Special Report No 2/2000 on aid given by the European Union to Bosnia-Herzegovina with a view to restoring peace and the rule of law, together with the Commission's replies
Date: 2000-01-13
Institutions: European Court of Auditors
Subjects: Bosnia and Herzegovina, EU aid, democratisation, human rights, peacekeeping, rule of law

23.3.2000

EN

Official Journal of the European Communities

C 85/29

on aid given by the European Union to Bosnia-Herzegovina with a view to restoring peace and
the rule of law, together with the Commission(cid:146)s replies

SPECIAL REPORT No 2/2000

(submitted pursuant to Article 248(4)(2)EC)

(2000/C 85/02)

CONTENTS

Paragraph

Page

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

Summary of main observations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Commission(cid:146)s Representation in Bosnia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The EU(cid:146)s contribution to the administrative expenditure of the Office of the High Representa-
tive in Bosnia-Herzegovina . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

Administrative and financial management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Institutional responsibilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Support for human rights and the news media . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Institutions for the defence of basic rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Support for civil society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Support for the media sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management of the transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Support for the electoral process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Conclusion. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-2

3-10

11

12-23

12-13

14-20

21-22

23

24-45

26-28

29-35

36-41

42-45

46-60

61-64

The Commission(cid:146)s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

30

30

31

31

31

31

33

33

33

34

34

35

36

36

39

40

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INTRODUCTION

1. The Court of Auditors(cid:146) Special Report No 5/98 (1) was devoted
to the reconstruction operations undertaken by the EU in the
former Yugoslavia in 1996 and 1997. This report left aside other
measures financed in Bosnia-Herzegovina during this period using
appropriations from the general budget. When the peace agree-
ments were signed in December 1995, the European Union (EU)
allocated considerable resources not only to reconstruction but
also to support for the Office of the High Representative (OHR) (2)
and to back measures to restore democracy in Bosnia-Herzegovina.
These measures concerned human rights, the news media and
support for the electoral process. The measures concerning human
rights and the news media were mostly financed directly by the
Commission, whereas support for the OHR or the electoral pro-
cess took the form of contributions to joint financing with other
suppliers of funds. This report presents the Court(cid:146)s observations
following an examination of these various areas in 1998 and 1999.

2. These observations must be appraised in the context of the
measures which the EU is required to undertake as part of the
reconstruction of Kosovo following the decisions taken at the
Cologne European Summit of 3 and 4 June 1999. The fact is that
restoring the rule of law in this region will probably lead to mea-
sures of the kind already undertaken in Bosnia. It is therefore
essential to learn from experience, especially as regards support
for the new local or international institutions and joint financing
with the other parties involved, in particular the OSCE (3).

SUMMARY OF MAIN OBSERVATIONS

3.
In 1998, the number of staff at the Commission(cid:146)s Representa-
tion in Bosnia-Herzegovina was increased and the financial man-
agement of the transactions was to be decentralised at the end of
the year. At the start of 1999, the Commission was still experien-
cing problems in filling all of the new posts which had been cre-
ated at the request of the budgetary authority (see paragraph 11).

4. Although the Commission contributes more than half of what
the OHR spends, it has not carried out since 1996 all the moni-
toring which the application of the principles of sound manage-
ment would have required. The fact is that it should have paid
closer attention to supervising the OHR(cid:146)s financial decision-
making process by establishing precise rules (see paragraph 16)
and ensured that the basic principles of internal control were
applied to the OHR(cid:146)s administrative organisation (see paragraphs

(1) Special Report No 5/98 on reconstruction in the former Yugoslavia,

(OJ C 241, 31.7.1998).

(2) Responsible for implementing the civil aspects of the Dayton agree-

ments.

(3) Organisation for Security and Cooperation in Europe.

17 to 20). The arrangements for submitting the OHR(cid:146)s accounts
and granting discharge to the High Representative remained con-
fused (see paragraph 22). By mid-1999, the High Representative
considered that he had done what was needed to rectify the short-
comings in internal control (see paragraph 23).

5. The financial aid given to the Bosnian public-sector institu-
tions for the defence of human rights took the form of projects,
which was ill-suited to the constraints they were operating under
and led to delays in the funds being made available. Financing in
the form of a budgetary contribution and the introduction of rig-
orous budgetary procedures would have made it easier to raise the
institutions(cid:146) awareness of practices which aim to ensure that pub-
lic funds are soundly managed (see paragraphs 26 to 28).

6. Given the large number of budget headings concerned and in
the absence, up to 1997, of an explicit strategy for attaining the
stated objectives, aid for the development of civil society was
often used to cover the operating expenditure of bodies whose
permanent nature was not guaranteed and without their results
being evaluated. This is true of most of the support channelled
through the Council of Europe, whereas support given to social
areas had the side-effect of relieving the state of its basic respon-
sibilities. Aid granted to organisations which aim to increase pub-
lic awareness of democratic values proved more convincing thanks
to a level of personal commitment by beneficiaries which may
offset the lack of financial resources (see paragraphs 29 to 34).

7. As regards its principal assistance in the news media sector,
the Commission found itself faced with a fait accompli owing to its
unfamiliarity with the technical aspects of the media. As a result,
it financed ineligible equipment worth ECU 2 million and sup-
ported a body(cid:146)s operations without making adequate checks (see
paragraphs 36 to 40).

8. Generally speaking, the Commission(cid:146)s monitoring of financ-
ing in the area of human rights and democracy in Bosnia-
Herzegovina falls far short of the requirements for implementing
the principles of sound management; there would appear to be a
need for matters to be taken firmly in hand in this area (see para-
graphs 42 to 44).

9. As regards support for the electoral process, cooperation with
the OSCE as part of the common foreign and security policy
raises many problems in terms of financial control. Funds are fro-
zen without reason for prolonged periods, the Commission(cid:146)s
checks in respect of the eligibility of expenditure are inadequate
and the legal framework chosen for financial cooperation between
the Commission and the OSCE ought to be fundamentally revised
as regards the new powers of the Commission(cid:146)s Joint External
Relations Department (see paragraphs 49 to 53).

