  of  the  Court's  recommendation  to  differentiate  the  FPA 
according  to  the  different  types  of  partners  and  operations  in  order  to  reflect  the 
respective  roles  and  mutual  commitments  of ECHO  and  its  partners  as well  as  the 
Commission's  intention  to  further  examine  this  question.  To  facilitate  effective 
project identification,  preparation, implementation  and monitoring, the FPA  should 
be clear in objectives and criteria, adjusted to volatile conditions on the ground, and 
promote  cooperation  with  local  partners.  In  this  regard,  the  Council  took  note  of 
the Court's  comments  on the control and monitoring  of the global  aid  programmes 
and  on  the  need  to  strengthen  effective  control  of  funds  and  results  of  operations 
while, at the same time, allowing operational flexibility. 

Commission's reply 

The  revision  of  the  Framework  Partnership  Agreement  was  conducted  in  consultation 
with  ECHO'S  humanitarian  partners,  meeting  in  an  informal  discussion  group  at  which 
the  United  Nations  humanitarian  organisations  and  the  Red  Cross  were  present  as 
observers. 

This new text was adopted by the Commission  on  13 March and will enter into  force  on 
1 October  1998.  To  meet  calls  from  the  Court  of  Auditors  and  the  Council  to 
differentiate  the agreement according to the different  types of partners, the Member of the 
Commission  with  responsibility  for  humanitarian  aid  has  been  authorised  to  make 
changes to the text to include the specific  areas of interest  and the nature of the  mandate 
of certain  international  relief organisations  (UN  Agencies  and  Red  Cross bodies)  and  to 
take  account  as required  of the results  of negotiations  between  the  Commission  and  the 
United Nations on financing  arrangements. 

This  new  Framework  Partnership  Agreement,  which  offers  greater  simplicity  and 
flexibility  combined  with  an  appropriate  degree  of control, makes more  effective  use  of 
humanitarian  aid  in  line  with  the  wishes  of  the  Council.  Moreover,  the  possibility  of 
working with local partners is specifically  provided for in Article  11. 

-  Visibility of humanitarian aid 

While  reiterating  the  importance  of  highlighting  the  Community  character  of 
humanitarian  aid  and  of maintaining  public  support, the  Council  takes  note  of  the 
Court's  comments  on  visibility  policy  and  underlines  the  need  to  further  balance 
and examine this issue. 

Commission's reply 

The Commission would point out that ECHO was originally set up to ensure the visibility 
In  line  with  the  Court's 
of  Community  action  in  the  field  of  humanitarian  aid. 
suggestion,  the  Commission  has  diversified  its  activities  in  the  area  of  visibility  and  is 
trying as far  as possible to use non-traditional  media for these  activities in order to  stand 
out from the other partners and donors. 

-  Budgetary  procedures 

A» 

The  Council  notes  the  Court's  comment  and  the  Commission's  reply  on  the 
budgetary  procedures  governing  the  financing  of  humanitarian  aid,  the 
mobilisation  of  the  budgetary  reserve  and  carry-overs  from  year  to  year. 
This question requires further consideration. 

Commission's reply 

On this point, the Commission can only repeat its concerns regarding the inadequacy of 
the present mechanism for mobilising the reserve for emergency aid. 

The Commission nevertheless hopes that a solution will be found in the Trialogue as part 
of the process of renewing the Interinstitutional Agreement. 

-  Organisation and procedures for the evaluation of humanitarian activities 

While recognising the specificity  of humanitarian activities, the Council takes note 
of  the  Court's  suggestion  regarding  the  integration  of  the  evaluation  function 
concerning  humanitarian,  rehabilitation  and  development  aid  outside  the 
operational  services  in  order  to  ensure  its  autonomy,  and  the  need  for  proper 
feedback mechanisms based on achieved results. 

Commission's reply 

The Humanitarian Office is structured in such a way that assessments are supervised by a 
non-operational unit. 

Moreover,  assessments  are  carried  out  by  independent  experts  chosen  on the  basis  of 
selection procedures (invitations to tender) in accordance with the rules governing public 
service contracts. 

-  Staffing 

The Council, whilst recognising the Commission's responsibility for allocating staff, 
also  notes  the  Court  of  Auditors'  statement  that  ECHO  is  inadequately  staffed, 
taking into consideration  the nature of its work  and the need for a stronger field 
supervision. 

Commission's reply 

At 31 December  1995, the ECHO establishment  plan consisted  of 71 permanent  posts 
and  12 temporary  posts. In  1997 the total  came to  107, of which  ten were temporary. 
ECHO  staff  has  thus  been  increased  in  the  course  of  time,  in  line  with  the  Court  of 
Auditors' observations. 

However,  the  introduction  of  new  committee  procedures,  the  need  for  on-the-spot 
inspections, 
increased  monitoring  and  the  analysis  of 
requirements would, as the Council observes, require an increase in staff. 

increased  coordination, 

3. 

Special  report  No  3/97  concerning  the  decentralised  system  for  the 
implementation of the PHARE programme (1990-1995) 

The Council 

A 33 

asks the Commission to limit the scope of the action and target it more  effectively, 
with the tasks involved being more clearly defined.  The terms of reference should 
be  aimed  more  at  improving  efficiency. 
to  strengthen  the 
management units in the PHARE countries.  Actions must be properly monitored. 

It  seems  necessary 

Commission's reply 

The  Commission  has  begun  to  rationalise  the  management  structures  of  the  Phare 
programme  in  the  light  of  the  new  programme  guidelines.  The  management  units 
(PMUs)  are  gradually  being  abolished:  by  the  middle  of  1998,  62  units  had  been 
integrated into the administration of the countries concerned. 

They  will  be replaced  by a  small  number  of  Implementing  Agencies  in  each  country 
(Central Financing and Coordinating Units - CFCUs) designed to continue to implement 
actions in the same sector after accession.  These agencies are already operational in  five 
countries (the three Baltic States, Slovakia and  Slovenia) and are expected to be up and 
running in all the other countries by the first quarter of 1999. 

The Commission has therefore acted on the Court of Auditors' criticisms and suggestions 
in Special Report No 3/97 and has improved the monitoring of the Phare programme in 
the field and laid a solid basis for decentralised implementation. 

4. 

Special  report  No  4/97  on  the  audit  of  certain  aspects  of  German 
reunification  measures  involving  EAGGF  compensation  payments  and 
export refunds 

The Council 

although  agreeing  that  there  is  no  inconsistency  between  aid  granted  for 
different objectives,  nonetheless  asks  the  Commission  to  carry  out a thorough 
analysis  of  the  effects  of  aid  cumulation.  It  agrees  with  the  Commission  that 
matching  export  refunds  to  the  quality  of  the  products  exported  would  cause 
practical  difficulties. 
It  calls  upon  the  Commission  to  pursue  the  recovery  of 
amounts paid out in error as a result of the excessive claims identified in the audit. 

Commission's reply 

The  Commission  finds  that  the  question  of  multiplication  of  subventions  is  already 
thoroughly dealt with in the Commission's reply to the Court of Auditors' Special Report 
on the reunification.  The Commission  is  of the  opinion  that  it would  not be  a correct 
allocation of resources available to launch further  analysis of the impact of aids granted 
for a specific purpose for a short period of time in the beginning of the nineties. 

The Council 

calls upon the Commission to pursue the recovery of amounts paid out in error as a 
result of the excessive claims identified in the audit. 

Within the clearance of accounts procedures, the Commission has established a recovery 
order of DM 6.9 million which will be fully recovered by the end of 1998. 

A  * 

5. 

Special  report  No  5/97  on  management  of  the  Community  cereals  trade 
involving  export  refunds,  special  import  arrangements  and  regional  aid 
schemes 

The Council 

of 

multinational 

stresses  the  need  for  constant  improvement  of  control  systems  in  compliance  with 
the  principle  of  the  free  movement  of  goods.  It  particularly  recommends  that  the 
quality  of  the  physical  checks  on  cereals  exports  be  improved.  Member  States 
should  carry  out  a  critical  review  of  their  own  control  systems. 
It  asks  the 
Commission  to  take  on  a more  active  role  in  the  coordination  of  measures  for  the 
in 
scrutiny 
Regulation (EEC) No 4045/89,  notably  in  the  case  of  companies  situated  in  third 
countries, and suggests that it examine the possibility of incorporating an  anti-fraud 
clause  in  future  trade  agreements  with  third  countries.  It  wants  the  procedures 
governing  the  use  of  refund  credit  notes to be implemented  in  a clear,  appropriate 
and  uniform  manner.  It expects the Commission  to  rationalise  the  management  of 
the  export  refund  system  for  cereals,  and  hopes  that  the  Commission  will  keep  it 
regularly  informed  of the  outcome  of  measures  taken  to  recover  amounts  paid  out 
in error. 

companies 

provided 

for 

as 

Commission's  reply 

The  Commission  recognises  the  importance  of  controls  over  multinational  companies. 
The Commission  led  two special  exercises to control  this type of company.  It  is now up 
to the Member  States to continue these types of controls, although  the  Commission  will 
continue to participate if it is deemed necessary. 

As  part  of  the  codification  of  the  horizontal  conditions  relating  to  the  export  refund 
scheme, the Commission  is proposing more detailed and binding conditions to enable the 
customs authorities to inspect products declared for export with payment of the refund.  In 
particular,  special  conditions  are  planned  covering  the  place,  time  and  content  of  the 
export declaration. 

Another  important  question  examined  as part  of  this  same  exercise  is  the  event  giving 
entitlement  to  a  refund.  The  set  of  conditions  governing  this  matter,  contained  in  the 
proposal currently  under examination by the group of experts of the Committee on Trade 
Mechanisms,  will  make  it  easier  to decide how  much  importance  to place  on the  credit 
notes found  in the exporters' accounts. 

Recoveries  in  progress  form  an  integral  part  of  the  communications  referred  to  in 
Articles 3 and 5 of Council Regulation (EEC) No 595/91. 

6. 

Special report No 6/97 concerning TAOS  subsidies allocated to the Ukraine. 

The Council 

asks  the  Commission  to  take  steps  to  ensure  that  the  programmes  can  be  more 
efficiently  implemented  by  clearly  defining  the  roles  of  those  involved  in  the  work 
and  improving  coordination.  Monitoring  and  assessment  of the  projects  should  be 
carried out in the light of the objectives to be attained and the results achieved.  The 

35 

Council  also  agrees  with  the  Court's  comments  concerning  redeployment  of 
Commission staff to its delegation. 

Commission's reply 

The Commission has made progress on the management of the Tacis programme: 

•  A  record  number  of  contracts  were  launched  in  1997,  enabling  the  backlog  to  be 
reduced  (from  ECU 700 million  at the  end of  1996 to ECU 550 million  at the  end  of 
1997) for the first time since the programme began. 

•  The process  of  increasing  staffing  levels  at  Commission  Delegations  has  begun  with 
the  employment  of  outside  experts  to  increase  the  Delegations'  capacity  for 
management  and  monitoring.  This  measure  will  reduce  the  number  of  operators 
involved  in  the  management  of  the programme  identified  by  the  Court  of  Auditors. 
As  regards  posts  covered  by  the  Staff  Regulations,  a  category  A  post  has  been 
transferred  to the Delegation in Kiev. 

Although the Tacis assessment report, transmitted to Parliament in  1997, indicates where 
improvements might be made to the management programme, it paints a largely  positive 
picture of the effects  of Community  intervention  in a region where the political  situation 
is particularly  difficult. 

On the  question  of political  priorities, the Commission  is already  tending  to  concentrate 
on larger-scale projects: 

• 

• 

the decision to part-finance  the Chernobyl  programme  coordinated  by the  EBRD  will 
concentrate up to ECU  100 million on a project of major  importance 

the  average  size  of projects  is  increasing;  for  example, the  nuclear  safety  programme 
in Ukraine was completed with 40% fewer contracts in 1997 than in 1996. 

However,  the  present  Tacis  Regulation  imposes  limits,  notably  on  the  financing  of 
investments,  and  the  Commission  is  planning  to  table  new  legislative  arrangements  for 
Tacis by the end of  1998.  This proposal  will take account of the approach put forward  in 
Agenda 2000: 

•  measures financed  by Tacis must be more closely  linked to the political  priorities  laid 

down in the cooperation  and partnership agreements and less  "demand-driven". 

•  Tacis  financing  must  play  a catalytic  role to mobilise  significant  investment  in  small 

businesses and  infrastructure. 

A  36 

EUROPEAN COMMISSION 

MEMBER STATES'REPLIES 

TO THE OBSERVATIONS CONTAINED IN THE COURT OF AUDITORS' 
ANNUAL REPORT FOR 1996 

19 MAY 1998 

CONTENTS 

Introduction 

Germany 

Belgium 

Denmark 

Spain 

Finland 

France 

Greece 

Ireland 

Italy 

Netherlands 

Portugal 

United Kingdom 

Sweden 

Page 

1 b 

6 

14 

24 

26 

50 

53 

7»1 

94 

106 

116 

129 

138 

158 

-k 

INTRODUCTION 

In December  1996 the Dublin European Council  called  on the Member  States to  present 
their replies to the observations made by the Court of Auditors in its annual report.  This 
document  collates  the  replies  of  the  following  countries  to  the  annual  report  for  1996 
(OJC 348,18 November  1997): 

- Germany 

- Belgium 

- Denmark 

- Spain 

- Finland 

- France 

- Greece 

- Ireland 

- Italy 

- Netherlands 

- Portugal 

- United Kingdom 

- Sweden 

Austria and Luxembourg are not directly concerned. 

JIM 

ANALYSIS OF THE REPLIES BY MEMBER STATES 
TO THE OBSERVATIONS MADE IN THE 1996 
ANNUAL REPORT OF THE COURT OF AUDITORS 

1.  Two thirds of the Court of Auditors  1996 annual report deals with policies carried 
out by the  Commission  in partnership "with the Member  States, covering  both the 
collection of own resources and expenditure incurred under the EAGGF-Guarantee 
section and the Structural Funds. In these areas the Court's principal  complaint to 
the  Member  States  is  as  follows:  they fail  to  comply strictly with  Community 
legislation  and  consequently  commit  serious  errors  when  establishing 
management and control systems. 

2.  As  was  the  case  for  1995,  the  Commission  forwarded  the  observations  to  the 
thirteen Member States affected1  to give them an opportunity to reply and, by doing 
so, to contribute to the Commission's follow-up  report which will be submitted to 
the budgetary authority during the discharge procedure. 

3.  All  the  Member  States  replied  to  the  request  that  they  make  a  contribution  by 

15 March 1998. Analysis of the contributions reveals 

•  with regard to form,  the replies are generally  exhaustive (dealing  with most  of the 
points selected), self-reading (in certain cases the Court's criticisms are summarised 
before the response is given: F, P, S, UK, I, NL) and in most cases are presented in an 
overall uniform document, 

•  with regard to substance, most replies are clear and frank,  either in acknowledging 
the  criticism,  sometimes  challenging  it  or  explaining  how  certain  situations  have 
arisen. Descriptions of remedial action already taken, in progress or still to be adopted 
are generally detailed and the replies are constructive in that they highlight some of 
the negative effects of Community legislation. 

Compared  with  last  year  they  show  a greater readiness to  accept  a  share of 
responsibility, as can be seen in the way 

- 

they are more prepared to accept the Court's criticisms, even if some of them are 
strongly disputed, 

No specific criticisms were levelled at Austria and Luxembourg for the financial year 1996. 

- 

they state exactly what remedial action has been taken, 

- 

- 

they attempt to examine the cases  in greater detail, asking the Court to be more 
explicit in certain cases, 

they  seek  to  improve  Community  mechanisms  by  indicating  the  difficulties 
encountered  in  implementing  some  of  the  provisions  owing  to  loopholes  or 
contradictions in the regulations in relation to national legislation. 

However, some replies (particularly F, IR, NL, B) call on the Court to report the 
facts  more  accurately,  taking  more  account  of  the  replies  and/or  explanations 
given when the audits were carried out and thereby avoiding the impression that 
the difficulties raised have not been resolved. 

4. 

Some examples will illustrate this generally  constructive  approach: 

•  Criticism has been explicitly accepted because there is full acknowledgement of: 

-r  infringements  of  Community  Regulations,  e.g.  producing  a  more  favourable 
calculation of livestock units than permitted under the EAGGF-Guarantee section 
(P) or reducing the base area overshoot  for maize  because of a failure to obtain 
up-to-date  information  (F),  or  delays  in  meeting  the  requirements  of  the 
regulation, e.g. in connection with remeasuring vessels over 24 metres long (F), 

-  shortcomings  in monitoring  and  control  activities,  which were identified  in the 
field  of  own  resources  during  operations  in  the  Tilbury  Freeport  (UK)  or  in 
connection with the ERDF, in Trieste free zone (I) and the European Social Fund 
during the examination of declared expenditure (IR, UK, E), 

- 

the  complexity  of  some  local  systems,  such  as  the  systems  employed  for 
recording requests for investment  aid under the  EAGGF-Guidance  section (IR), 
or  the  unduly  large  number  of  databases  in  the  EAGGF-Guarantee  Section, 
making  for incompatibility  and errors in exchanges,  even though the number is 
the result of the federal structure of the country (D). 

•  Remedial action is clearly explained, for example: 

-  with regard to own  resources,  that the  audit  method based on risk analysis has 
been  introduced  for  customs  checks  (IR),  that  instructions  have  been  given  to 
customs departments either to make operators working in free zones aware of the 
need  to  comply  with  Community  rules  (E)  or  to  improve  ex post  checks  of 
inward processing operations (F), and, in the same sector, that national provisions 
have been adapted to the requirements of Community law (D, NL), 

-  with regard  to  the EAGGF-Guarantee  section,  that  Directive  92/102/EEC has 
been  implemented  enabling  beef  farmers  to-be  provided  with  the  registers 
necessary  for  the  identification  and  registration  of  livestock  (IR),  that  a 
sophisticated  system  of  risk  assessment  for  controlling  large  holdings  is  being 
developed (UK), that an alphanumeric system for identifying  agricultural parcels 
has been created in response to the need for a new integrated control system (P), 
that  computerised  databases  have  already  been  set  up  in five  regions  to ensure 

proper management of aid (D) or that a committee has been set up specifically  to 
consider suspected cases of fraud involving tobacco exports (G), 

-  with regard to  the Structural  Funds,  that, within the framework of  the  ERDF, 
the non-justified  part of expenditure in the final  declaration of expenditure may 
be  reimbursed  (UK),  that  a  study  of  methods  of  auditing  ESF  expenditure  is 
underway  (IR),  that  ex  post  checks  have  been  introduced  to  ensure  that 
beneficiaries  receiving  subsidised  loans  comply  with  Community  and  national 
legislation  concerning  investment  projects  (F), that fishing  aid has  been  frozen 
because  the  intermediate  objectives  of  the  third  multiannual  operational 
programme for fishing fleets were not pursued (F), 

•  Contributions to the possible improvement of Community regulations have been made 

by replies which, for example, emphasise: 

- 

the  ill-adapted  nature  of  certain  provisions,  such  as  those  in  the  Community 
Customs  Code  concerning  ex post  recovery  and  the  obligation  to  provide  a 
guarantee or the obligation to use a logbook to establish fishing capacity (F), 

-  the  vagueness  of  Community  regulations  regarding  the  calculation  of,  for 

example, the overshoot for the maize base areas (F), 

- 

the unduly rigid and complex nature of aid mechanisms for tobacco (I), 

- 

the need to harmonise rules for veterinary procedures  (IR) or fishing  capacity at 
Community level (F, IR, UK). 

5.  Lastly, the replies are useful for everyone concerned: 

•  for  the  Commission,  which  has  obtained  relevant  information  for  simplifying  or 

improving Community regulations, wherever necessary, 

•  for  the  Court  of Auditors,  which can learn from the comments made and improve  its 
methods, notably by taking more account of the explanations supplied by the Member 
States, 

•  for  the  Member  States  themselves.  Reporting  remedial  action  clearly  acts  as  an 

additional incentive to improve financial management. 

6. 

In view of these results the Council could approve conclusions in which it would: 

•  clarify  its position in relation to the proposal made by Parliament's Budgetary Control 
Committee  requesting that "Member States' replies are available early enough  in the 
future,to be given proper consideration during the discharge procedure." 

•  ask Member States to continue their efforts to make genuine contributions. They could 
be encouraged to reply to the specific  criticism contained in the Court's annual report 
rather than, as  is  often  the  case,  sending the Commission  complete  replies  to  earlier 
sectoral letters, 

emphasise,  as  was  stated  in  its  comments  accompanying  thp  decisions  giving 
discharge  in  1995  (Ecofin  of  10 February  1998),  "the  importance  it  attaches  to 
dialogue  between the  Court  of Auditors  and  the  Member  States, particularly  in  the 
exchanging of sectoral letters and Member States' replies." It could also stress that it 
"wishes to see such dialogue continue in a spirit of equity." 

encourage  the  Commission,  when  preparing  the  planned  reforms,  to  look  into  the 
aspects of Community legislation which cause difficulties  for the Member States. 

GERMANY 

Court of Auditors report for the year 1996 

Follow-up action taken in Germany 

1- 

Own resources 

Late establishment of own resources 

Paragraph  1.10 

Germany  shares the  Court's concern regarding the  late establishment  of customs duties 
assessed  from  post-clearance  examination.  Possible  remedial  measures  and  ways  of 
avoiding  delays in the making available of own resources are now being discussed with 
the Commission. 

/ #  •  •  • 

Paragraph  1.12 

The  Court's objections concerning the late entry in the accounts of  import duties in the 
context of the simplified  procedures relate to one-off  cases, not to errors attributable to 
the  system.  Fundamental  measures  are  therefore  unwarranted.  The  cases  raised  and 
appropriate remedial action will be discussed with the Commission. 

Paragraph  1.14 

Germany  has  notified  the  Commission  that  the  procedure  for  writing  off  amounts 
provided for in Article 17(2) of Regulation (EEC, Euratom) No  1552/89 will be complied 
with.  Germany will provide notification  of all amounts written off since  1 January  1989 
which exceed the threshold of ECU 10 000 stipulated in the Regulation.  The question of 
the justification of individual writing-off procedures will be resolved in consultation with 
the Commission. 

Paragraph 1.17 

Germany would refer to the clear division of responsibilities between Member States and 
Commission and fully shares the Commission's position. 

Paragraph  1.28 

Germany  takes  note  of  the  Court's  misgivings.  However,  in  our  view,  not  all  goods 
transferred to the free zone have to be recorded immediately  in the stock records. Goods 
which,  for reasons of transhipment,  are stored for only  a short period are not subject to 
any  recording  requirement  (Art  176(2)  Customs  Code).  The  departmental  instructions 
concerning free zones stipulate that storage periods in excess of 45  days may no longer 
be  regarded  as  "short" and  therefore,  in  the  case  of  longer  periods  in  storage,  stock 
records  must  be  kept.  The  Hamburg  main  customs  inspection  office  ensures  that  the 
requirement  to  keep  stock  records  is  complied  with  by  applying  appropriate  customs 
supervision measures and carrying out external inspections of firms' premises in the free 
port. 

Paragraph  1.30 

Germany  takes  note  of  the  Court's  observations.  In  Bremen  in  1993,  the  Bremer 
Lagerhausgesellschaft  (BLG) was granted three licences  for stock records, which were 
extended  in  1995.  In  Bremerhaven  in  1993,  the  BLG  received  one  licence.  In  March 
1997, the Bremen main customs inspection office  was instructed to begin systematically 
inspecting the premises of all licence-holders, i.e. including the BLG. 

Paragraph 1.39 

In  our  view,  the  second  subparagraph  of  Article  205(3)  of  the  Customs  Code  is  not 
applicable where goods are shown to have been stolen in free zones. Such proof provides 
a satisfactory  explanation of the disappearance of the goods and the customs  authorities 
may not assume that the goods in the free zone have been illicitly consumed or used by 
the last known owner. 

Paragraph  1.42 

Germany takes note of the Court's  remarks and refers to the Commission's comments. 

t 

i 

Paragraph  1.53 

The  national  instructions  for  reviewing  the  economic  conditions  for  participation  in 
inward processing have been brought into line with the requirements of Community law. 

Paragraphs 1.56.1.57 and 1.58 

The  administrative  practice  objected  to  by  the  Court  has  been  brought  into  line  with 
Community rules. We also refer to the position adopted by the Commission. 

Paragraph 1.61 

Germany takes note of the Court's observations and refers to the position adopted by the 
Commission. 

Paragraph  1.63 

The cases raised are being examined in consultation with the Commission. 

Paragraph  1.104 

In the matter of systematic checks and computerisation of customs clearance operations, 
various areas of improvement are being examined in consultation with the Commission. 

Chapter 3 - Market organisations - Plant products 

~ 

Paragraph 3.19 

Germany understands the Court's misgivings because of the potential for error in the case 
of manual  exchange of data between different  databases. The existence  of these  various 
databases is, however, attributable to Germany's federal structure. The sources of error in 

* 

the  exchange  of  data  are  being  reduced  further  and  further  by  means  of  appropriate 
administrative procedures and better technical equipment. 

Paragraph 3.22 

The average wheat yields of the new German Lander were adjusted in cooperation with 
the Commission in order to take account of the actual circumstances which could not be 
ascertained at the time when the Regulation was introduced. One of these is the fact that 
the  database  for  the  new  Lander was  the  statistics  of  the  Socialist  planned  economy, 
which did not lend themselves to comparison with the average values of the old Federal 
Lander. 

Paragraph 3.23 

In the new Federal Lander, the régionalisation plan was based exclusively on the  figures 
for winter oilseeds  since no other data were available.  The procedure was adopted with 
the approval  of the Commission.  To avoid discriminating  between the old and the new 
Lander, account was taken solely  of winter oilseeds  in the old German Lander too. The 
régionalisation plan drawn up on this, basis met with no objections from the Commission. 

Paragraph 3.29 

Germany agrees with the Commission about the reliability of statistics. 

Paragraph 3.36 

In cooperation with the Lander, Germany will strive to ensure that applications for aid are 
as transparent as possible. 

Paragraph 3.39 

The  number  of  regional  databases  in  Germany  is  attributable  to  the  country's  Federal 
structure.  Talks  took place  with the  Commission  with  a view  to  making  the  databases 
compatible.  Furthermore,  five  German  Lander  use  the  same  PROFIL  program  for 
managing aid. 

Paragraphs 3.51. 3.53. 3.58. 3.59 

The questions raised as to the effectiveness  of administrative  checks are currently being 
examined in consultation with the Commission in connection with the accounts-clearance 
procedure. 

Paragraphs 3.73. 3.77. 3.89. 3.91 

We refer to the position adopted by the Commission. 

Chapter  4  -  Common  organisation  of  the  market  -  Animal  products  -  Beef  and  veal 
premium schemes and selected BSE-related measures 

Paragraph 4.45 

The  introduction  of  the  Integrated  Administration  and  Control  System  entails  serious 
technical  and  administrative  problems.  Considerable  investments  will  be required  along 
with  far-reaching  administrative  reorganisation.  For  this  reason,  at  the  proposal  of  the 
Commission, the Council has extended the deadlines for the system's  introduction. 

Paragraph 4.48 

We  refer  to  the  Commission's  observations  on  the  introduction  of  a  system  for  the 
identification  and registration of cattle; 

Paragraph 4.55 

We agree  with the  Commission that the  sample-based  checks  on the  ear-tags  of  suckler 
cows objected to by the Court are adequate. 

Chapter 5 - Certain procedural aspects of export refunds  on beef and veal 

Paragraph  5.35 

UCLAF  has  been  looking  into  the  case  referred  to  under  E  with  the  authorities  of  the 
Member States for some months. We refer to the position adopted by the Commission. 

Chapter  8  -  European  Agricultural  Guidance  and  Guarantee  Fund.  Guidance  Section 
ŒAGGF - Guidance) 

Paragraph 8.13 

To  the  best  of  our  knowledge  and  belief,  the  approval  authority  also  examined  each 
individual  project  from  the point  of  view  of  its  viability  on  the  basis  of  the  documents 
which  have  to  be  submitted  with  the  aid  application.  The  documents  to  be  submitted 
included  balance  sheets,  business  reports,  technical  documents  and  development  plans. 
Approval  was  given  only  to  projects  which  promised  to  be  economically  viable  once 
investment was completed. 

This  does not alter the fact  that the extraordinary  situation  which obtained  after  German 
unification  made  inspection  difficult.  The  situation  at  that  time  was  marked  by  the 
transition  from  the planned to the social market  economy.  On the whole,  firms  involved 
in  the  processing  and  marketing  of  agricultural  products  were  in  a very  ppor  state.  The 
unemployment  rate - precisely  in agriculture  - soared.  Furthermore, the establishment  of 
a new administrative system was not yet complete. 

For  the  overwhelming  proportion  of  firms  which  were  newly  established,  it  was 
impossible  to  refer  back  to  management  results  and  growth  trends  of  previous  years. 
Moreover, market turbulence and the sudden change  in consumer behaviour added to the 
difficulty  of assessing firms'  economic prospects. 

ÀO 

Later deviations from viability predictions are to be attributed mainly to failure to reach 
turnover  targets  and  the  resultant  cash-flow  problems.  Enormous  difficulties  in  listing 
product  offers  by  the  commercial  sector  connected  with  costs  and  revenue  shortfalls, 
could not be foreseen at the time of the approval. 

Paragraph 8.20 

Germany takes note of the Court's observations. Eligibility  is examined everywhere and. 
without exception on the basis of the accounting documents submitted. The results of the 
inspection are set out in a memorandum. Non-eligible costs are generally eliminated. We 
thus do not share the Court's views in this matter. 

Paragraph 8.23 

The payment  of  a grant equivalent to the  investment  costs  already  actually  incurred  as 
well  as  the  costs  anticipated  within  the  next  two  months  is  a  national  statutory 
requirement. 

In one case, the EAGGF grant was paid to a beneficiary  in advance. This is  inconsistent 
with  Community  law  and  represents  a  regrettable  exception.  However,  no  financial 
damage was involved because the beneficiary  used the EAGGF grant paid in advance in 
accordance with the Commission decision. 

Paragraph 8.42 

Germany  takes  note  of  the  Court's  observations  concerning  the  level  of  the  checks 
carried  out  by  the  Member  States  under  the  Integrated  Administration  and  Control 
System and endorses the position adopted by the Commission. 

Paragraph 8.49 

This merely concerns a general statement of the situation without any evaluation. 

Paragraph 8.50 

Germany  takes  note  of  the  Court's  observations.  According  to  the  national  budget 
regulations,  however,  approval  can  only  be  given  for  projects  not  yet  begun. 
Consequently,  local  authority  measures  have  to  be  approved  on  the  basis  of  cost 
estimates.  The  grant can be reduced  on grounds  of  lower costs  only  after  award  of  the 
contract. 

Under  the  national  regulations,  engineering  works,  forming,  as  they  do,  part  of  the 
drafting  of  the  village  development  plan,  are  not  covered  by  the  public  contracts  act. 
However,  since  the  corresponding  contracts  are  performed  on  the  basis  of  the 
Honorarordnung  fur  Architekten  und  Jngenieure (Remuneration  of  Architects  and 
Engineers Act), the costs are generally the same. However, in the award of contracts, the 
criterion of "close proximity" has to be taken into  account as the planner basically  also 
assumes a service function in the implementation of projects in the field. 

JA 

Paragraph 8.51 

From  1 January  1998, the funding  of "farm/countryside  holiday" projects  will  be  slanted 
towards  improving  the  quality  of  the  overall  offer,  i.e.  the  accommodation,  meals, 
services and entertainment aspects. 

Paragraph 8.52 

We  do  not  share  the  view  of  the  Court  that  the  viability  of  the  "farm  extensification" 
measure  is  uncertain  because  of  insufficiently  frequent  checks.  In  the  new  Land 
inspected,  an  inspection  was  performed  on  5%  of  all  grants  on  similar  lines  to  the 
Community  rules  on  "farm  extensification".  The  results  of  the  inspections  did  not 
warrant  any  greater  frequency  of  checks.  It  should  be  borne  in mind,  moreover,  that  in 
the  early  part  of  the  first  round  of  grants  (1991-93),  it  would  have  been  virtually 
impossible  to  increase  the  frequency  of  checks  owing  to  the  general  teething  problems 
and the attendant staff  difficulties. 

Chapter 9 - Common policy on fisheries  and the sea 

Paragraph 9.14 

The  statement  of  eligible  expenditure  under  the  Community  PESCA  initiative,  the 
absence  of  which  is  highlighted  by  the  Court,  was  submitted  to  the  Commission  (DG 
XIV) by the coastal countries concerned between April  1995 and July  1996. 

2. 

Statement of assurance 

Chapter 20 - Analysis EAGGF-Guarantee and fisheries  expenditure 

Paragraph 20.4 

Germany  takes  note  of  the  Court's  objections  and  shares  the  position  adopted  by  the 
Commission  on  the  accreditation  of  paying  agencies  and  the  certification  of  the  annual 
accounts. 

Chapter 22 - Statement of assurance and supporting  information  concerning the  activities 
of the sixth and seventh European Development  Funds 

Paragraph 21.10 

Germany  takes  note  of the  Court's  observations.  With  regard  to  c), we would  point  out 
that  Germany  shows  no  arrears  as  regards  its  EDF  contributions.  With  regard  to  the 
amount  of  ECU  112  000,  by  letter  of  23  February  1996,  Germany  set  out  its  legal 

At 

position to the Commission,  i.e.  that it did not owe this sum. The Commission  has not 
contradicted this view. 

M 

BELGIUM 

Belgian reply to the comments of the European Court of Auditors 

A procedural  point  should  be made by way  of  introduction.  Under  Article  188 of  the 
Treaty,  the  European  Court  of  Auditors  questions  the  European  Commission,  not  the 
Member  States.  The  Court  of  Auditors  does  not,  therefore,  conduct  an  adversarial 
discussion  about  its  Annual  Report  with  each  individual  Member  State.  Accordingly, 
when the  Commission  is called  to account by the  Council, i.e. by the Member  States, 
under the discharge procedure, the idea is  surely  not  for  each Member  State to  give a 
point  by  point  commentary  on  every  passage  of  the  Annual  Report  in  which  it  is 
mentioned.  In  other  words,  the  Commission  should  not  be  allowed  to  evade  its  own 
responsibility here. 

Nor can the idea be to wait until the discharge stage to confirm or deny the relevance of 
the  facts  referred  to.  The  European  Court  of  Auditors  is  expected  to  verify  its 
observations in the course of its audits in the Member States and immediately afterwards, 
working  with  the  national  audit  offices  and  allowing  them  the  right  of  reply,  before 
finalising  its annual report. In practice this is done by means of sector letters in which the 
information  or 
competent  member  of  the  Court  of  Auditors  requests  further 
communicates the provisional conclusions reached by the auditors. A constant problem is 
that sector letters are either not sent at all or are sent months after the audits were carried 
out, by which time the draft  annual report has already been drawn up, and the Court of 
Auditors,  in  contrast  to  normal  practice  at  national  level,  fails  to  explain  why  it 
sometimes retains certain remarks despite refutations  by the competent  departments of 
the Member  States. Only effective  communication  and systematic compliance with the 
agreed procedures can remedy the current failings. Introducing new procedures would be 
superfluous, however, and might prove counterproductive. 

This  does  not  prevent  steps  being  taken  to  help  the  Commission  to  indicate  what 
significant  improvements  have  been  made  to  systems  whose  performance  has rightly 
been called into question by the European Court of Auditors. 

Unfortunately,  this task has not been made any easier for the  1996 discharge procedure 
by the uneven, not to say fragmentary  character of the annual report in question. In the 
case of Belgium, and in so far  as the chapters of the annual report specifically  criticise 
Member States by name, references are relatively few and far between. This might lead to 
the conclusion that the situation  in Belgium is  satisfactory  and that no changes  of any 
note need to be mentioned. 

Given  that  the  main  criticisms  of  Belgium  this  year  result  from  imperfect  European 
legislation  and, in  some cases, the unfamiliarity  of  certain  European  auditors  with  the 
national systems, we support the Commission's initiatives to improve the relevant rules, 
and further  efforts  will be made to provide all the intermediate organisations with better 
information about the existing systems. 

JS 

Permanent Representation of Belgium 
to the European Union 

Dear Sir, 

Subject:  Follow-up report to observations contained  in Court of Auditors report  on the 
1996 financial year 

Your letter 00573 

I am pleased to enclose: 

the reply  from  the Belgian  Customs  and  Excise  Authority to the summary  of the 
European Court of Auditors annual report concerning the 1996 financial year; 

the observations of the Flemish Community concerning point 7.27 of Chapter 7. 

Permanent representative 

F. van Daele 

16 

From Ministry of Finance to 
Permanent Representative of Belgium 
to the European Union 

Dear Sir, 

RE: Commission annual report concerning  1996 financial  year. 

We enclose replies to the observations contained in the annual report concerning the  1996 
financial  year,  in particular  points:  1.10,  1.16,  1.17,  1.56,  1.58,  1.60,  1.110,  5.12,  5.17, 
5.18,5.35. 

Point 1.10  b) 

The Belgian  Customs and Excise Authority rejects  the observation that the delays in the 
making  available  of  own  resources  recorded  in Antwerp  are  true  of  all  Belgian  offices. 
§681  (5)  of  the  Instructie  Comptabiliteit  (Accounting  Rules)  Part  I  (D.I.  410)  urges 
officials  to  speed  up  collection'  in  cases  of  ex  post  recovery,  (secured)  provisional 
establishments  which  have  been  confirmed  and  amounts  due  under  the  general 
preferences  system.  Officials  are also reminded  that  if amounts  made  available prove  to 
be  less  than  what  should  be  transferred,  the  Member  State  will  be  charged  default 
interest. 

The  Belgian  Customs  and  Excise  Authority  moreover  takes  the  view  that  the  working 
method  applied by the management and the Antwerp office  is compatible with the terms 
of  Articles  222  et  seq.  of  the  Community  Customs  Code.  There  may  be  some 
inconsistency  between  these  provisions  and  Article  2  of  Regulation  (EEC)  No 
1152/1989. 

As  far  as  bookkeeping  is  concerned,  it was  established  that  the  files  relating  to  ex  post 
inspection of certificates  were not entered in the B accounts as required by Article 218 of 
the  Community  Customs  Code.  However,  Article  219  does  allow  recording  to  be 
deferred  for up to  14 days. 

However,  since  1 January  1997,  recoveries  in  connection  with  ex post  inspections  in 
Antwerp  have  been  entered  in the  B accounts  immediately  after  service  of  notice  to  the 
debtor. 

Point  1.10 c) 

In  figures  27  to  29  of  its  report  (Réf.  Nos  RT0304N2  of  14  November  1996  and 
RT00014fl  of  10  January  1997),  the  Court  of  Auditors  recorded  findings  made  at  the 
Brussels-Entrepot  and Ghent customs offices  concerning the submis"sion of a commitment 
to  import  goods  where  the  principal  requested  the  preferential  tariff  but  was  unable  to 
produce proof of the origin of the goods concerned at the time of importation. 

It  emerges  from  these  findings  that  in  a  number  of  cases  (summarised  in  the  tables 
attached  as  annexes  5  to  7  to  the  aforementioned  report)  the  provisions  referred  to  in 

17 

figures  147 to  149 of  the  Instructie  Gemeenschappen  en  Preferenties  (Communities  and 
Preferences  Rules) had not been complied with. 

To  remedy  the  shortcomings  observed  by  the  Court  of  Auditors  as regards  the  terms  of 
Articles 256(1)  and 258  of the Regulation  implementing  the Community  Customs  Code, 
the  necessary  instructions  were  issued  to  all  departments  by  means  of  Circular 
No D.D.  111.357 of 23 June  1997 on Communities  and preferences  - Ex post  submission 
of certificates  (D.I. 520.5) - See Annex. 

Point  1.16 

The  Belgian  Customs  and  Excise  Authority  is  currently  revising  the  fixed  rates  to  be 
applied as well as the distribution key between the various taxes. 

Point  1.17 

This point does not concern the Belgian authorities 

Point  1.56 

• 

*  > 

This point does not concern the Belgian authorities 

Point  1.58 

The Ghent customs departments concerned will be asked to release the file concerning  the 
delay  in the  clearance  of  an inward  processing  declaration  presented  by NV  Poly weave. 
The data concerning the processing of the file will be forwarded to the Court of Auditors. 