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10. Where sums are still to be recovered once measures have
been implemented, the Commission departments which author-
ise expenditure are slow to make the necessary arrangements to
recover Community funds held by third parties (see paragraphs
57 to 59).

THE COMMISSION(cid:146)S REPRESENTATION IN BOSNIA

11. During the course of previous audits, the Court noted that
many of the problems encountered when implementing aid for
the reconstruction of Bosnia-Herzegovina actually stemmed from
the fact that programme management was centralised (in Brus-
sels) and that the Commission(cid:146)s Representation on the spot was
allocated highly inadequate resources. Since the publication of
Special Report No 5/98, the number of staff at the Commission(cid:146)s
Representation in Bosnia has been increased. Thus, the Represen-
tation in Sarajevo is now backed up by two local offices, one in
Mostar (1) and the other in Banja Luka (2), each of which has four
posts. At the end of February 1999, the two LTAE (3), posts and
one AL (4), post allocated to these offices were still vacant. The
representation in Sarajevo comprised six A-grade posts, three
B-grade posts, three C-grade posts, seven ALAT posts and 21 local
staff. Several of these posts were still vacant: 1 A, 1 B, 1 ALAT
and five local staff. Furthermore, two of the serving A-grade offi-
cials were about to leave. As the Court has already pointed out on
many occasions (see paragraph 5.30 of
the 1997 Annual
Report (5)), it is a matter of urgency that the Commission should
allocate itself the resources needed to ensure that, as in the Mem-
ber States, overseas posts are occupied quickly and otherwise than
by volunteers.

Herzegovina initialled at Dayton on 21 November 1995 and
signed in Paris on 14 December 1995. His terms of reference were
confirmed by the conference on the implementation of the peace
agreement held in London on 8 and 9 December 1995 and by UN
Security Council Resolution No 1031 of 15 December 1995. The
aim of the London conference was to raise aid from the interna-
tional community for the physical implementation of the peace
agreements, in particular for the support to be given to the High
Representative. At the same time, a Peace Implementation Coun-
cil (PIC) was created, the management committee of which included
representatives from Canada, France, Germany, Italy, Japan, Rus-
sia, the United Kingdom, the United States of America, the coun-
try chairing European Union meetings, the European Commis-
sion and the Organisation of the Islamic Conference. This
management committee provides political guidance for the imple-
mentation of the peace agreements and informs the PIC of the
progress of its work.

13. At the London conference, it was agreed that governments
would finance the salaries of staff seconded by them to the Office
of the High Representative (OHR) and that the management com-
mittee would propose a budget to meet the OHR(cid:146)s other operat-
ing costs. The PIC subsequently undertook to provide the neces-
sary funds according to an allocation formula based on the one
used by the International Conference on the Former Yugoslavia.
This formula was to be adopted by consensus, given that the EU
was already committed to covering some of the High Represen-
tative(cid:146)s implementation costs and was preparing to pay over its
contribution (see paragraph 16).

THE EU(cid:146)S CONTRIBUTION TO THE ADMINISTRATIVE
EXPENDITURE OF THE OFFICE OF THE HIGH
REPRESENTATIVE IN BOSNIA-HERZEGOVINA

Administrative and financial management

Introduction

12. The High Representative(cid:146)s task is to supervise the implemen-
tation of the civil aspects of the peace agreement for Bosnia-

14. From ECU 8,4 million in 1996, the OHR(cid:146)s administrative
budget increased to ECU 16,5 million in 1997 and to ECU 22 mil-
lion in 1998. Over the same period, the OHR(cid:146)s staff increased sev-
enfold, reaching 719 in February 1998. From the start, the EU has
contributed 50,6 % of the financing of the OHR(cid:146)s administrative
expenditure.

(1) Federation of Bosnia-Herzegovina.
(2) Serb Republic.
(3) Local technical assistance employee (usually a national of the EU).
(4) Local employee.
(5) OJ C 349, 17.11.1998.

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Evolution of the EU(cid:146)s contribution to the operating expenditure of the OHR

Table 1

Commitments

Payments

Decisions

95/545/CFSP

Year

1995

Amount

1995

1996

10,0

3,0

Transfer No 50/95

1995/1996

97/476/CFSP

97/607/CFSP

1997

1998

1998

1,9

4,6

6,3

2,8

1,1

1997

6,9

4,6

Total

25,6

3,0

1,1

11,5

Source: Court of Auditors.

(million ECU)

1998

0,1

6,3

1,2

7,6

Total

10,0

1,1

4,6

6,3

1,2

23,2

15. Since February 1996, the Commission has noted short-
comings in the administrative and financial management of the
OHR. The fact is that its Representation in Sarajevo had expressed
concern at the lack of regulations and procedure as regards
administration and accounting and at the existence of numerous
problems concerning authorisations to sign, the keeping of the
accounts, the way bank accounts were operated, the management
of staff and the awarding of contracts.

16. The Commission(cid:146)s monitoring of the management of its
OHR contribution was inadequate. Only at the end of 1998 did
the Commission help the OHR introduce procedures and rules
compatible with Community legislation governing the budget. As
the EU is by far the OHR(cid:146)s biggest provider of funds, the Com-
mission, which is represented on the PIC(cid:146)s management commit-
tee, should have insisted as early as 1996 on the adoption of a
genuine management and inspection system adopted for all funds
made available to the OHR.