The  relevant  customs  departments  in  Ghent  examined  all  files  concerning  delays  in  the 
clearance  of  inward  processing  declarations  presented  by NV  Polyweave,  from  which  it 
emerged that, in accordance with the procedure applied  in this matter, all the  declarations 
had  been  extended  by the time required  either  by the  chief  inspector  in charge  or,  under 
his  instructions,  by  the  regional  director  of  customs  and  excise.  Since  the  Court  of 
Auditors  did  not  specify  which  inward  processing  declarations  were  concerned,  it  is 
impossible to provide any further  particulars. 

Point  1.60 

In most cases, the inward processing authorisation stipulates that the rate of yield must  be 
based  on  the  authorisation  recipient's  industrial  accounting  records.  As  far  as  possible, 
the  minimum  yield  recorded  on  the  processing  of  the  imported  products  is  applied  in 
order  to  prevent  a  proportionately  excessive  amount  of  imported  goods  from  being 
cleared when the processed  goods are exported. Under the  1988 Inward Processing  Rules 
(figures  395  and  45  of  the  Comptabïïiteitsnota  schorsingssysteem  -  Accountancy  Notes 
on the  suspension  system) the  inspection  departments  are required to  check the  accuracy 
of the yield actually obtained when verifying  the clearance account. 

Where inward processing provides for  discharge on the basis of the number  of  items, the 
rate  of  yield  will  depend  on  the  number  of  items  actually  to  be  found  in  the  processed 
products  at the time  of export. The number  of  items imported  must  appear  on the  export 

18 

declaration or, where it exists, the prescribed basic list detailing the composition  of the 
processing product previously verified by the customs. 

If the authorisation  stipulates  a precise  rate of yield, this is because  a  standard  rate  of 
yield  is applicable or because the production figures submitted  by the applicant  on the 
basis of company figures are assumed to be an average rate of yield. 

Apart from the flat rates, the rates of yield stated in the applications can, where there is 
any doubt, always be compared with the yield rates mentioned in the inward processing 
authorisations for similar processing operations. The applicant can always be requested to 
provide further  explanations. In some cases, the "Value and External Audit" department 
requests  a  check  on  the  rate  of  yield  when  the  authorisation  is  issued.  In  the  case  of 
chemical  products,  the  department  laboratory  is  almost  automatically  asked  for  its 
opinion on the rate of yield and, in some cases, the identity of the products. 

It is to be deduced from the foregoing that the rate of yield stated by the applicant is not 
simply repeated in the inward processing authorisation. 

It should be added that ex post Vérification of the rates of yield is provided for  in §§ 42 
and 56 of the Inward Processing Rules (D.I. 551.001). 

All in all, the provisions of §§ 42 to 56 and 395, figure 46 of the Accountancy Notes on 
the  suspension  system  attached  to  the  aforesaid  rules  combine  to  ensure  effective 
monitoring  of  the  rates  of  yield  in  the  area  of  inward  processing.  These  provisions 
warrant no particular  comment  and are directly applicable by the external departments 
with the result that the Belgian authorities see no need for special measures regarding the 
ex post verification of rates of yield for inward processing. 

Point 1.110 

A  "procès-verbal"  is  an  official  report,  drawn  up  by  competent  officials  who  produce 
chronological,  accurate  and  objective  accounts  of their findings and  investigations  and 
declarations  made  and  information  gathered  in  the  area  of  evidence  and  detection  of 
offences  and their perpetrators. 

The  official  report  concerns  not  only  the  facts  discovered  but  also  the  connection 
established by the inspector between the facts, which are a component of the offence, and 
the  law.  The  official  producing  an  official  report  is  in  a  sense  obliged  to  define  the 
offence. 

The official  report also names the suspects. 

An official  report has to be made out immediately or as soon as possible after  the  facts 
have been discovered.  Consequently,  any additional  circumstances relating to the  same 
offence  which emerge as and when investigations progress will necessarily  give rise to 
various official  reports. In exceptional cases, following Community inspections or ex post 
checks, a long period may. elapse between the date of the first report (initial observation) 
and  the  payment  demand,  which  can  only  be  sent  after  the  investigations  have  been 
completed and all evidence has been gathered. 

19 

An official  report states the facts and the results of investigations, names the suspects and 
states the criminal and civil consequences of the acts committed. The provincial director 
of customs and excise is the authority with the power to officially  establish the existence 
of the customs debt, decide who is liable and calculate the amounts of duties. It is he who 
takes the first administrative decision, keeps accounts and notifies the person liable of the 
amount of the debt and requests him to pay. 

The provincial directors have been reminded on several occasions that priority should be 
given to files involving own resources and that the first administrative decision has to be 
taken  upon  receipt  of  the  official  report  closing  the  investigations,  if  appropriate  with 
establishment  of the customs debt. The central  authorities  are confident  that these rules 
are being obeyed. In some particularly complicated or legally delicate cases, delays may 
occur, mainly due to a shortage of (sufficiently  qualified) staff. 

Point 1.110 contains too few practical data to be able to pinpoint the file concerned, thus 
making it impossible to supply more detailed information on the case in question. 

Point 5.12 

This point relates to measures concerning a check on the aid granted to the Canary Islands 
and is therefore no concern of the Belgian authorities. 

Points 5.17 and 5.18 

The  issue of  certificates  for  meat from  adult  male  cattle  in Belgium  is  a matter  falling 
exclusively within the terms of reference  of the Veterinary Institute (Ministry for Social 
Affairs, Public Health and the Environment). 

Point 5.35 

The  problem  of  agricultural  products  refused  entry  to  a  non-member  country  and 
temporarily returning to the Community before being re-exported to another third country 
is currently being discussed by the "Trade Mechanisms" management committee. 

Director-General, 
(s) C. VAN WALLEGHEM 

20 

MINISTRY OF FINANCE 

Customs and Excise Department 

CUSTOMS PROCEDURES 

COMMUNITIES AND PREFERENCES 

D.I. 520.5 

EX POST PRESENTATION OF CERTIFICATES 

D.D. 111.347 

Brussels, 23 June 1997 

Distributed by the provincial directors to 

-  all departments required to keep files up to date 

-  all staff in Grades 1  et 2+ 

CONFIDENTIAL 

An own resources inspection was carried out by officials  of the Court of Auditors 
from  15 to 19 April 1996. 

The main focus of the inspection was the procedure for submitting a commitment to 
import  goods  where  the  principal  requests  the  preferential  tariff  but  is  unable  to 
produce  proof  of  the  (preferential)  origin  of  the  goods  concerned  at  the  time  of 
importation. 

This inspection took place in the Brussels - Entrepot and Ghent customs offices. 

O.S.D Voucher No 232/97 

In the inspection report, the Court of Auditors claims that the deadline laid down in 
Article  256(1)  of  the  Regulation  implementing  the  Community  Customs  Code 
(RCCC)  for  the  submission  of  documents  lacking  at  the  time  when  the  import 
-declaration was accepted was not respected in a number of cases. 

The Court of Auditors also stated that the security lodged in the aforesaid  cases in 
accordance with Article 207(4)(a) of the RCCC was not recorded (Article 258 of the 
RCCC) on expiry of the aforesaid deadlines. 

21 

The tasks of the import office,  the deadlines for their completion and the obligations 
regarding the recording of the security are summed up below. 

Deadlines 

Where the principal requests the preferential  tariff  but was unable to produce  proof 
of  the  origin  of  the  goods  concerned  at  the  time  of  importation,  the  import 
declaration may be validated if the principal  submits a commitment (in duplicate) to 
produce  the  certificate  (or  proof  of  origin)  required  (Article  147  of  Rules  on 
Communities  and  Preferences)  within  one  month  of  the  date  of  acceptance  of  the 
aforesaid  declaration. 

It  is  only  on  the  explicit  request  of  the  principal  having  signed  the  aforesaid 
commitment that the recipient can extend this one-month deadline by a maximum  of 
three months  (Article  148 of Communities and Preferences rules). 
At the time when the aforesaid  commitment  is signed,  a security  must be  lodged  to 
cover  the  duties  and  VAX  payable  if  the  certificate  is  not  produced  by  the  set 
deadline or if it is produced after  duties have been restored  or when any tariff  quota 
in effect  has been exhausted (Article  152 of Communities and Preferences rules). 

Entry in the  accounts 

6. 

If  the  principal  fails  to  produce  the  required  certificate  by  the  said  deadline,  the 
amount of the security must be recorded in the accounts  forthwith. 

7.  Failure 

to  abide  by  Articles 256(1)  and  258  of  the  RCCC  implies  grave 
consequences. The authorities may be held  responsible  for  any  failure  to recover  or 
delay in recovering of own resources. 

It  is  for  this  reason  that  the  superiors  of  the  recipients  are  obliged  to  ensure  strict 
compliance with the procedures and deadlines laid down. 

For the Director-General 
Auditor in Chief 
W. BAERT 

22 

Comments  on the observations  of the  Court  of Auditors  concerning the application  of 
Article 5(3) of Regulation ŒEQ No 2084/93 in Belgium (Flanders) 

In  Chapter  7,  point 7.27,  of  its  1996 annual  report,  the  Court  of  Auditors  refers  to  a 
Flemish project  cofinanced  under ESF objective 4. During an inspection of the project, 
private  agreements  were discovered  but  it  emerged  that they  did not  come from firms 
directly benefiting from the training 

The  Court  of  Auditors proceeds  from  the  principle  that  there  has  to  be  a  direct  link 
between  the  enterprise and the  worker  and  that,  in  other  terms, the  cost  of training  a 
particular worker can only be financed by his own  firm. 

In the project concerned, the private inputs came from subcontracting firms in the shape 
of staff released to work on the design of training modules and the training of instructors. 
In  Flanders,  the  private  inputs  are  considered  in  terms  of  the  operational  programme 
rather  than  the  individual  worker,  a  fact  mainly  to  be  explained  by  the  difficulties 
experienced  by  the  SME  in  obtaining  the  resources  and  the  time  needed  to  provide 
training. 

Flemish  SMEs are very small and do not yet have any real training culture. They have 
not yet become genuinely  aware of the importance  of human investments. Even  before 
solving  the  difficulties  attributable  to  the financial implications  and  the  investment  in 
time,  businesses  have  to  become  aware  of  the  importance  of  training,  the  concept  of 
continuing  training  and  the  systematic  provision  for  training  in  the  shape  of  training 
plans. Various schemes set up in Flanders under point II of Objective 4 are designed to 
heighten  such  awareness  and  to  introduce  a training  culture  into  SMEs. The  eventual 
effect  of these measures should be to impel SMEs to increase their efforts  and  financial 
input in the training  field. 

In the main, firms respect the obligation to make a contribution of their own at the level 
of the operational programme. Indeed, the Monitoring Committee for  Objective 4 notes 
the compliance with the obligation to make a private contribution. By contrast, there does 
not  always  appear  to  be a direct  relationship  between  the private  contribution  and the 
individual employees of the  firm. 

23 

DENMARK 

54 

Ministry of Taxation 
Office of the Permanent Undersecretary 

Ref  no 98-229-12 

6 March 1998 

Contribution to follow-up on the Court of Auditors9 annual report for 1996 
Own resources 

Paragraph 1.7 

The Court of Auditors refers to a case involving delay in paying the Commission interest 
on late payments of anti-dumping duties. 

The case arose because the Danish authorities, when reviewing the accounting systems, 
discovered  an  error  which  had  led  to  delays  in making  anti-dumping  duties  available. 
Some of the delayed payments dated back to  1991.  The outcome of the delays was that 
Denmark  was required  to pay  interest  on  late payment  under Article 11 of  Regulation 
No 1552/89. 

The first part of the interest on late payments after  1991 was paid by the end of December 
1995, while the remaining part was held back pending clarification  of whether a time-bar 
applied, as per the usual administrative practice in such cases. 

After  discussing  the  outstanding problem  with the Commission, the Danish  authorities 
made the remaining part of the interest available to the Commission on 20 August  1997. 
The case is therefore closed. 

Paragraph 1.17 

The Danish authorities have no immediate observations on this paragraph, as there is no 
reference  to  specific  Danish  cases.  We would,  however,  observe  that  the  procedures 
folldwed  for  establishing  and collecting  own resources are designed to ensure that own 
resources are established and collected on time. 

sir 

SPAIN 

Ms Edith  Kitzmantel,  Deputy  Director-General  of  DG XIX  (Relations  with  Parliament, 
the Court  of Auditors  and the Member  States) wrote a letter (ref. 00573) to the  Spanish 
Permanent  Representative  to  the  EU,  forwarding  a  series  of  observations  concerning 
Spain from the  1996 Court of Auditors Report. Having examined the observations and to 
supplement  the Commission  replies  set out  in the  Report,  we have produced  the  replies 
set out  below,  following  the order  of  the  Report,  except  for  the  chapters  relating  to  the 
common  agricultural  policy,  which  the  Ministry  of  Agriculture,  Fisheries  and  Food  has . 
promised to forward as soon as possible. 

PART  1 : OWN RESOURCES 

Chapter 1: Own resources 

Traditional own resources 

Financial  management in the Member  States 

Late establishment of own resources 

Paragraphs  1.10  and  1.17:  When  the  Commission  discovers  delays  in  making  own 
resources  available,  it  charges  the  Member  State  default  interest.  The  Member  State  is 
notified  of this in a separate letter and the amount  of default  interest  is calculated  by  the 
Commission. 

Control of flow of goods and approval for free zone activities 

Paragraph  1.33:  Following  the  1996  visit  of  the  Court  of  Auditors,  the  customs 
authorities held a meeting with all the operators in the free zone of Barcelona, who  were 
informed  that they must respect Community legislation in accordance with Article  176 of 
Regulation No 2913/92 and Article 807 of Regulation No 2454/93. 

At present, 29 operators have applied  for  the relevant  authorisation  from  the  Customs  & 
Excise Department, and their situation is as follows: 

-  stock records approved by the Customs & Excise Department: 6 companies^ 

-  approval by the Customs & Excise Department pending: 10 companies. 

- 

report by the supervising customs office  pending:  13 companies. 

Please find attached a model authorisation and approval request form  from  this executive 
centre. 

Inward  processing: 

Presentation of returns, establishment and making available 

Paragraph  1.55: Up until the end of  1995 the authorities carried  out auditing  manually, 
which  led  to considerable  delays  in  making  own  resources  available,  particularly  in  the 
case of the customs authorities which had a large number of inward processing operations 
to handle. Since that time a computerised system has been in use, which makes the job  of 
auditing easier and means that there should no longer be such delays. 

Equivalent compensation and prior exportation 

Paragraph  1.63:  There  currently  exists  a  software  application  called  "Tendencies" 
which would prevent the recurrence of a situation such as that discovered by the Court of 
Auditors in its visit. 

This  application  is  being  installed  to  improve  checks  as  regards the  inward  processing 
procedure. 

The  following  points  can  be  noted  regarding  the  inward  processing  authorisation 
No 63-01039972  for  Sands  Ago  SA.,  where  unauthorised  prior  authorisation  had 
occurred  and  for  which  the  Auditors  discovered  a  declaration  of  prior  exportation 
corresponding to 4 imports (the following  IMS 5s: 044169 of 7 September  1995, 062902 
of 27 December  1995, 030813 of 30 November  1995 and 014853 of  25 March  1996): 

(a)  The  Barcelona  Customs  Office  sent  a  letter,  dated  25 April  1996,  to  the  operator 
concerned  stating  that  prior  exportation  was  not  covered  by  the  inward  processing 
authorisation. 

(b)  The operator has not replied to the letter of 25 April  1996. 

(c)  The  inward  processing  procedure  has  not  been  used  for  this  authorisation  since 

25 March  1996. 

(d)  Payment  of  duties  for  failure  to  comply  with  the  procedure  were  recorded  in 
5 communications  ("acts"),  with  the  following  amounts  incurred  and  dates  made 
available: 

SAD No 

"ACTT"No 

Payment  of  compensatory  EEC 
duties 

Date  incurred 

Made 
available 

0811-5-44169 

0811-5-373451 
0841-6-953382 

0811-5-62902 
0841-5-30813 
08li-6-14853 

0811-6-953364 
0841-6-953355 
0811-6-953373 

673 732 
198 378 

142 935 
2 398 086 
209 859 

8 486 

6 596 
107 973 
8 071 

19.10.95 
5.12.96 

December 95 
February  97 

5.12.96 
5.12.96 
5.12.96 

February 97 
February 97 
February 97 

PART III - STRUCTURAL  MEASURES 

Chapter 6 - European Regional Development  Fund 

The closure of intervention schemes 

Observations concerning programmes and measures that were closed 

Eligibility of the expenditure 

Paragraph 6.30: The measure referred  to by the Court of Auditors in this paragraph  was 
implemented  during  the  first  period  in  which  the  Spanish  State applied  for  co-financing 
of measures from  the Structural Funds. 

In other  words, at the time when  the measures  co-financed  with  Community  funds  were 
being managed, the procedures for administering  and monitoring  Community  funds  were 

18 

still  being  designed  and  launched,  with  a  particular  emphasis  on  accounting  for  the 
money spent in quantitative terms with documentary support to prove it. 

As  time  has  gone  on, considerable  improvements have  been made  to  the  coordination, 
management and evaluation procedures for co-financed measures, so that the information 
provided on the measures is now based on qualitative as well as quantitative criteria. 

Concentrating on the point referred to by the Court of Auditors, we would point out that 
what was proposed to the European Commission as part of the RESIDER  1 programme 
was the refurbishment of a disused industrial building, which, at the time when the joint 
financing application was made, was intended to be used as a skilled trades centre. 

The  supporting  documents  sent  to  the  Commission  for  this  measure  strictly  related  to 
expenditure 
incurred  on  the  refurbishment  of  the  disused  building  under  the 
RESIDER  1  programme. 

The change in the intended use did not come about until much later. 

Here  it should be noted that after 29 July  1988 when the RESIDER programme  for the 
Basque  country  was  submitted  to  the  Commission,  including  under  its  measures 
sub-measure  1.1  "Restoration of unused industrial buildings", a series of events occurred 
which  resulted 
in 
November  1990  to  the  Elkartegi  project  in  Bilbao,  which  was  included  under measure 
1.1.2  "Restoration  of  disused  industrial  buildings"  following  on  from  the  previous 
RESIDER programme for the Basque country. 

in  the  reports  to  the  Commission  being  altered,  referring 

The documentation relating to the measure stated that it was intended to house the skilled 
trades  sector and make this sector productive  by providing  the resources  needed  for  its 
production and market structure. Furthermore, providing  public  money  for premises  for 
business  services  activities  was to  contribute towards the  economic  rejuvenation  of the 
Bilbao area, where the location of activities of this type is determined by the speculative 
effects of the land market. 

The  adopted  RESIDER  programme  was  approved  by 
the  Commission  on 
26 September 1991,  at which  time  the  regional  authorities  in  Bizkaia  were  planning  to 
use the building, once refurbished,  to house the Elkartegi centre for small businesses in 
Bizkaia. 

It was not until  much later on that, owing to a straightforward  administrative  oversight, 
the  European Commission was not notified  of  the  latest  change  in use  of  the building, 
which is currently the head office of Lantik SA. 

The upshot of all this is that in connection with this measure: 

•  there was no fraudulent activity on the part of the Bizkaia regional authorities; 

•  the  Bizkaia  regional  authorities  and  the  body  responsible  for  implementation, 

Azpiegitura, acted in good faith throughout; 

•  the  operating  methods  of  the  company  responsible  for  managing  the  funds  received 

did not involve any abuses of rights. 

zs 

THE  IMPLEMENTATION  OF  MEASURES  IN  FAVOUR  OF  UNDERTAKINGS, 
SMEs IN PARTICULAR, IN THE CONTEXT OF THE ERDF 

Support for  the activities of undertakings 

Concurrent drawing and overlapping of aid 

Paragraph  6.61: The case referred  to here involves the ALFAGRAN  project,  which  did 
receive funding  from a variety of sources at the same time. 

The  sources  of  funding 
included  a  loan  of  PTA  20  million,  approved  by  the 
Murcia Regional  Development  Institute  on 24 April  1992. At the time, the  Institute  was 
aware of all the different  sources of aid the project was receiving. These were  compatible 
with  each  other  and  did  not  total  more  than  the  net  equivalent  subsidy.  The  only 
exception  was  the  aid  later  granted  by  the  European  Commission  under  the  LIFE 
programme. 

The  RIOP  subsidy,  which  was  granted  on  6  May,  was  also  within  the  net .equivalent 
subsidy margin, although when it was realised that there were other sources of aid, it was 
decided to exclude the case from the certification  of expenditure under the programme. 

It should  be pointed out that the LIFE aid, which was the last to be granted,  was  granted 
directly  by  the  European  Commission  without  first  asking  the  Spanish  authorities  for 
information  about  other  sources  of  aid  granted  to  the  project.  Furthermbre,  to  our 
knowledge  when  the  LIFE  aid  was  granted,  the  Commission  did  not  tell  the  company 
receiving it that it was incompatible with other Community aid. 

We assume that the steps to be taken, apart from the exclusion from  the RIOP referred  to 
above, would involve reviewing the LIFE aid, but this is totally dependent on what  action 
the Commission takes. 

In view of the advantages to be gained  from  setting up a system to prevent the  repetition 
of  cases  like  this,  the  Commission  asked  the  Spanish  authorities  to  put  into  effect 
measures to ensure transparency  in cases where aid is being drawn concurrently. 

Further to this, on 21 July  1997 the  Spanish authorities notified  the Commission  of  their 
commitment  to  introducing  monitoring  arrangements  of this type  in connection  with  the 
Castilla  and  Leon  Development  Agency  Global  Subsidy.  The  arrangements  include  the 
following  features: 

•  separate  accounts, making  it possible to identify  the funds  by source, by Fund  and  by 

type at every administrative level; 

•  accounting  procedures,  whereby  the  operations  recorded  in  the  accounts  can  be 
cross-checked  against  each  other  to  identify  co-financing  (amounts,  percentages  etc.) 
and other factors relating to the programmes in question. 

Once these  arrangements  have been  finalised,  they will be submitted  to the  Commission 
to  be  checked.  They  will  serve  as  a  pilot  experiment,  which  could  in  due  course  be 
extended to other Autonomous Communities that do not already have a similar  system. 

Paragraphs 6.62  and 6.63: There are often  doubts about where to draw the line  between 
first-level  and  second-level  processing  when  dealing  with  investments  relating  to  the 

marketing  and  processing  of  agricultural  and  forestry  products.  One  of  the  reasons  for 
this is the  lack of any national  or Community  legislation clearly defining  the  difference. 
This does not mean that the Fund from which a project geïts its Community  co-financing 
is decided on the basis of whatever is most advantageous to the interested parties. On the 
contrary,  Community  rules are strictly applied, which here means the  EAGGF-Guidance 
rules  which  lay  down  the  criteria  for  selecting  agricultural  and  forestry  product 
processing  projects. 

It  should  be  pointed  out  that the  Murcia  Regional  Development  Institute  is  working  on 
reconciling  the  different  aid  schemes  and  applying  them  properly.  This  is  particularly 
relevant to aid provided by ERDF and EAGGF, since they are not compatible  with  each 
other, which is why a framework for cooperation and mutual notification  has been set up 
between  the  Development  Institute  and  the  Regional  Ministry  of  the  Environment, 
Agriculture and Water, which are the bodies responsible for managing these Funds. 

the 

Inter-Regional  Economic 

As  regards  the  Directorate-General  for  Regional  Economic  Incentives,  coordination 
between the different  aid schemes is provided for at the highest legislative level. Article 4 
of 
Imbalance  Correction  Act  No  50/1998  of 
27 December  1985  makes  the  Regional  Incentive  Guidance  Board  responsible  for 
coordinating  sectoral aid with regional impact. This responsibility  is further  developed  in 
Article 20.18b)  of  Royal  Decree  1535/1987  which  lays  down  the 
implementing 
provisions for Act No 50/85. Article 23.1(d) of the same Royal Decree stipulates that the 
Autonomous  Communities  must  report  on  financial  aid  granted  in  their  region,  and  in 
particular  EAGGF  aid.  The  meetings  of  the  Guidance  Board  to  decide  on  the  aid 
proposed  to be charged to the Programme are also attended by a representative  from  the 
Ministry  of  Agriculture,  Fisheries  and  Food  connected  with  the  EAGGF  management 
unit acting in full coordination with the RIOP. 

This means that  appropriate  arrangements  are  in place to prevent the  overlapping  of  aid 
from these two Funds. 

Support for  the financing of businesses 

Obtaining  loans 

Paragraph  6.80:  The  global  subsidy referred  to here  is being  modified  in  line  with  the 
conclusions  of  the  Auditors'  report  concerning  the  financial  inspection  carried  out 
between 6 and  17 May  1996. In the meanwhile payments of Community funds  have been 
suspended.  This  involves the interest rebate provided  for  under the  global  subsidy  being 
fully  transferred  to  the  small  businesses,  thus  bringing  the  approved  payment  into  line 
with the payment actually made. The intermediary  body has also been given  instructions 
concerning the eligibility of expenditure, so as not to book amounts corresponding to bad 
loans,  which  were  referred  to  in  the  programme  approved  by  the  Commission,  to 
eliminate any possibility of this expenditure being certified  for Community  co-financing. 

The implementation of measures 

Paragraph  6.83: As regards PITMA, the programme to which this observation refers,  it 
is  true  that  amounts  relating  to  failed  projects  had  to  be  deducted  from  the  final 
expenditure  declaration  for  the  environment  and  water  resources  OP,  which  meant  that 
the total certified  amount was adjusted  down by about ECU 9 million. 

31 

However,  we  feel  that the way the Court  formulated  its observation  made  it  sound  as  if 
this  state  of  affairs  were the rule, whereas  it  is  in  fact  an  exception,  since  similar  cases 
have  been  discovered  by  the  authorities  in  the  course  of  checks  by  sampling  and  duly 
rectified. 

We do not agree with the Court's observation on the fulfilment  of the jobs condition. 

Under the RIOP,  the granting  of the aid allows  a certain period,  which  is normally  two 
years,  within  which  all  the  required  conditions  have  to  be  met.  Once  this  period  of 
validity  is up, if the conditions (which include job  creation) have been met, then the  aid 
can be paid. But, if the job is not a fixed post, it is required to last for  at least three  years 
calculated  from  when it was created, which  may take  it past the  expiry  of  the  period  of 
validity. In other words, it may happen that when the period of validity expires, there are 
some  non-fixed  posts, which have  not  yet  existed  for  three  years  from  when  they  were 
created, in which case they are required to be conserved until the end of the contracts. To 
take  account  of  this  and  various  other  factors,  Article  33.2  of  the  implementing 
provisions  of  Act No  50/85  states  that  monitoring  and  inspection  duties  may  be  carried 
out up to  five  years from  the date on which the period  of validity  of the aid  in  question 
expires.  In  this  way  and  by  requiring  certain  types  of  employment  contracts  and 
excluding  others,  it  is possible to ensure that  posts are conserved  several  years  after  the 
end  of  the  programme,  regardless  of  whether  they  are  occupied  by  the  same  person  or 
several successive employees. 

It  should  also  be  pointed  out  that  in  accordance  with  Articles  81  and  82  of  the 
Consolidated  Text of the General Budget Act, Article  37 et seq. of the  above-mentioned 
Regulation  lay  down the procedure  for  recovering  aid where the  conditions  of  the  grant 
have  not been  complied  with as well  as a system  of penalties  in  cases  of  fraud,  fault  or 
negligence. 

» 

CHAPTER 7: EUROPEAN SOCIAL FUND 

Audits  of particular  aspects 

The  partnership 

Paragraphs  7.18  and  7.19:  The  monitoring  committees  are  a  key  instrument  for  the 
UAFSE  (European  Social  Fund  Administration  Unit)  in  strengthening  cooperation,  as 
one of the forums  providing the necessary  interaction  between  all the parties  involved  in 
the management of ESF operations in Spain. 

Given the nature of ESF objectives  and the purposes  its operations  are meant to serve  in 
terms of  developing  human resources and improving  the operation  of the  labour  market, 
it  is  extremely  valuable  for  social  partners,  including  representatives  of  businesses  and 
trade unions, to participate in the monitoring committees, since they can contribute to the 
discussions  and work of the committees by presenting  considerations  and  points of  view 
that  are  representative  of  the  businesses  and  workers  who  are  the  final  beneficiaries  of 
ESF operations. 

This  is  why  representatives  of  the  major  business  associations  and  trade  unions  were 
invited  to  all  the  1994,  1995  and  1996  meetings  of  the  monitoring  committees 
responsible  for  ESF  and  were  provided  with  the  same  documentation  and  advance 
information  as  all  the  other  bodies  attending  the  meetings.  The  committees'  rules  of 

32. 

procedure  also  give  the  social  representatives  the  same  rights  to  speak  and  vote  as  the 
other members. 

The ESF monitoring committees in question are: 

•  The Objective  1  Multi-Regional  Sub-Framework Monitoring Committee; 

•  The Objective 2 Multi-Regional  Sub-Framework Monitoring Committee; 

•  The Objective 3 Framework Monitoring  Committee; 

•  The Objective 4 Framework Monitoring  Committee. 

During  the  first  three  years  of  the  1994-99  Community  Support  Framework  the 
Objective  1 Committee  held two  meetings  a  year.  The  other  three  committees  only  had 
one meeting a year, although things improved and in 1997 they had two. 

The number of members depends on the various partners involved in each Objective.  The 
Objectives  1 and  3  Committees  have  the  most  members,  bringing  together~30 "bodies, 
including the Commission, the social partners and the UASFE itself. 

The  Objective  2  and  4  Committees  are  much  smaller.  The  Objective  2  Committee 
contains six partners and the Objective 4 Committee only one. 

Concerning the Court's observation that the monitoring committees had not reviewed  and 
developed  the impact  indicators  which measure the effectiveness  of the ESF  effort,  with 
the  agreement  of  the  Commission  and  following  discussions  in  the  monitoring 
committees, it was decided that in order to assess the effectiveness,  efficiency  and  impact 
of the various types  of  ESF intervention  outside  teams of independent  experts  would  be 
commissioned to carry out the assessment, monitoring and evaluation duties laid down  in 
the relevant provisions (such as Article 6 of Regulation 2081/93). 

> 

These teams have already produced preliminary  and interim evaluation reports on all  the 
Community  Support  Frameworks,  analysing  and  assessing  the  indicators  referred  to  in 
the  OPs  and  the  SPDs  and  proposing  new  ones,  prior  to  the  full  assessment  of  the 
measures  and  consequent  conclusions  and  recommendations.  These  reports  were 
submitted  from  the  end  of  1996  and  in  1997.  All  the  monitoring  committees  that  have 
met  since  then  have  taken  note  of  the  reports  and  incorporated  insights  from  them  into 
their work. 

« 

There  is  no  doubt  that  the  monitoring  committees  that  examine  ESF  measures  in 
conjunction  with  the  other  Structural  Fund  measures  (Objective  1,  2  and  5b  regional 
sub-frameworks)  should be the ideal  forum  for  implementing  the necessary  coordination 
of  efforts  between  Funds.  To  date  they  have  concentrated  more  on  analysing  the 
economic  resources  of  each  Fund  rather  than  on  the  desired  framing  and  planning  of 
measures requiring a greater degree of integration and coordination between the Funds. 

The private sector, Objective  4 and  ADAPT 

Paragraph  7.27:  It  is  difficult 
to  reach  the  original  target  in  the  Objective  4 
programming,  whereby  80%  of  participants  in  the  measures  should  be  from  small 
businesses.  However,  the  June  1997  interim  report  noted  the  enormous  efforts  that  had 
been made from  the beginning of the period:  in  1994 representatives  of small  businesses 
33: 

accounted  for  22% of  participants,  whereas  this  went  up  to  50%  in  1995.  Subsequent 
developments continue to point in this direction. 

As  regards  the  problem  of  small  businesses  co-financing  projects,  it  is  true  that 
businesses of this size in Spain do have difficulty  coming up with the money for  training 
plans, which is why not so many of them are beneficiaries  of this aid, as explained above. 

However,  the  real  level  of  additionality  with  which  these  companies  contribute  to 
training  plans  is  considerably  higher  than  shows  up  in  the  available  data,  but  it  is  not 
possible  to  produce  evidence  for  this  because,  for  one  thing,  the  businesses  do  not 
provide  supporting  documents  on  the  whole  plan,  but  only  for  the  measures  for  which 
they  receive  co-financing  and,  for  another,  some  of the  expenditure does  not  qualify  as 
eligible expenditure for which evidence has to be produced. 

For example, the assessment referred  to above  showed  that 44.8% of the companies  that 
organise staff  training (by now over 50% of these may be small businesses)  do so during 
working time. This time spent on training constitutes an opportunity cost and does have a 
value. In addition, in  12.6% of the cases where the training  is organised  outside  working 
time, the time is paid as overtime, which  constitutes  a direct cost for the companies  and, 
therefore,  does not show up either. 

Additionality 

Paragraph  7.31: Spain is deeply  committed  to ensuring the principle  of additionality  in 
the  Structural  Funds. This is why  it has  been  one of the aspects most  keenly  pursued  in 
the  various  aid  monitoring  and  inspection  operations  which  have  been  carried  out  in 
greater  numbers  and  more  extensively  over  recent  years.  These  operations  generally 
involve verifying  the overall cost of measures  that operators have declared  completed  by 
checking the supporting documents (such as invoices or other documents with  equivalent 
probative  value)  that  bear  out  the  implementation  certifications  in  order  to  establish 
clearly  that the national co-financing  percentages  laid down for each type of  intervention 
have been complied with. 

The  findings  of the inspections carried  out have revealed  only negligible  irregularities  in 
connection  with additionality  and we believe  that the Commission  would have arrived  at 
the same conclusion if the examination of the matter it started had been completed. 

Examination  of systems 

Paragraph  7.39:  It  is  true  that,  in  addition  to  the  portion  of  the  ESF  aid  co-financing 
FPE  (special  vocational  training)  measures  carried  out  as  part  of  the  national  education 
system,  some  of  this  aid  in  Spain  is  used  to  co-finance  a  particular  area  of  secondary 
education,  although  only  that  part  which  LOGSE,  the  Education  System  (Regulation) 
Act,  defines  as  FPB  (basic  vocational  training),  which  is  distinguished  from  FPE  and 
consists  of  know-how  and  skills  related  to  working  life  providing  the  scientific  and 
technical  basis for the vocational skills to be acquired under subsequent FPE. 

FPB,  which  is part  of secondary  education  and  receives  ESF  aid,  is, however,  restricted 
to  the  technology  modules  taught  to  pupils  at  the  compulsory  secondary  education  level 
and taking the bachillerato. 

Paragraph  7.41:  Article  13  of  Royal  Decree  631/93  of  3  May  1993  concerning  the 
National  Vocation Training  Plan  lays down  the  system  of aid  for  the centres  running  the 

3"4 

courses covered by the plan and paragraph 2 of this article states the following: "The aid 
shall cover the costs of teaching,  accident insurance for pupils, teaching resources and 
materials, depreciation  of  installations  and fittings,  and general expenditure  actually 
incurred and documented.  The amount arrived at  may be increased by  10% to cover 
costs for  which it is difficult to provide evidence,  without under any circumstances  the 
amount of the aid being allowed to exceed the total costs of the corresponding module." 

In the light of this, in order to keep within the Community rules concerning the notion of 
real costs for determining which expenditure is eligible, the INEM, which is the body that 
handles the operational programmes under which the National Vocational Training Plan 
measures are co-financed, has, in the requests for final payment for  1996, deducted  10% 
from  the implementing costs of the cooperation centres. INEM has also instructed all its 
expenditure centres that in the future no amount for expenditure for which it is difficult  to 
provide evidence should be charged to ESF aid. 

Paragraph  7.42:  Since the  end  of  1996  Spain  has  been making  numerous  efforts  on 
coordination  between  the main programme  operators, UAFSE and the  Commission  to 
improve the system of applications for final payment and bring it as closely ïntoTline as 
possible with Regulation 2082/93 and the financial implementation provisions  annexed 
to the OPs so that it is based on expenditure actually incurred by those implementing the 
measures. 

As a result of this process, a methodology for drawing up applications for final payment 
was agreed on and approved by the Commission on 11  March 1997, on the basis of the P 
or  K  accounting  phase,  so  that  they  correspond  exclusively  to  final  payments  of 
expenditure  actually  incurred  and  paid  out  on  the  basis  of  invoices  or  accounting 
documents of equivalent probative value for measures actually implemented. 

This system was used for drawing up the applications for final payment for  1996, which 
were  submitted  in  June  1997,  having  also  carried  out  checks  on  the  1994  and  1995 
applications to ensure that they genuinely corresponded to expenditure actually  incurred 
during the year of implementation. 

Sir 

SPANISH REPLY 

ANNEX 1 

Annual report paragraph reference 

1.33 

Ref. sector letter: 

RT0451E1 
Sections 14-16 

Conclusions for which the 
Member State is responsible 

C3.D2 

Point C3-D2 

' 

" 

' 

Following the 1996 visit of the Court of Auditors, the customs authorities held a meeting 
with all the operators in the free  zone of Barcelona, who were informed  that they must 
respect Community legislation in accordance with Article 176 of Regulation No 2913/92 
and Article 807 of Regulation No 2454/93. 

At present, 29 operators have applied for the relevant authorisation from the Customs & 
Excise Department, and their situation is as follows: 

-  stock records approved by the Customs & Excise Department: 6 companies. 

-  approval by the Customs & Excise Department pending: 10 companies. 

-  report by the supervising customs office pending: 13 companies. 

Please find attached a model authorisation and approval request form from this executive 
centre. 

REPONSE DE L'ESPAGNE 

Agencia Tributaria 

Services des douanes et accises 

Paragraphe du rapport annuel : 

1.33 

ANNEXE I 

Réf. lettre de secteur : 

RT0451E1  Paragraphes 14-16 

Incidences pour l'État membre 

C3-D2 

Point C3-D2 

À la suite de la visite de la Cour des comptes en 1996, les autorités douanières ont eu une 
réunion avec tous les opérateurs de la zone franche de Barcelone, au cours de laquelle ces 
derniers  ont  été  informés  de  leur  obligation  de  se  conformer  à  la  réglementation 
communautaire,  en  application  de  l'article 176  du  règlement  (CEE)  n° 2913/92  et  de 
l'article 807 du règlement (CEE) n° 2454/93. 

Actuellement, 29  opérateurs  ont  entamé  les  démarches  nécessaires  en  vue  d'obtenir 
l'agrément  adéquat  auprès  du  service  des  douanes  et  accises.  Leur  situation  est  la 
suivante : 

- Comptabilité matières déjà approuvée par le service des douanes et accises : 6 
entreprises. 

- En attente de l'agrément du service : 10 entreprises. 

- En attente du rapport de la douane de contrôle : 13 entreprises. 

Veuillez trouver ci-joint les modèles de demande d'autorisation et d'agrément établis par 
notre direction. 

-*r-

Agencia Tributaria 

Service des douanes et accises 

Madrid, le 19 septembre 1997 

Réf.  :  Service des régimes douaniers particuliers 

Dossier 8/97 

Objet : Agrément de comptabilité matières -
opérateur en zone franche 

À l'attention de l'Administrateur 
principal des douanes et accises de 
Barcelone (08071) 
et de l'intéressé 

Je  me  réfère  à  votre  lettre  du 11  juillet  dernier  dans  laquelle,  en  application  des 
dispositions  de  l'article  176 du règlement  (CEE) n° 2913/92  (Code  des  douanes)  et de 
l'article 807  du  règlement  (CEE)  n° 2454/93  (Dispositions  d'application),  vous 
demandez  l'agrément  de  votre  comptabilité  matières,  afin  de  pouvoir  exercer  des 
activités  de  stockage  et  de  distribution  de  marchandises  tant  communautaires 
qu'originaires de pays tiers. 

Compte tenu de l'avis favorable rendu par le service des douanes et accises de Barcelone 
au sujet de la demande introduite en ce qui concerne le système de comptabilité matières, 
en  vue  de  pouvoir  utiliser  un programme  spécial, présenté  et  géré  par  l'opérateur  lui-
même; 

vu  les  dispositions  précitées  ainsi  que  l'arrêté  du 2  décembre 1992  et  la  circulaire 
n° 1/1994 du 22 mars 1994 (Boletin Oficial del Estado du 30 mars 1994), 

le service de douanes et accises a décidé d'accéder à cette demande. 