17.
In 1998, the OHR(cid:146)s financial management was not based on
a system of separation of duties, allowing a minimum of internal
control. Thus, for example, the financial director invoiced his ser-
vices to the OHR as part of a contract signed with a company of
which he was the manager. Once he had checked his own invoices,
he then validated them. In addition, he decided on the procedures
for checking his own management by negotiating contracts for
external auditors and by defining not only the procedures for, but
also the scope of the audit. Such a responsibility should have
fallen to the PIC(cid:146)s management committee or, at the very least, to
its group of financial experts, which included EU representatives.

inventory was still not kept at the start of 1999, even though the
Commission had stipulated a requirement to this effect in Febru-
ary 1996. This lack of inventory is all the more disquieting as
much of the equipment used by the OHR is easily transportable.
As regards public works contracts, calls for tenders were infre-
quent. Payments were made merely on the basis of invoices, with-
out a contract. Generally speaking, the monitoring of receivables
was neglected. Errors due to the division of departments between
Sarajevo and Brussels were detected in the calculation and pay-
ment of salaries, in particular owing to shortcomings in coordina-
tion between the financial and personnel departments.

19. Furthermore, repeated shortcomings were noted at the
administrative level. The recruitment, grading and management
of staff did not always meet objective and coherent criteria. Pay-
ment of the rent or accommodation allowances of certain mem-
bers of staff was authorised in a discretionary manner. Various
items of expenditure for certain members of staff on secondment
or under contract to the OHR should never have been accepted.
In 1998, the duties of the posts in the establishment plan had not
been described and some staff were unaware of the exact scope
of their tasks and responsibilities. In May 1998, the OHR unilater-
ally decided to increase the salaries of its expatriate staff by 6,5 %
without formally consulting its management committee. More-
over, the purpose of missions was often described in a perfunc-
tory manner and abuses in declarations of mission or entertain-
ment expenses were detected.

18. As regards budgetary management, the budgets for the finan-
cial years 1997, 1998 and 1999 were not drafted in sufficient
detail to enable the management committee adequately to moni-
tor their implementation. They were not backed by any analysis
of the actual requirements of the various departments of the OHR.
With regard to accounting management, the signatures author-
ised for the bank accounts had not been valid for more than a
year, at the time of the Court(cid:146)s audit in 1998. In addition, an

20. The High Representative himself, who had occupied his post
since 1997, did not have a contract of employment, which posed
a problem as regards the level of his salary and the calculation of
his allowances. Although the OHR(cid:146)s administration asked the
Commission in September 1997 for an opinion on this matter, no
reply was sent and in 1999 the Commission contested the solu-
tion adopted by the OHR on the grounds that it had not granted
formal approval.

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Institutional responsibilities

21. Article 18(2) of the Treaty on European Union (formerly
Article J.5) (1) stipulates that the country chairing the Council
meetings, which is responsible for implementing joint measures,
must consult the Parliament about the main aspects and the basic
choices of the common foreign and security policy and must
ensure that the latter(cid:146)s views are duly taken into consideration
(Article 21, formerly Article J.7). Furthermore, each Member State
or the Commission may ask the Council to give its opinion on
any matter concerning the common foreign and security policy
and may submit proposals to the Council (Article 22(1) formerly
Article J.8(3). Lastly, the Commission is to be fully associated in
common foreign and security policy tasks (Article 27, formerly
Article J.9) and, where the cost of the implementation of the mea-
sures is borne by the Community budget, the Commission is
responsible for implementation of the budget (Article 28(2) for-
merly Article J.11).

22. Although the donors have always insisted on the role which
they intended to entrust to the OHR, they have not required it to
justify its management. The intervention of various Community
authorities in decisions to finance the OHR, the lack of a clear
distribution of responsibilities between these parties and above all
the absence of a coherent strategy between the Community insti-
tutions were responsible for carelessness in the management of
the funds. In addition, in spring 1999 there was still no agreement
between the Council, the Member States and the Commission to
specify the rate of the EU contribution which was contested by
other donors.

Conclusion

23. Although the Commission did try in 1996 to provide the
OHR with support in administrative and financial matters, it is
clear that, owing to the political implications of the OHR(cid:146)s actions,
the Commission has since preferred not to intervene in its man-
agement. However, following the replacement of the High Repre-
sentative in 1997 and the increase in the OHR(cid:146)s tasks and resources,
the Commission should have demanded, in consultation with the
Council, greater transparency in the preparation and implementa-
tion of its budget and should have asked for the introduction of
rules and procedures to ensure responsible management and

proper controls. In June 1999, the High Representative believed
he had done most of what was needed to rectify the shortcom-
ings detected by the Court. These measures are yet to be assessed.
Furthermore, the new internal rules had not yet been ratified by
the PIC(cid:146)s management committee. Without prejudice to the respon-
sibilities that are peculiar to the OHR(cid:146)s management bodies, the
Court believes that it is up to the Commission, according to Article
274 of the EC Treaty, if not to insist that a body, to the budget of
which it contributes to the extent of more than 50 %, adopts rules
and adheres to procedures that are such as to ensure responsible
mangement and serious internal control, at least to give consid-
eration to doing so.

SUPPORT FOR HUMAN RIGHTS AND THE NEWS MEDIA

24. The Council(cid:146)s conclusions of 29 April 1997 concerning the
countries of south-eastern Europe assigned to the EU several pri-
ority intervention areas. Of these areas, the strengthening of insti-
tutions and of civil society concern Bosnia-Herzegovina in par-
ticular. Thus, since the end of hostilities, the Commission has
provided direct support in order to:

(a) support the institutions created by the peace agreements for

the defence of basic rights in Bosnia;

(b) support non-governmental organisations which are aiming to
establish peaceful relations between the communities and are
relieving individual suffering;

(c) nurture the development of news media which are not under
the influence of political parties with nationalistic tendencies.

25. These measures were financed partly from headings B7-7
(democracy) of the general budget of the EU, partly by appropria-
tions earmarked for aid for the former Yugoslavia (B7-5 2 0 1,
B7-5 4 1 and B7-5 4 3) and partly by appropriations from the
Phare programme (B7-5 0 0 0), as shown in Table 2. The Court(cid:146)s
examination, at the end of 1998, of an extended sample of trans-
actions led to the following observations.