Agrément  communiqué  à  l'entreprise  pour  information  et" pour  effets  et  transmis  à  la 
douane de contrôle. 

(s) Le Directeur 

-18 

ANNEX2 

Annual report paragraph reference: 

1.63 

Ref. sector letter: 

3 February 1997 
Section 27 

Conclusions for which the 
Member State is responsible 

G4.D3 

Point C4 

There currently exists a software  application called "Pendencias" which would prevent 
the recurrence of a situation such as that discovered by the Court of Auditors in its-visit. 

is being installed to improve checks as regards the inward  processing 

This  application 
procedure. 

Point D.3 

The  following  points  can  be  noted  regarding  the  inward  processing  authorisation 
No 63-01039972  for  Sandoz  Agro  S.A.,  where  unauthorised  prior  authorisation  had 
occurred  and  for  which  the  Auditors  discovered  a  declaration  of  prior  exportation 
corresponding to 4 imports (the following IMS 5s: 044169 of 7 September 1995, 062902 
of 27 December 1995,030813 of 30 November 1995 and 014853 of  25 March 1996): 

(a)  The  Barcelona  Customs  Office  sent  a  letter,  dated  25 April 1996,  to  the 
operator  concerned  stating  that  prior  exportation  was  not  covered  by  the  inward 
processing authorisation. 

(b) The operator has not replied to the letter of 25 April 1996. 

(c) The inward processing procedure has not been used for this authorisation since 

25 March 1996. 

(d) Payment of duties for failure to comply with the procedure were recorded in 
5 communications  ("actas"),  with  the  following  amounts  incurred  and  dates  made 
available: 

SAD No 

"Acta" No 

Payment  of compensatory  EEC 
duties 

Date incurred * 

Made 
available 

081U5-44169 

0811-5-373451 
0841-6-953382 

0811-5-62902 
0841-5-30813 
0811-6-14853 

0811-6-953364 
0841-6-953355 
0811-6-953373 

673 732 
198 378 

142 935 
2 398 086 
209 859 

8 486 

6 596 
107 973 
8 071 

19.10.95 
5.12.96 

December 95 
February 97 

5.12.96 
5.12.96 
5.12.96 

February 97 
February 97 
February 97 

REPLIES TO OBSERVATIONS IN THE CHAPTERS OF THE COURT OF 
AUDITORS REPORT RELATING TO AGRICULTURE 

Paragraph  3.19:  The  FEGA  has  issued  instructions  reminding  the  Autonomous 
Communities that they must keep copies of the databases used to compile the  information 
sent to the Commission and to calculate any penalties for the overshoot of base areas. 

Paragraph  3.39:  As  regards  the  homogeneity  of  databases,  we  have  asked  for  more 
details concerning this observation  in the course of various visits, but, to our mind, have 
yet to receive clarification.  We believe that homogeneity  has been achieved  by means of 
the specifications  and criteria which were sent to the various produpers'organisations  and 
are updated before  the beginning of each marketing year to bring them  into  line with the 
legislation in force. 

Paragraph  3.40:  For  the  recovery  of  data  in  the  event  of  computer  failure,  a 
fire-protection  system  has been  installed,  together  with  a continuous  power  supply,  and 
access has been restricted to authorised  staff  only, with daily back-ups of data which are 
then stored in fireproof cupboards located away from the computer room. 

We are  studying  the  possibility  of  introducing  an  electronic  system  to  restrict  access  to 
the computer room to authorised staff  only. 

Work on a contingency plan is at a very advanced stage. 

Paragraph  3.46:  The geographical  scope of cross-checks  with the official  land  register 
in  Spain  was  extended  between  1993  -  when  such  checks  were  already  carried  out  in 
some  Autonomous  Communities  -  and  1996,  when  they  covered  the  entire  national 
territory. 

Over  the  same  period  cross-checks  were  also  introduced  with  bases  other  than  the  land 
register  containing  data  on  aid  and  other  information  held  by  the  Autonomous 
Communities. 

Despite 
Communities, the data transfer  system is improving and becoming  faster. 

in  exchanging  data  between 

the  problems 

involved 

the  Autonomous 

Paragraph 3.47:  We assume that, as far as Spain  is concerned, the Court  of Auditors is 
referring  here to cross-checks  with  databases other than the land register  which  are used 
by  the  Autonomous  Communities  (cf.  Paragraph  3.46)  to  compare  parcels  with  other 
sources  of  information.  This is an  example  of administrative  controls at  their  best,  since 
they  are  not  confined  to  the  land  register,  but  include  cross-checks  on  all  available 
information  on  the  territory  in  question  in  a  bid  to  avoid  any  undue  payment  of 
compensation  in respect of land parcels. 

Paragraph  3.48:  We  believe  that  the  Court  of  Auditors  has  either  misinterpreted  or 
misunderstood  the  situation,  as  Spain  allows  a tolerance  of  1 are  and  not  50  ares  when 
comparing  the surface  areas declared  for each parcel with the official  surface  areas in the 
land  register.  Since  the  official  surface  area  is  expressed  in  centiares,  i.e.  hectares 
followed  by four decimal places, and the declared surface  area is expressed  in hectares to 
two decimal  places, the tolerance allowed  is one unit in the last decimal  place, i.e. -1  are. 

40 

Paragraph  3.54:  As  regards  the  field  inspections  in  the  Balearic  Islands  in  1995  and 
1996, it must be stressed that this is a very special case, as'explained below. 

improve 

the  system  by  combining  satellite 

Since  1992  Spain  has  been  introducing  the  system  of  remote-sensing  checks  advocated 
by  the  Commission.  At  first  the  photographic  images  used  to  interpret  and  measure 
cultivated  areas were obtained  only  by satellite. However, in  1995 an attempt  was  made 
images  with  a  high-resolution 
to 
orthophotograph  obtained  from  the  air  in  the  course  of  that  year,  so  that  surface  areas 
could  be measured  more  accurately.  For this  operation  a region had  to  be  chosen  where 
there was little division into parcels, if possible with scattered trees and a reasonably  high 
density of cases, this last requirement being necessary to make remote-sensing of the area 
worthwhile. On the basis of these criteria the Balearic Islands were selected, although the 
region  would  not  have  been  a  candidate  for  remote-sensing  checks  had  there  not  been 
special circumstances. 

As  part  of  this  exercise  the  Balearic  Islands  Autonomous  Community  was  required  to 
carry  out  872  inspections  (equivalent  to  a  rate  of  23.5%,  i.e.  much  higher  than  the 
mandatory  5%), for which it had to increase the physical and human resources available. 

It  is  worth  stressing  the  physical  problems  and  the  difficulties  regarding  staffing  and 
timetables  faced  by  a  regional  authority  in  increasing  the  overall  percentage  of  its 
inspections  beyond  20%.  Nevertheless  the  number  of  actual  checks  carried  out  in 
districts, regions and administrative units can be increased. 

It was possible  to  reach  this  inspection  rate  in the  Balearic  Islands  in  1995  because  the 
conditions were suitable for remote-sensing checks. For that reason - and bearing in mind 
the  commitments  made  the  previous  year  -  the  minimum  number  of  checks  in  the 
Balearic Islands was reduced in FEGA's National Inspection Plan for  1996. 

As  for  Rioja,  the  reduction  in  checks  in  1996  was  not  representative.  For  the  Court's 
information,  we would  add that,  in view of the findings  in previous years, 35% of  cases 
processed in Rioja were checked in 1997. 

Paragraph  3.55:  To  tighten  its  scrutiny  of  all  declared  parcels  and  make  it  easier  for 
farmers  to  declare  surface  areas,  Spain  pressed  ahead  with  the  integrated  system, 
including  from  the  first  year  parcels  of  grain  legumes  declared  in  aid  applications  for 
"surface  areas".  However, 
in 
the  requirements  on  field 
Regulation (EEC) No  762/89  differ  from  those  in  the  integrated  system,  so  that  the 
National Inspection Plan had to combine both sets of requirements. 

laid  down 

inspections 

Paragraph  3.63:  FEGA  has  reminded  the  Autonomous  Communities  that  inspection 
reports must specify  which  of the accepted  agricultural  parcels are measured;  this  is also 
laid down in the National Inspection Plan for field  inspections. 

Chapter  8:  In  1996  the  Court  of  Auditors  examined  the reliability  of  the  main  systems 
employed to manage and control expenditure on aid from the EAGGF Guarantee  Section, 
on  the  basis  of  Regulations  (EC)  No 951/97  (former  Regulation  (EEC)  No  866/90)  and 
(EEC) No 867/90. 

* 

. 

41 

Checks were carried  out at the Directorate-General  for  Food  Policy  and the  Agricultural 
and Food Industries in the Ministry  for  Agriculture, Fisheries and Food in Madrid, as the 
body responsible for justifying  EAGGF Guidance  Section expenditure, and at central and 
provincial  departments  of  the  Directorate-General  for  Livestock  Production  and 
Agro-Food Industries in the Galicia Regional  Government. 

The Court studied ten cases in great detail, of which two were the subject of field visits. 

A report on the findings  of the inspections was sent to the Spanish National Audit  Office 
on  21  February  1997.  According  to  the  National  Audit  Office,  this  was  a  preliminary 
report,  as  it allowed  scope  for  replies  from  the  authorities  to the  management  bodies  on 
the facts and comments it contained. 

Paragraph  8.13: Regarding  the  Court's  observation  that  "no  written  assessment  reports 
were  provided  by  certain  national  authorities",  we  would  point  out  that  under  the 
established  division  of  responsibilities  in  Spain,  the  task  of  assessing  the  viability  of 
firms receiving aid falls to the regional authorities rather than the national authorities. For 
each  individual  project  the  regional  authorities  make  a  declaration,  in  which  they 
undertake,  among  other  things,  to  "examine  the  financial  position  of  the  recipient  and 
assess  its  revised  annual  accounts  or  financial  reports  in  order  to  guarantee  that  the 
investment will be profitable." 

On  the  subject  of  the  criteria  for  assessing  the  profitability  of  investments,  it  is  worth 
noting  that  firms  sometimes  make  these  investments 
in  order  to  comply  with 
environmental  requirements  or  specific  regulations,  where  this  is  an  essential  condition 
for continuing their activities. In this case the investments do not contribute to  improving 
the  firm's  financial  results,  but  help  achieve  other  objectives  which  are  difficult  to 
quantify  but nonetheless  important. 

• 

In  the  case  of  cooperatives  and  groups  of  producers,  profitability  is  not  normally 
measured  in  terms  of  profits  obtained  at  the  end  of  the  year,  but  in  the  prices  paid  to 
members  compared  with  the  market  average,  which  reflect  the  degree  of  success  in 
managing the processing and marketing of the members' products. 

In  any  event,  losses  recorded  in  the  accounts  relate  to  the  year  following  the  start  of 
activities and cannot therefore  be taken as representative. 

None  of  the  inspected  firms  has  ceased  to  exist  or  stopped  trading,  or  even  suffered 
serious financial  problems which might raise doubts as to its survival. 

Paragraph  8.20:  The  certificate  issued  by  the  competent  regional  authority  which 
accompanies  each  of  the  supporting  documents  presented  by  recipients  for  the  payment 
of outstanding  aid indicates the personnel number of the official  who checked on the spot 
that  the  investments  were  indeed  made  and  corresponded  to  the  supporting  documents 
submitted  by  the  recipient.  Such  on-the-spot  checks  have  been  carried  out  at  least  once 
for each approved  project,  independently  of the deskwork which  involves meticulous and 
exhaustive  checks  on  the  documents  presented  by  recipients  in  support  of  declared 
expenditure. 

42 

As  regards  the  statement  that  "there  was  little  evidence  of  ineligible  expenditure  being 
excluded  from  grant claims", it appears that in none of the ten cases it examined  did  the 
Court  of  Auditors  find  any  budget  items  that  were  not  eligible  for  assistance,  so  that  it 
seems  difficult  to  come  to  the  conclusion  that  there  was  ineligible  expenditure.  If  the 
Court did find  such expenditure, we feel that it should have recorded the fact  in its report 
of  21 February  1997,  which  would  no  doubt  have  enabled  the  authorities  to  tighten  up-
control and monitoring procedures. 

It  is  worth  noting  here  that  the  Court's  observations  in  its  report  of  21 February  1997 
were  forwarded  to  all  regional  management  bodies,  as  they  could  serve  as  an  extra 
reminder  of the rules  to be applied  - or the measures  laid down ai? central  level  - for  the 
management of aid, and because, even though in most cases their absence does not  affect 
the  eligibility  of  expenditure,  they  can  improve  and  facilitate  the  ex post  audits  to  be 
carried out by the authorities responsible. 

Paragraph  8.36:  Since  most  measures  for  the  modernisation  of  agricultural  structures 
have been transferred  to the Autonomous  Communities, financial  control now forms  part 
of the functions  and powers which are shared. 

According  to this  division  of powers,  the  national  authorities  scrutinise  applications  for 
the various types  of aid  and  conduct  additional  field  inspections  on selected  agricultural 
holdings,  on  basis  of  a  sampling  plan.  The  number  of  checks  represents  at  least  a 
significant  sample  of  payments  and  they  are  carried  out  by  means  of  coordination 
between representatives of central government and the Autonomous  Communities. 

The control measures cover both the procedure for  granting aid (documents furnished  by 
applicants, etc.) and field  checks on the holding in question. 

The  entire  procedure  is  carried  out  independently  of joint  audits  with  other  institutions 
such  as the Intervention  General  (State  Public  Accounts  Department)  and  the  National 
Audit  Office.  It  is  therefore  based  on  specific  criteria  enabling  it  to  cover  a  broad 
geographical area and assume significant  proportions. 

The  parameters,  reliability,  accuracy  and  percentage  of  errors  are  determined  using  the 
sampling charts of the Intervencion General for auditing subsidies. 

With  the  entry  into  force  of  Commission  Regulation  (EC)  No  2064/97  establishing 
detailed  arrangements  for  the  implementation  of  Council  Regulation  (EEC)  4253/88  as 
regards  the  financial  control  by  Member  States  of  operations  co-financed  by  the 
Structural Funds, the criteria for selecting recipients for inspection have been changed, so 
that at least 5% of total eligible expenditure must now be covered. 

The  provisions  of  the  Community  Regulations  have  been  incorporated  into  the  Spanish 
rules, which also take account of the philosophy of ex post  checks on aid. 

Ex ante checks 

Annual  ex  ante  checks  are  carried  out  by  officials  of  the  Autonomous  Communities,  in 
each  case  following  the  model  application  form  proposed  for  this  purpose,  which 
contains - in summary form  - the following  information: 

43 

s 

applicant's details; 

signed original of the application  form; 

photocopy of the applicant's national identity card; 

photocopy of the national identity card of the applicant's spouse; 

evidence of ownership of the holding; 

income declaration; 

agricultural social security card and receipts; 

details of the holding; 

applicant's address if different  from  address on identity card; 

certificate  of registration; 

livestock card; 

title  deeds,  tenancy  agreement  and  other  supporting  documents  relating  to  the 
applicant's holding. 

None  of  these  documents  necessarily  constitutes  official  accreditation  of  either  the 
existence  of  the  movable  or  immovable  property  or  that  of the  owner  or  tenant,  so  that 
the inspection proper takes place at this stage. 

Inspections are carried out in two stages - the administrative review of cases and  on-farm 
visits. 

During the first stage the documentation contained  in the file, which must be complete, is 
subjected to scrutiny. 

Each of the departments (Consejerias) whose technical teams are permanently engaged  in 
assessing,  monitoring  and  processing  aid  of all  kinds under both the  EAGGF  Guarantee 
and  Guidance  Sections  take  as their  point  of departure  the direct  knowledge  which  their 
staff have of agricultural  holdings. There are around  800 of these offices  where the actual 
files are compiled and the verification  and control system operates. 

Some  farmers  are  known  to  staff  personally,  whilst  others  are  identified  by  means  of 
documents. 

Additional  checks  are  carried  out  by  means  of  interviews  with  applicants  to  verify  the 
documents  they  are  required  to  submit,  particularly  where  the  direct  knowledge  of  the 
persons concerned  is rather incomplete. 

44 

Interim  assessment 

This  is  a key  component  of the  monitoring  system  as  it  serves to  improve  management 
and allows for the necessary adjustments  during  implementation. 

At  the  informal  meeting  of  Ministers  in Madrid  on  30 November  to  1 December  1995, 
the Spanish Presidency presented  a questionnaire on national practices as regards  interim 
assessment.  Some  Member  States  with  more  experience  in  this  field  wanted  to  see  the 
methods they had developed being incorporated more directly, which shows the extent to 
which national rules and evaluations in this field have evolved. 

Responsibility  for  this  type  of  assessment  falls  directly  on  Member  States,  and 
assessments  should  be  carried  out  by  outside  staff,  i.e.  by  institutions  which  are 
independent  of  the  authorities  involved,  as  is  the  case  in  connection  with  the 
improvement of agricultural structures! 

The  interim  assessment  for  the  year  covered  by  the  report  was  performed  by  the 
Monitoring Committee, which makes regular appraisals of the scope of each programme. 

Over  the  financial  year  a  number  of  meetings  were  held  by  the  Directors-General 
responsible  for  agricultural  structures  in each  of  the  Autonomous  Communities,  as  well 
as special meetings and bilateral meetings between the Monitoring  Committees and each 
Autonomous  Community. 

As regards  the alleged  anomalies  detected  by the  Court,  it  should  be borne  in mind  that 
the income per MWU or ALU (agricultural  labour units) may be lower than that  initially 
indicated  in the improvement  plan  because  of  disastrous events  in a given  sector  in that 
year, such as a fall in prices. As for the inaccuracies in the calculation of ALU, it is worth 
pointing out that the reference  income in an agricultural holding is an indicator that  must 
be  taken  into  account  in  the  granting  of  aid,  which  is  always  paid  later,  and  that  for 
various  reasons  the  harvest  or  production  of  the  holding  may  be  much  higher  than  was 
expected  when the aid was granted. As a consequence, the final financial results  may be 
at  odds  with  the  reference  income  used  as  an  indicator  on  the  date  when  the  aid  was 
granted. 

Economic  factors  such  as  these  may  affect  the  particular  year  which  happens  to  be  the 
one in which checks are made by the units responsible, but this does not necessarily  mean 
that  the  aid  was granted  unduly,  since  other,  more  reliable  factors  will  have  been  taken 
into account in the calculation, such as average production over a number of years. 

Aid  is  approved  with  a  view  to  a  particular  task  or  activity  (a  specific  irrigated  surface 
area of a particular crop corresponds  to a reasonably  stable  workload  measured  in ALU) 
and  the  management  bodies  assign  the  workload  or  quantity  of  ALU  required  for  each 
agricultural activity (including stock-farming)  accordingly. 

Because  of  the  criteria  applied,  the  party  concerned  must  be  asked  to  produce  reliable 
documentary evidence of the workload  (e.g. agricultural  social security documents). 

If  the  agricultural  holding  is  family-run,  it  is  sometimes  impossible  to  identify  the 
workload  of  a  particular  activity  if  the  various  criteria  applied  by  the  management  and 

45 

control  bodies  are  taken  on  board.  The  proportions  of  work  done  by  the  farmer  himself 
and by his family  may not coincide with the official  documentation  which they are asked 
to  produce  at  a  given  time,  so  that  in  some  cases  the  ALU  are  not  supported  by 
documentary evidence although the workload is correct or even higher than required. 

As  regards  the  lack  of  transparency  in justifying  investments,  a  distinction  should  be 
drawn  between  movable  and  immovable  property.  In  the  case  of  movable  property 
(acquisition of machinery or livestock) there have, as a rule, been no inaccuracies  and the 
quantity  of  goods  acquired  corresponds  to  the  amount  entered  in  the  invoice  for  the 
Supply of the goods in question. 

In the case of investment  in immovable property, the amount  invested  will  also  coincide 
with  the  invoice  in  respect  of  installations  where  no  labour  is  required  for  assembly 
(electricity  supplies,  transformers,  mobile  pump  units,  refrigeration  systems,  etc.). 
However,  in rural  areas there are many types of investment  which constitute  immovable 
property  but,  coming  under  the  category  of  civil  construction  work,  also  incorporate  a 
great  deal  of  labour  on  the  part  of  the  farmer  and  his  family  (e.g. ' digging  ditches, 
building  walls, helping  construction  workers, transporting  materials  by  own  means  such 
as tractor and  trailer, and direct or auxiliary  building work). Accordingly,  in  determining 
a unit of  labour  no account  has been taken of the value  added  by  the  farmer  himself,  his 
own machinery or the family  contribution where perhaps only some of the  documentation 
and invoices demanded could be produced, without arriving in most cases at a total  figure 
for the construction work in question. 

Ex post  evaluation 

Ex post  evaluation  is carried out  systematically  by the Ministry  for Agriculture,  Fisheries 
and  Food.  The  system  is being  improved  at  present:  the  technical  and  human  resources 
required  for  implementation  are  being  revised  and  changes  are  being  made  in  line  with 
the new Regulations which have already entered into force. 

Programme  94ES06016  under  budget  item  B2-1000  (EAGGF  Guidance  Section)  is  at 
present  managed  by  the  Subdirectorate-General  for  Training  and  Innovation  in  the 
Ministry  for Agriculture, Fisheries and Food. 

Since  the  Ministry  was  restructured  in  1997,  the  compensatory  allowances  part  of  the 
programme  has  been  run  by  the  Subdirectorate-General  for  Rural  Development  and  the 
remaining  measures  under  Regulation  (EEC)  950  by  the  Subdirectorate-General  for 
Training and  Innovation. 

*t> 

There are various methods for defining  a significant  sample, but the one  laid down  in the 
sampling  charts  of  the  Intervenciôn  General  was  deemed  to  be  the  most  appropriate. 
Thus,  a  statistically  significant  sample  is  obtained,  with  an  appropriate  degree  of 
significance  and  accuracy,  taking  into  account  the percentage  of  cases  found  wanting  in 
previous years. 

However,  under  Article 3(2) of  Regulation  (EEC) No 2064/97, the representative  sample 
must  cover at  least  5% of total  eligible  expenditure, a figure that  was  reached  in  1998 in 
relation to payments made the previous year. 

46 

Paragraphs 8.42-8.45:  In 1996 inspections were made on the compensatory allowances 
for both 1994 and 1995, as the 1994 allowances had not been checked in 1995. 

Inspections  for  both  years  were  carried  out  on  1  621  randomly  selected  recipients, 
corresponding  to  1% of the total number of claims received from  farmers  who actually 
received 
in  various  Autonomous 
Communities. 

the  allowance.  The  inspections  were  made 

Castile-La Mancha had conducted its own inspections, but not the requisite  1%, so that it 
had to carry out more to attain the same percentage as the other Communities. 

The table below shows the number of inspections carried out in the various Autonomous 
Communities in 1994 and 1995. 

AUTONOMOUS COMMUNITY 

1994 

1995 

ANDALUSIA 
ARAGON 

ASTURIAS 

BALEARIC ISLANDS 

CANARY ISLANDS 
CANTABRIA 

CASTILE-LA MANCHA 

CASTILE-LEON 

CATALONIA 
EXTREMADURA 
GALICIA 

MADRID 

MURCIA 
RIOJA 
VALENCIA 
TOTAL 

' 

• 

__ 

81 
122 

128 

1 

9 __ 

46 

218 

4 89 

79 
88 
288 

5 

H 
_6 
_50 
1621 J 

81 
122 

128 

1 

9_ 

46 

218 

4 89 

79 
88 
288 

5 

11 
6_ 
50 
1621 

' 

. 

. 

1 

Once  the  Autonomous  Communities  had  submitted  the  findings  of  their  inspections, 
these were reviewed and in some cases mistakes were found. 

The numbers of cases in which the inspections were not up to standard and payments had 
to be reimbursed were as follows: 

Canary Islands 
1 
Castile-La Mancha  2 
3 
Catalonia 
2 
Galicia 
1 
Murcia 
1 
Valencia 
1 
Andalusia 
6 
Castile-Leon 

47 

The  Director-General  sent  a letter  advising  these  Communities  that  they  must  annul  the 
decision to grant aid in order to request repayment from thé recipients concerned. 

The  number  of cases  in which the  allowances  were  repaid  by  recipients  and  returned  to 
the Treasury in  1997 are given below (number of recipients and amounts repaid): 

1994 
Andahisia 
Murcia 
Catalonia 

1995 
Andalusia 
Murcia 
Catalonia 
Valencia 

1 
1 
1 

1 
1 
3 
1 

(PTA 35 000) 
(PTA 18 918) 
(PTA 38 038) 

(PTA 36 750) 
(PTA  19 287) 
(PTA 39 942, PTA 36 979 and PTA 64 056) 
(PTA 37 949) 

The remaining Autonomous Communities have yet to annul the decisions to grant aid. 

Paragraph 8.58: From  15 to  19 July  1996 the Court of Auditors made an inspection visit 
to Galicia to audit the management of the EAGGF Guidance  Section. 

In response  to the  observations  on operational  programmes  at point  6 of the  final  report 
on  Operational  Programme  90.ES.06.013,  a  document  was  drawn  up  indicating  the 
amounts which had been paid in each case in each year of the programme's operation and 
which had then been included in the relevant annual reports. 

a) 

b) 

The list of projects carried out thus covers all investments paid per case during the 
eligible period. The cases were incorporated  as and when the planned  investments 
were  made,  including  any  changes  approved  during  implementation  for  various 
reasons, which are duly substantiated  in the relevant administrative file. 

Responsibility  for  monitoring  the  implementation  of  projects  falls  to  the 
provincial departments. For each project  an expert  is appointed  project  supervisor 
and  given  the  task  of ensuring  that  the  work  is properly  executed,  in  accordance 
with the contract specifications.  To this end he or she produces the documentation 
required  in each case: monthly  certification  of work  completed,  order book,  tests 
on  materials,  load  tests,  measurements,  etc.  For  example,  in  one  of  the  cases 
inspected  (XR-2715),  the  technical  documentation  which  wras  requested  and 
supplied  related  to  tests  on  residual  bitumen  on  asphalt  roads,  the  resistance  of 
concrete and the degree of compaction. 

Paragraph  8.59  A): Case XR-2715  (Reparcelling  in  Santa  Maria  de  Dodro)  concerns  a 
project  to build  roads as part of the plan of works and  improvements  in connection  with 
reparcelling  in  Dodro.  The  project  is  being  implemented  at  a  time  when  the  actual 
process of reparcelling has yet to be completed. 

Given  the  stage  reached  in  the  reparcelling  process  in  the  area  visited  by  the  Court,  all 
that  is visible  are  the  old  farms  made available  by  their  owners  and  the projected  routes 

48 

of  the  network  of  roads  which  will  serve  the  newly  distributed  properties.  The  new 
parcels have still to be allocated. 

In  view  of  the  scattered  population  in  Galicia  it  is  perfectly  normal  that  the  owners 
should have houses on the plots they have made available. 

It  is  not  possible  that  parts  of  the  parcelled  land  could  have  been  sold  for  industrial 
purposes for the simple reason that there are no reparcelled plots in that region. 

Furthermore,  Article  26  of  the  supplementary  provincial  planning  rules  {Normas 
complementarias y  subsidiarias  del Planeamento Provincial), referring  to the Regulation 
on designated green areas for the protection of farming, states that, 

"Plots  of  land  shall  be  so  defined  where  they  merit  special  protection  because  of  their 
actual  or  potential  productive  capacity  for  farming  and  must  therefore  be  preserved  for 
these uses. 

This category shall include at least: 

-  areas which have been reparcelled or will be reparcelled in  future." 

Paragraph 8.59 B): 

1) 

2) 

3) 

* 

The minutes of the meeting  on 5 July  1993 of the Monitoring  Committee  for  the 
Operational  Programmes  coming  under  priority  4.4  of  the  regional  sub-
framework  for  Galicia  include  a  request  "for  the  inclusion  in  programme  No  1 
(Reorientation  and  improvement  of  wines)  of  a  sub-programme  covering 
assistance  for  fairs to promote quality, including the expenditure  needed  to set up 
stands  for  that  purpose,  the  representative  of  the  Commission  of  the  European 
Communities  being  prepared  to  accept  any  type  of  exhibition/tasting  of  local 
Galician wines at national level, excluding any advertising." 

Galicia  is  unable  to  produce  goods  for  the  outside  market  mainly  because  of  its 
remote  location,  poor  communications,  large  rural  population  and  other  factors, 
so that much of its production  is for internal consumption  and, as a result, it does 
not have much experience  in other markets. There is therefore  a need  to  promote 
measures  aimed  at improving the process  of integration  into  the  market,  such 
as  visits 
land-uses, 
designations of origin, brands, qualities which constitute commercial assets with a 
significant  competitive value, capable in themselves of offsetting  any  competitive 
disadvantages in terms of cost and price. 

identification  of  productive 

to  specialised  fairs,  the 

The  aims  of  this  sub-programme  were  to  develop  certain  économie  activities  or 
certain  brands  and  to  promote  the  marketing  of  their  products,  to  encourage 
products  which  are  not  in  surplus  and  alternative  products  and  to  diversify 
production.  Investment  or  expenditure  under  this  sub-programme  was 
designed  to promote quality  rather sales within collective measures or  schemes 
relating  to  products  with  a  specific,  quality-conscious  market  and  agricultural 
products of proven quality. 

49 

FINLAND 

FINANCE MINISTRY 
Budgets 

10.3.1998 

COURT OF AUDITORS'  ANNUAL REPORT CONCERNING THE FINANCIAL YEAR  1996 

Points concerning Finland - Finland's  replies 

^ 

In  its  letter  of  22 January  1998  (ref.  XIX/01/AP  D(97)),  the  Commission's  DGXIX 
(Budgets)  asked  for  the  replies  to  the  comments  concerning  Finland  in  the  Court  of 
Auditors'Annual Report on 1996. 

•  Chapter  3  -  Market  organisations 

-  plant  products;  reliability  of  the  statistics  -

paragraph 3.29  ;. 

•  Chapter  6  -  European  Regional  Development  Fund;  the  new  Objective  6 

-

paragraphs  6.7-6.8 

The Finance Ministry contacted the Ministry of Agriculture and Forestry and the  Interior 
Ministry  about  these  matters.  The  following  replies  are  based  on  the  information  they 
provided. 

Chapter  3  -  Market  organisations  -  plant  products;  reliability  of  the  statistics  -
paragraph 3.29 

(Reply based on information provided by the Ministry of Agriculture and Forestry) 

Finland is  surprised at the idea that the yield from Finland's base area is derived  from  a 
base  area  whose  size  was  initially  incorrectly  estimated.  The  Finnish  base  area  was 
calculated  using  the same criteria  as  for  the  other  Member  States. The base currently  in 
use  in  Finland  is  smaller  than  the  base  agreed  in  the  accession  negotiations.  This  is 
because, before  accession, long-term  contracts to limit production were concluded  which 
were counted  as part of the base  in accordance  with Regulation  1765/92. But not  all  the 
areas  went  back  into  production  after  accession.  However,  the  rate  of  utilisation  of  the 
base  area  has  increased  over  the  last  few  years.  In  Finland's  view,  decisions  to  start 
cutting out the unused area should not be taken without due consideration, given that  the 
size  of the  area  was  agreed  during  the accession  negotiations  and the utilisation  rate  of 
the  base  area  has  been  steadily  growing  in  Finland.  If  the  size  of  base  areas  is  to  be 
estimated,  then  it  should  be estimated  for  all  Member  States, in which case  it would  be 
necessary to examine whether the production requirements for land laid down in Article 9 
of Regulation No  1765/92 have been observed. 

Chapter 6 -  European Regional Development Fund; 
the new Objective 6 -  paragraphs  6.7-6.8 

. 

(Reply based on information  provided by the Ministry of the Interior) 

The  annual  report  criticised  Finland  and  Sweden  for  being  slow  to  implement  the 
Objective 6 programme. 

In its report on  1996 the Court of Auditors found  that, on balance, implementation  of  the 
programme was progressing reasonably well with regard to business projects. 

54 

Finland  has  been  investing  heavily  in  developing  this  area  through  national  measures 
since  the  1960s.  There  is  therefore  a  well  developed  infrastructure,  which  serves  as  a 
good starting point for more varied economic-development measures. 

The  strategic  aim  of  the  Objective 6  programme  is  to  promote  enterprise,  enhance 
business's  competitiveness  and  safeguard  the  quality  of  life  in  remote  rural  areas. 
Finland's  Objective  6 area, the sparsely  populated  northernmost  region  in  the  European 
Union,  is  at  a  permanent  competitive  disadvantage  compared  with  all  other  European 
regions.  As  a  result  of  its  position  the  region  has  suffered  from  low  output  and  high 
structural unemployment and increasing depopulation. 

As  stated  in  paragraph  6.5,  the  Commission  adopted  a  single  planning  document  for 
1995-99 on  11 July  1995. Consequently  actual  implementation  of the programme,  based 
on Finland's  development  plan, did  not  start until  the second  half  of  1995.  At  the  same 
time  as  reshaping  regional  development  structures,  the  programmes  generate  new 
cooperative  structures  at both  central  and  regional  level. The administrative  systems  for 
the  programme  were  being  set  up  at  the  same  time  as  the  programme  was  actually 
starting. Furthermore, some of the national support systems to be used in the  programme 
were not reported until summer  1996. Moreover, since implementation of the  programme 
is  progressing  in  accordance  with  the  chosen  development  strategy  -  through  small 
development  projects  rather than through big infrastructure  projects -  it has taken  longer 
to launch the programme. 

However, in spite of this, the current state of implementation can be deemed  satisfactory. 
In  late-1996  and  throughout  1997,  there  was  a  marked  increase  in  the  rate  of 
implementation  in both commitments  and payments provided  for  by the programme.  By 
the  end  of  1997, 52.5% of EU  funding  for  the  whole  programme  had  been  allocated  to 
projects  by  the  relevant  authorities. The  figure  for  ERDF  funding  was 48.6%.  Payments 
at that time amounted to ECU  159 million, with 28% coming from the EDRF. 

However, payments for some projects have been slow. Those involved are trying to  solve 
the problems  and  are  learning  how to budget  with EU funds.  Finland  is trying  to  ensure 
that  EU  appropriations  allocated  to  business  projects  are  used  productively  during  the 
period covered by the programme. 

fL 

FRANCE 

NOTE FROM THE FRENCH AUTHORITIES 

Subject: 

Comments from the French authorities oh the Court of Auditors' 
annual report 

Chapter 1:  Own resources 

Paragraph  1.60 

Failure to retrospectively verify  the rates of yield in inward processing  operations 

A reminder of the need to ensure that the rules on inward processing are strictly  observed 
has  been  sent  to  all  departments  of  the  Directorate-General  for  Customs  and  Indirect 
Taxation. 

It was pointed out that: 

- 

the rates of yield  specified  by the companies concerned  must be  checked  by  customs 
laboratories before any authorisation (or renewal of authorisation) is granted; 

-  samples of the goods being imported and the compensating product must be taken  on 

a regular basis; 

- 

the existence of any secondary compensating products must be investigated; 

- 

rates of yield must also be checked in the company records. 

Paragraphs  1.74,1.75 and 1.77 

The^Ivorv Coast tuna" case:  Recovery measures 

The  provisions  of  Protocol  No  1 of  the  Lomé  Convention  lay  down  a  procedure  for 
checking EUR  1 certificates  which requires importing countries to wait for the  exporting 
country's reply before  initiating recovery measures. 

During  the  six-month  period  allotted,  therefore,  the  French  customs  were  unable  to  act 
between the  date  on which a request  for  a check  was  sent and  the end  of the  6th  month 
following  the reiteration  of the request.  The order was therefore  suspended,  and  the  case 
is before the French courts. 

Moreover,  the  importers  concerned  have  appealed  to  the  Customs  Conciliation  and 
Arbitration  Committee  (CCED),  as  they  are  entitled  to  do  under  Article  450  of  the 
national customs code. This appeal cannot be regarded as an unnecessary  prolongation of 
procedures constituting an administrative obstacle to the recovery of the duty  evaded. 

Article 450 of the customs code is a legal provision which gives operators an  opportunity 
to seek  the opinion  of the CCED  if the tariff  description,  value  or  origin  of  the  goods  is 
contested.  This  Committee  is  chaired  by  a  judge  and  may  order  any  interviews, 
investigations  or  analyses  it  considers  necessary.  The  CCED  must  inform  the  parties 

• 

5* 

'• 

concerned of its opinion within twelve months, during which time the running of periods 
of limitation is suspended. 

Once  the  CCED  had  ruled  that  the  disputed  certificates  of  origin  were  invalid,  the 
customs  authorities  requested  that  the  parties  concerned  be  asked  to  pay  the  relevant 
duties,  and  that  consideration  of  the  surplus  be  deferred  until  the  ACP-EEC  Customs 
Cooperation Committee, which is responsible for ruling on disputes on the  interpretation 
of the Lomé Convention, had reached a decision. 

Textile imports from  Jamaica 

Investigations  by  the  National  Directorate  for  Information  and  Customs  Investigations 
(DNRED) of several  importers of textiles declared  as originating  in Jamaica showed  that 
the stamps on the certificates  of origin were not official  stamps. 

The suspect  stamps were sent to the Jamaican  authorities  for  verification,  but they  found 
that the majority  of them were in order. 

Consequently,  it  was  decided  that  the  amounts  received  should  be  reimbursed  and  that 
ongoing court action  and any pending cases should be dropped. 

Paragraph  1.107 

The Court's  assertion  that the production  of a report  is equivalent  to the  communication 
of the amount of the customs debt and stops the running of the period of limitation  needs 
to  be  qualified.  The  establishment  of  an  infringement  by  the  production  of  a  report  is 
usually  confined  to complex cases discovered  during  ex post  checks. In such cases, only 
the final report containing  the description of the infringement  and the amount  of the  debt 
constitutes the communication of the customs debt to the debtors. However, reports made 
during the course of investigations, which help to establish that an infringement  has been 
committed  (concerning  the  communication  of  documents,  interviews  etc.)  are  not 
equivalent to the communication of the customs debt. 

Paragraph  1.09 

The French authorities systematically  suspend implementation of the recovery  procedure 

A.  This paragraph  contains two assertions: 

1. 

The  request  to  pay  the  debt  within  10  days  should  be  entered  .in  the  report. 
(Article 222 (1) of the Community  Customs Code). 

As  indicated  to  the  Court  in  the  reply  to  the  findings  of  the  audit  carried  out  at 
DNRED and  at Le Havre between 2 and  7 June  1996, instructions  will  shortly  be 
given on this point. 

5T 

2. 

So long as the customs debt has not been recognised by the debtor or upheld by 
the  courts,  the  French  authorities  suspend  the  recovery  procedure  while  the 
conditions  for  such  suspension,  as  laid  down  in Article  244  of  the  Community 
Customs Code (particularly the requirement of a guarantee), have not been met. 

This assertion is untrue. As indicated in the above reply to the Court, the lack of a 
request  for  payment  in  the  report  does  not  mean  that  the  authorities  have 
suspended  the  recovery  procedure.  At  the  end  of  the  10-day  period  mentioned 
above: 

- 

if  the  debt  is  not  contested,  steps  are  taken  to  recover  the  debt  through  legal 
channels,  by  means  of  enforced  recovery,  for  example  (see  Article  345  of  the 
national  customs  code),  and  if  the  recovery  of  the  amounts  due  is  likely  to 
compromise the debtor's financial  situation, the customs authority may allow the 
debt  to  be  paid  through  a  staggered  payment  plan,  with  the  provision  of  a 
guarantee. 

-  recovery is suspended if there are difficulties  in establishing the exact "amount of 

the debt because it is being contested by the debtor, that is: 

•  when the debt is forcibly collected, the basis for it may be contested and it 

may be cancelled by a judge, 

•  when the CCED is the competent  body  (see  Article  441  onwards  in the 
national  customs code), the debtor has two months to refer the matter to 
that body following a deferred or ex post  check (Article 450). In this case, 
the recovery is deferred arid entered in the separate account. 

B.  With regard  to the conditions under which a deferment can be granted, the following 
general remarks can be made: 

The  French  authorities  have  pointed  out  on  several  occasions  the  problems  with  the 
application  of  Article  244  of  the  Community  Customs  Code  on  ex  post  recovery 
proceedings. Under Article 243(2)(a)  (first phase), the obligation to provide  a guarantee 
in  the  case  of  post  clearance  establishment  is  difficult  to justify:  the  guarantee  is  the 
equivalent  of  the  goods,  which  in  this  case  are  no  longer  in  customs  storage  and  no 
longer constitute security against duties. Furthermore, requiring a guarantee infringes the 
rights of defence of the debtor, in that the disputed debt has not yet been established. 

This is why, under French law, if the debtor refuses to recognise the debt, the obligation 
to provide a guarantee is subject to the authorisation of a judge. 

Under  Article  243(2)(b)  (second  phase),  the  appeal  is  brought  either  before  an 
independent authority, the Customs Conciliation and Arbitration Committee, or a judicial 
authority.  In this  case, the appeal  must be conducted  in accordance  with the  law  of the 
Member State. 

• • 

However, there is no provision in the national customs code requiring a guarantee to be 
lodged when a matter is referred to the Customs Conciliation and Arbitration Committee 
as a result of an ex post  check. When the matter is brought before a judicial authority, the 
latter has sole competence to decide on the safeguard measures proposed by the customs 
authority. 

The principle  of the  guarantee  requirement  is rendered  all the more questionable  by  the 
fact  that  financial  institutions  will  not  provide  a  guarantee  when,  as  the  basis  for  it  is 
being contested, there may  or may  not be  a customs debt. This  also holds true  for  cases 
brought  before  the courts, where judges  are  reluctant  to order a guarantee  except  where 
there are Clear grounds. 

Chapter 3: Market organisations - Plant products 

Paragraph 3.17 (b) (c) (f) 

(b) It is true that France did not include maize forage areas for small producers in  1994 as 
the application form  did not provide  for this information.  The Court concludes  from  this 
that the  absence  of the  figure  led  to  an  underestimate  of the overshoot  in  1994. This  is 
true, but these areas are incorporated  in the national base area for  other crops. If they  are 
to be  attributed  to  the maize  base  area, they  should  be removed  from  the  national  base 
area, which lessens the overshoot for that base area. 

- 

-

(c) It is also true that France used a percentage set-aside figure of around  15% for maize. 

It  should  be  noted  that  Community  legislation  is  not  very  explicit  with  respect  to  the 
set-aside  rates  to  be  used  for  the  maize  base;  from  1995  onwards,  the  Commission 
EAGGF departments  specifically  asked  us to adjust  set-aside to area on a pfo  rata basis, 
France immediately put this request into practice. 

Moreover,  French practice  in this area has not resulted  in additional  budgetary  expenses 
but rather penalised France itself in financial  terms. 

If  the  average  departmental  rate  is  taken  as  the  set-aside  rate  for  the  maize  base,  the 
maize base area increases but must be subtracted  from  the area for other crops. The result 
is that  if the overshoot  of the maize base  increases, the national  "other  crops"  overshoot 
will decrease. 

The maize payments  will  fall,  but  this will  be compensated  by the  increase  in  payments 
to producers of the national "other cereals" base. 

On  points  (b)  and  (c),  France  has  produced  a  simulation  of  the  financial  impact  of  the 
provisions contested by the Court in  1994; by attributing an average departmental  rate of 
set-aside  to  the  maize  base,  not  generalising  the  overshoots  of  bases  and  taking  the 
number  of  hectares  of  small  producers'  maize  forage  areas  for  1995  (8000),  the  total 
overshoot  for  the  maize  bases  would  be  8.3%,  rather  than  the  2.7%  applied,  but  only 
1.0% for the large base (rather than the  1.3% applied). 

These  figures  show that the  adjustment  to the maize base overshoot  for  1994  goes  hand 
in hand with a shortfall  for the other cereals base.  In view of the payments made for  each 
of  the  bases, the  overall  effect  of  the  French  method  is  in the  Community's  rather  than 
France's  favour. 

The  same point  could  be  made  for  the  1995 harvest,  where Community  budget  interests 
did not  suffer. 

S} 

Paragraph 3.22 

The  Court  points  to  the  increase  in  the  average  national  cereals  yield  between 
August  1992 and  31 March  1993, from  5.95  tonnes/hectare to  5.97  tonnes/hectare.  This 
increase  is not without justification,  as the  Court  suggests. France has already  explained 
that between August  1992 and March  1993, the figures include the area and production  of 
sweetcorn, and that the figures  submitted to Eurostat incorporate the areas used for  game, 
while  the  production  figures  sent  to  Eurostat  are  actual  production  figures,  which 
consequently  do  not  include  the  production  on  game  areas. This  is why  the  production 
from  game  lands  had  to  be  reincorporated  into  the  total  production  figures.  The 
incorporation  of  sweetcorn  (eligible  for  compensatory  payments)  and  the  production 
from game areas explains the 0.2 tonnes/hectare difference.  These figures  have been  sent 
to the Commission. 

Also,  the  Member  States'  yield  statistics  are  based  on  the  1986-1990  figures.  In 
accordance with the levelling-off principle, different  years should be excluded  according 
to the yield regions indicated in the régionalisation plan, which leads to slight  differences 
at national level. 

Paragraphs 3.23,3.24,3.26 and 3.28 

The  customary  French  yield  of  59.7  quintals/hectare  has  always  been  maintained, 
whatever the amendments to the plan. 

With respect to the  practices  of equalisation  and  applying  ceilings, these were  approved 
by the Commission. 

Overshoots  certainly  did  occur  in  France.  During  the  1994/1995  marketing  year,  the 
overshoot  for  the maize  base  was  2.7% and  the  overshoot  for  other crops  was  1.3%.  In 
1995/1996, the overshoot for the dry maize base was 0.4%, that for the national  irrigated 
base 3.8%o and that for the national dry base 1.5%. 

The  yield  stabiliser  was  not  introduced  to  penalise  Member  States  which  adopted  a 
simpler plan, but those which adopted a complicated régionalisation plan. 

The  yield  of  6.02  tonnes/hectare  is the  average  yield  resulting  from  the  régionalisation 
plan  applied  in  1993, in  accordance  with  the  fifth  indent  of Article  3 (1)  of  Regulation 
No  1765/92. This yield was fixed by Regulation No  1237/95 of 31 May 1995. 

Paragraph  3.29 

As indicated  in reply to paragraph  3.22, there  is a difference  between the  statistical  data 
sent to Eurostat and that which was used to establish reference  yields and base areas. To 
use the standard  error figures  on the  figures  sent to Eurostat  and  conclude  that  there  has 
been an under or overshoot of the base areas seems somewhat suspect. 

sf 

Paragraph 3.36 

In France, the forms  do not allow the  linking  of fields, which  are  split  into two  or  more 
crops, to the cadastral location of the parcels involved. 

This assertion is false: there are two forms of declaration in France 

- the simplified  arrangements for small producers; 

- the general arrangements for producers who are obliged to set aside land; 

For the simplified  arrangements, the farmer declares the crop for each cadastral parcel. If 
a cadastral parcel includes two or more crops, the area of each is detailed for each parcel. 

For  the  general  arrangements, 
the  declaration  is  made  by  production  block,  in 
accordance  with  Article  3  of  Regulation  (EEC)  No  3887/92.  A  production  block  is 
defined  as  an  entity  made  up  of  cadastral  parcels,  which  is  uniquely  identified  in  the 
alphanumeric  identification  system  common  to  both  forms  of  declaration:  the  official 
land register (cadaster). 

The  identification  system  cannot  operate  at  the  level  of  agricultural  parcels;  the 
boundaries  of these  are  variable  by nature  when  a  field  is  divided  into  two.agricultural 
parcels (different  uses of the land). So whether the declaration  is by production  block  or 
cadastral  parcel,  when  a  management  unit  (a  cadastral  parcel  or  production  block)  is 
divided  into  two  or  more  agricultural  parcels,  it  is  impossible  to  know  where  they  are 
situated,  except  that  they  are  located  within  a  particular  management  unit  (production 
block or cadastral parcel). 

So there is nothing to choose between declaring the area in production blocks or cadastral 
parcels.  If  the  management  unit  and  the  agricultural  parcel  are  identical,  the  latter  can 
easily  be  located.  However,  if  the  management  unit  has  two  different  agricultural  uses, 
the  entity  covering  these  two  uses  is  easily  located,  although  it  is  impossible  to  know 
where exactly each of the two is located within the management unit. 

Paragraph 3.37 

The  observation  relates  to the  fact  that  the preprinted  MSA  (Mutualité  sociale  agricole) 
form  was  not  systematically  submitted  by  all  the  applicants,  although  for  the  last  year 
under  consideration,  the  document  was  submitted  by  a  majority  of  them.  France  has 
taken  steps  to  ensure  that  this  situation  does  not  weaken  the  checks  carried  out  on  the 
areas declared.  To this end, appropriate  measures  were taken  in accordance  with  Article 
17(1)  of  Regulation  (EEC)  No  3887/92,  including  requesting  that  farmers  justify  their 
right  to  farm  the  land  they  have  declared  as a precaution  against  dual  declarations,  and 
doubling the rate of on-the-spot checks. 

The  officials  from  the  Court  of  Auditors  who  carried  out  extensive  investigations  to 
ensure that French farmers had not declared greater areas than they were actually  farming 
in  1993  and  1994  -  with  a  view  to  changing  attitudes  for  1995,  when  the  automatic 
checking  of  parcels  was  introduced  on  a general  basis  -  were  able  to  set  their  minds  at 

C9 

rest: no case which could possibly justify  the  doubts  expressed  by the  Court  has ever 
come to light. 

Paragraph 3.40 

The French authorities have never been able to identify the weaknesses referred to by the 
Court. 

Paragraph 3.42 

"In France 
late for being used before 1996." 

final design of the land parcels register was not ready until mid-1995, too 

The French authorities wonder what the reason  is for  this remark, which ends a purely 
descriptive  paragraph  on  the  methods  of  listing  parcels  used  in  the  Various Nïember 
States  as  the  alphanumeric  system  for  parcel  identification  recommended  by  the 
integrated control system. 

It  seems more  logical  to us that this observation,  which we do not  contest,  should be 
made in paragraph 3.46, in which, after it is stated that Italy is the only Member State in 
which cross-checks have been carried out since 1993, it is pointed out that: 

- in England, computerised cross-checking has been carried out each year since 1993, but 
the programme required for exhaustive area checking needs further improvements. 

- the regions visited in Germany and Spain were ready in 1996, except for the exchange 
of data at national level (while in France, the up-to-date check on the 26 million parcels 
declared was carried out at the end of 1995). 

- at the end of 1996, the database and the alphanumeric system were still not  sufficiently 
developed  in Greece, Ireland and Portugal, which made efficient  administrative  checks 
such as cross-checks impossible. 

Paragraph 3.47 

During  the  development  of  the  computerised  cross-checking  programme,  a  bug  was 
unfortunately  detected after the programme had been released nationally. This error was 
identified  and corrected immediately by means of additional lists which were distributed 
to the farmers concerned and to the departmental services (DDAFs) on 22 March 1996. 
These lists included all the parcels for which alerts were raised during initial processing 
(the  programme  was  unable  to  check  duplication  when  the  parcel  was  located  in  a 
merged local authority, where the prefix of the section is required to differentiate  the two 
parcels of the same names in the merged local authorities). While this error complicated 
the task of the administrative departments, it was identified  and corrected as quickly as 
possible, in such a way that the overall quality of the checks was maintained. France is 
surprised that the Court is casting a lingering doubt over the quality of the checks carried 
out on the areas declared for  1995, when the malfunction  identified  by an official  of the 

Court  during  the audit  of the system  at  Bar  le Duc on 20 March  1996 was explained  to 
him at the time and the proof he requested was sent to him in Luxembourg  on 22  March 
1996. 

Paragraph 3.48 

In France, for the comparison of the surfaces declared with the land register, tolerances of 
up to 50 ares are allowed. 

Checks on parcels in France allow a tolerance of no more than 2 ares, which is the lowest 
measure which can be used, given that declaration rules specify  tha't the measurement  be 
rounded to the nearest are. 

Paragraph 3.49 

France  pays  a  large  proportion, of  the  area  aid  (almost  all,  in  fact  -  90-95%)  on 
16 October.  This  excludes  the  industrial  set-aside  payments,  which  are  only  paid  on 
16 October  to  those  producers  for  which  the  checks  needed  to  carry  out  administrative 
controls  have  been  completed.  Moreover,  the  completion  of  the  adjustments  which 
follow  the  checks  on  parcels,  which  is  by  nature  a  long  procedure  and1 most  often 
involves small  sums, has not been possible in some cases until after  the main payment  at 
the  end  of  October,  either  through  an  advance  on  the  oilseeds  payment  or  a  repayment 
order. 

There  is  clearly  no  question  of  fraud,  and  all  significant  anomalies  which  are  detected 
during the administrative checks result in non-payment. 

Paragraph  3.52 

In France, the majority  of the subjects  for  on-the spot checks are selected  on the  basis  of 
a  computerised  risk  analysis  system  which  makes  a  random  selection  of  applications 
based  on  an  algorithm  which  carries  out  a  simultaneous  selection  of  high  risk 
applications  and  a  random  selection  from  other  groups  of  applications  categorised 
according to risk  factor. 

The applications are then checked by the relevant department. 

It  is  inevitable  that  when  the  software  selection  of  cases  to  be  checked  is. made,  all  the 
applications will not necessarily be available. If this were the case, the on-the-spot  checks 
would be carried out too late in the year. To remedy this, the DDAFs ensure that a certain 
number of targeted checks are carried out, either the same year or the next year. 

One of the departments mentioned was checked using remote sensing in  1996, so the risk 
analysis software  was only  required  to provide a limited  sample, as most of the  selection 
was based  on the results of the remote  sensing.  Some applications  were also targeted  for 
on-the-spot checks following  the administrative checks. 

6A 

Given the modest  size of this sample, the software  selection  was carried out in July, at  a 
time when  1000 of the applications were not, indeed, available (8% of the total). 

Paragraph  3.56 

It may have  been  the case in the early years that the 48 hours advance  warning  was  not 
respected in some instances. This was not the case in 1996. 

The  producers  could  not  have  requested  advance  warning  of  48  hours,  as  the  period  is 
fixed and  is due to the time required by the postal service. A request for  an inspection  to 
be  deferred  is  not  normally  accepted  by the  authorities.  It  may  have  happened  in  some 
cases. In exceptional cases where the farmer is unavailable, the inspector will carry out an 
immediate  check  on  the  parcels  set-aside,  and  may  delay  the  rest  of  the  measurements 
and checks for a few days. 

Paragraph  3.57 

During  the  financial  audits of  1995 in the departments  of the Ardennes  and  the  Vosges, 
cases  were  found  where  students  reported  on  checks  which  were,  in  reality,  not 
performed. 

This is a very serious accusation, as it suggests that French checks may have been bogus. 
The  French  authorities  have  no  recollection  of  the  Court  of  Auditors'  reaching  such  a 
conclusion during their missions in 1996. 

In  view  of  the  seriousness  of  the  charge,  France  requests  that  the  Court  produce  the 
evidence  on  which  it  is  based,  so  that  the  French  authorities  can  initiate  an  immediate 
administrative  inquiry  -  which  they  would  already  have  done  if  the  reports  had  been 
brought to their attention, either during an end-of-mission  meeting or in a note. 

Paragraph  3.62 

In France, respect  for the rule which states that the area set aside must have been  farmed 
by  the  applicant  during  at  least  the  previous  two  marketing  years  was  not  checked 
administratively, nor even during field inspections. 

This is not true. The obligation to check that a parcel which has been set aside must have 
been  farmed  by  the  applicant  during  the  two  previous  years  is  explicitly .set  out  in  the 
instruction  manual  used  by  the  regional  divisions  of  the  ONIC  {Office  national 
interprofessionnel  des  céréales  -  National  cereals  board)  and  in  the 
inspector's 
instructions  distributed  to  every  field  inspector.  In  particular,  of  all  the  findings  of 
on-the-spot  checks  that  all  or part  of  an  area  declared  as  having  been  set  aside  in  1995 
could  not  be  identified,  65 cases covering  a total  surface  area  of  148.4 hectares  resulted 
from  failure to observe the two-year rule (1996 data: 49 cases covering 61.92 hectares). 

a 

Chapter 4: Common  organisation  of  the  market - Animal  products  - Beef  and  veal 
premium schemes and selected BSE-related measures. 

Paragraph 4.43 

The  statement  regarding  animals  which  are  excluded  from  entitlement  in  France  is 
incorrect.  The  calculation  of  the  density  for  suckler  cows  is  based  on  the  number  of 
animals declared, subject to an individual entitlements ceiling. 

Paragraph 4.55 

As the  Commission  emphasises  in  its reply,  the  suckler  cow premium  scheme  does  not 
require that each animal be identified.  The on-the-spot check should  establish that all  the 
animals for which the premium has been requested are present. The check must  therefore 
include a full  head-count.  As regards  the recording  of the identification  numbers  of  the 
cattle, it is legitimate, as the Commission  points out, not to carry out exhaustive checks, 
as a sample will show that the herd  is indeed  the one  for  which the application  has been 
made, and the cows are registered on the cattle list. 

Chapter 5: Certain procedural aspects of export refunds on beef and veal. 

Paragraphs  5.28-5.29 

Although  the  port  of  Caen  had  not  yet  been  approved  as  a  frontier  inspection  post  in 
1994-95,  it  must  still  be  emphasised  that  that  the  goods  referred  to  in  the  Court  of 
Auditors'  report  were  of  French  origin.  These  products  were  exported  to  Egypt  and 
returned by the Egyptian authorities to France. 

Moreover, by decision of 26 July  1995, the port of Caen was added to the list  of  frontier 
inspection posts approved for veterinary checks on goods coming from  third countries. 

Chapter 6:  European Regional Development Fund 

Paragraphs 6.24,6.27,6.28 

These points relate to the Basque country 02 OP, and therefore  concern Spain. 

Paragraph  6.66 

With respect  to the fact  that the firm repaid  ECU  100 000  in January  1996 and  that  this 
sum  was  still  on  the  list  of  eligible  expenditure  incurred'  in  March  1996,  it  should  be 
pointed out that this list was adopted on 31 December  1995, after  which date  repayments 
could no longer be taken into account. 

With  regard  to  the  sum  of  ECU  6  million  in  additional  national  aid,  the  procedure 
initiated  by  the  Commission  on  17  January  1995  refers  to  aid  of  FRF  160  million  in 

regional planning and ERDF grants and FRF 40 million for pollution control of the site. 
No other aid procedure was initiated. In any event, of an investment of more than FRF 
840 million,  it  should  be noted  that the ceiling  for  aid  (FRF 285  million,  or  34%)  is 
nowhere near being reached. 

Paragraph 6.69 

The aid of  FRF 2 million granted under the RESIDER  1 programme was used  to buy 
742 m2 of office space in the Metz technology park, to house the Apeilor association. 

This  association  works  for  the  benefit  of  Lorraine,  and  is  entirely  covered  by  the 
Structural Funds (Résider or Objective 2 or 5b). 

In any case, the subsidy rate of 25% corresponds to the part of the territory  covered by 
the RESIDER programme (50% of Lorraine), at the 50% ERDF rate. Moreover,  it can 
hardly  be  claimed  that  the  purchase  of office  space  counts  as "current  expenditure  of 
general government". 

Paragraph 6.75 

As  Eurefi 
is  a  transnational  Franco-Belgian-Luxembourg  structure,  the  French 
component  cannot  reply  to  the  Commission's  comments  on  practices  observed  in 
Belgium. 

Paragraph 6.95b) 

Nord-Pas-de-Calais 

r 

The  analyses  referred  to  by  the  Court  are  taken  from  a  study  on  the  restoration  of 
industrial  wasteland  in mining  areas, and a more  general  analysis,  based  on  UNEDIC 
employment statistics in areas which may or may not have benefited  from  grants for the 
restoration of derelict industrial land. 

The  original  report  shows  that  62%  of  the jobs  created  were  lost  in  the  two  years 
following the setting up of the project - not 65% of the jobs in a single year. 

Direct  investigations  at  the  firms  and  the  Onnaing  local  authorities  also  showed  the 
marked volatility of the firms set up on the restored land. 

To avoid this unfortunate result, the policy on the restoration of industrial wasteland was 
targeted more towards "environmental" restoration, which would ensure more sustainable 
growth  (minimum  75% of  grants)  rather  than  restoration  aimed  solely  at  economic 
activities. 

64 

Chapter 7: European {Social Fund 

Paragraph  7.18 

France  -  and  the  Commission  -  set  great  store  by  consultation  and  partnership. 
Membership  of the  monitoring  committees  covers  regional  councils  and  representatives 
from  the  two  sides  of  industry,  besides  State  representatives  (ministerial  departments 
concerned  by Objective  3). Participation by associations and NGOs was also  considered, 
but the proposal was dropped in the end. 

Paragraph  7.19 

The  Court  feels  that  the  role  of  the  monitoring  committees  should  be  enhanced  and,  in 
particular,  that  the  committees  should  be  involved  in  planning.  It  is  true  that  when  the 
1993  regulations  were  implemented,  the  monitoring  committees  had  not  been  set  up 
when  planning  took place.  Since  then,  despite the  unwieldy  nature  of these  committees, 
they have met regularly  and receive all the  information  which concerns them.  Unusually, 
the  committees  only  met  once  in  1995, because  the  delay  in  the  implementation  of  the 
programme meant that another meeting was not necessary, but they have met twice a year 
since 1996. 

Moreover,  the  committees  for  the  four  big  programmes  which  account  for  80%  of  the 
funds  (Objectives  3 and 4, ADAPT and EMPLOYMENT)  receive all the detailed  reports 
and  studies. Important  subjects  are  often  discussed  informally  with  individual  members 
of  the  committees.  Nevertheless,  the  supply  of  information  to  and  the  role  of  the 
monitoring committees could probably be improved. 

Paragraph  7.27 

While  it is undeniable  that  large firms benefit  more than  SMEs from  Social  Fund  grants 
under Objective 4, the same is also true for the state aids which are the counterpart  of the 
ESF. There are three possible reasons for this: 

- 

the complexity of drawing up applications; 

- 

the difficulties  with replacing employees during their training; 

- 

the need to advance  funds  for  a period  of several  months, which  is more  easily  borne 
by a large firm than a small one. 

With  regard  to  the  first  two  reasons,  it  is  true  that  large  firms  with  up-to-date  human 
resources departments have an advantage. 

To compensate  for  such  disparities,  technical  assistance  has been  arranged  with  partners 
such as the Chambers of Commerce and Industry, AGEFOS-PME etc. 

C£ 

Paragraph  7.42 

While  claims  may  have  been  made  in  previous  years  on  the  basis  of  administration 
transfers,  such  cases  should  have  been  significantly  reduced  because  all  administrations 
making  the first declaration  are regularly  reminded  of the principles; reminders  are  also 
given during checks. 

Paragraph  7.51 

The case referred  to by the Court has  led to thé measures concerned  being dropped.  The 
eligible  expenditure  and 
the 
Commission. 

the  corresponding  payments  were*  suspended  by 

Paragraph  7.52 

The correction has been made for France. 

Chapter  8:  European  Agricultural  Guidance  and  Guarantee  Fund,  Guidance 
Section  (EAGGF-Guidance) 

Paragraph  8.37 

1) It should be pointed out that decentralised agriculture services in each department  have 
started,  on  the  instructions  of  the  Ministry,  to  carry  out  ex  post  checks  on  whether 
beneficiaries  of  subsidised  loans  granted  in the  framework  of  investment  projects  abide 
by Community and national rules. 

Such  checks  are  carried  out  on  a  number  of  loan  applications  and  plans  defined  by 
European regulations. Each year: 

-  a number  of  checks  on  invoices  (at  the  loan  establishment  and  possibly  at  the  farm) 
equivalent  to  at  least  5%  of  the  number  of  loan  authorisations  granted  the  previous 
year, 

-  a number  of checks on plans  (development  plans  and provisional  installation  studies) 
equivalent  to  at  least  3%  of  the  number  of  plans  approved  the  year  before.  These 
ex post  checks  are  in  addition  to  the  checks  carried  out  when  the  application  is 
processed. 

2) The purpose of the checks  is to identify  and penalise  irregularities or infringements  of 
the  relevant  regulations,  which  provide  that  farmers  who  change  their  activities  must 
inform  the relevant authorities. 

66 

Chapter 9: Common policy on fisheries  and the sea 

Paragraph 9.11 

The Court of Auditors  criticises  France for making a request for advance payments  for 
1994 and  1995 equivalent to the amount of the budgetary appropriations, with a view to 
making payments to the final beneficiaries. 

l 

In  a  letter  dated  22  September  1995, 4he  Commission  (DG  XIV)  asked  the  French 
authorities to request advance payments for 1994 and 1995. 

In  View  of  the  delays  in  the  implementation  of  the  programme,  due  both  to  the  late 
notification  of  the  programme  (end  of  December  1994)  and  the  setting  up  of  the 
administrative  and  financial  machinery  to  manage  the  FIFG at  national  level,  it  was 
impossible for France to comply with the Commission's request. 

However,  wishing  to  expedite  these  advances  to  ensure that the  programme's  progress 
was not  impeded, the.Commission proposed  that France  should  certify  the projects  for 
which a legal and financial commitment had been made by the French authorities. 

The  Commission,  therefore,  had full knowledge  of the  situation when  it paid the  1994 
and  1995  advances.  DG  XIV  was  fully  aware  that  the  French  authorities  could  only 
certify  the  Commitments  made.  This  resulted  from  the  Commission's  insistence  on 
making advance payments under the FIFG. 

> 

That situation has now  been corrected  to a large extent.  The second  payment  for  1995 
and the first advance  on  payment  for  1996  were  made  on  the  basis'-of  actual  eligible 
expenditure incurred by the final recipients, in accordance with Community regulations. 

Paragraph  9.14 

The French authorities  share the Court's opinion on the unsatisfactory  startup and  slow 
rate  of  implementation  of  the  PESCA  programme.  It also  endorses.the  Commission's 
position on thé complexity of multi-fund mechanisms. 

The French authorities would also point to the delay  in putting the financial mechanism 
into  place.  As  a  result  of  this,  although  the  French  programme  was  approved  in 
June 1995, the Commission did not make appropriations available until June 1996. 

France  has  begun  an. overhaul'of  its  PESCA  programme  to  try  to  inject  some  new 
dynamism into  it and to  fulfil  the expectations  being expressed  for over a year how  by 
those involved in thé fishing industry. This should speed up thé.use of Community  funds 
allocated to France under the PESCA programme. 

V 

Paragraph 9.17-9.22 

France  has  no  particular  comments  to  make  on  the  fisheries  agreements  with  non-
member  countries!  It  should,  however,  be  emphasised  that  the  financial  procedures 

relating to this aspect should be correctly implemented  so that the smooth operation of 
these agreements, and of fisheries operations in particular, should not be compromised. 

Paragraph 931 

Although the French authorities had not communicated  the data on the capacity  of the 
fishing fleet  of  the  overseas  departments  by  30  September  1996, the information  has 
since been conveyed to the Commission and is now available in full. Moreover, monthly 
updates are sent to the Commission by the Centre Administratif des Affaires Maritimes 
(Administrative  centre  for  maritime  affairs),  in  accordance  with  the  provisions  of 
Regulation 109/94 on the Community fishing vessel register. 

The delay in the provision of the data resulted from the detailed survey which was carried 
out of the overseas departments' fishing fleet, which is made up of a large number  of 
small vessels. On the question  of activity,  it  was necessary to establish exactly  which 
vessels were owned and operated by professional 

fishermen. 

- 

-

The  French  authorities  provided  the  Commission  with  the  information  on  the fishing 
effort on 13 June 1997. 

Paragraph 9.34 

Safety concerns and correct usage of a ship's motor would dictate that it should not be 
run at its rated power. The derating of engines could provide a solution to this problem. 
Optimum derating would be around 80% of the motor's power. Shipping safety  centres 
carry out careful checks on the derating of engines below this threshold. 

Paragraphs 9.35-9.36 

Although France was behind in remeasuring its fleet of vessels of more than 24 metres in 
1996, it made a substantial effort  to respect that Community  obligation. By September 
1997, approximately  85% of vessels in that category had been remeasured. The French 
authorities  will  communicate  the  gross tonnage  (GT)  of  vessels  measuring  more  than 
24 metres as soon as possible. 

Paragraph  9.37-9.38 

1. Checks on fishing capacity 

The  power  of  vessels  as  checked  by  the  shipping  safety  centres  of  the  Ministry  for 
Infrastructure  is rechecked at the planning stage^ then at the shipyard and durirtg periodic 
visits on board  ship.  The tonnage of the ship  is measured  by the customs authorities' 
measurement  office.  Finally,  any  significant  change  in  the  characteristics  of  the  ships 
requires prior authorisation from the competent shipping safety  centre which carries out 
an ex post check on the modifications. 

2. Checks on the fishing effort 

In line with Community regulations, the arrangements introduced by France are based on 
the use of the log book as a source of information.  This is not ideal, however, as the  log 
book  is not  tailored  to  the  current  regulations, particularly  as regards  the  fishing  effort. 
The Commission is currently reworking it, but it has not yet been completed. 

The current log book has only two sections which deal with the fishing effort. 

- the duration of the trip, between the departure from and the return to port; 

- the duration  of fishing  operations, which is the length of time during which the  fishing 
gear is being used. 

However,  there  is  no  section  to  deal  with  the  obligations  under  Regulation  2027/95, 
which  defines  the  fishing  effort  as  the  product  of  fishing  power  by  fishing  time  in  the 
effort  zones defined  by the regulation, leaving aside those which the vessel simply passes 
through. 

To  comply  with  this  regulation,  the  shipowner  must  overload  the  log  book  and  add 
sections  which  were  not  initially  provided  for.  This  information  is very  difficult  to  use, 
however, because of its sheer complexity. 

It is for  this reason  that France tries to  establish the duration of presence  in effort  zones 
through the use of the "duration of trip" and "duration of fishing operations" parameters, 
using conversion coefficients  on a fishing  ground by fishing  ground basis. 

3. Checks on fishing  activity 

In the framework  of the reduction of fishing  activities, France has done everything  in its 
power  to  achieve  the  MAGP  III  targets  for  reducing  the  capacity  of  thé  fleet.  An 
ambitious  plan  for  reducing  the  fleet  was  introduced  in  the  second  half  of  1996. 
However,  as  the  plan  was  voluntary,  the  MAGP  III  objectives  were  not  quite  reached, 
despite a reduction of 33 000 kW. There was, therefore, a deficit  of 9352 kW, or less than 
1% of  the  overall  size  of  the  fleet,  at  1 December  1997. However,  since  31  December 
1996, there has been an advance of  1118 GRT in terms of tonnage. 

Paragraph  9.40 

* 

In the framework  of the freeze  on aid requested  by the Commission  following  the  failure 
to achieve the intermediate objectives of MAGP III, the French authorities have taken the 
steps  required  to  stop  all  aid  in  the  field.  However,  it  should  be  noted  that  there  were 
some projects  for  which decisions had  been taken  before  the Commission's  notification. 
The State therefore  had a legal obligation to implement them. 

•69 

Paragraph 9.41 

To improve the consistency in the granting of aid for projects involving the cessation of 
fishing activity,  the  Court  emphasises  the need  to  harmonise the  definition  of fishing 
activity at Community level, even if this area is still under national jurisdiction. 

The French authorities  share the  Court's  opinion  that the definition  of fishing activity 
should be harmonised, as there are three different  definitions at Community level. 

The Commission's method  of defining fishing activity may be useful  for  large vessels 
(longer  than  18m) whose  comings  and  goings  from  zones  could  be  monitored  using 
appropriate methods. 

However, it would seem more appropriate to refer  to the number of fishing  days rather 
than the number of days spent at sea, so that transit time is not taken into account when 
calculating fishing effort. 

Chapter 20: Statement of assurance - Analysis  of EAGGF-Guarantee  and  fisheries 
expenditure 

Paragraph 20.4 

The new certification  of accounts procedure was  applied  for  the first time in the  1996 
budgetary exercise. 

In this connection, the French authorities submitted audit reports, certified  accounts and 
annual  accounts of the paying agencies before  10 February  1997 - the date specified  by 
Community regulations. 

The  Commission  subsequently  asked  the  Certification  of  Accounts  Committee  to 
complete  its  work  and  submit  the  corresponding  complementary  reports  before 
30 June 1997. The  French  authorities  did  so  on  13 June  1997.  After  examining  these 
documents, the  Commission  closed  the accounts  of the French  paying  agencies  by  its 
decision of 31 July 1997. 

Jo 

GREECE 

VERSION REVISEE 

VOLUME I-ANNUAL REPORT ON 1996 

: 

Chapter 1 :  Own resources 

PARAGRAPHS 

1.10,1.31,1.40,1.104 

Ministry of Finance, Directorate 19 (Customs Procedures) 

Chapter 3 - Market organisations - Plant products 

PARAGRAPHS 

3.29,3.46,3.89,3.91 

Doc. No 109/7/A806/A1336 of 10 March 1998 - National Tobacco Board 

Chapter 6 - European Regional Development Fund 

PARAGRAPHS 

6.63,6.95 

, 

- 

' 

Doc. No DEFE33 of  12 January .1998 -. Ministry of Economic Affairs,  Directorate  for 
ERDF Implementation and Disbursements 

i 
Chapter 7 - European Social Fund 

! 

• 

' 

i 

PARAGRAPHS 

7.19; 7.34 

Doc. No  105048 of  9 January  1998 -  Ministry  of  Labour,  Directorate  for  Programme 
Planning and Implementation 

Chapter  8  -  European  Agricultural  Guidance  and  Guarantee  Fund,  Guidance 
Section (EAGGF Guidance) 

PARAGRAPHS 

8.13,8.20,8.24,8.25,835,8.42,8.43,8.53,8.54,8.55,8.56,8.57 

Doc. No 1827 of 16 March 1998  - Ministry of Agriculture, Directorate for Planning and 
General Administration 

I2-

Letter No T2020/28 of 15 April 1998 

from  Directorate 19, DG for Customs and Excise, Ministry of Finance, Athens 

to Government Accounting Office, Directorate 41, Athens 

Follow-up to the EU report 

Further to your note of 27 March  1998 on follow-up to the annual report of the Court of 
Auditors for  1996, we would inform you that as regards paragraphs  1.10,  1.31 and  1.104 
of Chapter I, contained in the annex to letter No 1290 of 6 February  1998 from DG XIX 
of  the  Commission,  this  department  has  already  replied  in  document  A296/51  of 
31 March 1998 (copy attached). 

As regards paragraph 1.40 our views are as follows: 

Paragraph 1.40 

» 

Regarding the customs debts arising from the removal  of goods from  the Piraeus Free 
Zone, the  relevant  customs  office  of  inspection  has  already  applied  the  provisions  on 
collecting the duties and taxes due.  They have not yet been collected as the trader liable 
has appealed to the courts. 

Four pages attached.. 

Pan. Frangos 
Director 

^ 

Letter No 29881 of 31 March  1998 

from  Directorate  19  (Customs  Procedures),  DG  for  Customs  and  Excise,  Ministry  of 
Finance, Athens 

to DG XIX, Commission, Brussels 

In reply to your letter No XIX/493 of 22 January  1998 on the points raised in the  annual 
report of the Court of Auditors for  1996, we would inform you of the following. 

Paragraph 1.10(cV 

All  the  import  declarations  referred 
to  from  both  Elefsina  Customs  Office  and 
Thessaloniki  B  Customs  Office  have been  regularised  through  collection  of the  amount 
of duty owing, as is shown in breakdown  form  in two statements (attached) including  all 
the details your departments will need to calculate any interest due. 

-  ~ 

Paragraph  1.31 

Regarding  the  identity  of  the  goods  transported  using  containers  in  free  zones,  as  was 
pointed  out to you  in the  Court  of  Auditors'  document  No 6272  of  21 March  1997,  the 
stock  records  system  in  the  Piraeus  and  Thessaloniki  Free  Zones  enables  the  customs 
office  of inspection to ascertain the identity  of goods at any time and keep track of their 
movements.  This  department  therefore  does  not  consider  that  there  is  any  reason  to 
adopt any further  measure in respect of the practice followed  in .that area. 

Paragraph  1.104 

As  there  is  no  clear  reference  to  Greece  in  this  paragraph,  we  consider  that  the 
observations by the Court of Auditor's  officials  must relate to the system for  monitoring 
fraud  and irregularities. 

Article 6(4)  of  Regulation  No  1552/89  on  the  Community's  own  resources,  as  most 
recently amended by Regulation No  1355/96, provides that in addition to the drawing  up 
of a description  of cases of fraud  and  irregularities, an accompanying  statement must  be 
drawn up from which the progress of investigations into each case can be monitored. 

Aside  from  the  above,  and  since,  as  already  stated,  there  are no  particular  observations 
concerning  Greece in this paragraph of the report, we will be pleased to supply you  with 
any additional information you may require. 

P. Frangos 
Director 

n 

Letter F 109/A 806/A 1336 of 10 March 1998 

from  Divisions  A  and  D,  Directorate  for  Tobacco  Production  -  Common  Market, 
National Tobacco Board, Athens 

to  Budget  and  Revenue  Division,  Directorate  III,  Industrial  Products  Division, 
Directorate II, DG for the Agricultural Products Market 

Report by the Court of Auditors, 1996 

Réf. C 348 of 18 November 1997 

With reference to the above report by the EU Court of Auditors and the remarks relating 
to tobacco  in paragraphs  3.89(a)  and 3.94, following  receipt  of EU Doc. No 573  of 
22 January 1998 we would inform you of the following. 

Paragraph 3-89(a) 

Court of Auditors 

Since Article 9 of Regulation (EEC) No 2075/92, in its original form, allowed quotas to 
be allocated to new processing undertakings which had not processed tobacco during the 
reference  period,  up  to  a  limit  of  2%  of  the  total  quota,  and  since  the  quotas  were 
allocated direct to producers, by analogy and mutatis mutandis the Greek authorities were 
entitled to allocate a quota to new producers, of whom there were far fewer than 4751 but 
who  had  grown  tobacco  on  specific  areas  of  land  during  the  previous  year,  1992. 
Furthermore, as there were considerable quotas available (Article 11, Regulation (EEC) 
No 3477/92), the Greek authorities were entitled to allocate the quotas in question to new 
producers as well (Article 13 of Regulation (EEC) No 3477/92).  The procedure followed 
in allocating the quotas was, therefore, fully  compatible with the new Community rules, 
as the relevant departments in the Commission finally agreed. 

2. 
The  processing  programme  for  the  Mavra  and  Tsebelia  varieties  was  actually 
applied universally when the growing of those varieties was abandoned and the land used 
for that purpose consequently became available, a fact which both the Commission and 
the inspectors from the Court of Auditors appreciated and accepted. 

3. 
As there is no land register to make it easy to identify producers' fields, the Greek 
authorities dealt with the problem by adopting supplementary measures in relation to the 
way of declaring holdings, with the Commission's  consent.  In areas such as Northern 
Greece where there are maps of the fields, these are already being worked. 

The result of applying these supplementary measures has been a significant  reduction in 
the number of producers making what may be false declarations and, by extension, in the 
numbers of those who could have been engaging in irregularities or fraud. 

We  are  continuing  to  work  with  the  Commission  on  improving  the  supplementary 
measures. 

vs 

Paragraph 3.94 

We  would  point  out  that  the  Commission's  report  on  the  incidence  of  fraud  and 
irregularities  on  the  export  of  tobacco  to  Albania  and  Bulgaria  contained  many 
inaccuracies and arbitrary elements and therefore came to arbitrary conclusions. 

The National Committee and the special Ministry of Finance teams which were set up for 
the purpose  examined  the points in document No 46413 of 22 December  1994 one by 
one and replied in their documents of 28 February  1995, 8 February  1996 and  11  March 
1996, which are available to the Court of Auditors if it so wishes. 

The  Commission's  charges  were  made  basically  in  two  documents,  No 4135  of 
20 April 1993 and No 46413 of 22 December  1994, which came with  a lengthy  report 
setting out the conclusions the Commission had reached as a result of the investigation it 
carried out with two missions to Greece in July  1994.  The report was the basis for the 
corrections imposed on Greece in respect of 1991. 

Investigations by the National Committee and the special Ministry of Finance feams have 
produced no evidence of irregularities and fraud having been committed.  Only evidence 
of tax offences  has been found, and for these the penalties provided for in law have been 
imposed. 

The Court of Auditors in its report unthinkingly  and exclusively  endorses tfie views of 
the  Commission  while  taking  no  account  of  either  the  Member  State's  views  or  the 
investigations  carried  out  by the Greek  authorities, all  the  data  from  which have been 
passed  on  to  the  Commission.  The  Court  of  Auditors  also  adopts  views  of  the 
Commission  regarding  non-existent  controls  by  the  Greek  authorities  which  the 
Commission has not so far substantiated. 