(1) The Articles mentioned in brackets are those of the Treaty of Maas-

tricht (7.2.1992).

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Table 2

EU commitments in Bosnia-Herzegovina in the area of human rights and democracy over the 1995 to 1998
period

Measures

B7-
5 0 0 0

B7-
5 2 0 1

B7-
5 4 1

B7-
5 4 3

B7-
7 0 0 0

B7-
7 0 0 1

B7-
7 0 4 0

B7-
7 0 7 0

B7-
7 0 8

Total

(million ECU)

Democracy and human
rights

WEF programmes and
social measures

Support for institutions
(Phare)

Support for elections

0,680

1,975

0,200

1,656

4,141

0,154

1,050

0,800

0,150

1,963

Independent media

2,000

0,651

1,736

1,700

2,500

2,385

8,652

2,267

1,850

2,500

8,472

Miscellaneous

0,183

0,194

0,377

Total

3,884

2,626

1,736

2,700

1,806

9,026

0,183

1,963

0,194

24,118

Source: Court of Auditors.

Institutions for the defence of basic rights

26.
In Bosnia-Herzegovina, the mediation authorities operate at
two levels. The first authority was created in 1994 by the Wash-
ington agreements in the Bosnian (Croat-Muslim) Federation. The
second, which is attached to the Human Rights Commission (1),
was set up in 1995 by the Dayton agreements at state level and
covers the territories of the Federation and of the Serb Republic.

funds. To this end, close cooperation with the other donors is
essential. This sort of approach would also contribute to strength-
ening the beneficiaries from an institutional point of view, as
donors and in particular the OHR could thereby monitor the
local authorities throughout the budgetary process.

Support for civil society

27. Both of these authorities are particularly useful for settling
the many property disputes between individuals and the local
authorities, especially where the plaintiffs belong to minorities. In
this area, the Federation(cid:146)s ombudsmen are well represented on the
ground and their actions are more concrete than the national
ombudsman(cid:146)s, whose actual appointment and contribution slowed
down by the lack of resources and the time needed to draw up
procedures for examining the suits.

29.
In order to clarify its strategy for developing a civil society
in Bosnia-Herzegovina (2), the Commission signed an ECU 0,3
million contract with an NGO in April 1996. Although the study
concluded that a foundation for democracy was needed, so as bet-
ter to structure the Commission(cid:146)s measures, this foundation had
still not been created by the end of 1998.

28.
In both of these cases, mobilising the Commission(cid:146)s finan-
cial aid took a long time. As it was organised through projects, it
was ill-suited to the budgetary-management requirements of the
beneficiaries. As these are public-sector bodies, the direct pay-
ment of sliding-scale contributions to their budgets would be a
better solution, provided that the procedures for voting on, imple-
menting and regulating the budgets are rigorous, democratic and
transparent, so as to guarantee the sound management of the

30. The Commission(cid:146)s aid for civil society was divided into two
major groups of operations: on the one hand, the promotion of
clubs to foster democracy and, on the other, ad hoc support for
NGO projects to raise public awareness of democratic values,
combat nationalism and alleviate individual suffering.

(1) The Commission comprises the chamber of human rights and the

office of the ombudsman.

(2) For any given country, (cid:145)civil society(cid:146) refers to all groupings or associa-
tions, whether professional or otherwise, which aim to inform the
public, its representatives and the departments of state of matters
they deem important for the life of the country.

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31. The clubs created under the (cid:230)gis of the Council of Europe or
by associations (embassies of democracy and Euroclubs) received
operating subsidies without adequate attention being paid to the
substance and scope of their activities. Subsequently, despite the
size of the sums mobilised (1), their results were not appraised,
such that the effectiveness of the assistance cannot be assessed on
a reasoned basis. The disappearance of the Sarajevo Euroclub in
October 1997 illustrates the fragility of initiatives of this kind.

32. Various kinds of support were given to NGOs which were
attempting to set up pressure groups to strengthen the demo-
cratic nature of the public authorities. This support generally con-
cerned clearly identifiable concrete measures, the effects of which
are likely, at least in the long term, to influence attitudes. The cre-
ation of networks between these NGOs enables them to influence
opinion-shapers and their measures fall within the objectives of
the democracy programme.

33. Other support was earmarked for measures to compensate
for the shortcomings of the state(cid:146)s social services (2). This aid, the
primary objective of which is to relieve individual suffering, has
an almost immediate positive effect. However, in the longer term,
the aid may have a negative effect if it relieves the state of its
responsibilities. Social services financed by foreign aid should not
be introduced in parallel to those of the state, as this does not
meet the objectives of consolidating institutions set out by the EU
in the Phare programme. Instead, professional expertise devel-
oped in this way should be gradually reintroduced into the public
institutions responsible for such services.

34. Similarly, considerable support was given to teachers at the
University of Sarajevo who received salary top-ups as part of the
democracy programme. This support was subsequently main-
tained as part of the (cid:145)Europe for Sarajevo(cid:146) programme (B7-5 4 5).
This aid corresponds more closely to the objectives of the Tempus
programme for university exchanges with east European coun-
tries than to those of the democracy programme.

Support for the media sector

36. The first large-scale intervention by the Commission in the
media sector in Bosnia was a contribution of ECU 2 million from
the essential aid programme (B7-5 0 0) to answer the High Rep-
resentative(cid:146)s call, shortly before the 1996 general election, for the
introduction of a television station over which the nationalist par-
ties would have no control. The Commission maintained its sup-
port for the OBN network (3) by withdrawing the necessary sums
from headings B7-5 4 3 (ECU 1,7 million in 1997) and B7-5 4 1
(ECU 1 million in 1998).