Regarding the supplementary correction of GRD 7 305 million imposed in respect of the 
period  from  1986 to  1989, which on the Commission  side was based  on the  report  in 
document No 46413 of 22 December  1994 mentioned above, the Greek authorities have 
attached final acceptance of the correction by decision of the National Court, to which the 
Hellenic Republic appealed, for the financial year 1991. 

The European  Court, in its judgment  of 29 January  1998 (Case  C-61/95), rejected  the 
correction  imposed  for  the  financial  year  1991  in  respect  of  exports  to  Albania  and 
Bulgaria  and  required  the  Commission  to  repay  GRD 3.5  million  to  the  Hellenic 
Republic. 

We will be glad to supply any further  information  or clarification  you may require and 
would request you to take the requisite steps. 

N. Malissiovas 
Chairman 

~w 

Letter No 2008941/490/A0041 of 13 March 1998 

from  Directorate 41  (Financial  Relations  with  the  European  Union  and  International 
for  Administration  and  Financial  Control, 
Organisations),  Directorate-General 
Government  Accounting  Office,  Secretariat-General  for  Financial  Policy,  Ministry  of 
Finance, Greece 

to  Ms  Edith  Kitzmantel,  Deputy  Director-General,  DGXIX  (Budgets),  Commission, 
Brussels 

SEM 2000 - Follow-up to the annual report of the Court of Auditors for 1996 

In reply to your letter of 22 January 1998 to Mr P. Apostolidis, Permanent Representative 
of Greece to the European Union, concerning the observations on Greece in the Court of 
Auditors' report for  1996, please find attached the replies from the relevant ministries. 

By order of the State Secretary 
(signed) 
E. Nikoloudaki 
Director 

¥> 

VOLUME I - ANNUAL REPORT ON 1996 

Chapter 1 - Own resources 

PARAGRAPHS 

1.10,1.31,1.40,  1.104 

Ministry of Finance, Directorate 19 (Customs Procedures) 

Chapter 3 - Market organisations - Plant products 

PARAGRAPHS 

3.29,3.46,3.89, 3.91 

Doc. No 109/7/A60 of 8 January 1998 - National Tobacco Board 

Chapter 6 - European Regional Development Fund 

PARAGRAPHS 

6.63,6.95 

Doc. No DEFE33 of  12 January  1998 -. Ministry  of Economic Affairs,  Directorate  for 
ERDF Implementation and Disbursements 

Chapter 7 - European Social Fund 

PARAGRAPHS 

7.19,7.34 

Doç. No  105048 of 9 January  1998 - Ministry  of Labour, Directorate for  Planning  and 
Implementation of ESF Programmes 

Chapter  8  -  European  Agricultural  Guidance  and  Guarantee  Fund,  Guidance 
Section (EAGGF Guidance) 

PARAGRAPHS 

8.13, 8.20, 8.24, 8.25, 8.35, 8.42, 8.43, 8.53, 8.54, 8.55, 8.56, 8.57 

Doc. No  1827 of  16 March  199 [Translator's  note: the date given here is  incomplete. 
The document numbered 1827 is undated but was faxed on 11 March 1998.] - Ministry 
of Agriculture, Directorate for Planning and General Administration 

7* 

Letter No 1827, undated but faxed on 11 March 1998 

from the Directorate for Planning and General Administration, Ministry of Agriculture, 
Athens 

to  Division  A,  Directorate  41, Government  Accounting  Office,  Ministry  of  Finance, 
Athens 

Report of the European Court of Auditors, 1996 

Re: your letter 2014927/848/A0041 of 4 March 1998 

In reply to your letter and with reference to the various points oh the EAGGF Guidance 
Section in the above report, we would inform you as follows. 

8.13 
In  Greece  80%  of  investment  relates  to  modernisation  of  existing  units,  the 
condition  of  which  (financial,  technological,  commercial  etc.)  is  familiar  to  regional 
departments  because  they  are frequently in  touch  for  reasons  connected  with  quality 
control, exports etc.  This familiarity  on the part of regional  departments has its  effect 
positively  or  otherwise  on  the  reports  they  send  to  the  Ministry  of  Agriculture.  In 
addition,  reports  since  1995  have  been  detailed,  with  a  great  deal  of financial and 
technical  data,  and  before  approval  is  given the  Directorate  for  Planning  and  General 
Administration and the Ministry's technical Directorate make recommendations. 

8.20  The  reports  produced  are  in  all  respects  identical  with  those  stipulated  in 
Regulation No 1685/78 and operators fill in the relevant specimen forms  and make the 
entries provided for in the Regulation.  Further checks are now made by the. Directorate 
for Planning and General Administration, where the reports are also kept. 

8.24  Payment in cash is a method accepted in Public Accounting and the Bookkeeping 
andData Code of the Ministry of Finance. 

8.25  The  question  of public  tendering  procedures  for  semi-public  undertakings  is  a 
more general matter and relates to more than one branch of the national economy.  The 
outcome of such procedures, however, irrespective of. the size of budget involved, does 
not affect the eligibility of expenditure.  The eligible expenditure for a project is reflected 
clearly in the approved budget for the project, which states the categories into which the 
individual works fall, the quantities associated with each and their cost.  Consequently, if 
the outcome of the competition makes for a smaller budget for the works to be carried out 
and the project  is executed at a lower cost, the subsidies given will be smaller, in other 
words they  will be adjusted  to fit the cost.  If,  because of reviews, the final cost  of a 
project comes out higher than the approved budget, the operator will be subsidised up to 
the approved amount.  The extra cost will be borne solely by the operator. 

8.35  Since  1996  a  system  has  been  in  operation  whereby  the  Agricultural  Bank  of 
Greece issues a payment receipt for  the beneficiary  stating the amount  and bearing the 
signatures  of  the  Bank's  official  and  the  beneficiary.  In  addition,  in accordance  with 
ministerial  decisions  laying down  the  method  of  payment,  if  the  beneficiary  does not 

?3 

present himself to collect the amount to which he is entitled within a reasonable time, the 
amount is deposited in a savings bank account opened in his name for that purpose. 

8.42, 8.43 
As  regards  compensatory  amounts,  because  of  the  large  number  of 
beneficiaries  a member  of  the  cooperative  in the  area may  be  authorised  to  collect  the 
compensatory  amounts  for  all  the  beneficiaries.  In  that  event  the  member  signs  the 
payment  statement  on behalf  of  all  the names; however,  he  passes  on  to  the  Bank  the 
beneficiaries'  authorisations,  which  have  to  be  attached  to  the  back  of  the  payment 
statement. 

8.53 
It  is  not  scientifically  proper  or  feasible  to  restrict  irrigation  to  specific  crops 
throughout  Greece.  The financial viability  studies  which  are carried out  in  connection 
with every land-improvement  scheme stipulate both the crops and the areas to be served 
by the construction of the project and have been approved by the relevant EU bodies.  For 
example, the development programmes (PEP etc.) including the land-improvement works 
in question have been officially  approved. 

Intensive  and excessive  use of  ground water does  indeed  lead to  seepage- of  sea 
8.54 
water,  particularly  in  coastal  areas,  and  consequently  causes  salinity  problems.  The 
legislation  on  water  resources  (Act  No  1739/87)  is  being  applied,  however,  and  the 
requisite steps are being taken to deal with the problems, which are caused by thoughtless 
and exploitative use of underground aquifers.  The drilling of boreholes either by private 
interests, or by the State is carried out after hydrogeological studies have beeadone. 

8.55,8.56 
impossible for studies to predict all the problems which will arise during construction. 

Experience  of  constructing  dams  to  date  has  shown  that  it  is  virtually 

8.57  The standard cost applied in Greece (and therefore at the Ministry of Agriculture) 
is fixed by  the  Ministry  of  the Environment,  Regional  Planning  and Public  Works and 
expenditure checking is done on the basis of the standard costs laid down by Greek law. 

V. Skandalis 
Director 

<fo 

Letter No  105048 of 3 January  1998 

from  Division  III,  Directorate  for  Planning  and  Implementation  of  ESF  Programmes, 
Ministry of Labour and Social Security, Athens 

to Division I, Directorate 41, Government Accounting Office, Ministry of Finance, 
Athens 

Annual Report of the European Court of Auditors, 1996 

Réf.: Your document 2086713/3 è31/a0041 of  10 December  1997 

In reply to the above, as regards the views of this department on the observations  of  the 
European  Court  of  Auditors  in  its  annual  report  on  the  1996  financial  year,  and  the 
observations of the European Commission, we would inform you as follows. 

I. 
On paragraph 7.9 of the report, which refers to the execution of the budget and the 
Court's  observation  that  in  1996 there  was  a  low  take-up  of  the  amounts  set  aside  for 
Greece by the ESF, we would point out that the reason why the Community  aid was  not 
used  in  full  is  that  the  EU  suspended  the  funding.  The  EU  suspended  payments  of 
commitments  undertaken  to  this  country  after  carrying  out  checks  on  temporarily 
certified  centres - agencies for carrying out ESF measures - where it was found that some 
of  them  did  not  qualify  for  certification. 
In  fact  only  13  out  of  332  training  centres 
checked  were  found  not to  meet  the  conditions  laid  down  in this  department's  decision 
No  115372/94, and  we therefore  consider  that  for  the EU to suspend  funding  for  all  the 
agencies carrying out ESF measures was an exceptionally  harsh measure and contrary  to 
the  provisions  of  the  relevant  legal  framework  (Article 24  of  Regulation  (EEC) 
No 2082/93). 

II. 
On  paragraphs  7.48-7.51  of  the  Court  of  Auditors'  report,  responsibility  for 
checking  and  evaluating  programmes  financed  by  the  ESF  in  Greece  lies  with  the 
Directorate for Control and Evaluation  in the Ministry of Labour and  Social  Security, 
which  was  established  by  Act  No 2224/94  (Greek  Government  Gazette  112/A  of 
6 September  1994). 

In this task it is assisted by officials  from  the Secretariats-General  of the Regions, 

when Regional Management Programmes are being checked. 

It also carries out checks with the Control  Coordination  Body (ESOE) which  has 
been set up in the Government Accounting  Office  (Point 6, Act No 2187/94, Presidential 
Decree  393  of  14 December  1994)  and  which  carries  out  planned  checks  under  the 
cooperation agreement between the Body and DG XX of the European Coihmission. 

Such checks are carried out according to an annual check programme drawn up each year 
under  the  cooperation  agreement  between  the  national  authorities  (Ministry  of  Labour 
and  Social  Security  and  Ministry  of  Finance)  and  the  European  Commission 
(DG XX.B.2 and DG V/3), as stated above. 

i 

<?A 

The management programmes are selected and the frequency of the checks decided  on 
following discussions between the said national and Community checking authorities. 

III.  As  far  as  the  other  points  are  concerned,  this  department  is  covered  by  the 
Commission's replies. 

Please take the necessary steps. 

P. Christofilopoulou 
Secretary-General 

81 

Letter No DEFE 33 of 12 January 1998 

from  Directorate for ERDF Implementation and Disbursements, Directorate-General  for 
Public  Investment,  Regional  Policy  and  Development,  Secretariat-General 
for 
Investment, Regional Policy and Development, Ministry of Economic Affairs, Athens 

to Directorate 41, Government Accounting Office, Ministry of Finance 

Report of the European Court of Auditors, 1996 

In reply to  the  observations  by the  European  Court  of  Auditors,1 and in particular  the 
points concerning Greece, we would inform you as follows. 

Paragraph 6.63  Financing of investment relating to processing of agricultural products 
bytheERDF 

To begin with, the arrangement for aid to productive investment which applies in Greece 
provides for financing of investment which may include a section of the primary sector, 
but on the terms laid down by the CAP as regards agricultural products.  In the case of 
investment of this kind it is not possible to separate out the section which relates to first-
level processing of agricultural products from the total investment programme.  In cases 
which relate purely to first-level processing of agricultural products, such investment is 
not eligible for the Regional Management Programmes, 1994-99, with explicit  reference 
to the programme and decisions of the Monitoring Committees. 

Point 6.95d  Replacement of innovatory measures with more traditional measures 

Regarding  the  implementation  of  innovatory  measures,  where  there  is  not  at  least  a 
minimum prospect of success, it would be a planning error to insist on them.  As it was 
not obvious from the business plans that implementing the measures concerned would be 
in  any  way  effective  or  productive,  it  was  entirely  reasonable  not  to  go  ahead  with 
carrying  them  out,  thereby  wasting  resources  which  in  other  sectors  were  desperately 
needed for completing operations which were both effective and productive. 

K. Anastasiou 
Head of Directorate 

£3 

Letter F.109/7/A60 of 8 January 1998 

from  Divisions A and D, Directorate for Tobacco Production - Common market, National 
Tobacco Board, Athens 

to  Directorate-General  for  the Agricultural  Products  Market,  Directorate  II,'Industrial 
Products Division, Directorate III, Budget and Revenue Division 

Report by the Court of Auditors, 1996 

Réf.: C 348 of 18 November 1997 

With reference to the above report by the EU Court of Auditors and the remarks relating 
to tobacco in paragraphs 3.89(a) and 3.94, we would inform you as follows. 

3.89(a) 

Tobacco  quotas  in  Greece were  allocated  in  accordance  with the  provisions  of 
1. 
Council  Regulation  No  2075/92  and  Commission  Regulation  No 3477/92,  as  the 
Commission and the Court of Auditors acknowledge. 

Greece was the first country which, despite the complexity of the quota system and the 
fact  that the  system was designed  for the quotas to be allocated to tobacco processors, 
allocated the quotas direct to tobacco producers from the outset. 

.

<

•

•

'' 

The third paragraph of Article 9(3) of Regulation (EEC) No 2075/92, in its original form, 
allowed quotas to be allocated to new processing undertakings (which had not processed 
tobacco during the reference period), up to a limit of 2% of the total quota. 

Since  Greece  allocated  the quotas direct  to  tobacco producers from the  beginning,  by 
analçgy and mutatis mutandis it allocated quotas to new producers (fewer than the 4751 
referred to in the report) after the old producers had been awarded the due quotas, as laid 
down in the regulations, and only for varieties in demand, particularly those where the 
guarantee threshold allowed the possibility. 

This was grasped by the European Commission, i.e. the fact that allocating quotas to new 
producers  did  not  cause  any  real  infringement  or  distortion  of  the  Community 
regulations;  that  is  why  it  did  not  propose  any  correction,  and  we  believe  that  after 
reading what we have said the Court of Auditors will also change its view. 

2. 
The  processing  programme  for  the  Mavra  and  Tsebelia  varieties  was  actually 
applied universally when the growing of those varieties was abandoned and the land used 
for that purpose consequently became available, a fact which the Commission accepted. 

3. 
As there is no land register to make it easy to identify producers' fields, the Greek 
authorities dealt with the problem by adopting supplementary measures in relation to the 
way  of  declaring  holdings, with  the  Commission's  consent.  In  cases  such  as  that  of 
Northern  Greece,  where  there  are  maps  of  the  fields,  these  are  consequently  being 
worked already. 

BA 

The result of applying  these supplementary  measures has been a significant  reduction  in 
the number of producers making what may be false declarations and, by extension,  in the 
numbers who were potentially engaging in irregularities or  fraud. 

We  are  continuing  to  work  with  the  Commission  on  improving  the  supplementary 
measures. 

3.94 

In  view  of  the  Commission's  accusations  that  irregularities  and  fraud  were  being 
committed  in relation to tobacco exports to Albania and Bulgaria, a National  Committee 
to  carry  out  checks  on  the  exports  in  question  was  set  up  in  Greece.  Officials  of  the 
Ministry  of  Agriculture,  the  Ministry  of  Finance  and  the  National  Tobacco  Board 
(economists,  customs  officers, 
the 
Committee.  Special  Ministry  of Finance teams to carry out more detailed  checks  on  the 
tax aspects were also set up to assist the National Committee in its work. 

tax  inspectors  and  technical  experts)  sat  on 

The  Commission's  charges  were  made  basically  in  two  documents,  No 41-35  of 
20 April  1993  and  No 46413  of  22 December  1994,  which  came  with  a  lengthy  report 
setting out the conclusions the Commission had reached as a result of the investigation  it 
carried out with two missions to Greece in July 1994. 

We  would  point  out  that  the  Commission's  report  contained  many  inaccuracies  and 
arbitrary elements and therefore came to arbitrary conclusions. 

The National  Committee  and the special  Ministry  of Finance teams examined  the  points 
made in Doc. No 46413 of 22 December  1994 one by one and replied in their  documents 
of 28 February  1995, 8 February  1996 and  11 March  1996, copies of which  are  attached 
for forwarding  to the Court of Auditors. 

Investigations by the National Committee and the special Ministry of Finance teams have 
produced  no evidence of irregularities and fraud  having been committed.  Only  evidence 
of tax offences  has been found,  and for these the penalties provided  for  in law have  been 
imposed. 

It  is,  however,  striking  that  the  Court  of  Auditors  in  its  report  unthinkingly  and 
exclusively  endorses the views of the Commission  while taking no account  of either  the 
Member  State's  views  or the  investigations  carried  out  by  the  Greek  authorities,  all  the 
data  from  which  have  been  passed  on  to  the  Commission.  The  Court  of  Auditors  also 
adopts views of the Commission regarding non-existent controls by the Greek  authorities 
which the Commission has not so far  substantiated. 

Regarding the supplementary  correction  of GRD 7 305 million  for  the period  from  1986 
to 1989, the Greek authorities attach final acceptance  of the correction  by  decision  of  the 
National Court for the financial  years  1990 and  1991. 

The Greek  authorities  consider that  the Court  of Auditors should  revise  its view  and  get 
from  the  Commission  all  the  information  passed  on  to  it  from  the  investigation  by  the 
National  Committee  and the special  Ministry  of Finance teams, as it ought  to have  done 
before. 

We are at your disposal  should you require any further information or clarification,  and 
would request you to take the necessary action. 

N. Malisiovas 
President 

Letter No Y.387/39 of  18 March 1997 

from  Divisions  A  and C,  Directorate  19 (Customs  procedures),  Directorate-General  for 
Customs and Excise, Ministry of Finance, Athens 

to Echelon 4, Audit Office, Ministry of Justice, Athens 

Reply  to memorandum of control  by European Court of Auditors of free zones and the 
arrangement  for  goods  arriving  at  Piraeus  and  Thessaloniki  by  sea  from  9  to 
13 September 

Réf.: 
(a)  European Court of Auditors doc. No  14/97 of 17 January 1997 
(b)  Greek Audit Office  doc. No 2465 of 6 February 1997 

Concerning  the memorandum of control  passed on to us as above,  we  would  make the 
following observations. 

A. 

FREE ZONES 

Before  responding  to  the  various  points  made  in  the  memorandum,  we  would  like  to 
stress that the machinery for controlling the free zone does not rely only on keeping stock 
records but also on keeping the perimeter and the entry and exit points  of  the free  zone 
under supervision (Article  168(1), (2) and (3) of the Code).1 

Stock  records,  even  though  they  play  an  important  part  in  exercising  customs 
supervision,  are a supplementary  mechanism  for controlling  the  goods  moving  through 
the free zone. 

On the basis of this general principle, we would respond as follows to the points made in 
the Court of Auditors' memorandum. 

The  traders  established  in  the  Piraeus  and  Thessaloniki  free  zones  are  the  Harbour 
Boards,  which,  as  legal  persons  in  public  law,  are  governed  by  different  laws  and 
regulations.  The Boards simultaneously operate and administer the harbours. 

The activity in relation to incoming goods consists of storing goods entering the harbours 
in question until they are collected by persons outside the free zone. 

This  department  is  responsible  for the  operation of the  free  zones  in Greece  as  regards 
customs  since,  from  the  point  of  view  of  administration  and handling,  free  zone  areas 
constitute  an  integral  part  of  the  ports  in  which  free  zones  have  been  established  and 
come under the jurisdiction of the above Boards, under the control of the Ministry for the 
Merchant Marine. 

Regulation No 2913/92, OJ L 302. 

We note that in the memorandum from the European Court of Auditors passed on to us 
the conclusion drawn is that the proper customs checks on incoming goods are not being 
carried out in the free zones in Greece. 

This department considers that, notwithstanding any shortcomings which may be caused 
by  manpower  shortages  or a  lack  of  proper  infrastructure,  customs  checks  in  the  free 
zones  are  more  thorough  than  those  required  by  the  customs  regulations  of  an 
arrangement  primarily  intended  to  serve  external  trade.  We  would  add  the  following 
comments on the individual points raised by the Court of Auditors' inspectors. 

1. 

Thessaloniki Free Zone 

The observations on the Thessaloniki Free zone in the memorandum concern: 

- the stock records kept; 
- failure to enter transhipped goods in the stock records; 
- the issuing of customs status certificates for Community goods. 

1.1 

Keeping of stock records 

According to points  14,15,16 and 17 of the memorandum, the way the stock records are 
kept does not ensure customs supervision, for the following reasons. 

(a) 

The entries for containers contain very little description of the goods'inside them 
(point 15). 
We would make the following point. 
The keeping of stock records by the Thessaloniki Harbour Board (OLT)  involves 
keeping two books authenticated by Thessaloniki Customs Office  B, which is the 
customs office responsible for controlling the Thessaloniki free zone.-. 
The transport documents for containers are entered in one  of the books,  and the 
transport documents for goods arriving "in conventional packing are entered in the 
other. 

/  Each entry must give  the  details  referred  to  in Article 817  of  the  implementing 

provisions for the Code. 
By  way of exception, in the case of containers containing  many kinds of  goods, 
and  provided  that  they  are  sealed  with  seals  which  are  also  mentioned  on  the 
transport  documents,  for  administrative  reasons  not  all  the  goods  have  to  be 
listed, and all that is required is an indication that they are "miscellaneous". 

We do not think that this exception is an actual  infringement  of the Code, since, 
as we stated above, customs supervision is based not just on the stock records but 
on  surveillance  of the perimeter and the entry  and exit  points.  As  the  goods  in 
containers are intended for other people, requiring a full description of the content 
would  constitute  a  serious  obstacle  to. a  trader's  business  activity  and  would 
distort the purpose of the free zone, which is to facilitate external trade. 
The customs office  of inspection is in a position to examine transport documents 
which  relate  to  containers  and  do  not  contain  a  full  description  of  the  goods. 
Where a container does not bear the seals referred to above,  it has to be  opened 
and the goods have to be listed in full. 

(b)  With the system in place it is not possible to guarantee that improper 

consumption, use or removal of goods will be detected (points  16 and  17). 

We would make the following observation on this point. 

Since  all  the  goods  are entered  in the  stock  records, any  improper  consumption, 
use or removal of goods can be detected. 

In the  case of goods  in  sealed  containers  and  not  described  in the  stock  records, 
these  are  verified  when  the  declaration  placing  them  under  a  customs  regime  is 
lodged.  The  content  is  then  verified  on  the  basis  of  the  description  in  the 
declaration, and a check is made to ensure that the seals placed  on the  containers 
are intact. 

(c) 

No  check  is  carried  out  to  ascertain  whether  the  copies  of  the  manifests  lodged 
with customs are complete (point  18). 

We would make the following  observation. 

Copies  of the manifests  or other transport  documents  for  goods  entering  the  free 
zone are presented after  they have been entered in the stock records.  By  entering 
them  the  trader  concerned  commits  himself  as  to  the  content  of  the  transport 
documents.  When  a package  or  container  is  found  to have  been  broached  or  to 
have  had  its  seals  broken,  the  trader  inspects  the  contents  and  draws  up  a 
document. 

This  is  how  the  customs  office,  in  accordance  with  Article  176(1)  of  the  Code, 
recognises goods which have entered the free  zone and will leave it in compliance 
with the prescribed procedure. 

1.2 

Checking of goods intended for transhipment (points  19 and 20). 

Article  176(2) of the Code provides that where goods are transhipped within a free  zone, 
the  documents  covering  them  must  be  available  to  the  customs  authorities.  The 
short-term  storage  of goods  in connection  with  transhipment  constitutes  an  integral  part 
of the transhipment  operation. 

On the  basis  of this provision,  the Thessaloniki  Harbour  Board  does not  enter  details  of 
containers  which,  according  to their  transport  documents,  are  intended  for  transhipment 
to another vessel. 

The transport documents are held by the Board  since, as stated above, that body  is at the 
same  time  the  port  manager  and  in  that  capacity  provides  guarantees  for  the  proper 
movement  of  goods  intended  for  transhipment.  Despite  this,  the  customs  office  of 
inspection, and other customs offices  of inspection, may have access to the documents. 

Goods  intended  for  transhipment  must  be  kept  in  special  premises  so  that  they  can  be 
inspected.  Goods  which  are  intended  for  transhipment  and  are therefore  not  entered  in 
the  stock  records,  and  any  other  good  not  entered  in  the  stock  records,  may  not  leave 
through the exit gates on the landward side, as permission  is required  from  the trader (the 
Thessaloniki  Harbour Board) each time goods  leave, and  the permit must  give details  of, 

$3 

among other things, the stock record number from the warehouse from which the good  in 
question  originates.  If  a  good  is  brought  to  the  exit  gate without  an  exit  permit  or .the 
stock  record  number  is not  stated  on  the permit,  the  good'may  not leave and  repressive 
measures may  be applied.  Obviously  any removal  of goods through  other points  in  the 
perimeter  of  the  zone  to  the  customs  territory  of  the  Community  constitutes  illegal 
importation. 

1.3 

Customs status certificates  (points 21.22 and 23) 

(a) 
Under  Article  170(4)  of  the  Code,  the  customs  authority,  at  the  request  of  the 
party  concerned,  certifies  whether  goods  placed  in  a  free  zone  have  Community  or 
non-Community  status. 

(b) 
Under  Article 313(2)(e),  fourth  indent,  of  the  provisions  for  implementing  the 
Code, goods entering on board a vessel which docks directly at the free zone are regarded 
as  non-Community  goods  and  their  Community  status  must  be  demonstrated  as 
stipulated in Articles 314 to 323. 

On the basis of thèse provisions the Greek customs department has laid down a procedure 
for  demonstrating  the  Community  status  of  goods  carried  by  sea  and  entering  the  free 
zone  directly.  The  removal  of  Community  goods  is  subject  to  the  procedure  for 
demonstrating  Community  status,  using  a  customs  status  certificate  to  which  the 
specified  T2L  Community  status  certificate  or  another  equivalent  document  must  be 
attached.  This  procedure  ensures  that  documents  are  checked  and  avoids  illegal 
practices. 

2. 

Piraeus free  zone 

2.1.  Keeping of stock records (points 24 and 25) 

As in Thessaloniki,  in Piraeus it is the Piraeus Harbour Board  (OLP) which  operates  the 
business of storing goods arriving in the Piraeus free  zone.  No other firm has been  given 
a licence to keep stock records in the zone. 

OLP's  stock  records  are  kept  in  the  same  way  as  those  of  the  OLT  in  Thessaloniki,  as 
described  above.  Consequently, the  details  in  1.1  also apply  to the stock  records  in  the 
Piraeus free zone. 

Transport  documents  are  entered  in  two  general  books,  depending  on  the  mode  of 
transport.  One  general  book  is  kept  for  goods  carried  by  sea  and  the  other  for  goods 
carried by road. 

Neither  of  the  books  contains  a  full  description  of  the  goods.  Each transport  document 
entry  states the particular treatment to which the goods are subject,  with all their  details. 
It is thus possible to keep track of the movement of the goods, as the general book  refers 
onwards  to  the  more  specialised  accounts  kept  in  the  warehouses  or  premises  in  which 
the goods are stored. 

Collection  of  duties  in  the  event  of  use, consumption  or  removal  of  goods  from 

2.2 
the free zone (points 26, 27, 28, 29, 30 and 31). 

'3i> 

The customs department applies the rules governing the incurring of a customs  debt  and 
therefore applies Article 205 of the Code. 

The difference  between Customs Office  H and the Harbour Board referred  to at 28 is due 
to a mistaken notion on the part of the latter that the free zone is foreign territory and  that 
no customs debt is therefore  incurred in respect of goods which go missing. 

As soon as this department  was  informed  of the dispute, it instructed  Customs  Office  H 
to apply all the rules governing the method of collecting duties and taxes owing on  goods 
which  have  been  consumed  or  used  or  have  gone  missing  in  the  free  zone.  The 
instruction  was  contained  in  document  P.6198/102  of  19 November  1996,  of  which  a 
copy  is  attached.  The  Piraeus  Harbour  Board  runs  the  business  pf  storing  goods  as  a 
public warehouse and is therefore  liable for duties like any other person. 

This department does not think it advisable for the moment to rescind the authorisation to 
keep stock records, as this is the first time this state of affairs  has arisen.  However, if the 
OLP persists in refusing  to remit the established  sums owing, the question of  rescinding 
the authorisation may be raised. 

This department  has not  asked the Harbour  Board  to accept responsibility  for  the  duties 
owing,  as  that  responsibility  flows  from  the  existing  rules  and  is  not  dependent  on 
acceptance by the debtor. 

The  cases  of  duties  owing  referred  to  in  the  attached  copy  are  those  established  by 
Customs  Office  H and the duties will  be collected  in accordance with  the existing  rules. 
The  customs  office  has  not  so  far  told  us  whether  or not  the  amounts  stated  have  been 
collected. 

2.3 

Checks on stocks of goods in the free  zone (points 32 and 33) 

According  to  Article  168  of  the  Code,  checks  of  stocks  of  goods  in  the  free  zone  are 
carried out on the basis of the copy of the transport document handed over to the  customs 
office  of inspection. 

Whenever a check is carried  out, the trader has to show which goods have left  under  the 
customs  documents  or,  where  direct  removal  has  taken  place, under  a  document  of  the 
trader bearing an entry by the customs body responsible. 

Under Article 804 of the provisions  for  implementing  the Code, stock records in the  free 
zones in Greece are inspected at least once a year.  The inspection is based  on the  copies 
of the transport documents handed over to the customs office  of inspection, and is carried 
out  by  a  three-member  panel  consisting  of  an  official  from  the  regional  directorate  and 
two officials  from the customs office  of inspection. 

The  panel  checks  to  see  whether  the  goods  referred  to  in  the  transport  document  were 
given a lawful  destination under the existing customs rules.  Where it is found  that  goods 
have left  the free  zone without the stipulated  formalities  having been completed,  the  fact 
is reported to the customs office  of inspection, which takes steps to recover the duties. 

Sample checks may be carried out on stocks. 

31 

In Piraeus free zone there have not so far been any reports of serious omissions such as to 
justify reconsidering approval of the stock records. 

The deficiencies  noted in the attached copy did not arise from an inspection of the stock 
records  but  from  checks  on  goods  when  the  declaration  releasing  the  goods  for  free 
circulation  or placing  them under some  other customs regime was presented.  The  fact 
that  there  were  deficiencies  in  the  packages  or  containers  cannot  be  grounds  for 
rescinding  the permit as a deficiency  may  be  due to  causes  for  which the trader is  not 
responsible.  At  all  events, this  department  is  monitoring  such  deficiencies  and,  if  the 
Harbour  Board  is  found  to  be  responsible  for  them,  it  will  raise  the  question  of 
reconsidering approval of the stock records. 

The legal argument put forward by the Harbour Board, that the Board is not responsible 
for goods which go missing, as stated above (2.2), is not accepted by this department. 

2.4 

Certificates of the Community status of goods (points 34,35 and 36) 

The remarks made at 1.3 regarding the Thessaloniki free zone apply to the above points. 

3. 

General points 

Historically speaking, the free zone as an institution was first established in Greece at the 
beginning of the 20th century. 

The first free zone to be set up was established in Thessaloniki in 1914. 

The Piraeus free zone began operating in 1950, and the Iraklio free zone in 1958. 

Until  1995,  Greek free zones used to operate  in a different  way  from that laid down  in 
Community rules. 

Whereas a free zone was regarded as constituting  foreign territory, supervision of  goods 
was based on the lodging of a declaration at the customs office,  which would monitor the 
movements  of the  goods and clear the declaration  with the customs documents  for  exit 
from  the free zone. 

This gave rise to the notion that the removal of goods from a free zone did not give rise 
to a customs debt. 

As  from  May  1995,  approval  of  stock  records  was.  granted  to  the  Piraeus  and 
Thessaloniki  Harbour  Boards,  which  have  exclusive  rights  to  carry  on  warehousing 
activity inside their respective free zones. 

The Iraklio Harbour Fund did not ask for approval of stock records and this department 
therefore  asked for the free  zone there to  deleted from Annex  108 of the  implementing 
regulation, with the result that for some time now the free zone in Iraklio harbour has not 
been operating. 

The Iraklio Harbour Fund then applied for  stock records approval, and at the same time 
asked for the boundaries of the free zone to be modified  in such a way that the  loading 
and unloading jetty for goods would be outside the free zone. 

fz 

The  free  zone  is  due  to  start  operating  once  the  directives  governing  its  operations  are 
published.  The only undertaking handling goods will be the Iraklio Harbour Fund which, 
like the Piraeus and Thessaloniki Harbour Boards, is a public-law legal person subject  to 
supervision by the Ministry of the Merchant Marine. 

As  regards  the  part  of  the  harbour  which  is  not  in  the  free  zone,  the  existing  rules  on 
presenting and temporarily storing goods apply. 

B. 

ARRANGEMENT FOR GOODS ARRIVING BY SEA 

With regard to point 39, regarding the use of the notification  document  (TC  12) provided 
for  by  Article 313 of the provisions  for  implementing  the Code, the  customs  authorities 
responsible  for the point at which the inspection  by the team in question was carried  out 
have told us that they do not endorse the view that confusion  reigned when the  document 
in  question  was  discussed;  on  the  contrary,  they  consider  that  views  of  real  substance 
were  exchanged  between  the  inspectors  and  the  customs  officers  responsible  as  to  the 
reliability  of  the  document  in  terms  of  demonstrating  the  Community  status  of  goods 
moving  to  and  from  a  Community  port,  and  at  all  events  the  exchange  of  views  was 
useful  in clarifying  the positions of both sides. 

As  far  as  the  substance  of  the  issue  is  concerned,  the  questions  raised  by  the  customs 
office  are correctly conveyed in the relevant section of the memorandum. 

As regards point 50 of the memorandum, we would point out that the infrastructure  of the 
harbours  in  Greece  is  such  that  even  Community  goods  still  sometimes  have  to  be 
brought into the free zones for operational reasons relating to the harbours, with the result 
that Article 38(5) of the Community Customs Code cannot be applied. 

N.  Glendzis 
Director 

52 

IRELAND 

3C 

1996 Annual Report by the Court of Auditors 

Response bv Ireland to the Courts' Observations 

VOLUME 1 - ANNUAL REPORT CONCERNING THE FINANCIAL YEAR  1996 

CHAPTER  1 - OWN RESOURCES 

Paragraphs  1.10 (c) and  1.17 

The comment in respect of Ireland in paragraph 1.10 (c) relates to sums taken on deposit pending 

determination of correct liability to customs duty.  It is confirmed  that arrangements have been 

put in place for regular review of all such sums which concern own resources to ensure that they 

are entered in the accounts within the time limits prescribed by Community lawr 

-

Paragraph  1.21 and  1.22 

With regard to paragraph  1.21  the reference  to  "security arrangements" refers  to the physical 

» 

security by way of enclosure by fencing with supervised entrances and exits but in so far as it 

may imply a lack of,  or deficiency  in, customs control in free zones in Ireland it is incorrect. 

The free zone controls operated in Ireland are perfectly adequate to protect the Community's own 

resources  and  are,  in  fact  similar  to  those  applicable,  under  Community  rules,  to  customs 

procedures, such as warehousing, involving a combination of physical and documentary  checks 

on  a'risk  analysis  basis.  As  has  been  indicated  by  the  Commission,  proposals  to  amend 

Community  rules are in train to enable all Member States to apply the type of control  system 

operated by Ireland. 

Paragraph  1.35 

The Irish Authorities consider that the arrangements for the removal of goods from .point of entry 

in Ireland to the free zone are clearly permitted by Article 97.2(b) of the Community  Customs 

Code which allows Member States to apply simplified procedures for goods not required to move 

on the territory of another Member State.  They note, however, that the Commission takes the 

view that Community rules do not allow the guarantee to be waived for transfers to the free zone 

under simplified  procedures and, subject to further discussion with the Commission, will review 

current practice. 

35" 

It is important to note that there is no instance of any loss of Community funds or any abuse of 

the  simplified  procedure  which  Ireland  operates  by  traders or carriers  and that this  has  been 

verified  by detailed checks carried out from time to time by-the Customs authorities. 

Paragraph  1.42 

Prior to  1997 the procedure in Ireland was that regular control visits were carried out by customs 

staff  on  traders  in  Shannon.  These  control  visits  entailed  detailed  checks  of  individual 

transactions and examination of trader records.  A detailed record of these visits and the checks 

performed  were in fact kept by Customs and shown to the Auditors in the course of their visit. 

These controls are considered by the Irish Customs Authorities as being perfectly  adequate to 

protect the own resources of the Community.  Since January  1997 a new audit procedure has 

been introduced generally in the Irish Customs Administration whereby, on a risk analysis basis, 

an intensive audit of the totality of the traders' relations with Customs is conducted by specialised 

customs staff.  These arrangements also apply in relation to free  zones traders.  A copy of the 

Audit  Guidelines manual which was developed  to assist audit staff dealing with the new post 

clearance audit regime has been provided to the Commission. 

Paragraph  1.51 

Procedural changes have been introduced which meet the Courts' concerns.  However, it should 

be pointed out that the relevant Customs supervision office  was in fact in ail cases in a position 

to  be  aware  of  the  precise  conditions  attaching  to  the  authorisation  and  to  monitor  their 

implementation.  It should also be noted that no risk to own resources arose in these situations. 

Paragraph  1.56 

The  Irish  Authorities  have  introduced  additional  measures  with  a  view  to  ensuring  that  this 

problem does not recur. 

CHAPTER  3 - PLANT  PRODUCTS 

Paragraph  3.29 

Ireland engaged consultants in  1997 to review the computer and business processes relating to 

Area Aid payments based on the land parcel identification  scheme.  The  project  was completed 

3C 

in February  1998 and included agreecj improvements to processes and systems and an action plan 

for  1998.  Amongst these are daily transfers of data between systems (i.e. bar coding, scanning, 

land parcel identification  database and the Supra mainframe)  and a formal tracking system for 

inspection cases. 

The more structured approach emerging from this review and the establishment of a monitoring 

group, which  will  report  progress  to  the  paying  agency's  existing  high  level  Accreditation 

Review  Group  (ARG),  on  which  the  Department  of  Finance  is  represented,  will  provide 

improved assurance on meeting EU requirements and the comments and recommendations of EU 

and national audit bodies. 

Paragraph  3.46 

Cross checking within the system improved  in  1997, and for  1998 the following  measures  are 

being taken to facilitate cross checks between area aid and other schemes. The Department of the 

Marine and Natural Resources is being given the full  land parcel identification  database (LPIS) 

to allow the Forest  Service carry out cross checks against area aid applications data.  It is also 

anticipated that Phase I of the Forestry Inventory  System will be delivered in  1998.  This new 

system is expected to facilitate  automatic checks  between the Forest Service and area aid data 

on the LPIS: 

For the 1998 processing cycle it is proposed to give the 36 Rural Environment Protection Scheme 

( REPS ) local offices  access to the details of every land parcel declared by area aid  applicants 

by mid  Summer  1998. This will allow local offices  to identify  REPS applicants who have not 

submitted  area  aid  applications  and  to  cross  check  land  parcels  declared  on  the  area  aid 

applications of those who have. 

The ultimate objective would be to have a system for automatic comparison of data. 

CHAPTER  4 - COM: ANIMAL  PRODUCTS 

Paragraph  4.45 

The difficulties  experienced  in  1996 were largely overcome in  1997. 

Paragraph  4.49 

Following the entry into force of legislation  implementing Directive 92/102/EEC for  bovines ( 

it was implemented earlier for sheep and pigs ) farm registers were  transmitted to every  cattle 

farmer  in the country.  Each  bovine  animal  was already  accompanied  by  an  identity  card  for 

movement in Ireland. 

CHAPTER 5 - EXPORT REFUNDS ON VEAL AND BEEF 

Paragraph  5.35 

Given  the  Courts'  concerns  the  Department  of  Agriculture  and  Food  has  undertaken  further 

examination of the circumstances surrounding this shipment.  Origin checks have taken place at 

the  four  plants where  male  beef was deboned  under the terms of Regulation  (EEC)  1964/82. 

Under the terms of this regulation as implemented in Ireland, export refund  records trace animals 

from  points of slaughter, through deboning and packing to individual cuts.  The origin  checks 

were in all cases  satisfactory. 

The Irish authorities are satisfied  that there is no indication that export refunds  were  improperly 

paid  on  this  consignment  of  beef.  We  would  however  lend  support  to  the  Court's  point 

concerning  the need  for  harmonisation  of veterinary  procedures.  In Ireland  all temporary  re 

imports are subject to veterinary  examination. 

CHAPTER 6 - EUROPEAN  REGIONAL DEVELOPMENT  FUND 

Paragraph  6.22 

The  Department  of  Enterprise,  Trade  and  Employment  maintains  that  the  normal  reporting, 

accounting  and  reconciliation  arrangements  within  the  implementing  agencies  is  more  than 

adequate to ensure that returns relating to EU expenditure are sufficiently  accurate and  correct. 

All expenditure by the implementing agencies is subject to a strict and highly developed  system 

of controls and checks.  This system applies to all payments, in all years, irrespective of whether 

the funding  involved comes from the National Exchequer or from the EU.  Agency  declarations 

of EU-related expenditure under the Industry OP have been reconciled against agencies'  overall 

accounting  systems.  Apart  from  the agencies'  internal  controls  systems  (e.g  grant  payments 

52 

systems),  Departments  and  their  implementing  agencies'are  subject  to  audit  by  the  Irish 

Comptroller and Auditor General (C&AG).  While we accept that the C&ÀG's Office  has no 

formal  function  in  relation  to  EU  funding,  it  is  still  auditing  overall  agency  spending  and 

examining  procedures  of  which  the  EU-supported  elements  form  a subset.  For  example,  in 

examining the overall accounts of Forbairt, the C&AG is automatically covering those Forbairt 

activities which form part of and receive EU support via the Industry OP. 

Partly as a result of similar criticisms in the past, the Department of Finance has commissioned 

consultants as part of an overall assessment of what improvements are needed at implementation 

and agency level in developing systems for tracking and monitoring expenditure and appropriate 

controls. 

'" 

" 

The reference to the "high instance of irregularity found in the payment claims" is inaccurate and 

misleading.  The Irish authorities objected to a similar comment in the Court's preliminary report 

and in previous audit reports. 

We are not aware of what specific  irregularities are being referred to in relation to the Industry 

OP.  While numerous queries have been raised  in relation to the OP in the course of previous 

visits  by  the  Court  of  Auditors  and/or the  European  Commission's  DG XX,  it has  been  our 

understanding  that  all  such  questions  had  been  explained  to  the  satisfaction  of  the  body 

conc'erned. 

Comments relating to justification of expenditure relate to Department of Enterprise, Trade-and 

Employments'  internal  records.  It  was  not  possible  during  the  course  of  the  audit  visit  to 

reconcile some agency returns with final claims from  Departmental records alone.  However, 

both the agencies concerned (Forbairt and An Bord Trachtala) were able to confirm subsequently 

that the final claims were correct and in accordance with their own expenditure records. 

The  "official  documents" referred  to in the Court's report are manual  calculations  required  to 

present the agency returns in the format of the Industry OP.  For example, where more than one 

agency  may  be  involved  in  delivering  a  particular  measure,  returns  from  Forbairt/IDA  and 

Shannon Development have to be combined.  Some of these calculations, as presented on file, 

39 

do  indeed  contain  corrections  or  alterations.  However,  they  are  not  "justifying  the  final 

declaration amounts" as the Auditors state, nor are they presented as such on  file.  The actual 

expenditure  amounts  are justified  by  the  supporting  agency  returns  and  ultimately  by  the 

agencies' own financial  control systems. 

The  Department of Enterprise, Trade and Employment accepts that from the strict  viewpoint 

which the Court is required to take, the files examined did not always contain a clear and obvious 

link between agency returns and the figures finally declared in the annual reports.  That is not to 

say, however,  that there  is any  flaw,  irregularity  or fraud in the declared  figures  themselves. 

Subsequent checks with the implementing agencies confirmed that the figures quoted in the final 

returns were correct and in agreement with the agencies' financial control systems, but it was not 

possible to establish this within the timescale of the audit visit. 

It is worth noting also that the manual system of reporting in use for the 1989-1993 OP and, from 

which  many  of the Court  of Auditors'  criticisms  arise, was  superseded  by  a computer  based 

system from  the start of the  1994-1999 OP. 

Paragraph  6.23 

The Irish Authorities reject what is viewed as a negatively skewed  picture of what was, overall, 

a reasonably well managed and successful  programme.  It is accepted, however, that not all of 

the  Auditor's  findings  in  their  draft  report  were  without  foundation  and  that  the  relevant 

Department's monitoring/control  function  did not operate adequately. 

Paragraph  6.23  refers  to  the  inability  to  audit  the  library  project  owing  to  unavailable 

documentation.  About  50% of  the  expenditure  on this  project,  which  was  managed  by  the 

Library Council, was in respect of wages and salaries of the promoter's staff and staff  in the six 

participating  libraries.  While a listing of totals of staff  involved, man-hours,, hourly rates, etc. 

was  available  during  the audit, the original  time sheets from  which  the  listing  was  compiled 

could  not  be  located.  The  Library  Council  had  the  time  sheets  but  they  were  accidently 

destroyed.  Indeed  it  was  the  Project  Manager  for  Télématique  who  brought  the- loss  of  the 

original  time sheets to the attention of the Auditors and offered  that sworn affidavits  could  be 

provided  if required. 

loo 

The  second point  in paragraph  6.23  concerning  Télématique is  misleading  viz. that  an  exact 

analysis of eligible expenditure by measure and project did not exist.  This criticism was rejected 

in our  earlier  response on the Auditor's  draft  report.  All of the individual  project  files  were 

available to the Auditors during their visit in October 1996 and the breakdown of the expenditure 

amount in the final declaration could have been verified  against the individual files if they had 

wished  to do  so.  While we accept  that this would  have been time-consuming,  we reject  the 

implication that there was a break in the audit trail; the project files are the control documents. 

The Télématique OP operated from 1991 to 1993 and is long since finalised.  However, it should 

be pointed out that in the case of other ongoing Community Initiatives operated by Forbairt on 

behalf  of  the  Department  of  Enterprise,  Trade  and  Employment  e.g.  the  SmalF  Business 

Operational  Programme,  the  standard  practice  since  1994  is  that  no  financial  returns  from 

contractors are entertained unless accompanied by an independent  audit  certificate. 

Paragraph  6.32 

During the course of the audit, the Court representatives revisited issues originally raised in 1994 

by the European Commission's DG XX - in particular, the difficulties  encountered by DG XX 

in reconciling agency spending and financial  records with the declarations made to the EU  for 

Support under the Industry OP.  An exercise carried out by an independent firm of accountants 

on behalf of the Department of Enterprise, Trade and Employment subsequently concluded  that 

the systems in place appeared to provide an adequate reconciliation. 

The positive outcome of this exercise was accepted by the Commission, but the Court still insists 

that it could  not trace the expenditure from  the agency's grant payments system to the  annual 

claim within a reasonable time because "no systematic reconciliation took place".  This is not 

correct.  All EU declarations can and have been reconciled with agency spending but this could 

not be done in the time available to the Court.  It took the independent accountant several  weeks 

to check and reconcile all expenditure because of the number of agencies and measures involved 

and the manual systems in use for the years in question (1989 and  1990). 

It should also be noted that the original DG XX audit extended to agencies other than the present 

IDA and Forbairt - however the Court of Auditor's report refers only to IDA/Eolas and  Forbairt, 

to I. 

giving the impression that queries/problems  originally raised  in  1994 and  1995 still  persisted 

within those agencies in  1996. To our knowledge and that of the agencies concerned, there are 

no outstanding audit queries or irregularities under the Industry OP. 

The  implementing  agencies  have  expressed  concern,  which  is  shared  by  the  Department  of 

Enterprise, Trade and Employment, over the generally negative impression given by the text of 

the  1996  report,  especially  as this  is completely  at  variance  with  tfje  feedback  given  by  the 

Auditors  during  the  course  of  the  visit  in  October  1996.  In  particular,  issues  which  in  our 

opinion had been finalised in a satisfactory  manner either at the final meeting with the Court of 

Auditors or  in our written response, are raised again in the text.  The severity  with which this 

reads  is  in  direct  conflict  with  the  impression  given  at the  final  meeting,  during  which  the 

Auditors indicated that they were impressed with the systems which were in operation in IDA 

and  Forbairt. 

It  might  be  noted  that  the  scale  and  complexity  of  the  Industry  OP  and  the  number  of 

implementing  organisations  involved  make  it  extremely  difficult 

to  ensure  that  full 

documentation and information  is available to reconcile any and every sub-measure within the 

few  days  normally, available  to  the  auditors  - there  are  over  fifty  sub-measures  and  thirteen 

Departments  or Agencies  involved  in the OP.  Notwithstanding  this, as  lead  Department,  the 

Dept of Enterprise, Trade and Employment will continue to liaise as closely as possible with the 

Court of Auditors on audit visits to try to avoid negative reports arising out of misunderstanding 

or time constraints. 

CHAPTER  8 - EAGGF  GUIDANCE 

Paragraph  8.26 

A request  for  recovery  has issued to the firm concerned and the Commission  will be  informed 

of developments  in this case. 

lot. 

Paragraph 8.38  " 

It  is  accepted  that  the  local  office  record  systems  are  cumbersome  and  the  Department  of 

Agriculture and Food is examining how computerisation would improve the speed of access and 

cross reference  to records.  This will have to take account of developments in computerisation 

of the CAP Reform measures and Accompanying Measures which are more advanced. 

In relation to farm improvement plans the Irish authorities would emphasise that completion of 

farm improvement plans is the responsibility of the applicant for on farm investment aid. 

Paragraph  8.64 

The Department  of Agriculture  and  Food  does not  share the Court's  conclusion, in this case. 

Having  reviewed  the  papers  the  Department  is  still  of  the  view  that  an  agreement  was  in 

operation between the parties involved. 

CHAPTER 9 - COMMON POLICY ON FISHERIES AND THE SEA 

Paragraph 9.31 

Ireland is fully  committed to complying with its obligations on the reporting of fleet details to 

the European Commission under Regulation 104/94 ( as amended), and has been working closely 

with the  Commission  to ensure that all the necessary  information  is provided  in the required 

format. 

.A  joint  Working  Group  (with  the  Commission)  on  the  transmission  and  compatibility  of 

information  in respect of the Irish fleet  register was set up in  1997, with the aim of bringing 

information on the Irish fleet on the Irish and EU registers into line.  Agreement on the position 

at the end of  1996 has been reached and arrangements are in train to ensure the effective  and 

timely delivery of information to the Commission in future. 

Paragraph  9.33 

The-position has changed  since September  1996, as Ireland has since forwarded  the requisite 

information  on  the  fishing  effort  of the  Irish  fishing  fleet  to  the  European  Commission  in a 

Report  on Irish implementation  of MAGP III (1.992-1996).  Ireland  is assessing the technical 

options for supplying the relevant information  electronically to the Commission in  future. 

J<?3 

Paragraph  9.35 

Ireland would wish to see standard systems for measurement of fishing vessels operated by all 

Member States and has made it views on the matter known to the European Commission. 

VOLUME II - STATEMENT OF ASSURANCE 

CHAPTER 20 - EAGGF AND FISHERIES  EXPENDITURE 

Paragraph 20.13 

It should be clarified that the certifying body did not suggest there were grounds for doubting the 

accuracy of opening stocks but said that it had not been in a position to verify the"se at the time 

of the  1995/96 audit (ie after  year end). The body expressed no reservations on closing  stocks 

in  1995/96 or on opening and closing  1996/97 stocks. 

The need for speedier submission of documentation from officials  in meat plants and coldstores 

has been addressed in the Beef Intervention  Computer  Systems project  (BICS) through better 

management information reports and increased monitoring of time lag issues. In January  1998 

average times for submission of IB4 and IB8 forms  were 8 days and 7.8 days respectively  - a 

substantial  improvement on earlier periods. 

Monthly  reconciliation  of  coldstores  :  In  November  1997  a  new  computer  facility  was 

implemented  allowing  for  automatic  reconciliation  of  coldstore  returns  and  paying  agency 

records  and  is now fully  operational.  It complemented  accelerated  reconciliation  procedures 

introduced during  1997 i.e.  production of the annual account on a quarterly basis, emphasis on 

timely input of stock data and a detailed programme of inventory checks and stock counts (the 

scope of the latter going beyond the requirements of the regulations). 

As a result of the BICS project in 1997 the computer system is now producing accurate, reliable 

and timely data which fully  support intervention operations. 

The issues which arose during the stock counts at two stores have been addressed by the paying 

agency.  The  certifying  body  and  Commission  auditors  who  attended  the  1997  stock  count 

\oU 

reached favourable conclusions on the process. 

The butter stock recording system is being examined and the paying agency is acting upon recent 

business consultants' recommendations in the matter. 

l or 

ITALY 

REPLY TO THE FOLLOW UP TO THE EUROPEAN COURT OF AUDITORS 
REPORT  CONCERNING  THE  FINANCIAL  YEAR  1996  -  COMMENTS  AND 
MEASURES ADOPTED BY ITALY 

CHAPTER 1 - OWN RESOURCES 

Financial management in the Member States 

Paragraphs  1.9  to  1.17.  Paragraph  1.13  of  the  report  refers  to  the  entering  in  the 
accounts of customs duties which have been notified to the debtor but remain uncollected 
and unsecured or, although secured, have been challenged. 

Community  law  (Regulations  (EEC,  Euratom)  No 1552/89  and  (Euratom,  EC) 
No 1355/96) requires such duties to be entered in a separate account or B account, stating 
the  deadline  and  method  to  enable  checks  to  be  carried  out  on  the  steps  taken  by 
Member States to collect own resources, especially amounts involved in of cases of fraud 
or irregularities. 

It was pointed out that various offices  in Italy  use an accounting  method that  does not 
comply with Community  law, in that the amounts are not brought to account until the 
moment of recovery rather than at the moment of communication to the debtor. 

Circulars have been sent to local offices  on several occasions explicitly pointing out the 
requirements  of  Community 
law.  The  most  recent  were  circulars  Nos274/D 
Réf.; 1801/VIII of 22November 1996and 1691/VIII of 22 September 1997. 

As  the  date  of  establishment  is  the  date  of  registration  under  customs  law  or,  more 
precisely, the date of entry in the accounts of amounts paid  on the basis of  individual 
import  declarations,  circular  274/D  expressly  points  out  that  "when  debts  have  been 
challenged, the date of assessment - or of entry in the separate account - must be no later 
than  the  date  of  the first administrative  decision  (request  for  payment)  informing  the 
taxable person of the debt incurred, or the date of notification  of the judicial authorities, 
whichever comes  first." 

Circular  1691/VIII  S.D. contained  instructions  regarding the  entry  in the  B account  of 
surcharges established as own resources subsequent to verification. 

In the case of duties established  following  ex post verification,  which therefore  may be 
challenged  by the economic operator and lead to disputes, the conditions  were also set 
out  for  entering  the  amount  in  a  separate  account  on  a  date  other  than  the  date  of 
notification  (notification  of a revised assessment  or examination  report) which contains 
the  new  calculation  of the  surcharge  and  is  used  by  the  customs  office  to  inform  the 
debtor of the amount due and request payment. This notification,  in fact, constitutes the 
first administrative  decision  regarding  the  verification  of  the  conditions  required  for 
establishing and therefore entering the Community's own resources. 

t°\ 

The  instructions  issued  in  relation  to  the  bringing  to  account  and  establishment  of 
customs duties subsequent  to ex post  checks of declarations  should  in future  prevent  any 
repetition of the delays (up to 24 months) referred  to by the Court in paragraph  1.10b. 

Free zones 

Paragraphs  1.24,1.28,1.32  and  1.39.  With regard to the comments made  by  the  Court 
in  relation  to  these  paragraphs,  we  must  point  out  that  the  comments  relating  to  the 
functioning  of  the  free  zones  of  Trieste, which  we were  already  aware  of,  are  based  on 
thé  fact  that  the  provisions  applied  to these  free  zones  derive  from  the  Treaty  of  Rome 
and not from  the Community Customs Code. 

A  draft  government  regulation 
the 
abovementioned  provisions, which, once adopted, will eliminate the cause of the  Court's 
observations. 

is  currently  being  prepared'  to  harmonise 

The implementation  of provisions in force 

Paragraph  1.104.  In  the  case  cited  by  the  European  Court  of  Auditors  (the  import  of 
video  cassettes  declared  as originating  in  Macao)  we  should  point  out  that,  following  a 
telex  from  the  Commission  department  concerned,  we sent telex No 6390/196/X  S.D.  to 
the  administrative  offices  stating  that,  since  the  Form  A  certificates  were  not  a  valid 
justification  for  the  granting  of  the  preferential  duty  under  the  generalised  system  of 
preferences  requested  for  the  import  of  video  cassettes  declared  and  certified  as 
originating in Macao, the duties established were to be recovered. 

The telex  also ordered  the collection  of anti-dumping  duties on the imports, as the  items 
in question had to be regarded as originating in China and thus not subject to  preference. 

As  regards  the  Court's  observation  concerning  the  failure  to  provide  a  summary  of  the 
establishments  and recoveries carried out by local offices,  we should  point  out  that  these 
aspects of establishment  and recovery are the responsibility of these  offices. 

Chanter 3 - MARKET ORGANISATIONS. PLANT  PRODUCTS 

Arable crops 

We  believe  we  should  point  out  that  the  observations  made  concerning  the  activities  of 
the  Italian  Government  in  relation  to  the  management  of  arable  crop  farming  are  fairly 
marginal. 

Reference  is made to the method of calculation  used to establish the régionalisation plan. 
As  the  Court  was  informed  during  its  visits  to  Italy,  the  Government  confined  itself  to 
using  the  statistical  survey  (agricultural  regions)  and  historical  data  supplied  by  the 
Istitulo  Centrale  di Statistica  (Central  Statistics  Office).  This  is  simple  to  check,  as  the 
data is contained  in the ISTAT yearbooks and can be verified  by referring  to the  Eurostat 
data bases. The system was approved  by the Community  authorities  in July  1992 and  has 
been  neither  altered  nor  modified  in  any  way,  apart  from  the  section  concerning  the 

\o? 

creation of the new provinces, where purely formal  changes were made without alteration 
to the substance. 

With regard to the possibility  of overcompensation  occurring in certain  sectors, this  was 
caused  by  a combination  of  global  economic  factors  that  had  an  impact  throughout  the 
Community  and  led  to  a  marked  increase  in  the  market  price,  as  a  consequence  of 
shortages.  Clearly,  no  provision  can  be  made  for  such  developments  in  any  economic 
policy  programme  based  on  objective  data  and,  therefore,  no  responsibility  can  be 
attributed  with  hindsight,  nor  can  anyone  be  admonished  who,  at  the  time,  was  called 
upon to develop an agricultural policy that was quite radical, in view of the European and 
national situation at the time. 

Integrated administrative and control system (IACS) 

The observations made in paragraph  3.48  are not relevant, as the tolerance  of  5 000  m2 
derives  from  the  technical  and  scientific  characteristics  of  remote  sensing  and  has  also 
been accepted by the Community body responsible for the integrated control system. 

Clearly,  if technological  progress  increases the  accuracy  of remote  sensing the  tolerance 
could be revised. 

With  reference  to  the  observations  made  in  paragraph  3.56,  and  as  has  already  been 
explained  at  meetings  with  the  representatives  of  the  Court,  the  methods  employed  by 
Italy, i.e. the use of aerial photography  or satellite pictures to cover the whole  area prior 
to  the  period  following  the  serving  of  the  request  and  therefore  a  long  time  before  the 
in loco  check  was  carried  out  and  cross-checked  with  the  farmer  concerned,  makes  a 
48-hour  advance-warning  irrelevant,  since the  farmer  has no chance to  modify  the  areas 
already photographed by the authorities. 

It  should  be  pointed  out  that  the  observations  concerning  practices  in  France  and 
Germany suggest that the system set up by the Italian authorities is more than  satisfactory 
in comparison with those in the rest of the Community. 

(CMO) for raw tobacco 

Tobacco  market.  We  do  not  share  the  Court's  view  concerning  the  quality  of  the 
tobacco,  as  we  believe  that,  especially  in  the  last  few  years,  quality  has  improved  (the 
Italian  Bright  and  Kentucky  varieties,  for  example,  are  highly  sought  after  on  the 
market). 

As  producer  countries  have  repeatedly  stated,  it  is  impossible  to  value  the  tobacco 
correctly  on the basis of the price paid by the processor,  because  it is also  influenced  by 
other  factors.  Price  levels  are  affected  by  crop  levels  and  world  prices,  as  well  as 
preferential  duties. 

Furthermore,  in  the  first  few  years,  all  measures  protecting  and  supporting  the  market 
were  cut  (reimbursements,  subsidies), forcing  the  sector  to  reorganise  without  any  form 
of "safety  net". 

There  was  no  appropriate  internal  restructuring  process  based  on  a  revised  plan  for  the 
sector, especially as it was impossible to use any type of subsidy  - national  or otherwise -

6g 

to  modernise  and  standardise  holdings  and  reorganise  quotas.  These  were  all 
consequences  of  the  ban  on  subsidies  on  tobacco  and  the  inflexibility  of  the  quota 
system,  which  made  it  impossible  to  transfer  quotas  easily  since  the  scheme  had  no 
compensation  or definitive  transfer  mechanisms  which  would  have enabled  new,  young 
producers to enter the sector. 

However,  we  share the view expressed  in  the  Commission  study  that  there  is  a need  to 
increase the scope of specific aid at the next  reform. 

Market balance and budget situation 

The observation  made regarding  the high  level  of tobacco  subsidies  must be  seen  in  the 
light of the highly labour-intensive nature of the sector in comparison with other  farming 
sectors.  The  subsidies  create  a high  level  of  employment  in  the  regions  concerned  and 
help to increase the earnings of a large number of workers. 

According  to  estimates,  approximately  180 000  full-time  jobs  are  supported  directly  or 
indirectly by the subsidisation of tobacco in Italy alone. 

More  generally,  given  the  low  level  of  self-sufficiency,  quotas  for  producer  countries 
should be increased. This would boost employment  far more than alternative activities. 

Complexity  of the new scheme 

We  share  the  view  that  the  scheme  is  rigid  and  complex,  and  this  prevents  it  from 
employing  more  elastic  and  efficient  compensation  schemes  while  requiring  a  major 
administrative effort  from the Member States. 

During the first year of its adoption the basic Regulation contained a contradiction, which 
in turn led to the failure to conduct the checks identified  by the Commission. 

According  to  the  provisions,  Member  States  had  to  set  up  a  computerised  data  base  by 
the end of  1995, making processors responsible  for  supplying  the producers'  data, which 
was  to  be  used  to  calculate  the  quotas  for  1993  and  1994.  At  the  same  time,  Member 
States were made responsible for checking the data while they were engaged in setting up 
and consolidating  the data base to enable them  to assign  quotas to the producers  directly 
from  1995 onwards and carry out appropriate checks on the allocation. 

It  follows  that  the  responsibility  for  the  failure  to  carry  out  the  checks  cannot  be 
attributed  to  the  administration,  which  took  all  the  precautions  possible  within  the 
constraints described above. 

Italy  has  always  called  for  checks  to  be  stricter  and  more  wide-ranging,  with 
on-the-ground  checks  (carried  out  by  Italy  since  1993  and  approved  for  all  Member 
States by the Commission  from  the  1995 harvest  onwards)  and  the possibility  to  impose 
penalties to deter fictitious producers and processors who fail to fulfil  their obligations. 

Italy is the only country to have legislated  for conditions and selection procedures  for  the 
recognition  of  processors  and  has  also  continued  to  call  for  additional  control  measures 
and  penalties,  including  an  improved  definition  of  producers  to  ensure  that  quotas  are 
assigned  correctly. 

o 

Additional  checks  have  also been  carried out in warehouses  and  in the  fields  ever  since 
the reform  was introduced, using aerial photography (then still at an experimental  stage) 
and  cross-checking  the  data  base  information  with  cadastral  data  and  other  information 
on the cultivated areas. 

Therefore  the  failure  to  set  up  a  specific  control  agency  for  tobacco  did  not  lead  to  a 
reduction  in  the  quality  of  the  controls,  which  were  qualitatively  and  quantitatively 
adequate, as has repeatedly been acknowledged by Commission monitoring  departments. 

We  must  stress  that  quality  controls  of  the  tobacco  are  carried  out  in  accordance  with 
current Community Regulations. 

If the Commission  believes control measures need to be introduced over and above  those 
currently  in force,  especially  with regard to quality control, the agency would  need  to  be 
set up and  co-financed. 

Direct income support 

We  do  not  share  the  views  expressed  by  the  Court  of  Auditors  concerning  income 
support because it would be impossible to convert to activities that were similarly  labour-
intensive, nor concerning quality, which has levelled off as a consequence  of  insufficient 
support. 

We  similarly  oppose  quota  buy-back  arrangements,  which  will  lead  tô  producers 
abandoning their activity, and the lowering of guarantee levels. 

We accept the approach contained in the reform proposed by the Commission, but it must 
leave sufficient  scope to take account of the characteristics in each producer country. 

Above all, the scheme needs to be simplified  and made more flexible.  This would  help a 
new generation to take over and production to improve as desired. 

CHAPTER 6 - EUROPEAN REGIONAL DEVELOPMENT  FUND 

Support for aid schemes 

Paragraph  6.56.  The  committee  monitoring  the  Industry  and  Service  multiannual 
operational programme targeted small-scale projects  with Measure 2.1 (Selective  support 
for  investment  and  innovation  in  industrial  SMEs),  as  can  be  seen  from  the  committee 
report of  14 February  1997. 

As  a  consequence  of  and  in  accordance  with  this  approach  the  monitoring  committee 
decided on  16 December  1997 that Measure 2.1 funding  could not be awarded to  projects 
with  a  budget  of  more 
report  of 
16 December  1997). 

than  LIT  18  billion 

the  committee 

(cf. 

Concurrent drawing and overlapping of aid 

Paragraph  6.63. There  needs to be a clearer  definition  by the  European  Commission  of 
the  fields  of  intervention  covered  by  the  various  Funds  with  regard  to  the  notion  of 

-IU 

first-level  processing  so as to avoid possible overlapping of aid as found  by the Court  in 
Calabria. 

CHAPTER 7 - EUROPEAN SOCIAL FUND 

The partnership 

Paragraph 7.18. The composition of the monitoring committees is as follows: 

•  Objective  1 

Human resources: 58 full  members and observers; 

•  Objective 1 

Multiannual operational programmés: 52 full members and 
observers; 

•  Objective 3 

50 full  members and observers; 

•  Objective 4 

50 full  members and observers. 

Paragraph 7.19 d). 

The committees monitoring Objective  1  Human Resources and 
Objectives 3 and 4 each met twice in 1996: 

•  Objective 1 

Human resources:  12 March  1996 and  14-15 October  1996; 

•  Objective 3 

27-28 June  1996 and  14-15 November  1996; 

i 

•  Objective 4 

29-30 June  1996 and 23-24 October  1996. 

Theprivate  sector 

Paragraph  7.26.  In  its  communication  of  15 October  1993 the  Commission  confirmed 
that  the  safety  courses  are  admissible  for  Objective  4  funding.  Nevertheless,  the 
Emilia-Romagna region suspended the funding  of all safety-related  activities for  1997. 

Paragraph  7.27.  The  difficulty  regarding  co-financing  by  SMEs  relates  to 
the 
management  of  the  ESF  at  Community  level. The  national  and  regional  authorities  are, 
however, trying to  launch programmes  bearing  in mind the prioritising  of  SMEs and  the 
planned participation of the bodies responsible for the OPs. 

Examination  of systems 

Paragraph  7.42.  Commission  Decision  C(97)  1035/6  of  23 April  1997  (SEM  2000) 
modified  the  system  for  certifying  expenditure,  requiring  the  expenditure  actually 
incurred  by the training  providers  in a calendar  year to be certified  (datasheets  1 and  4) 
rather than the expenditure incurred by the final beneficiary,  or the public body  providing 
the financing,  as had originally been allowed. 

M2. 

While  not  opposing  the  modifications,  the  Minister  of  Employment  pointed  out  to 
Commissioner  Flynn  in  communication  No 5446  of  9 December  1997 that  altering  the 
perspective  while  programmes  were  already  running  would  necessitate  profound  and 
immediate  procedural  changes  that  would  not  be  desirable  at  a  time  when  the 
management  of  the  ESF  was  already  so  complex.  During  the  discussions  leading  up  to 
the  approval  of  the  SEM  2000  datasheets  the  Commission  also  gave  assurances  that 
while the programmes were running the institutional, legal and financial characteristics  of 
the 
the  Member  States  as  partners  would  be  respected,  as  provided  for  by 
abovementioned  decision.  Further  technical  studies  are  needed  to  resolve  the  problem 
and more time is needed to implement the decision than provided for by the decision. 

As  regards  Community  initiatives,  expenditure  is  currently  certified  on  the  basis  of 
expenditure  actually  incurred  by  the  bodies  responsible  for  the  programmes,  as  was 
agreed with the Commission when the programmes were launched. 

National  coflnancing 

Paragraphs  7.52, 7.56 and  7.57.  Until  31 December  1995 national  co-financing-for  the 
ESF  in Italy  was  managed  on  an  extra-budgetary  basis by the Ministry  of  Employment, 
in  accordance  with  Section  25  of  Act No 745/78  and  subsequent  amendments.  Under 
Section  1(72)  of  Act  No 594/95  the  funds  used  for  co-financing  were  transferred  to  the 
Treasury from  1  January  1996. To this end the Treasury and the Ministry of  Employment 
issued  a joint  ministerial  order  on  12 July  1996 establishing  a  new  systein  of  financial 
management  and creating procedures for  coordinating the various operators  involved.  As 
a  consequence,  there  was a slight  delay  in transferring  resources to the regions  although 
the  deliberations  of  the  Interministerial  Committee  for  Economic  Planning  had  already 
been approved. In the meantime some regions financed  national contributions out of their 
own  resources  and  were  later  reimbursed  by  the  Treasury  Ministry.  The  accounting 
problems  caused  by  this  transfer  of  powers  were  resolved  by  the  Member  State  in 
collaboration with the Commission's  DG V. 

The J  990-93  operational  programme  managed  by  the  region  of  Sicily  is  a  special  case. 
The  requests  for  payment  for  1992  and  1993  and  the  concomitant  reprogramming  of 
resources  are being validated  by the Commission. In this case too, the  situation has  been 
examined and discussed with DG V. 

Paragraph  7.53. Please  see  paragraph  7.42  for  comments  on  the  method  of  certifying 
expenditure. 

Paragraph  7.54. To bring national contributions into line with Community  contributions 
the administrative measure of  18 December  1996, registered  by the Court  of Auditors  on 
18 February  1997  and  published  in  the  Gazzetta  Ufficiale  on  21 March  1997,  redrafted 
the deliberations  of the Interministerial  Committee  for  Economic  Planning  for  1994  and 
1995 on the basis  of the ESF programming. The deliberations  for  1996 were  adopted  on 
18 December  1996  and  the  deliberations  for  1997  and  1998  were  approved  on 
20 March  1997, taking account of previous financial  programming. These measures  made 
it possible to transfer  the national contributions to the regions in time. 

13 

CHAPTER 8 - EUROPEAN AGRICULTURAL GUIDANCE AND 
GUARANTEE FUND (EAGGF GUIDANCE) 

Audit of expenditure incurred under Council Regulation (EEC) No 866/90 

r 

According  to  Official  Journal  C 198  of  18 November  1997,  during  1996  the  Court  of 
Auditors conducted audits of some projects financed under Regulation (EEC) No 866/90. 

We assume that these were audits of projects concerning the processing and marketing of 
agricultural  products  that  form  part  of  the  regional  MOPs  in  the  Objective  1 regions, 
about which we have no knowledge. 

Audit of expenditure incurred under Council Regulation (EEC) No 2328/91 

Regulation  (EC)  No 950/97  (formerly  Regulation  (EEC)  No 2328/91)  aims  to  improve 
the efficiency  of agricultural  structures  by means of support  measures  to improve  living 
and  working  conditions,  encourage  young  farmers  to  set  up,  introduce  accounts,  offer 
vocational  training,  and  provide  compensatory  allowances  for  farmers  in  less-favoured 
areas. 

As  regards  the  observations  concerning  the  late  payment  of  investment  aid  and 
compensatory  payments,  this  was  due  to  the  long  gap  between  the  »end  of  the 
programming for  1989-93 and the start of the  1994-99 operational programmes. 

In some regions  the interval  was almost two years and this prevented  the  deployment  of 
resources for  1994-99, making it impossible for many regions to fulfil  their  multi-annual 
commitments to farmers concluded prior to  1994, as they had run out of  funds. 

Therefore,  several  regions  were  able  to  allocate  investment  aid  and  compensatory 
allowances  (under  Regulation  (EC)  No 950/97)  only  after 
the  new  operational 
programmes had been approved. 

•  Investment  aid: in  1996 LIT  147 155 063 819 was paid out in investment  aid,  leading 
to  a refund  of  LIT 45 507 043 502, while for the period  from  1994 to  1996 a total  of 
LIT 379 584 205 000 was paid out (LIT 292  100 095 000 for  non-Objective  1 regions 
and  LIT 87 484  110 000  for  the  Objective  1 regions)  leading  to  a  request  for  a  total 
reimbursement of LIT  117 730 565 094 from the EAGGF-GuidanCe  section. 

leading 

in  1996  alone  expenditure 

to 
•  Compensatory  payments: 
LIT  188 513 218 657, 
459 
(LIT 76 399 844 000  for  non-Objective  1  areas  and  LIT  112  113 373 000  for 
Objective  1 regions); in the period from  1994 to  1996 a total  of LIT 308  183 894 000 
and 
areas 
1 
was 
LIT  175 517 642 000  for  Objective  1  regions) 
total  refund  of 
LIT  166 081 521 000. 

non-Objective 
to  a 
leading 

incurred  amounted 

of  LIT  105 405 

132 666 251000 

allocated 

refund 

(LIT 

948 

for 

to 

a 

Although  Table  8.4.  (Expenditure  on  major  EAGGF-Guidance  measures)  contains  no 
data  for  Italy  for  1995  and  1996,  the  Commission  was  correctly  supplied  with  the 
information  (communication  No 5205  of  28 June  1996 relating  to  payments  effected  in 

\U 

1995  and  communication  No 5016  of  27 June  1997  relating  to  payments  effected  in 
1996). 

In  response  to  the  observations  made  by  the  Court  of  Auditors  concerning  Calabria, 
ministerial  circular  No 5196  of  4 August  19?7  was  sent  to  the  Court  containing  the 
clarifications requested with regard to the region in question. 

CHAPTER 20 - ANALYSIS OF 
EAGGF-GUARANTEE AND FISHERIES 
EXPENDITURE 

While understanding the need for the paying agencies to send their annual accounts to the 
Commission within the deadline, we are slightly perplexed as to why the provisions need 
to be implemented in the manner set out in the document presented by the Commission to 
the EAGGF Committee on 17 December 1997. 

The proposed percentages  are  too  high,  especially  as the advance  payments  would  be 
reduced  from  11 February  and  the  same thing  would  apply  to  the  following  month's 
advances, i.e. to the current measures to be financed from the next budget, which, for any 
number of reasons, could be higher or lower than that of the previous year. The penalty 
applied would therefore have financial  consequences linked to market developments the 
following year. 

It is also impractical  for  this to  enter into force  once the accounts for  1997 have been 
closed,  as  contracts  have  already  been  concluded  with  the  certifying  bodies  and  they 
would  need  to  state the penalties  for  delays in completion  in relation  to  the  proposed 
penalties. 

We/also  have  serious  doubts  concerning  the  scale  of  the  reductions  indicated  in  the 
Commission  document  as  there  was  no  definition  of  the  "serious  inadequacies",  the 
concept  stemming  from  a  document  that  was  considered  incomplete  or  qualitatively 
flawed from the point of view of verification. 

Finally, we would point out that the provisions in question would need to be adopted by a 
Commission regulation in the same way as was the case for the reduction in advances for 
expenditure effected  after the deadlines laid down (Regulation (EC) No 296/96). 

m 

NETHERLANDS 

OFFICE OF THE PERMANENT  REPRESENTATIVE 
OF THE KINGDOM OF THE NETHERLANDS 
TO THE EUROPEAN UNION 

25 March  1998 

Follow-up to the annual report of the Court of Auditors for the  1996 financial  year 

As part of the third phase of the SEM 2000 initiative, it was agreed that the  Commission 
would  ask the Member  States to  set  out  the  measures  they  had  taken  in response  to  the 
observations made by the Court  of Auditors  in its annual report  so that the  Commission 
could  take  them  into account  in  its  follow-up  report  ta the  discharge  authority.  In  letter 
No  XIX/D/00573  of  22 January  1998  DG  XIX  asked  the  Netherlands  to  reply  by 
15 March  1998 to the observations which the Court of Auditors made in connection  with 
the Netherlands in its annual report for  1996. You will find this reply below. 

Late establishment of own resources 

Paragraph  1.10 
The  Court  of  Auditors  states  that  in  the  Netherlands,  as  in  other  Member  States,  the 
customs  duties  payable  on  incomplete  declarations  are  not  always  entered  into  the 
accounts on time. This point is still being investigated (see paragraph  1.63 below) and the 
findings  should be forwarded  around  1  April  1998. 

in  the  manner  provided  for 

Equivalent compensation under inward processing 

Paragraph  1.63 
The  Court  of  Auditors  notes that,  in  the Netherlands,  equivalent  compensation  was  not 
applied 
legislation.  Meanwhile,  the 
Netherlands  has  taken  the  measures  necessary  to  bring  this  practice  into  line  with  the 
legislation. The Commission  also asked  for  further  information  in Mr Mingasson's letter 
No  XIX/D/00509  of  22 January  1998.  The  Netherlands  organised  an  investigation  in 
response. If possible, the findings will be sent to the Commission by  1  April 1998. 

in  Community 

Per hectare aid for arable crops 

Paragraph 3.29 
The  Court  of  Auditors  finds  that  the  statistical  basis  for  the  original  calculation  of  the 
base  areas  and  yields  is not  entirely  satisfactory.  Council  Regulation  (EEC)  No  837/90 
lays  down  the  confidence  intervals  to  be  complied  with  when  determining  areas  and 
cereal production in order to ensure statistical reliability. In the case of areas, the standard 
error for the total area under cereal cultivation  may not exceed  1% (or 5 000 hectares, at 
the discretion of the Member State). The Court of Auditors notes that Eurostat's report to 
the  European  Parliament  in  November  1994  on  statistical  systems  for  measuring  area, 
production  and yield  indicated  that at that time only  Denmark,  Germany, France and the 
United Kingdom were able to provide statistics of the required accuracy. As the statistical 
uncertainty  is not spelled out in the abovementioned  report, the risk of overestimating  or 
underestimating  the  base  areas  and  yields  cannot  be  quantified.  The  Court  of  Auditors 
states that the most important and persistent budgetary  implications probably result  from 
cases  in  which  the  base  area  is  not  achieved.  They  are  likely  to  result  from  initial 
overestimation  of  the  base  area,  which  hides  the  real  overshoots  and  thus  saves  the 
Member State from sanctions. 

Regulation  (EEC) No  837/90  states that  the  statistical  information  to be  supplied  by  the 
Member  States  may  be based  on  censuses  or  sample  surveys.  For  information  based  on 
sample  surveys,  the  Regulation  lays  down  the  abovementioned  provisions  on  statistical 
reliability.  For  censuses  on  the  other  hand,  the  Regulation  does  not  contain  any 
provisions on reliability.. 

I 'T 

The  base  area  established  for  the  Netherlands  is  determined  from  area  censuses  taken 
from  the  annual  agricultural  statistics.  Eurostat  has  no  doubts  about  the  reliability  and 
quality of the area statistics obtained in this manner. 
There is thus no reason to assume that the Netherlands was allocated too high a base area. 