37. From the beginning of 1996, the creation of an independent
television network had been studied, under the (cid:230)gis of USAID (4)
and the G. Soros Foundation, by a group of experts including the
representative of an American manufacturer of broadcasting
equipment. In March 1996, after the group of experts had sub-
mitted its report, the technical assistant responsible for the project
placed an order for the necessary equipment with the American
manufacturer who had participated in the study. Unaware that the
order had already been placed, the Commission subsequently
undertook in July 1996 to finance the equipment to be delivered
by the end of August. The Commission(cid:146)s attempts to find a Euro-
pean supplier were pointless as they had started late and it tran-
spired that only the American supplier was in a position to imple-
ment the contract; this was therefore the bid selected by the
Commission. In these circumstances, the Commission was misled
through unfamiliarity with the technical aspects of the file. It was
confronted with a fait accompli which obliged it to depart from the
original rules applicable to contracts. In the knowledge that its
intervention was late, it should have insisted that the ECU 2 mil-
lion was allocated to other aspects of the project. In 1997, two
recipients of the equipment left the network and, although one of
them reimbursed the OBN, the other kept the broadcasting equip-
ment without refunding the cost.

38. Although the next subsidy served to finance the OBN(cid:146)s oper-
ating expenditure, this expenditure was not implemented within
a rigorous budgetary framework. In 1998, the project director
was forced to resign because of his opaque management practices.

35. The dispersal of activities observed was due to the large
number of budget headings concerned and the absence, up to
1997, of a specific strategy in respect of aid to promote a civil
society. The process by which the Commission responds to pro-
posals for projects submitted by third parties compounds the phe-
nomenon of dispersal. The adoption by the Commission of a
more interventionist stance, concentrating on strategic objectives
by providing support for measures to transform attitudes in pub-
lic life, would make EU intervention more consistent.

39. At the end of 1998, although the legal status of the OBN in
Bosnia was not clearly established (5), the company(cid:146)s survival still
largely depended on international financing. Although an opera-
tional plan was in the process of being drawn up, the company
was not envisaged as being financially viable for at least five years.
In the face of privatisation objectives that were in contradiction
of economic reality in the media sector in Bosnia, the donors had

(1) Euroclubs: ECU 1,2 million; embassies for democracy: ECU 0,2 mil-

lion.

(2) The projects in question aim to assist the disadvantaged (children and
the elderly) or to provide medical care and psychological treatment.

(3) Open broadcasting network (OBN).
(4) United States Agency for International Development.
(5) At the end of November 1998, the OBN existed in the form of a trust

registered in the United Kingdom.

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made no commitment whatsoever to continue with their finan-
cial support to the OBN. The Commission, rather than the OHR,
would seem to be best placed to support, from its own resources,
the continuation of this operation.

40. At the start of 1999, the OBN(cid:146)s broadcasts were being
received in 80 % of Bosnia. The quality of its news programmes
began to be acknowledged, having long been suspected of put-
ting forward only a Bosnian point of view (1). The quality of the
other programmes was still disputed, which augured ill for the
growth of its audience and therefore for its ability ultimately to be
financially independent.

41. The Commission(cid:146)s other assistance in the media sector con-
cerned (see Table 2) radio and press companies which were granted
operating subsidies for amounts that were not always clearly justi-
fied. The fact is that the Commission met beneficiaries(cid:146) requests
without first assessing their validity on objective bases. At the
time of the on-the-spot checks in November 1998, it was not pos-
sible to obtain justification for the use of the sums disbursed as
the various beneficiaries(cid:146) accounts were not available.

Management of the transactions

42. For a large number of measures presented as projects, the
terms of reference remain vague and cannot serve as a monitor-
ing tool. The Commission should require beneficiaries to submit
proposals divided into distinct activities and specifying in as quan-
tified a way as possible the objectives to be attained and the means
of measuring the results obtained. For many projects the advances
paid are rarely regularised on time because the beneficiaries have
not yet filed their reports.

43. A clear distinction should be drawn between operating sub-
sidies and the financing of projects. The Commission should con-

tribute to operational expenditure only once it has ensured that
that beneficiary bodies are governed by transparent budgetary
procedures subject to adequate controls. No operating subsidy
should be paid to private companies (press) if their accounts are
not accessible and if their genuineness has not been certified by
an independent auditor.

44.
In the case of Bosnia-Herzegovina, the monitoring of the
implementation of contracts by the Commission departments in
Brussels responsible for human rights and the media falls far short
of the level required by the principles of sound management. On
several occasions, it was noted that beneficiaries(cid:146) implementation
reports had not been submitted, that the advances paid had not
been followed by payment of the balance owed in respect of con-
tracts, while the corresponding reasons could not be determined
from the files, that certain beneficiaries should have been asked
to repay excess sums they had received and that the form of the
contracts was ill-suited to the type of transactions financed.

45.
In order to remedy these shortcomings, the Commission
should set up in Bosnia, as for the Phare programme, a decentra-
lised financial system to monitor the human rights, democracy
and media sectors. Results should therefore be systematically
assessed, first by task managers and then as part of the indepen-
dent assessments carried out by the SCR(cid:146)s evaluation unit (2).

SUPPORT FOR THE ELECTORAL PROCESS

46. Article II-1 of Annex 3 of the Dayton agreements entrusts
the organisation of the first elections in Bosnia-Herzegovina to
the OSCE. In December 1997, in Bonn, the Peace Implementation
Council asked the OSCE to supervise once again the organisation
of polling for the 1998 general election (see Table 3).

(1) That of the Muslim community, as opposed to that of the Croat and

Serb communities.

(2) Common External Relations Department.

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Accounting situation (Sincom of OSCE commitments as of 31 December 1998)

Table 3

Poll

BiH national elections (1)

(September 1996)

Municipal elections (Federation)

(September 1997)

National elections in Serb Repub-
lic (2)

(November 1997)

National elections BiH (B8-0 1 0 0)

(September 1998)

Commitments

Payments

Still outstanding

B7-7 0 0 1

B8-0 1 3 0

B7-7 0 0 1

B8-0 1 3 0

B7-7 0 0 1

B8-0 1 3 0

(million ECU)

2,500

3,000

2,000

3,000

0,500

(cid:151)

(cid:151)

(cid:151)

5,500

(cid:150) 1,111

(cid:151)

5,000

(cid:151)

(cid:151)

(cid:151)

4,389

(cid:151)

3,000

(cid:151)

(cid:151)

(cid:151)

(cid:151)

(cid:151)

(cid:151)

2,000

Total

2,500

12,389

2,000

10,389

0,500

2,000

(1) The OSCE obtained the allocation of the amount left over from local elections in September 1997.
(2) Transaction financed from amounts left over from local elections held in September 1997 in the Federation of Bosnia Herzegovina.
Source: Sincom.

47. Thus, for each of the four polls organised between September
1996 and September 1998, the EU contributed to (cid:145)Voluntary
funds(cid:146) opened by the OSCE. The Community appropriations were
taken either from the budget heading for the support of democ-
racy and human rights (B7-7 0 0 1) or from a budget heading
earmarked for the common foreign and security policy (B8-0 1 3
or B8-0 1 0).

50. Although the date on which the joint measures came into
force is clear, their expiry date is not. Moreover, although deci-
sions require the transactions to be formally appraised no such
document is formally drafted by the Commission (2) or requested
of it by the Council in order to account for each transaction (3).
Thus, the OSCE kept surplus funds from previous measures for
future measures.

48. Table 3 provides an overview of the Commission(cid:146)s account-
ing records.

49. Three joint Council measures resulted in the commitment of
ECU 16 million (excluding the ECU 1,1 million decommitted in
1998) from the 1996, 1997 and 1998 budgets. In all three cases,
the Commission submitted the preparatory documents. The major
failing of these joint measures is that they are non-committal as
regards the nature and duration of the support given to the
OSCE (1). The fact is that joint measures generally set a maximum
EU contribution, which implies a contribution based on actual
costs. However, as these measures provide a mere indication of
the nature of eligible expenditure without specifying their scope,
they are considered by the OSCE almost as flat-rate contributions.
This interpretation is based on the fact that most of the other con-
tributors to the voluntary funds do not indicate particular uses for
the sums they provide.

51. Commission financing should be based on budgetary fore-
casts which are as reliable as possible. This was never the case
with the budgets submitted by the OSCE, which all proved
extremely unrealistic. In future, the Commission should check the
plausibility of the forecasts submitted by the OSCE.

52. The agreements reached by the Commission and the OSCE
proved to be ill-suited to the special relationship between the two
institutions and to the requirements of sound financial manage-
ment. The fact is that:

(a) the budgets are merely indicative in nature, which hardly cor-
responds to the idea of contributing to specific expenditure
for given amounts;

(1) See paragraph 30 of Opinion No 1/97 of the Court of Auditors on
the conditions governing the implementation of expenditure within
the framework of the common foreign and security policy.

(2) For example, in the form of a communication to the Council and to

the European Parliament (COM document).

(3) See paragraph 31 of Opinion No 1/97 of the Court of Auditors.

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(b) other funds from third parties which are allocated to the same
measures as those supported by the EU are not indicated in
spite of the risk of duplication of financing;

(c) the procedures for adjusting budget items currently being
implemented are not always specified, nor are those for using
the contingency reserves;

(d) the scales used for the reimbursement of observers(cid:146) expenses
are not explicit where they depart from the OSCE(cid:146)s usual rules,
a level of flexibility which is likely to engender confusion;

(e) currency conversion rates are not specified even though the
Commission insists on making its payments in ecu and the
OSCE, which makes part of its payments in USD, keeps its
accounts in Austrian schillings (ATS);

(f)

the level of advances paid (80 % for transactions committed
against appropriations for 1996 and 1997 and 60 % for those
committed against appropriations for 1998) proved excessive,
with the result that the OSCE(cid:146)s cash holdings increased to the
detriment of the Commission(cid:146)s. In so far as the OSCE(cid:146)s finan-
cial regulations did not enable it to offset the cost of holding
large sums by levying interest, the scale of the advances should
have been drastically reduced;

(g) the OSCE is not required to submit detailed accounts indicat-
ing for each transaction all contributions mobilised and com-
paring forecasts with actual implementation.

53.
It would be preferable, assuming the Commission continues
to maintain financial relations with the OSCE, to introduce con-
tractual arrangements which take greater account not only of the
two institutions(cid:146) requirements but also of their constraints (1). In
particular, the significance of the budgets annexed to the Com-
mission(cid:146)s financing agreements and desired objectives should be
clarified as regards the keeping of accounts by the OSCE and the
provision of documentation to justify expenditure.

transactions effected and the results registered. In this respect, the
report on the 1998 elections provides better information than for
the previous transactions but does not specify the lessons to be
learnt. The detailed financial accounts certified by the OSCE(cid:146)s
Accounting Officer are too succinct to lend themselves to in-depth
inspection. The OSCE should be required by the financial agree-
ments to produce a copy of its own accounting records in order
to provide the Commission with a pertinent basis for inspection.
In the light of the errors detected, the detailed accounts should be
certified not by the OSCE(cid:146)s Accounting Officer but by an inde-
pendent auditor who can vouch for the eligibility of the expendi-
ture.

56.
In spite of the Commission(cid:146)s repeated requests, EU support
enjoyed only limited visibility as the EU teams were incorporated
into those of the OSCE without any particular distinguishing fea-
ture (2). Moreover, the Commission(cid:146)s files do not indicate that it
made any particular efforts in this area and it appears that the
OSCE(cid:146)s main concern was its own visibility.

57. Operations financed from appropriations earmarked for
human rights and democracy (B7-7) were also largely neglected
by the Commission (see paragraph 44), in terms not only of the
results obtained but also of the advances disbursed. In spite of
amendments to the contracts concluded in July 1997 in order to
cover the municipal elections of September 1997, the balance of
the 1996 contracts, i.e. ECU 500 000, has never been settled. The
implementation reports for two of the three measures for which
the contracts provide were not included in the files and the eligi-
bility of the expenditure was not verified.