Paragraphs 5.32. 5.33. 5.34 and 5.35  Customs , checks/Veterinary  checks  in  the  beef 
sector 
These  observations  relate  to  a  Court  of  Auditors'  enquiry  into  the  treatment  of 
consignments  of  frozen  meat  which  were  exported  from  the  Community  and  then  re-
imported  (in  part)  for  various  reasons.  This  beef  had  been  sent  to  Egypt  with  export 
subsidies.  The purpose  of the  enquiry  was  to  determine  whether  an  export  subsidy  had 
been  paid  wrongly  for  the  proportion  of  the  consignment  that  had  been  rejected.  The 
Court of Auditors published a report on this enquiry in February  1997. 

The Netherlands  did  not  fully  understand  the  Court  of  Auditors'  conclusions.  As  these 
conclusions may have been based  in part on misunderstandings  in the Court  of Auditors 
in connection with such matters as the organisation of the customs and veterinary checks, 
the system was again explained in detail in letter No DA97/259 of  14 August  1997 (copy 
attached).  The  Court  of  Auditors  had  not  replied  to  this  letter  by  the  time  the  annual 
report  was  published  and  the  report  did  not  appear  to  take  the  Dutch  comments  into 
account.  In  view  of  the  above,  and  the  Commission's  replies  to  the  annual  report  (see 
below), no further  steps have so far been taken. 

The Netherlands  is pleased to note that the Commission  states in its reply to the  Court's 
observations  that  it  is willing  to  improve  its  system  of  informing  the  Member  States  to 
ensure  standard  treatment  of  cases  where  rejected,  products  are  returned  from  third 
countries.  The  Netherlands  is  waiting  for  the  UCLAF  investigation  announced  by  the 
Commission which will take place in the relevant Member  States in cooperation with the 
competent authorities. The Court of Auditors also points out in its report that there are no 
precise Community regulations on the treatment of returned goods. 

In response to the findings  set out in paragraph  5.35(e) of the annual report, which result 
from  investigations  carried  out  by  the  Dutch  authorities  at  the  request  of  the  Court  of 
Auditors into an export transaction by a Dutch firm (involving ECU 0.1 million in export 
refunds),  the  paying  agency  responsible  has  now  initiated  a recovery  procedure  against 
the firm in question. 

Paragraph 6.62 
Concurrent drawing and overlapping of aid 
In  paragraph  6.62  the  Court  of  Auditors  deals  with  the  dual  financing  of  a  project  in 
Flevoland  by the ERDF and the ESF. The Court of Auditors made the same comment  in 
its report on its visit to the Province of Flevoland. In March  1997 the Netherlands  replied 
as follows  in a letter to the Court of Auditors: 

45% of the new multi-service  centre  is financed  by the ERDF. The annual 
rent  which  the  Vocational  Training  Centre  receives  for  the  new  building 
as  administrator  of  this  centre  is  based  on the  net  construction  costs,  i.e. 
with the ERDF contribution  deducted.  The  Vocational  Training  Centre  is 
obliged to rent out the premises to third parties at a rate which will at least 
cover  the  costs.  Sometimes  the  projects  carried  out  in  the  centre  receive 
assistance  from  the ESF. The Province  of Flevoland  considers there to be 
no  question  of dual  financing  in  such  a case.  Only  the  body  carrying  out 
the  project  subsidised  by  the  ESF  (in  this  case  a  course)  receives 
assistance  from  the  ESF.  If  the  course  were  to  be  organised  on  premises 

l i s» 

other  than  the  multi-service  centre,  the  body  implementing  the  project 
wpuld still receive the same contribution. 

The Netherlands still maintains that the provision of ESF assistance to the organisers of 
courses  held  in  the  multi-service  centre  should  not  be  considered  by  the  Court  of 
Auditors as dual financing. 

The SME initiative 

Paragraph 6.95 
According to the Court of Auditors, assessment of the impact of the measures is hindered 
by  the  inconsistent  data on the  number  of  small  firms  used  at the  planning  stage.  The 
Netherlands  is  surprised  that  the  Court  of  Auditors  has  only  now  come  out  with  this 
remark and not in the inspection report on which the Province of Flevoland has already 
expressed  its  observations.  The  impact  indicators  for  the  programmé  relate  mainly  to 
employment  in Flevoland  (15 000  extra jobs)  and growth in the gross regional  product. 
Employment  in  the  region  was  still  used  as  an  important  indicator  after  further 
discussions  with  the  Commission.  The  number  of  small  firms  is  not  an  assessment 
criterion  in  the  programme.  Incidentally,  figures  are  available  on  the  number  of  small 
firms in the Province of Flevoland. Quantitative data concerning the pre-SPD period are 
contained in the programming document and the figures are updated every year. 

FIFG. PESCA and coherence with programme objectives 

9.9. 9.14 and 9.45 
In  connection  with  the  Financial  Instrument  for  Fisheries  Guidance  (FIFG)  and  the 
Community initiative PESCA the Court of Auditors notes that there has been a  difficult 
start  and  a  delay  in  implementation  in  the  Netherlands  (and  in various  other Ivlember 
States), leading to a low level of utilisation of the appropriations available. The Court of 
Auditors also states that the FIFG financial  assistance envisaged to attain the multiannual 
guidance programme  (MGP)  objectives  (modernisation  of the fishing  fleet)  Was clearly 
insufficient. 

The Netherlands is now making a considerable effort  to speed up implementation of the 
flow  of subsidies from both the FIFG and PESCA. The Netherlands does not agree with 
the Court of Auditors' opinion that the Dutch modernisation measures are unsatisfactory. 
It should'first be pointed out that the Dutch modernisation effort is voluntary, as in other 
Member  States.  Second,  the  economic  situation  of  the  Dutch fleet  is  such  that  fishing 
activities normally cover costs or make a profit.  The provision of more money under the 
FIFG programme does not lead to more capacity which has to be modernised. 

The Netherlands  has  done  as  much as  it  can  to  modernise  the  fishing  fleet.  Additional 
national  funds  were provided  for this purpose under the "restructuring  package" agreed 
with  the  sector  in  early  1996.  These  funds  have  not  been  used  in  full.  The  Dutch 
Government  is  discussing  a  continuation  of  the  modernisation  effort  with  the  fishing 
industry. 

The Community's fishing vessel register 

Paragraph 9.30 
The  Court of  Auditors  notes  that the  Commission  report  on the  implementation  of the 
MGP at the end of  1995 could not include up-to-date data for the Netherlands (and Italy) 
on  the  changes  that  had  taken  place  in  their  fishing  fleet  as  the  Commission  had not 
received any information from the Netherlands for a long period. 
The Netherlands  has now  supplied  this  information  arid the  Dutch  fishing  fleet  is thus 
included. 

\V3 

Conclusion 
The Netherlands  hopes  that the  information  contained  in  this  letter  is  sufficient  and  is 
always prepared to reply to any questions or comments. 

Enclosures:  1 

lo 

Letter  of  14 August  1997 from  the  Dutch  Finance  Ministry  to  the  Head  of  the  General 
Court of Auditors 

Own resources; control of Egyptian beef 

In  your  letter  of  23  March  1997  you  enclosed  the  report  of  26 February  1997  (ref. 
Fl 1117N/BM/FB WP97-301) drawn up by the European Court of Auditors following  its 
control of the (re-)importation of beef from  Egypt. Unfortunately,  dealing with this report 
took longer than normal. We would make the following  comments in reply. 

Introduction 
The report by the European  Court of Auditors contains the findings  of the control  which 
was said to have been carried  out at the Dutch customs  and/or  veterinary departments  in 
Vlissingen  on  14 October  1996  to  examine  the  conditions  under  which  (re-)imported 
frozen  beef  of  Community  origin  which  had  been  rejected  by  Egypt  between  1993  and 
1996 had been placed under a customs procedure  and controlled. However, there was no 
control  at the  Dutch  customs  and/or veterinary  departments  on  14 October  1996.  There 
were plans  for  a visit  by a  Court  of Auditors  control  team  to the Netherlands  from  4  to 
8 November  1996, but this control was restricted to 4 November. In the period leading up 
to  the  control,  the  Dutch  authorities  repeatedly  stated  that  detailed  information  was 
needed if the control was to be organised properly since there were no longer any files for 
the  control  period  in  question  at  Vlissingen  customs  post  now  that  documentation  was 
centralised at the taxation and customs department  in.Apeldoorn. 
The  Court  of  Auditors  provided  this  detailed  information  for  only  one  ship  before  the 
visit  on  4 November.  The  Customs  Service  handed  over  these  files  during  the  control 
visit. 
As the Court of Auditors had not wished to provide any advance information  about other 
consignments,  the  control  ended  on 4 November  as  the  files  were  not  available.  It was, 
however,  agreed  that  the  Court  of  Auditors  would  provide  more  detailed  information 
about the other consignments to be controlled.  One letter on this subject  which the  Court 
of Auditors  sent on 5 November  1996 (réf. BM/FB/F10765N1) did not reach the  Finance 
Ministry, via the General  Court of Auditors, until  8 January  1997. The Dutch  authorities 
provided  the  Court  of  Auditors  with  a  series  of  documents  on  17 February  1997.  They 
then received the control report dated  19 February  1997. 

It  is  therefore  not  clear  what  exactly  the  report  is  referring  to. This  makes  it  extremely 
difficult  to reply to the report. The extent to which the Court of Auditors has noted and/or 
taken  account  of  the  documentation  provided  on  17 February  1997  is  also  unclear.  In 
view of the time which elapsed  between the date on which the information  was  sent  and 
the date of the report, we assume that it has not been taken into account. 

We  were  surprised  by  the  whole  procedure  surrounding  this  control,  which  is  unlike 
anything  experienced  during  previous  controls.  We  feel  that  the  general  conclusions 
drawn  on  the  basis  of  an  extremely  restricted  control  are  unintelligible  or  at  least 
insufficiently  explained. 

As  we  also  get  the  impression  that  the  procedure  for  implementing  Community 
legislation  in  the  Netherlands  was  not  made  completely  clear,  a brief  account  is  given 
below. Finally, attention is drawn to specific  findings  in the report. 

21 

We would also point out that, contrary to what the Court of Auditors appears to think, it 
is not the authorities but the declarant who places a specific  consignment  of goods  under 
a customs procedure. 

II. 

Procedural provisions of Regulation (EEC) No 3665/87 
Customs checks 
Veterinary checks 

II. 1  Regulation (EEO No 3665/87 

intended 

The  day  of. export  shall  be  used  to  establish  the  quantity,  nature  and 

The  refund  shall  be  paid  only  on  written  application  by  the  exporter,  who  must 

The  products  must  have  left  the  customs  territory  of  the  Community  in  the 

This  Regulation  contains  provisions  relating  to  entitlement  to  export  refunds  on 
agricultural products. The provisions of relevance to the investigation are listed below: 
(a) 
submit an export declaration for that purpose (Articles 47 and 3). 
No  refund  shall  be  granted  on  products  which  are  not  of  sound  and  fair 
(b) 
for  human  consumption  whose 
marketable  quality,  or  on  products 
characteristics  or  condition  exclude  or  substantially  impair  their  use  for  that  purpose 
(Article  13). 
(c) 
characteristics of the product exported (Article 3(4)). 
(d) 
unaltered state within 60 days (Article 4(1)). 
In  the  case  of  export  by  sea,  the  refund  is  not  paid  until  there  is  proof  that  the 
(e) 
goods  are  shipped  direct  to  a  port  in  the  non-member  country  specified  or,  if  the  ship 
calls  at  a  port  within  the  territory  of  the  European  Union,  until  there  is  proof  that  the 
goods have been re-exported within 28 days (in the case of transhipment) or until there is 
a  declaration  that  the  goods  have  not  been  transhipped  there  (Article 6a).  The  Dutch 
authorities  do  not  consider  that  this  article  contains  any  provisions  for  goods  returning 
from  a non-member country to the European Union. 
For a differentiated  refund,  the product must  have been imported  in the  unaltered 
(f) 
state  into  the  non-member  country  12 months  after  the  export  declaration  was  accepted 
(Article  17).  Products  shall  be  regarded  as  being  in  the  unaltered  state  if  there  is  no 
evidence of processing (Article  17(2)). 

Customs checks 

II.2 
In accordance  with  Regulation  (EEC) No 386/90, the  customs  service  checks  exports  of 
agricultural  products  for  which  agricultural  refunds  have  been  requested.  The  checks 
relate to the export declaration (type, weight, sound marketability) and whether the goods 
are leaving the customs territory of the Community  in an unaltered state and are based on 
the T5 control copy. The customs service does not check whether the goods are  imported 
into the non-member country. The exporter has to provide evidence to the paying  agency 
processing  the  refund  application  (in this case the Marketing  Board  for  Livestock,  Meat 
and Eggs) that the goods have been imported into the non-member  country  specified  or a 
different  non-member  country.  The  paying  agency  assesses  the  evidence  submitted  and 
can carry out a check in the country of destination. 

If  Community  goods  are  exported,  they  lose  their  Community  customs  status  under 
point (8)  of  Article 4  of  the  Community  Customs  Code.  If  these  goods  return  to  the 
customs  territory  of  the  Community,  they  are  subject  to  customs  supervision  under 
Article 37  of  the  Customs  Code.  Generally  speaking,  this  means  that  their  identity  is 
supervised during customs warehousing or transit. If the returned goods are to be released 

122. 

for free circulation, further measures are taken under Article 844 of the provisions for the 
implementation of the Community Customs Code (Regulation (EEC) No 2454/93). 

II.3  Veterinary checks 
À  general account is given below of the procedure followed  by the National  Inspection 
Service  for  Animals  and  Animal  Products  (RVV)  when  consignments  of  veterinary 
products are sent to a non-member country as a consignment which is freely  marketable 
in  the  European  Union  and  are  then  returned  to  the  Community.  This  covers  both 
returned goods forwarded to other non-member countries and returned goods re-imported 
into a Member  State  of the European Union.  This procedure  is  based on the  following 
premisses: 
* 

consignments of veterinary products sent from a Member State to a non-member 
country must satisfy the requirements laid down in the Community rules applying 
to those products; 
if  the  returned  goods  are  destined  for  a Member  State  of the  European  Union, 
veterinary risks must be ruled out; 
if the returned goods are destined for a non-member country and if there is a risk 
to human and animal health, the consignment must be refused and destroyed. 

* 

* 

The procedure followed by the RVV is similar to that laid down in Directive  90/675/EEC 
laying down the principles  governing the organization of veterinary checks on  products 
entering the Community from third countries. Returned goods forwarded to non-member 
countries are treated as veterinary products in transit (from one non-member country  to 
another).  Returned goods  destined  for the Netherlands  or another Member  State  of  the 
European Union are treated as veterinary products from non-member countries. 

The Dutch customs  and veterinary  authorities  have  agreed that the customs  authorities 
should  inform  the  RVV  when  consignments  of  veterinary  products  are  returned.  The 
importer must present the returned consignment  to the official  veterinarian at the border 
inspection post together with a border crossing document in accordance with Commission 
Decision  93/13/EEC laying  down  the procedures  for  veterinary checks at  Community 
border inspection posts  on products from third countries (model laid down in Annex B to 
the Decision) and the accompanying veterinary certificates and documents. The importer 
must  indicate  the  destination  of  the  consignment  on  the  border  crossing  document. 
Various procedures apply depending on destination. 

Third-country destinations 

A. 
If the consignment is destined for a non-member country, the official  veterinarian follows 
the  regular  procedure  for  consignments  originating  in  a  non-member  country  and 
destined for another non-member country  in accordance with the relevant provisions  of 
Directive  90/675/EEC,  in  particular  Articles  7  and  12  which  are  expanded  upon  in 
Commission  Decision  93/14/EEC  laying  down  the  methods  of  veterinary  checks  for 
products from third countries in free zones and free warehouses,  in customs warehouses, 
as  well  as  during  the  time  of  transport  from  one  third  country  to  another  via  the 
Community.  There is thus a check of whether the volume is the same as indicated in the 
accompanying  documents.  If  goods  in  transit  are  stored,  they  are  kept  separate  from 
goods which are to be released for free circulation on the territory of the European Union. 
This requires storage  in a free warehouse  which is sealable by customs. Apart from  the 
normal customs arrangements for the opening and closing of these warehouses, the RVV 
supervises entries, storage and withdrawals in the cold stores and cold store units. These 
consignments  do  not  need  to  be  physically  checked  under  Community  rules. 
Furthermore,  no  new  health  certificate  is  needed  for  export  to  another  non-member 

lis 

country. If there is any suspicion of an irregularity in connection with the consignment of 
veterinary  products,  the  official  veterinarian at the external  border  inspection  post  will 
conduct a physical check, which may be followed by laboratory, tests. 

European Union destinations 

B. 
Returned  consignments  destined  for  the  Netherlands  or  other  Member  States  of  the 
European Union are treated as products with third-country status. When re-imported into 
the Community, these veterinary products must satisfy  Community requirements for the 
import  of  these  goods  into  the  Community  or  the  specific  control  conditions  of  the 
Member  State  for  which  they  are  destined.  The  official  veterinarian  checks  the 
destination  of  the  consignment  on  the  basis  of  the  accompanying  documents  and  the 
frontier  entry document.  The inspection of  documents must  show that the  consignment 
was originally  sent to the non-member country as freely marketable from the veterinary 
angle.  The  official  veterinarian  checks  that  the  consignment  corresponds  with  the 
accompanying documents.  He also checks that the packaging  is identified  and not open 
or damaged and bears the required (EU) marks (if stipulated for the products in question) 
or, in the case  of products which have not been packaged  separately,  that the container 
has  been  sealed  by  the  authorities  of  the  country  of  origin.  The  official  veterinarian 
inspects  the consignment  to ascertain whether it complies  with the  Community  rules  in 
force.  As  a  result  of  these  controls,  he  decides  whether  the  consignment  should  be 
admitted to the territory of the European Union. The consignment is rejected if it does not 
satisfy the requirements laid down. 

Conclusion 

C. 
The Court of Auditors inspectors note that, since the meat of Community origin had been 
subject to a full  veterinary check when it was first exported, no new checks were made, 
whatever  the  reasons  for  the  rejection  by  the  Egyptian  authorities.  They- also  conclude 
that, as there was  no veterinary  check,  it is impossible  to give  an opinion on the health 
aspects of the re-exported products. 
In  view  of  the  above,  the  Dutch  authorities  consider  that  consignments  of  beef  of 
Community  origin  which  are  returned  from  Egypt  and then  stored  in  transit  in  a  free 
warehouse  sealed  by  customs  in  accordance  with  Community  rules  do  not  require 
veterinary  checks  for the  issue  of  a health certificate.  They  do  not  therefore  accept the 
conclusions of the Court of Auditors. 

III. 

Entry of frozen meat (returned goods) by sea 

III. 1  Clearance 
All  sea-going  vessels  calling  at a Dutch port  must  be cleared.  As  part of  the  clearance 
procedure, a distinction is made between the entry of Community goods and the entry of 
non-Community  goods.  A  Douane  11  document  is  drawn  up  for  the  non-Community 
goods which are to be unloaded. The goods recorded on the Douane  11 document could 
include goods which have previously been exported from the European Union.(returned 
goods).  This is  regularly  mentioned  in the  Douane  11 document.  Furthermore,  returned 
goods are often declared in advance. 
If the returned goods are veterinary products, they are recorded as not marketable  in the 
EU. The product is then given special attention by customs and a veterinarian is called in. 

III.2  Unloading 
If  the  goods  being  unloaded  are  veterinary  products,  controls  are  tightened  up.  A 
distinction has to be made between general cargo and consignments  loaded in containers. 
Tighter  control  is  possible  only  if  the  immediate  packaging  is  visible.  It  relates  to  the 

quantity, marks and numbers and origin of the goods. In some places the goods are stored 
in a cold store immediately after unloading. In other places they have to be carried a short 
distance  since  not  all  cold  stores  are  in  the  immediate  vicinity  of  where  the  goods  are 
unloaded. 

111.3  Storage 
Frozen  products  are  normally  kept  in  cold  stores  with  customs  status.  Returned 
consignments  of  meat  are  kept  in warehouses  subject  to  stricter  official  supervision  in 
view of the risks involved. 

The goods enter the cold store under cover of an IM-7 document  or are registered  by the 
administration. There are regular physical checks on entry and records are made. 
Data relating to such aspects as quantity and weight drawn up by outside bodies acting on 
behalf of the declarants are also used in the checks. 

111.4  Checks during storage 
During  storage,  checks  are  conducted  on  the  basis  of  the  firm's  documentation  and 
records. Contrary  to what the Court of Auditors  states  in its report, use is made  of  stock 
records. There  is therefore  no point  in the customs  service  keeping  its  own records  and, 
furthermore,  this is not required by the Community Customs Code or other documents. 
All  warehouses  (cold  stores)  are  subject  to  official  supervision  during  working  hours. 
Outside working hours, all access points are officially  closed. The official  supervision  of 
cold  stores  may  be  regarded  as  constant  supervision  since  customs  officials  are  always 
present. 
From  the  veterinary  aspect,  the  control  of veterinary  products  not  satisfying  EU  quality 
standards must be considered tight. The products have to be kept in specific  areas  which 
are  locked  outside  working  hours  and  subject  to  official  supervision  during  working 
hours.  The  National  Inspection  Service  for  Animals  and  Animal  Products  (RVV)  also 
exercises supervision during storage. 

* 

. 

111.5  Processing of stored goods 
Requests to process veterinary products are never considered without the RVV s consent. 
If  authorised,  this  processing  occurs  under  permanent  customs  supervision.  The  RVV 
also visits the premises to supervise these cases. 

111.6  Withdrawal 
Goods are always withdrawn from  cold stores under cover of a Tl  document. An  official 
check is made of the goods on withdrawal and a record is made of the  findings. 

Inspection of exports 

111.7 
Where appropriate, the ship's bill of lading is inspected on loading and transhipment. The 
clearance procedure for the relevant Tl  documents is also closely scrutinised. 

IV. 

Specific  comments on the report 

IV.l  Customs checks 
In paragraph 2 the Court of Auditors makes a number of comments on customs checks in 
the Netherlands. 

1 

At  point  (a)  the  Court  of  Auditors  states that  the  goods  are  treated  as  Tl  goods  despite 
their Community  origin. The Court of Auditors considers this to be wrong. In view of the 
Community  rules  on  the  matter  (in  particular  point  4  in  Article 8  of  the  Community 
Customs  Code), exported  goods should  be treated  as Tl  goods, especially  in the  case of 

returned goods (see also IV.2 below). Without further  explanation, we cannot  understand 
why the Court of Auditors made this comment. 
At point  (b) the  Court  of  Auditors  states that the customs does  not  supervise  the  goods 
stored  in  warehouses  and  does  not  keep  stock  records.  In  view  of  the  comments  in 
section II above, this comment too cannot be understood without further  explanation. 
At point  (c) the  Court  of  Auditors  states that there  is no procedure  for  the  discharge  of 
transit  documents  which  guarantees  that  all  the  goods  are  re-exported.  We  do  not 
consider this conclusion to be correct since the discharge procedure is set out in detail  in 
the  Community  Customs  Code  and  in  the  provisions  for  the  implementation  of  the 
Community  Customs  Code.  This  comment  too  cannot  be  understood  without  further 
explanation. 
At point  (d) the  Court  of  Auditors  states that the  goods were exported! under  cover  of  a 
Tl  document  and  were  not  subject  to  specific  checks.  From  what  was  already  stated 
above, it can only be concluded that the goods lost their Community customs status, with 
the  result  that  they  had  to  be  carried  under  cover  of  a  Tl  document.  Checks  also  take 
place  within  the  warehousing  system.  For  that  reason,  these  comments  too  cannot  be 
understood without a more detailed justification. 

IV.2  Export transactions by Bonis International NV 

Preliminary  comment 
In  its  letter  No  BMIF10145N1  of  11 March  1996  the  Court  of  Auditors  asked  the 
Netherlands  for  information  on the  company  Bonis  International  NV  of  Vlijmen  which 
had exported a consignment of beef to Egypt. The Court of Auditors had information  that 
this  consignment  had  been  refused  in  Egypt  and  had  been  taken  to  Antwerp.  The 
Netherlands was asked to investigate the whereabouts of this consignment (see letter). 
As  a  rule,  the  Netherlands  does  not  conduct  any  inspections  at  the  Court  of  Auditors' 
behest. However, an exception  was made as there might have been an irregularity  in this 
case. On 21 May  1996 the General Inspectorate paid a short visit to the  final  destination 
of the consignment.  The  Coordinating  Department  in the Ministry  of  Agriculture  sent  a 
report on the findings  of the investigation to the Court of Auditors in letter No  iz/961229 
on 16 July  1996. 
In  the  telephone  conversations  between  the  Coordinating  Department  and  the  Court  of 
Auditors leading up to the visit in November  1996 it was specifically  asked  on a number 
of occasions  whether  there was any  link between the visit to Vlissingen  customs  post  in 
connection  with  the  beef  returned  from  Egypt  and  the  report  on  Bonis.  The  Court  of 
Auditors always denied this. 
The report by the General Inspectorate responded to the Court of Auditors'  queries  about 
the final destination of the returned consignment by stating that the beef ultimately  turned 
up  in  Iraq.  However,  this  report  does  not  constitute  a  systems  audit  of  the  procedure 
followed  by  Dutch  customs  and  veterinary  departments.  A  number  of  unconnected 
quotations  from  telephone  conversations  in the "final  conclusions" cannot,  in  our  view, 
be regarded  as  such. This  is also  supported  by the fact  that the  inspector  does  not  allow 
these  quotations  to  play  any  role  in  his  final  assessment  on  the  returned  status  of  the 
consignment in question. 
In the report now available on the Court of Auditors' findings,  it appears that the  General 
Inspectorate's  report  on  Bonis  is, however,  the  main  source  for  the  conclusions  on  the 
procedure  followed  by  Dutch  Customs  and  the  RVV.  The  Netherlands  regrets  that  the 
Court of Auditors has used the Bonis report in this way., 

\zC 

Comments on the Bonis case 
We would reply as follows to the report's findings on the Bonis case. The account given 
by the inspectors from the Court of Auditors contain a number of factual inaccuracies. 

The  report  states  that  these  export  products  were  rejected  by  the  Egyptian  health 
department for reasons of poor quality. From the General Inspectorate's report 75.20.91 it 
cannot be concluded that the Egyptian health department rejected these export products 
for reasons of poor quality.  On the one hand, it is claimed that part of the  consignment 
was rejected because of a "bacteriological" defect.  On the other hand, it is said to have 
been  rejected  because  the  percentage  of  lean  meat  was  too  low  in  part  of  the 
consignment. The reason for the rejection has thus not been established. In general, there 
are frequent problems  involving  the  ratio  between  lean  meat  and  fat  when  beef  is 
imported into Egypt. The European Commission is aware of the problem. 
The report also suggests that the whole consignment was rejected. In fact, only 84 000 of 
the approximately 344 000 kg consignment (net weight) was actually returned. 

The report states that the goods were re-imported into the Community. However, there is 
no  question  of  them  having  been  re-imported  into  the  European  Union  or  of  the 
Regulation on returned goods having been applied. Some of the consignment which was 
originally  exported returned to Europe, where it was stored in transit  in a cold  store  in 
Vlissingen  and  forwarded  to  Iraq.  Furthermore,  the  consignment  was  unloaded  not  in 
Vlissingen  but  in  Antwerp  from  where  it  was  taken  by  lorry  to  the  cold  store  in 
Vlissingen. 

, 

In the report the inspectors claim that the identity of the products could not be examined 
during the  customs  and veterinary  checks  carried out when the  goods  were  in  store or 
when they  were  eventually  exported  as  no  physical  inspection  (count,  quality  control) 
had been conducted. 
A  general  account  is  also  given  of  the  procedures  followed  when  exported  goods  are 
returned  to  the  customs  territory  of  the  Community.  These  procedures  are  based  on 
Community rules in the customs and veterinary  sectors. These procedures were  applied 
in the case in hand. 
r 
i 

. 

The inspectors state that the Dutch veterinary departments drew up the veterinary export 
certificate  on presentation  of the original  certificate  issued in Belgium  for the export to 
Egypt. 
As stated above, no certificate  of this type is required for forwarding these goods to Iraq 
under  the  Community  rules  in  force.  The  original  health  certificate  drawn  up  for  the 
export to Egypt was issued by the Dutch and not the Belgian veterinary authorities. 

The  report  states  that  the  Dutch  inspection  department  noted  various  irregularities, 
including  the  fact  that  the  Dutch  health  certificate  was  drawn  up  for  beef  which  was 
finally exported to Jordan and not Iraq. 
The report by the Dutch inspection department does indeed state that in November  1994 
the Iraqi authorities appeared to be satisfied with a health certificate  drawn up for goods 
exported  to  Egypt.  Furthermore,  it  has  already  been  explained  that  no  new  health 
certificate was required for forwarding the goods to Iraq. There is thus no question of an 
irregularity. 

1 

We  would  reply  as  follows  to  the  comments  in  the  Court  of  Auditors'  report  in 
connection  with  the  indication  in  the  documents  of  different  ships  and  different 

customers  and the divergent  data on the  labels  attached to the  cartons  when  the  goods 
were repackaged. 
When  goods  are  forwarded  to  a  third  country,  it  is  obvious  -that  there  will  be  other 
customers  and ships  involved  and that new data will  be entered on the  labels when the 
goods  are  repackaged.  It  should  be  pointed  out  in  this  connection  that  the  returned 
portion of the consignment was repackaged under the supervision of the Dutch customs 
and veterinary authorities. 

The inspectors concluded that it was clear that the Dutch authorities had not checked the 
identity or quality of the goods exported to Iraq. 
The  Dutch  authorities  cannot  agree  with  this  conclusion.  The  Dutch  customs  and 
veterinary authorities conducted the checks required by Community rules, when the goods 
were in transit,  in this case the customs  supervision of the identity  of the  goods during 
warehousing and transit. From the veterinary aspect, this involved a control of documents 
and identity  (in this  case  by the  external  border inspection  post  in  Antwerp  where the 
goods were unloaded) and supervision by the veterinary authorities during warehousing. 
These procedures are described in greater detail above. 

Finally, the report concludes that the alleged defect in the control system applied to these 
goods means that undue benefits  may have been obtained for these products when they 
were eventually exported. The Dutch authorities should accordingly demand the return of 
the refunds paid to Bonis. 
We have given a reasoned explanation, with reference to the procedures in force, Qf why 
the Dutch authorities consider that there is no question of defects in the control system. 

tt8 

PORTUGAL 

REPLY TO EUROPEAN COMMISSION LETTER No 573 

OBSERVATIONS ON THE EUROPEAN COURT OF AUDITORS' REPORT FOR 
1996 

As requested in the European Commission (DG XIX)'s letter No 573 of 22 January  1998, 
we would inform you of the following. 

VOLUME I-ANNUAL  REPORT CONCERNING  THE FINANCIAL YEAR 1996 

Chapter 1 - Own resources 

Paragraph  1.52 

The  Court  of  Auditors  notes  that  in  Portugal  the  examination  of  economic  conditions 
claimed for  the purposes  of  inward processing  is  carried  out at  the  local level,  not  the 
central level as it should be. 

To  make  the  process  of  examining  economic  conditions  claimed  by  traders  more 
objective, a study is under way into the possibility of concluding cooperation  agreements 
with the government departments best placed in terms of familiarity  with general  market 
conditions,  the  degree  of  availability  of  goods  in  the  EU,  differences  in  quality  and 
technical  specifications  between  Community  and  non-Community  goods,  and  current 
prices. 

Paragraph  1.60 

The Court of Auditors notes that in Portugal rates of yield  are not retrospectively  verified 
by the customs authorities. 

To tighten up the measures already adopted by the customs authorities in this area, we are 
currently  studying  a procedure  for  checks  to be  carried  out  by the  fraud  prevention  and 
prosecution system of the Directorate-General  for Customs and Excisé, for the purpose of 
evaluating  the rates of yield put  forward  for  inward  processing  operations  whenever  the 
customs authorities have difficulty  in carrying out such checks. 

lao 

Chapter 3 - Market organisations - Plant products 

Paragraph 3.29 

The Court of Auditors notes that the statistical  basis for  the original calculation of the 
base areas and yields is not entirely satisfactory. 

We acknowledge that the Court's observation  is pertinent, and admit that in Portugal the 
available margin between the national base area and the total area to which an application 
for  aid  relates  appears  wide  when  compared  with  the  other  Member  States,  but  would 
offer  the following  explanation. 

Between the  1993/94 season and the  1995/96 season, the margin fell  by 6%.  This 
1. 
is a normal  trend  directly  related  to the  fact  that  the number  of producers  getting  aid  is 
rising from year to year. 

2. 
If the figures for the  1996/97 season are added to these figures, it can be seen that 
in  the  1996/97  season  the  total  area  for  which  aid  was  requested  came  to  892 923 
hectares, thereby bringing the margin to  15%. 

3. 
The national  base area, which comes to  1  054 000 ha, is divided  up as  stipulated 
by Regulation (EC) No  1300/96 of 5 July  1996.  On the mainland we have 808 300 ha of 
non-irrigated land and 235 400 of irrigated land. 

4. 
In the  1996/97 season, although the total  area in receipt of aid was still  less than 
the national base area, there was an overshoot with the irrigated area on the mainland and 
apportionment rates broken down as follows had to be applied: 

Ordinary regime 

Maize products 

Ordinary regime 

Producers  of  other  irrigated 
crops 

- 5.02% 

- 47.78% 

Simplified regime 

Producers of irrigated crops 

-16.73% 

The high level of apportionment  rates applied shows that there is no risk of either 
5. 
an  overestimation  of  the  base  area  or  of  overshoots  being  hidden,  as  the  Court  of 
Auditors' report states. 

Lastly, during the  1996/97 season the national base area was reduced to  1  040 810 

6. 
ha., as  13 214 ha. was assigned to the special reserve for stocking density. 

Paragraph 3.46 

The Court  of Auditors  notes that  in Portugal,  at  the end of  1996, the  database  and  the 
alphanumeric  system  were  still  not  sufficiently  developed,  which  makes  efficient 
administrative checks such as cross-checks impossible. 

\l 

The Court's remark, as regards Portugal, relates to the identification  of parcels.  As the 
Commission  has  stated,  the  system  was  used  in  Portugal  in  1996  in  the  49  priority 
'concelhos', and was fully used in 1997. 

m 

Chapter 4 - Common organisation of the market - Animal  products 

Paragraph  4.45 

The Court of Auditors  notes that in Portugal and other Member States the deadlines  laid 
down by the I ACS  were not met. 

All the facilities  required by the IACS have been created.  The last one (an  alphanumeric 
identification  system for agricultural parcels) recently became fully  operational. 

Paragraph  4.49 

The Court of Auditors  notes that in Portugal large producers  have the required  registers, 
but small producers  still have difficulties  in that area. 

In Portugal  the  requirement  to keep  a livestock  register  laid  down  by Regulation  (EEC) 
No 3887/92 was implemented  without  any support  in national  law until December  1996, 
when  the  publication  of  Decree  Law  No 245/96  created  a  set  of  rules  for 
its 
implementation.  However,  it  transpired  that  the  subsequent  publication  of  Regulation 
(EC)  No 820/97  removed  certain  phase  displacements  in  the  national  rules,  which 
therefore need to be updated pending their implementation at any moment.  At all events, 
this register has  in  fact  been put  into  operation  in farms  already  organised  into  farming 
businesses,  which  has  not  caused  any  problems.  The  same  cannot  be  said  of  the 
smallholder  producers  who  predominate  in  certain  regions  and  whose  socio-cultural 
situation is, unfortunately,  likely to limit very substantially the likelihood of their keeping 
updated registers in the prescribed  form.  The relevant  national  authorities  are,  however, 
endeavouring to create conditions in which these difficulties  can be overcome. 

Paragraph  4.58 

The  Court  of  Auditors  notes  that  in  Portugal  animals  aged  over  two  years  had  been 
counted as 0.6 LU instead of 1 LU as prescribed  by the Regulation. 

The  situation  described  was  the  case  until  1996  inclusive,  when  the  mistake  was 
discovered. 
It  was  corrected  as  from  the  entries  for  1997.  The  relevant  national 
authorities  hope to be in a position  shortly  to give the corrections  to the  figures  (for  the 
number  of  producers,  animals  and  incorrect  payments)  which  arose  out  of  this  error  in 
calculating  LUs  (livestock  units)  in  respect  of  payments  for  the  entries  from  1993  to 
1996. 

Paragraph  4.74 

The Court of Auditors  notes that in Portugal controls at the two rendering plants  visited 
were not operating effectively. 

The steps deemed  necessary  to rectify  the shortcomings  detected  have  been  taken  at  the 
Regional. Directorates  of Agriculture,  whose technicians  are responsible  for  carrying  out 
the  controls.  The  controls  are  now  operating  within  the  prescribed  and  recommended 
norms. 

i 

m. 

Chapter 7 - European Social Fund 

Paragraph  7.17 

The Court of Auditors notes that in Portugal the monitoring committees consist mainly of 
public  servants,  although  national  representatives  have  signalled  to  the  Commission 
their willingness to increase the participation  of partners in the future. 

Although  they  do  not  usually  participate  in  the  monitoring  committees  for 
1. 
operational  measures, employers and labour do participate in the monitoring  committees 
for  the  (Community  initiatives)  ADAPT  and  Employment.  They  also  have  a  meeting 
with  the ESF  Coordinating  Committee  every  two  months, are members  of  the  board  of 
directors of the  IEFP (Instituto de Emprego  e Formaçao  Profissional  - Employment  and 
Vocational  Training  Institute)  and  have  a  seat  on  the  Economic  and  Social  Council 
(CES). 

2. 
It is also felt that the fact that some representatives of employment and  labour are 
promoters  of  training  schemes  would  mean  that  they  could  not  be  regarded  as 
participating in the committees in a completely independent manner. 

Paragraph  7.27 

The Court of Auditors  notes that in Portugal SMEs  do not meet the requirement  to  co-
finance training operations funded by the ESF. 

We would make the following points. 

1. 
The  funding  of  the  training  operations  carried  out  from  1994  to  1996  was 
regulated  by Article 7 of  Executory  Decision No  15/94 of  6 July  1994.  This  stipulated 
that  all  beneficiary  bodies  were  required  to  contribute  to  the  implementation  of 
operations  at  rates  ranging  from  2.5% to  15%, depending  on their  scale  and  objectives 
and  the  type  of  trainees. 
It  remained,  however,  possible  to  stay  outside  the  joint 
contribution  scheme  where  there  were  special  rules  on  training  subprogrammes  for 
the  programmes, 
particular  sectors.  We  would  point  out,  however, 
subprogrammes  and  measures  were  the  outcome  of  direct  negotiations  between  the 
national  authorities  and  the  European  Commission.  In  addition,  the  requirement  laid 
down  in Article 5(3) of Regulation No 2084/93  for  "enterprises whose  workers  (...) are 
able  to  take part  in training  operations " to finance a portion  of the  cost  was  expressly 
stated in Executory Decision No  15/94. 

that  all 

Current  national 

law  on  this  question  (Executory  Decision  No  15/96  of 
2. 
26 November  1996),  in  relation  to  private  contributions,  provides  that:  "Private 
contributions from beneficiary firms shall  be equal to  the eligible  remuneration  of the 
staff being trained and may be reduced, in terms of amount and in cases to  be laid  down 
by legislative  decision  of the Minister for  Training and Employment in accordance  with 
the criteria  relating  to the size of the body concerned and the training arrangements, in 
schemes to be carried out during normal working hours. " 

3. 
We have  found  not  only that  the  requirement to contribute  is being  met  but  that 
the  contributions  vary  according  to  the  firm  benefiting  from  the  scheme  and  the 
arrangements for the training. 

Ml 

4. 
The overhaul of the national legislation on ESF operations in Portugal carried out 
at the  end  of  1996 has given  SMEs easier  access to  the  ESF, at  the expense  of  large 
companies such as banks. 

In particular, a pilot training programme for  SMEs has been launched, with  a view to 
incorporating young graduates into such companies, and the CI SME, which had already 
started to run, has been relaunched. 

There are other programmes, such as RIME - Regime de Incentivos as Microempresas 
(Incentive  Scheme  for  Mini-Companies),  which  also  help  to  create  jobs  in  smaller 
companies. 

Paragraph 7.43 

The Court of Auditors notes that in Portugal a  number  of projects under the  PEDIP 
programme which  had  been conditionally  approved and  had  not  been funded  were 
included by DAFSE in the final claims for 1995. 