58. Generally speaking, the inspection mechanism introduced
by the Commission fell short of the requirements of sound finan-
cial management. In the case of appropriations withdrawn from
headings earmarked for measures to support democracy and
human rights, it even proved non-existent.

54. With regard to the polls in September 1996 and September
1997, the budget estimates submitted by the OSCE considerably
exceeded actual expenditure and the residue was allocated to the
following elections. After the November 1997 poll (which was
itself financed exclusively from residue sums), the appropriations
decommitted by the Commission still amounted to ECU 1,1 mil-
lion (see Table 3). After the September 1998 elections, appropria-
tions liable for decommitment purportedly total at least ECU 1,6
million.

59. On 31 December 1998, the sums still to be decommitted as
part of the contributions given by the EU to the OSCE both within
the framework of the common foreign and security policy and of
the democracy programme for the elections in Bosnia-Herzegovina
total approximately ECU 2 million, whereas the sums to be recov-
ered from the OSCE can be definitively evaluated only after an
in-depth on-the-spot check in respect of the eligibility of the
expenditure (see paragraph 55).

55. The implementation reports submitted by the OSCE in the
context of financing for central and east European countries pro-
vide only a summary, and at times even laconic, description of the

60. The nature of the financial relationship between the Com-
mission and the OSCE requires a thorough re-examination (see
paragraph 53).

(1) See paragraphs 40 and 49 of Opinion No 1/97 of the Court of Audi-

tors.

(2) See, in particular, the intentions to increase the visibility of the EU
expressed in Article 3 of the common foreign and security policy
joint measure 98/302 of 30.4.1998, (OJ L 138, 9.5.1998, p. 1).

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CONCLUSION

this end, existing inspection mechanisms must be taken as a basis
and, where appropriate, strengthened.

61. The Court(cid:146)s examination of the aid given to Bosnia to pro-
mote the restoration of the rule of law highlighted two major
kinds of assistance: support for the running of institutions or
companies and support for individualised measures in the form
of projects.

62.
In the case of aid for the running of bodies, the Commission
failed to develop either an approach or a practice suited to the
situation and classed this type of assistance as projects. As a result,
difficulties arose, the most significant of which are delays in pay-
ment by the Commission and a lack of clarity in the process for
rendering beneficiaries(cid:146) accounts. Where the Commission intends
to contribute to financing a beneficiary(cid:146)s current measures, it must
include its financing in the latter(cid:146)s normal management system
after ensuring that a global mechanism for rendering the accounts
exists and actually works. In the case of bodies such as the OHR
or the OSCE, it is essential for the Commission to reach with
these latter framework agreements which, taking account of the
mechanisms and constraints characteristic of their management,
define the procedures for providing and checking contributions
from the EU budget. In the latter case, it is no doubt preferable to
assume that the financing is fungible and that the funds provided
by the EU cannot be dissociated from other funds, in which case
overall checks must be carried out in respect of management. To

63. As regards support provided in the form of projects, care
must be taken to ensure that the terms of reference stipulate in a
precise and quantified way the measures to be undertaken so that
the projects(cid:146) budgets can become genuine monitoring tools and
to prevent the eligibility of the expenditure from being contested.
In this respect, the support given to the OBN is a particularly
unfortunate example.

In order further to promote the development of civil society,
64.
the Commission should preferably adopt guidelines which are tar-
geted more on the basis of the priorities which it chose for the
Balkan region, to wit the implementation of democratic prin-
ciples, the introduction of the rule of law, as well as respect for
and protection of minorities. The fact is that the Commission has
too often contented itself with approving the requests for financ-
ing which it found to be the most convincing. In so doing, the
support was fragmented and measures which, although useful,
were not a priority often prevailed over measures which were
more likely to have a direct effect on the democratic workings of
the institutions or departments of State. Lastly, a monitoring sys-
tem which is close to the projects in these various areas should
be set up at the local level.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 13 January 2000.

For the Court of Auditors

Jan O. KARLSSON

President

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THE COMMISSION(cid:146)S REPLIES

INTRODUCTION

1. The report covers the period 1996 to 1998. The previous
report, No 5/98, covered reconstruction operations in the period
1996 to 1997.

It should be pointed out that the Commission was called on to act
in particularly difficult circumstances: the situation on the ground
was politically unstable, with certain parties obstructing the appli-
cation of the peace agreements. Support was given to accompany
a peace process and the establishment of basic institutions rather
than to traditional projects. It is important to make this distinc-
tion if one is to appreciate fully the operations assessed.

2. One of the lessons drawn from the experience in Bosnia-
Herzegovina for operations in Kosovo is the importance of hav-
ing direct on-the-spot capacity for ensuring management of
projects, contracts and finance. In Kosovo this was achieved in
July, when a Task Force of officials supported by experts and local
employees was set up, pending the creation of a reconstruction
agency.

SUMMARY OF MAIN OBSERVATIONS

3. The policy of devolving management to the office in Bosnia-
Herzegovina marks a radical change in thinking. Devolution really
entered into its own in early 1999 when the office began to func-
tion as a Sincom unit (for the purpose of the Commission(cid:146)s
accounting system), the first of the Commission Delegations to do
so. Prior to that the office had been given more staff and reorga-
nised so as to be able to ensure both project management and
financial management on the spot. Since early 1999, the Com-
mission has gradually filled the majority of the vacant posts,
ensuring responsible management of this (cid:145)pilot project(cid:146) on devo-
lution.

4. The Commission considers that the OHR(cid:146)s supervisory
authorities bear primary responsibility for its management and
any shortcomings. However, subject to the constraints inherent in
the organisation and its decision-making machinery, the Commis-
sion has worked consistently from its inception to achieve greater
rigour in its financial, contractual, accounting and procedural
management. The OHR introduced considerable improvements
in its administrative and financial rules in 1999. The Commission
will ensure at its next verification visit that these are being effec-
tively applied.