1. 
Sometimes, on grounds of necessity and because there is an intrinsic link between 
the  investment  component  and  the  training  component,  a  training  scheme  has  to  be 
started before the investment plan is put forward; the bodies concerned are subject to all 
the  ESF  rules  but  do  not  receive  any  ESF  or  national  funding  until  their  plans  are 
approved.  Meanwhile they incur expenditure which, if not included in the accounts for 
the year,  ceases  to  be  eligible  and,  if  included,  raises  the  question  brought  up'by  the 
Court of Auditors. 

The approach taken by the national authorities was to consider such expenditure 
2. 
in the accounts for the year to which they relate.  This is what was done at the end of 
1995.  However,  at the end  of  1996, amounts relating  to projects  which had  not been 
approved by the time the accounts were closed were deducted from the expenditure  for 
the year. 

3. 
TJiis state of affairs  was discussed in detail with the PEDIP programme manager 
and it was concluded that national law in this area needed  to be amended to avoid the 
procedure described by the Court. 

VOLUME II-STATEMENT OF ASSURANCE 

Chapter 20 - Analysis of EAGGF-Guarantee and fisheries expenditure 

Paragraph 20.4 

The Court of Auditors notes that in the case of  the paying agencies  in Portugal the 
European Commission was  unable  to  take  a  definitive clearance decision  on  the 
EAGGF-Guarantee accounts by the deadline laid down in the rules. 

The following points need to be made. 

On 17 February 1997, the Inspectorate-General for Finance (IGF\ discharging the 
1. 
responsibilities  as a certifying  agency  conferred  on it by Decree-Law No 331-A/95 of 
2 December 1995, issued certificates in respect of the annual accounts for  1996 produced 
by the Portuguese paying agencies, INGA - Instituto Nacional de Intervençao e Garantia 
Agricola  (National  Institute  for  Intervention  and  Farm  Guarantees)  and  IFADAP  -
Instituto  de  Financiamento  e  Apoio  ao  Desenvolvimento  da  Agriculture  e  Pescas 
(Institute  for  Funding  and  Support  for  Agriculture  and  Fisheries  Development),  as 
regards operations financed by EAGGF-Guarantee, together with reports setting out the 
findings  of the inspections carried out for the purpose of issuing the certificates. 

The  European  Commission  sent  the  Portuguese  authorities  two  letters,  Nos 
2. 
13 490 and  13 519, both of 26 March  1997, acknowledging  "the standard of the work 
done by the IGF auditors,  who worked to short deadlines and with limited resources " 
and stating that  "the account certification operations were carried out satisfactorily,  and 
both the certificate and the audit report meet the special requirements for  Commission 
documents and the requirements of Regulation No 729/70 and Regulations No 1663/95 ". 

Nevertheless, the Commission, in the same letters, asked the certifying  agency (the IGF) 
to carry out additional certification work on the accounts, specifically: 

Uncomplete its spot checks on processes, both for INGA and for IFADAP (as the 
KJF  auditors had not been able to carry out the full  spot checks by the statutory 
deadline); 

to carry out physical checks, with INGA's officials, at certain public intervention 
storage premises. 

It also asked for the findings of this extra work to be passed on to it by 30 June. 

3. 
The additional work requested by the Commission (DG VI) was done by the IGF, 
while checks on the intervention  stocks were carried out by INGA (beef and veal) and 
IVV (mixed alcohol).  The findings were sent to the Commission on 20 and 30 June 1997 
in  the  supplementary  audit  reports  relating  to  IFADAP  and  INGA  respectively,  thus 
enabling the Commission to Clear their accounts on 31 July 1997. 

4. 
For the certifying  of the  1997 accounts, and on the basis of practical  experience 
acquired  in  1996, it was possible to plan and carry  out all the certification  work  by  a 
deadline  consistent  with  submitting  the  reports  and  certificates  to  the  Commission  on 
10 February 1998. 

nc 

Paragraph 20.13 

The Court of Auditors notes that in Portugal the certifying body limited the scope  of its 
audit opinion in respect of public storage. 

We would make the following points. 

1. 
The  reason  why  the  scope  of  the  audit  opinion  for  1996  in  respect  of  public 
storage  was  limited  is  that  no  physical  inventory  had  been  made  of  the  intervention 
stocks as at 30 September  1996. 

2. 
The  Commission,  in  letter No  13 490  of  26 March  1997, asked  the  Inspectorate-
General  for  Finance, as the certifying  body, to carry out a stocktaking  exercise at certain 
public storage premises, together with INGA. 

Between the middle of May and the middle of June  1997, therefore,  checks  were 
3. 
made on the stocks of beef and veal and mixed alcohol, the only intervention products in 
the  1996 financial  year, and on 30 June  1997 the Inspectorate-General  for  Finance issued 
an  additional  audit  report  withdrawing  the  reservation  in  the  original  certificate  on  the 
grounds  that  the  discrepancies  found  between  the  results  of  the  physical  stocktaking 
exercise  and the INGA records were not of material  importance.  It was then possible  to 
confirm the figures notified to the EAGGF by INGA for the  1996 financial  year. 

4. 
The  certificate  relating  to  the  1997  accounts  submitted  to  the  Commission  on 
10 February  1998 contains a further  reservation as to the quantities of intervention  stocks 
of beef  and veal  (the checks on mixed  alcohol  did  not give rise to any comments  by  the 
IGF).  INGA's  approach to carrying out a new physical  stocktaking  exercise gave rise to 
comments by the IGF and the Commission as regards the method of selecting the sample 
to be checked.  INGA therefore  carried  out  a new stocktaking  exercise  in January  1998, 
involving,  in  particular,  the  engaging  of  new  refrigerated  premises  so  that  the 
intervention  stocks of beef and veal could be  completely  reorganised.  This  operation  is 
expected  to  be  completed  in the  very  near  future,  and  the  outcome  of  it  will  enable  the 
IGF to reconsider its reservation on this point.  Note that the consolidation  of the existing 
rules  in  INGA  as  regards  checks  on  stocks  will  eliminate  the  reasons  why  reservations 
were made in this area. 

./3r 

UNITED KINGDOM 

\3? 

COURT  OF  AUDITORS'  ANNUAL  REPORT  CONCERNING  THE 
FINANCIAL YEAR 1996 

Response by the United Kingdom to the Court's observations 

The references are to paragraphs in the Court of Auditors' annual report on 
Financial Year 1996 (Official Journal C348, Volume 40 dated 18 November 
1997) 

Chapter 1 : Own Resources 

Late establishment of own resources 

1.10 In all Member States,  the Court examined the extent to which national 
procedures ensure that,  in accordance with Community legislation,  customs 
debts are entered in the accounts at the appropriate time. 

The Court observed that in the United Kingdom, where criminal proceedings 
are involved,  customs debts are not established as soon as the conditions of 
Article 2 of Council Regulation No 1552/89 are fulfilled.  In many cases,  such 
debts  are  established  prior  to  initiation  of  criminal  proceedings  but 
completion  of  criminal  proceedings  and  successful  prosecution takes 
precedence over arrears collection. 

The  UK  understands  the  Court's  concern  and  is  actively  reviewing 
administrative  procedures  in  criminal  cases  so  that  Customs  debts 
may be established as soon as the conditions of Article 2 of Regulation 
1552/89 are fulfilled. 

1.11  The Court observes that in the United Kingdom,  the accounting system 
for  managing cash deposits taken to  secure potential tax  debts does not 
allow  separate  identification of  the  deposits  relating  to  Community  own 
resources. 

The  present systems comply with the  Community  Customs  Code, but 
the  UK  agrees  with  the  Court  that  greater  transparency  would  be 
desirable.  However,  it  believes  that  changes  to  achieve  this  would 
incur  costs  disproportionate  to the  benefits.  The  UK  is  awaiting the 
Commission's  communication  on this  subject,  and will  be  pleased to 
respond to this. 

Tariff classification 

I S3 

1.15 The Court observes that in the United Kingdom an error in the tariff had 
persisted  for  17  years.  The  British  authorities  established  and  made 
available the underpaid duties for a period up to three years prior to the date 
of discovery of the error (December 1991). Duties foregone during the period 
of  enquiry  necessary  to  establish and  correct the  error  were  not  made 
available. Late payment interest should apply to the underpayment  made 
available more than three years late. 

The  UK  accepts  that  a  change  to  the  UK  Customs  tariff  in  1976 
concerning  sardines  failed  to  remove  an  earlier  sub-division  for 
pilchards  and  that,  as  a  result,  some  importers  continued  to  enter 
pilchards to the wrong  heading, which attracted a lower rate of import 
duty. 

The error was  brought to the UK's attention in December  1991. It took 
some  time to  investigate  the  problem  and  determine  how  much  duty 
had been underpaid and by whom. Meanwhile the Customs automated 
entry  system  was  amended  from  1  March  1992. The  arrears  of  duty, 
which needed to be partly estimated, amounted to £2,644,300. 

The  UK  sought  clearance  from  the  EC's  Duty  Free  Arrangement 
Committee (DFAC) for non-recovery of underpaid duty from importers, 
but DFAC ruled that the duty concerned should be recovered. Since an 
official error was involved, the UK chose not to pursue recovery action 
and  accordingly  wrote  off  the  arrears  and  made the  Own  Resources 
available to the Commission in February 1995. 

The  UK  notes that the  Court  believes that duties foregone  during the 
period of enquiry  necessary to establish and correct the error,  as well 
as  late  payment  interest,  should  be  paid.  The  UK  is  awaiting  the 
Commission's  request  for  arrears  and  interest  before  proceeding 
further. 

Duties payable on passengers' baggage 
1.17 (We believe the reference should be to 1.16) The Court observes that 
in the United Kingdom an incorrect percentage  was used for three years in 
the apportionment of  own resource revenues  from passengers'  baggage. 
This led to an underpayment of traditional own resources between 1993 and 
1995. 

)liO 

The UK authorities identified the error, disclosed the information to the 
Commission  and  made available an  underpayment of £3.1  million ecu 
(£2.3  million)  of  customs  duties  in  March  1996.  The  overpayment  of 
VAT which was a smaller sum was adjusted in December 1996. The UK 
has provided the Commission with the information necessary to enable 
it to calculate the interest due. 

Designation and enclosure of free zones 

1.23 The Court undertook an investigation  of the operation of free zones, 
including the  administration of Tilbury Freeport which is both a free zone and 
a  normal port.  The  Court  observes that  the. free  zone* at  Tilbury is  not 
physically  separated  from  the  normal port,  but  operates  as  if  it  were  a 
customs regime.  It expressed concerns about the risks to Community own 
resources due  to  the  removal of free zone goods, their replacement with 
similar goods from outside the free zone,  and subsequent non-payment of 
appropriate customs duties under Article 201 of the Customs Code. 

The UK recognises that the Tilbury free zone, as with other free zones, 
does  not  operate  in  a  way  which  fully  complies  with  the  Community 
Customs Code. The Court's comments in its report have been brought 
to the attention of UK customs officers to emphasise the need for fully 
effective controls. 

The  UK  understands  that  the  reference  in  the  Court's  report  to 
incorrect removal of goods from the free zone and their replacement by 
similar goods when the error was discovered, reflects comments made 
by  the  operator  of  Tilbury  Free  Zone  when  the  free  zone  began 
operating  in  1991.  Whilst  It is now too  late to  require  payment  of the 
duty  due  at  that  time,  removal  of  incorrect  goods  has  not  been  a 
The  Customs  team  at  Tilbury  make  frequent 
problem  since. 
unannounced  visits  and trace  selected  free  zone  goods  from  start  to 
finish to ensure that they are properly accounted for. 

The  UK welcomes  the  Commission's  study  of  Community  free  zones 
and  its  decision  as  a  result to  bring forward  proposals  to  modernise 
the legislation.  These changes are expected to come into force from 1 
January  1999  and  the  type  of  regime  in  place  at  Tilbury  will  be 
consistent with the  new legislation.  The UK does not therefore  intend 
to modify its procedures to bring them into line with current legislation, 
which is expected to be superceded early next year. 

L\ 

Inadequacy of accounting follow-up of establishments and recoveries 

1.111.  The  Court  observes  that  in  the  United  Kingdom enforcement 
measures are suspended and security in respect of recovery orders is not 
required whilst cases are pending with the customs authorities. 

In the  period  under  review, where  importers  had  lodged  appeals  with 
Customs  and  Excise,  amounts  in  dispute  were  required  to  be  paid, 
secured  by  guarantee  or  covered  by  hardship  provisions  before  the 
matter could proceed to tribunal stage.  However, similar requirements 
did not apply to the initial review stage because Customs can overturn 
a decision at the review stage and decide that there are no grounds on 
which to enforce a customs debt. 

Policy  in the  UK  has  now been  changed  and  all  appeals,  at whatever 
stage,  are  subject to the  lodging  of  a security  except  where  a formal 
hardship application has been approved 

Chapter 3: Market organisations  - Plant products 

Area aid for arable crops 

Base areas and treatment of overshooting 

\u 

3.19  The Court notes that base areas  (the average area in  each Member 
State with certain crops over the period 1989 -  1991) have been established 
as an expenditure stabilisation mechanism.  The Court observes that in some 
Member States,  including the United Kingdom, several databases exist.  As 
a result the calculation of the overshoot requires manual exchange of data 
between regional administrations increasing the risk of error,  because of the 
lack of overall checks at national level. 

The  UK  notes  the  Court's  observation.  The  use  of  more  than  one 
database reflects the different payments systems in England, Scotland, 
Wales,  and  Northern  Ireland.  The  UK  ensures  that  all  returns  to  the 
Commission are fully checked and complete. 

Reliability of the statistics 

3.29 The Court observes that persistent overshoots  of some base areas in 
Member States, including the United Kingdom, may be the result of wrong 
estimations or changes in the areas cultivated with arable crops. 

The  UK notes the Court's  observations  but considers that this  is only 
one possible explanation for the overshoots.  As the Court goes on to 
observe,  persistent undershoots may indicate iqitial overestimation of 
base areas which would have more important budgetary implications. 
The Court also observes that the UK was one of only 4 Member States 
which  were  able to  meet the  requirements  of  Council  Regulation  No 
837/90 for accuracy of statistics by the required date. 

The computerised database 

3.39  The Court observes that a number of Member States (including the UK 
which  has  set  up  4  regional  databases)  have  established  decentralised 
databases but that they should be compatible. 

As noted above, the databases of the four UK Agriculture Departments 
are  not  directly  linked,  but  manual  procedures  are  in  place  to  enable 
exchanges  of  information  on  land  covered  by  another  Department. 
This ensures that claims  involving  land  in  more than  one  Department 
are fully checked and the correct payments are made. 

The integrated control system: selection of producers to be checked 

•/A  3 

3.51 The Court observes that in the United Kingdom risk assessment used 
for  selecting  applications  for  site  visit  checks  were  not  sufficiently 
sophisticated to ensure that very large holdings were checked according  to 
their weight in the area aid system. 

The  UK  notes  the  Court's  suggestion  that  a  more  sophisticated  risk 
assessment system should be introduced in the UK so that more large 
holdings would be subject to inspection.  It intends to introduce a new 
method in 1998, taking account of the Commission's views, which will 
meet this concern. 

Conclusions 

3.73  The Court observes that the regulations do  not give precise  enough 
instructions  for  calculating overshoot consistently  and  documentation in 
Member States does not allow proper control of the calculations and could 
lead to overpayments 

The  UK  notes the  Court's  observations  but  is  satisfied  that  it  is fully 
complying  with  the  Commission's 
implementing  regulations  as 
outlined in responses to 3.19 and 3.29 above. 

On  the  particular  points  highlighted  by  the  Court,  the  Scottish  base 
area  was  not  initially  understated  and  therefore  increased  overall, 
rather  the  split  between  Less  Favoured  Areas  and  other  areas  was 
adjusted to reflect the actual situation. The Commission accepted this 
readjustment. 

The  UK  accepts  that,  along  with  Spain  and  Germany,  it  used 
provisional  figures  as at  15 September  for  calculating  arable  aid area 
overshoot  but  believes  that this  takes  account  of  the  need  to  inform 
producers  in  good time  of  any extraordinary  compulsory  set-aside  at 
the time of autumn sowing. The UK notes from the Commission's reply 
that it agrees with this method. 

The  UK  notes  the  Court's  observation  that  only  using  rotational  set-
aside,  which  is  the  lowest  figure,  when  calculating  maize  base 
overshoot,  underestimated  that  overshoot.  The  UK  believes  this  was 
largely  offset  with  the  undershoot  cm  other  crops.  The  problem  will 
also not recur given that there is now only one rate of set-aside. 

\Lu 

The  UK  also  notes  the  Court's  observations  about  the  method  of 
rounding  adopted  by the  UK  when  calculating  the  percentage  rate  of 
overshoot  which  led  to  lower  sanctions.  The  UK  agrees  with  the 
Commission's  reply  that  the  method  adopted  is  correct  otherwise 
penalties would be unjustifiably increased. 

The  UK  accepts  the  Court's  observation  that the  incorrect  application 
of  regulations  in  1994 unduly  penalised  farmers. Those  affected  have 
now been paid the extra aid to which they were entitled with  interest. 

The  Court's  observations  on  the  implementing  regulation  have  been 
covered in the Commission's  reply on that point. 

3.77  The Court concludes from the findings set  out in paragraphs 3.50 to 
3.63  that  some  Member  States  do  not  comply  with  the  regulatory 
requirements of traditional field inspection. 

As  noted  in  the  reply  to  3.51,  the  UK  will  be  introducing  a  more 
sophisticated  risk  assessment  method  next  year  in  consultation  with 
the Commission. 

\LS 

Chapter 4: Common organisation of the market - Animal  products 
Beef and veal premium schemes and selected BSE related measures 

Administration and control of premiums 

4.45 Deadlines for creating computerised  systems relating to  identification 
and registration  of animals under the Integrated Administration  and  Control 
System (IACS) have not been met in Member States visited. 

technical  and  administrative 

The  UK  regrets  that  deadlines  were  not  met,  but  agrees  with  the 
Commission's  response which  explains that setting  up the IACS was a 
major 
involving  considerable 
investment  and  administrative  reorganisation.  Every  effort  was  made 
by the  UK to meet the deadlines  and good  progress  has  been  made  in 
many areas. 

task 

Identification and registration of animals 

4.49 The Court observes that in the UK while large producers  tend to have 
the required farm registers, smaller ones still  have difficulties  maintaining 
adequate records. 

The UK accepts  that  small  farmers  have  problems.  The  UK feels  that 
many  of  these  problems  stem  from  the  complexity  of  requirements 
under  current  legislation  and  would  like  to  see  simplification  of 
legislation made a priority tinder  CAP reform. 

4.55 The Court observes that at least 10 per cent of livestock applications for 
premium,  selected using risk analysis,  must be subject to on-the-spot checks 
but the Court found that for suckler cow applications,  some Member States, 
including the United Kingdom, examine only a sample of animals on  farm, 
based on either the herd size or the number of animals claimed. 

The  UK  notes 
Commission's  reply that sampling on this basis is acceptable. 

the  Court's  observation  but  agrees  with 

the 

Additional payments 
4.69  The Court observes that payment of aid for cattle was made under the 
Beef Payment Marketing Scheme in respect of a number of animals  which 
were over thirty months old and therefore outside the scope of the scheme. 

\U 

The UK notes the Court's observation  but believes that payment of aid 
under the Beef Marketing Payment Sçherhe (BMPS) on animals over 30 
months of age was legitimate.  The BMPS does not stipulate an upper 
age  limit,  but requires that animals  have  been slaughtered  for  human 
consumption.  The  animals  in  question  all satisfied  the  dentition  test 
(ruling  out  animals  with  more  than  two  permanent  incisors)  which, 
under  the  provisions  of  the  Fresh  Meat  Beef  Controls  (No  2) 
Regulations  determines  whether  animals  may  be  used  for  human 
consumption.  As outlined in its reply, the Commission  has accepted 
the legality of this approach. 

Reactivation of the calf processing premium 

4.74 The Commission notes that there was lack of control to ensure that the 
beef that left an abattoir visited in the UK arrived at the rendering plant. 

The  UK  notes  the  Court's  concerns.  It  believes  that  slashing  and 
dyeing carcasses effectively denatures the calves processed under the 
Calf Processing Aid Scheme.  There is no evidence that such meat has 
ever been marketed for human consumption. 

However  in  view  of  the  continuing  concern  expressed  by  both  the 
Court  and  FEOGA  auditors,  the  UK  authorities  now  require  calf 
cadavers to be left intact to avoid any risk of diversion of the offals. 

Trials  are also taking  place with  a  dénaturant which  would  make calf 
meat  unpalatable  to  humans  and  to  see  whether  the  stain  can  be 
treated with chemicals so that  it permeates  the flesh.  These changes 
should be sufficient to allay the concerns expressed about the possible 
diversions of material between the abattoirs and the rendering plants. 

Chapter  5:  Certain  procedural  aspects  of  export  refunds  on  beef and 
veal 

/H 

5.13 The Court notes action that should be taken by the Commission in  the 
light of various fraud cases uncovered by the British and Spanish authorities. 

The  UK  is  pleased  to  cooperate  as  fully  as  possible  with  the 
Commission and other Member States to uncover and prosecute fraud 
against  the  Community  budget.  At  present  there  is  no  evidence  to 
confirm  involvement of a UK exporter  in the diversion  of  beef exports 
destined for Africa to the Canary Islands.  Enquiries are continuing. 

5.35 The Court notes that inadequate checks have led to wrongful payment 
of export refunds and cites a number of examples of which 5.35(e) involves a 
French company which sold a consignment of beef rejected to by Egypt to a 
UK company which shipped it to South Africa. 

Although a UK company was involved, the acts took  place outside UK 
territory.  The  UK  will  be  happy  to  give  any  assistance  necessary  to 
pursue this case. 

Chapter 6: European Regional Development Fund 

Reliability of final payment claims 

6.25  The Court notes that the final claim for an  Objective 2 project in the 
East Midlands in 1990-91 exceeded eligible expenditure. 

m 

The  UK  accepts  that  eligible  expenditure  specified 
final 
declaration  of  expenditure  was  higher  than  the  figure  subsequently 
determined  by  audit  of final  claims.  This  arose  as  a  consequence  of 
procedures  operating  at  the  time  which  allowed  final  claims  arriving 
after the final declaration of expenditure to be allowed. 

in  the 

This  procedure  did  not, per se, result  in  overpayments  being  made to 
final beneficiaries.  The UK recognises that in one case a small element 
of costs  relating to salaries  (about 3 per cent of total  project costs  and 
at a 25 per cent ERDF grant  rate, involving  grant  expenditure  of  about 
0.8  per cent of total costs), was  allowed  as  eligible  despite the  auditor 
not being able to identify supporting documentation. 

For current  programmes  the terms  of the offer  letter are more  specific 
about  programme  closure  including  instructions  on when  final  claims 
must  be audited and submitted  so  as  not to  forfeit  the  right to  grants. 
Reminder letters will be sent. 

6.26 The Court notes that their audit of a sample of seven projects under one 
operating programme revealed that  final  declared  expenditure should be 
reduced by 2.4% 

The  UK  accepts  that  eligible  expenditure  specified 
in  the  final 
declaration  of  expenditure  was  higher  than  the  figure  subsequently 
determined  by  audit  of  final  claims.  This  arose  as  a  consequence  of 
procedures  operating  at  the  time  which  allowed  final  claims  arriving 
after the final declaration of expenditure to be allowed. 

The Government Office are in correspondence with the Commission to 
determine  the  correct  eligible  expenditure  for  the  programme  and 
whether  a  repayment  to  the  Commission  is  due.  The  UK  will  make 
repayment as necessary. 

Taking account of factors influencing the closure of programmes 

6.33 The Court observes that subsequent sale of an ERDF assisted project 
was not accounted for in the final declaration. 

The Government  Office  concerned  did  not  include  the sale  in the final 
declaration because it was not informed by the project sponsor that the 
sale was proposed until 22 July 1995 and the final declaration had been 
submitted  on  29 June  1995. The  UK  is  satisfied  that  the  Government 

lue-

Office concerned took appropriate steps by informing the Commission 
of  details  of  the  proposed  sale  of  the  ERDF-aided  asset  within  one 
week  of  it  being  made  aware  of  this  sale  by  the  sponsors.  The 
Commission  advised  that  the  amount  would  be  recovered  from  the 
final project payment but did not do this.  As the Commission response 
recognises, this  was  due  to  a  misunderstanding  which  it  is  in  the 
process of rectifying. 

Quality of final reports 

6.37  The Court observes  that the content of final reports does not  always 
meet requirements  set and the time taken by the Commission to  approve 
them causes unnecessary  delay as  was the case for projects in the East 
Midlands. 

The  UK  understands the Court's concerns  but it should  be noted that 
closure of programmes  is often concentrated  in a short period of time 
towards the end of the six month period allowed - when  most audited 
final  claims  are  received. It is  not surprising that some  discrepancies 
occur and that further clarification is required. 

The  Government  Office  submitted  the  final  declaration  of expenditure 
within the deadline of six months and provided clarification on this and 
other  aspects  of  the  final  report  to  the  satisfaction  of  the  European 
Commission. 

The  UK also notes that the Commission's  reply states that substantial 
improvements  have  been  made  as  regions  follow  more  closely  the 
outline of the model reports provided. 

The  assessment  of  the  impact  of  measures  in  favour  of  undertakings  on 
regional development 

6.95 The Court observes that the quantified data on businesses in receipt of 
aid used in the planning stage in Merseyside was inconsistent. 

The  UK  notes  the  Court's  observation  but  agrees  with  the 
Commission's  reply that a misunderstanding  arose from the existence 
of  two  different  indicators  and  that  the  final  report,  approved  by the 
Commission in May 1996, contains the correct reference. 

\$o 

Chapter 7: European Social Fund 

Audits of particular aspects 

The partnership 

7.17 The Court observes that employer and employee representatives  as 
such are not involved in UK monitoring committees. 

the 

that 

The UK notes the Court's observation. Earlier this year the Government 
announced 
involvement  of  employer  and  employee 
representatives  in  the  Structural  Funds  would  be  for  the  individual 
monitoring  committees  to  encourage  in whatever  manner  seemed  to 
be  most  valuable.  The  Confederation  of  British  Industry  and  the 
Trades  Union Congress  have now nominated  representatives to sit on 
national Monitoring Committees. 

The private sector, Objective 4 and ADAPT 

7.21 The Court observes that the UK decided to use other objectives,  not 
Objective 4,  for training delivery. 

An Objective 4 plan covering England, Scotland and Wales is currently 
being  agreed  with  the  Commission  and  formal  approval  is  expected 
very shortly. 

Chapter  8:  European  Agricultural  Guidance  and  Guarantee  Fund 
Guidance Section (EAGGF-Guidance) 

15" 

Audit of expenditure incurred under Council Regulation (EEC) No 866/90 

The viability of aided enterprises 

8.13  The Court  notes that written  reports under Council Regulation  866/90 
are insufficiently detailed to  allow adequate assessment of  the  viability  of 
applicants. 

The  UK agrees on the  importance  of  assessing the overall viability of 
aided enterprises  prior to the approval of aid.  It does in fact carry out 
detailed  checks  and  prepare  detailed  evaluation  reports.  However,  it 
acknowledges that in some cases in Wales, these reports may not have 
been included on the case file.  This has now been rectified. 

Monitoring and control arrangements 

8.21  The  Court observes that  although inspection  visits  were  adequately 
documented,  only one physical inspection per project is normally undertaken, 
even in cases where projects are implemented over a long period. 

The UK notes the Court's concern and confirms that measures are now 
in  place  to  ensure  a  greater  level  of  monitoring. 
In  particular,  the 
Department  of  Agriculture  for  Northern  Ireland  confirms  that  all 
projects  are  inspected  by technical  advisors  at  final  claim  stage  and 
that  larger  projects  are  subject  to  intermediate  inspection  while  the 
Welsh  Office  has  recently  introduced  procedures  which  will  ensure 
projects are inspected at least twice, including a post-payment check. 

Exclusion of ineligible expenditure 

8.28  The  Court  cites  two  cases  of  ineligible  expenditure in  respect of 
machine spare parts and an engineer's salary. 

As the Court notes in its report, procedures to ensure the exclusion of 
ineligible expenditure have now been implemented. 

System of aid for investments in agricultural holdings 

8.40 The Court observes  that required labour inputs are not independently 
verified but only subject to a  reasonableness check and suggests  a  cross 

152-

check with the number of animals claimed for other grants.  The Court further 
notes considerable delays on a number of occasions before aid was paid to 
beneficiaries.-

The  UK agrees  on the importance  of prompt  payment to  beneficiaries 
and  will  look  into  the  situation  in  Wales,  where  the  inspection  was 
carried  out. 
In  England,  all  but  3  per  cent  of  payments  were  made 
within national deadlines of 3 months from receipt of claim. 

The  UK  require  applicants for  grant to  make a declaration  in terms of 
stocking  and  cropping.  This  information  is  used  in  combination  with 
standard  labour factors to assess  labour  input (MWU).  Claims  over a 
certain  value  will  automatically  be  selected  for  an  inspection  with  a 
further random element built into inspection  procedures.  Each year, a 
number  of  development  plans  accounts  are  checked.  The  UK 
considers this system  provides adequate safeguards, taken with other 
checking procedures.  However, the UK will consider the point made by 
the  Court as it is quite possible that  more than  one  inspection  can be 
carried  out  on  the  same  farm  business  depending  pn  the  amounts 
contained in the claims received. 

Results of audit 

8.66 and  8.67 The Court observes that in  the early years  of  the  first and 
second  programming  periods,  take  up  of  measures  available  was 
significantly slower than anticipated. Eligibility criteria were therefore relaxed 
to  encourage  greater  participation  but  the  scheme  continued  to  be 
underutilised. 
The  UK  agreed  on  two  occasions  in  the  final  year  to 
reductions in funding for operational programmes. An unanticipated rush of 
late  applications  resulted  in  a  shortfall  of  funding  available  under  the 
operational programme and  the  Commission allowed an  amount  of 23.5 
Million ECU for the new programming period. 

The  UK  has  noted  the  Court's  observations  and  is  working  with  the 
Commission to improve expenditure forecasting. 

Chapter 9: Common policy on fisheries and the sea 

Financial Instrument for Fisheries guidance (FIFG) 

f$"3 

9.14 The Court observes that the start of the initiative was complicated by its 
multi-fund character and the slow rate of implementation is reflected by the 
fact  that  Members States, including the  United Kingdom, were  unable to 
forward certified statements of  eligible expenditure  to  the  Commission  at 
December 1996. 

The  UK  notes  the  Court's  observations  and  agrees  that  greater 
simplification  of  the  scheme  is  required  in  order  to  make  it  more 
effective 

The Community register of fishing fleet 

9.31  The Court observes that the fleet register is still incomplete in a number 
of respects.  For the UK,  as at September 1996,  404 boats or 5% of the fleet 
were not classified by segment. 

The UK shares the Court's concerns over accuracy of fleet data held by 
the  Commission  and  supports 
further 
improvements are needed. 

the  conclusion 

that 

As  the  Commission  points  out  in  its  response,  the  large  number  of 
unclassified  vessels  for  the  UK  appears  to  be  the  result  of  a 
communication  problem  with  the  Commission,  since  there  are  no 
missing segment codes  in the national register.  The UK will be happy 
to respond to any request from the Commission for further information. 

Fleet tonnage 

9.35  The Court observes  that the total declared tonnage  of the  Community 
fishing fleet is unreliable due to different measuring techniques. Reference is 
not made to any particular Member State. 

The UK shares the Court's concerns over the accuracy of the declared 
tonnage of the Community fishing fleet and agrees that there should be 
a consistent and reliable method of calculating tonnage. 

Follow up to special report on restructuring capacities of fishing fleets 

Coherence with programme objectives 

AU 

9.45  The  Court  notes  that  the  operational programmes for  aid  for  the 
cessation of  fishing  does  not  provide  for-aid  for  construction projects  in 
countries such as the United Kingdom which, according to the Commission 
Report on the implementation of the MultiAnnual Guidance Programmes for 
the fishing fleets (MAGP) do not respect the MAGP objectives. 

The UK shares the Court's  concerns  and confirms that it is difficult to 
meet  the  Commission's  requirements  in  respect  of  the  MultiAnnual 
Guidance Programmes for the fishing fleets. 

m 

Chapter 20: Analysis of EAGGF-Guarantee and fisheries expenditure 

Accreditation of paving agencies and the certification of accounts 

20.4  The Court observes that  UK certified accounts were not  delivered to 
the statutory deadline. 

The  UK  acknowledges  that the  UK accounts were  submitted  late.  As 
the Commission notes in its response, a number of Member States had 
problems in the first year of the new certification procedure.  In the UK 
difficulties  arose  primarily  due  to  the  implementation  of  a  new 
accounting system.  Any  reconciliation  problems  should, as  indicated 
in the report, be resolved by the 1998 FEOGA year. 

20.7  The  Court  observes  that  the  UK  paying  agencies  provided  final 
accounts  to  the  certifying body  late;  that  reconciliation problems existed 
between the operational and accounting records of the agencies; that some 
accounting records were not reconciled with those of the coordinating body 
responsible for  making returns to  the  Commission, and  that  declarations 
were made  on  the basis  of  advances to  the paying  agencies  rather than 
payments by them to beneficiaries. 

Difficulties  arose mainly from the implementation  of a hew accounting 
system However, accounts for all the UK paying agencies were cleared 
in July.  None  of the  problems  identified  were  sufficiently  serious  to 
justify exclusion of the accounts from the clearance decision.  Four out 
of  the  seven  paying  agencies  received  no  qualification  to  their 
accounts, whilst others received only minor qualification. 

that  monthly  declarations  were 
The  UK  does  not  accept  however 
based  on  advances  to  the  UK  paying  agencies  rather  than  actual 
payments  made  by them  to  beneficiaries.  They  are  based  on  actual 
claim payment requirements of the paying agencies. 

It  is  acknowledged  that  difficulties  exist with  recoveries  where timing 
differences occur between recoveries by paying agencies and payment 
to the Commission.  From October 1997, monthly declarations from UK 
paying agencies will comprise both actual expenditure and receipts. 

\rC 

Any  reconciliation  problems  should,  as  indicated  in  the  report,  be 
resolved by the 1998 FEOGA year. 

Areas of limited assurance 

20.13(a)  The  Court observes that  it  was  unable  to  obtain  assurance on 
certain  transactions because  of  lack  of  sufficient  evidence,  for example 
because of  inadequate  physical checks  on  quantities in  respect of public 
storage in the United Kingdom 

The  UK  notes the  Court's  observation. The  UK  authorities  have been 
able  to  demonstrate  that  the  procedures  implemented  at  that  time  in 
the  UK  had written  Commission  approval  and to  demonstrate that the 
UK had in place an effective stocktaking system. 

EC  Regulation  618/90  has  now  been  repealed  and  replaced  with 
Regulation  2148/96.  As a result of these changes, the  UK has revised 
its  procedures to ensure full compliance  with  the  requirements  of the 
new regulation. 

in 

SWEDEN 

Swedish Cabinet Office - Finance department, 3 February 1998 

Following the European Council's decision to ask the Member States to report on action 
taken in response to the Court of Auditor's observations, I am enclosing our reply to the 
comments which directly affect  Sweden.  I am also sending the report to the President of 
the Court of Auditors. 

I am pleased to see that the Commission is adopting a serious approach to following  up 
the observations made by the Court in its Report.  Since most of the Community's budget 
is administered by the Member  States, their reports on measures taken at national  level 
form an important part of the follow-up process. 

In this  connection  I  would  like  to  stress  once  again  Sweden's  strong  support  for  the 
Commission in its bid to improve the implementation of the budget and financial control, 
particularly the work being undertaken as part of the SEM 2000 initiative.  In my view it 
is of vital importance that the progress made in this area should now be consolidated and 
implemented. 

Later this month the Commission is going to table a proposal  which will  cover,  among 
other things, a new  Structural  Fund Regulation for the next programming  period.  It is 
therefore  important  for  the  experience  obtained  over  the  years  in  the  field  of  the 
Structural Fund and reflected  in the Court's Report to be put to use and have an impact 
on the proposal. 

» 

(signed) 

Erik Asbrink 

Its 

EUROPEAN COURT OF AUDITORS ANNUAL REPORT FOR 1996 

Sweden's report on action taken on the Court of Auditors'  observations 

The numbers refer to paragraphs in the Annual Report (published in OJ C 348/97, p. 1). 

Volume I - Annual Report concerning the financial year 1996 

Chapter 6 - European Regional Development Fund 

Paragraphs  6.7-6.8 

The  Court's  remarks  are concerned  with  delays  in implementing  Objective 6.  It  should 
be emphasised that its comments do not contain any reference to errors.  The Court points 
out,  among  other  things,  that  no  claims  had  been  submitted  for  payment  from  the 
Regional Fund at 31 December  1996 and that the first payment to a final beneficiary  only 
took place in July 1996. 

Subsequently,  both  the  second  advance  for  1995 and  the  first  and  second  advances  for 
1996  were  paid  out.  The  combined  amount  paid  out  from  the  Regional  Fund  for 
Objective 6 has now reached ECU 35 827 million.  By October  1997 decisions had  been 
taken on 48% of the total Objective 6 funding  for  1995-99 and by December of the  same 
year  19% of resources had been paid out.  These figures  show that the Court of Auditors 
comments were based on the fact that the programme started late and in general needed a 
"running-in" period to be able to operate as intended. 

Chapter 7 - European Social Fund 

Paragraph  7.26 

The  Court  of  Auditors  notes  that  staff  employed  in  the  public  sector  (hospitals)  were 
receiving- training  under  Objective 4.  The  Commission  was  requested  to  clarify  the 
eligibility of such expenditure. 

Sweden  has  been  granted  a  derogation  for  the  public  sector  (health  care).  The 
Commission's  account  of  the  background  to  this  derogation  is  fully  endorsed  by  the 
Swedish  Government. 
In  its  negotiations  with  the  Commission  on  Objective 4  the 
Government  stressed  precisely  this  aspect  of  equal  opportunities  and  the  fact  that  the 
public health care sector is vulnerable to competition.  The fact that public employees can 
be given notice in Sweden was also stressed. 

Volume II - Statements of assurance 

Chapter 20 - Analysis EAGGF-Guarantee and fisheries expenditure 

Paragraph 20.13 

Under the system for offsetting  storage costs for sujgar, the company is compensated  each 
month for the quantities of sugar stored  in warehouses or silos.  Article  16 of  Regulation 
(EEC)  No  1998/78  states  that  where  discrepancies  are  found  the  amount  of  the 
reimbursement  shall be adjusted.  The silos are emptied and cleaned approximately  every 
three  years  and  at  this  point  any  discrepancies  between  the  recorded"  amount  and  the 

/ /•  O 

actual  amount  are  discovered.  These  discrepancies  were  adjusted  irv the  company's 
storage  balance  at  30 September  each  year,  but  not  reported  by  the  company  to  the 
Agriculture  Board  (the  authority  responsible  for  making  payments)  which  is  why  no 
action was taken by the Board. 

The discrepancies arising in the course of the 1997/98 marketing year have been notified 
to the Agriculture Board and a payment  of  SEK 146 720 was made to the company  in 
January 1998. 

Following  a  request from the  Agriculture  Board,  information  has  also  been  received 
about the discrepancies that occurred during the  1994/95 and  1995/96 marketing years. 
The Agriculture Board has come to the conclusion that for the  1994/95 marketing year 
the  company  received  compensation  for  too  large  a  quantity,  which  meant  that  the 
company  will  have  to  repay  SEK 165 834.  For  the  1995/96  marketing  year,  the 
Agriculture Board found that SEK 7 708 must be paid to the company.  Adjustments  in 
relation to discrepancies for 1994/95 and 1995/96 will be made in March 1998. 

The  procedures  of  the  authority  concerned  now  include  ensuring  that  information 
regarding possible discrepancies is received from the company.  The relevant inspection 
established  a distribution  of risk  for  all  the  warehouses.  Each warehouse  is  inspected 
twice a year and each storage operation is checked for all the warehouses. 

•1 <0 

ISSN 0254-1475 

C0M(98)  679 final 

DOCUMENTS 

EN 

17  01  09 

Catalogue  number  :  CB-CO-98-687-EN-C 

Office  for Official  Publications of the European Communities 

L-2985 Luxembourg 

Ul