6. The strategy was initially to support projects aimed at alleviat-
ing immediate problems and suffering as well as institutional
projects.

7. With regard to its principal intervention in the media sector,
the Commission felt that the strategic objective of the operation,
to set up an independent press capacity in time for the first elec-
tions, overrode procedural considerations, i.e. the rules of origin
on equipment. To this day the OHR still considers the project in
question to be one of the pillars of its strategy for the independent
media in Bosnia-Herzegovina.

8. Support for initiatives to create a counterweight of indepen-
dent media and encourage civil society in a post-conflict situa-
tion is extremely delicate. Such initiatives necessarily entail work-
ing with fragile partners in many cases, whose capacity to produce
reports to the deadlines and in the form required by the Commis-
sion is limited. The Commission(cid:146)s own monitoring capacity was
severely hampered by a chronic lack of staff, which is all the more
telling when the programme to be managed entails a large num-
ber of small contracts.

9 and 10.
It is true that cooperation with the OSCE was some-
what problematic in terms of reporting and financial control.
Support for supervising elections in real time was a relatively new
area of work, as were the CFSP joint actions, which required a bal-
ance between Council Decisions and the implementational and
financial responsibilities to be shouldered by the Commission.
Funds were frozen to some degree, the remainder of budgets for
previous elections having been carried over to subsequent elec-
tions. These funds were in the accounts of the OSCE, an interna-
tional organisation. An audit at the OSCE was undertaken at the
end of 1999 to collect the necessary information to close the
accounts for the operations in question.

The Court(cid:146)s remarks raise some pertinent questions as to the
Commission(cid:146)s future use of implementation channels, such as the
OHR and OSCE in this instance, which are politically the most
appropriate but whose rules and management methods may not
necessarily accord with Community practice. The Commission
considers it essential that the Budgetary Authority rule on the
matter.

THE COMMISSION(cid:146)S REPRESENTATION IN BOSNIA

5. The Commission has, up to now, taken the view that financ-
ing projects rather than contributing to budgets offered greater
guarantees that Community funds would be used properly.

11. The two category A officials referred to by the Court were
replaced, one immediately, the other after a few months, which is
not unusual for rotations.

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With regard to filling posts in the external service, the Commis-
sion took a decision on 8 April 1997 that from 2000, all category
A officials in the external relations directorates would be obliged
to serve a period abroad (1). However, so far the Commission has
generally been able to fill posts by means of the existing rotation
system.

17. The financial director of the OHR was replaced in 1999. Fol-
lowing a control mission organised in January 1999 by the Com-
mission, the OHR was also asked to issue an invitation to tender
to select new auditors.

THE EU(cid:146)S CONTRIBUTION TO THE ADMINISTRATIVE
EXPENDITURE OF THE OFFICE OF THE HIGH
REPRESENTATIVE IN BOSNIA-HERZEGOVINA

Administrative and financial management

14. The Council Decision adopted on 11 May 1999 took the EU
contribution from the 1999 budget to 53 %, subject to the fol-
lowing conditions:

(a) no net increase in the EU contribution for 1999,

(b) net reduction of the OHR budget in 2000,

(c) no retroactive coverage of costs.

15 and 16. Since 1995, the Commission has undertaken mea-
sures and made representations with regard to the management
of the OHR and these have gradually been adapted as the situa-
tion evolved. Among these measures were:

(a) given the OHR(cid:146)s lack of any legal personality, the Commis-
sion set up a specific contractual instrument explicitly refer-
ring to the financial regulation (exchanges of letters in 1995,
1996, 1997 and 1998);

(b) the Commission made political representations to the Belgian
authorities to regulate the status of the OHR in Belgium
(March 1997);

(c) the Commission(cid:146)s financial controller took part in a mission

organised in April 1996;

(d) numerous meetings were organised (one attended by the
Court in March 1995) to assist the OHR with budgetary and
financial matters, particularly the setting up of an appropri-
ate co-financing instrument and the application of public pro-
curement rules;

(e) the OHR was sent a detailed aide-memoire on the execution of

CFSP contributions (last updated in January 1999).

(1) Decision SEC(97) 605, 8.4.1999.

18. The Commission considers that as matters have progressed,
the OHR has made considerable efforts to present detailed bud-
gets to the financial experts and to accommodate their requests.
The OHR has also presented detailed information on certain
points at the request of the Financial Experts (e.g. on staff recruit-
ment). In 1999 it undertook the work of updating the inventory
and improving the use of resources (e.g. its transport policy). The
offices in Brussels were gradually transferred to Sarajevo, so that
it has recently become possible to perform certain tasks on the
spot (for example, the travel office). The OHR will retain a mini-
mal presence in Brussels in the long term.

19. Since the beginning of 1999, the OHR has paid increasing
attention to introducing strict rules for the various services of the
organisation: staff, transport, travel, public procurement, and
financial rules. In autumn 1998, when preparing the 1999 bud-
get, the Commission insisted on better control of recruitment and
convinced the other donors of the need to introduce the follow-
ing procedure for staff recruitment: in the first instance the OHR
will have to rely on secondment, then local recruitment, and only
if there is no other alternative may it consider recruiting expatri-
ate staff. Since autumn 1998 recruitment has been under closer
scrutiny by the financial experts to avoid any increase in the wage
bill. The 1999 budget shows a reduction of 6 % in salary expen-
diture and the Commission has insisted that this effort be kept up
when the OHR budget for 2000 is presented. The payment of
accommodation allowances was resolved by the financial experts,
who insisted on the strict application of the Lancaster House
Agreement (8 to 9 December 1995) by the administrations of ori-
gin of seconded staff.

These strict measures were put into practice and consolidated in
the budget for 2000 which was formally adopted by the Steering
Board on 29 October 1999.

20. The Commission played a very active role in setting the sal-
ary of the High Representative in 1995 and in the final decision
to align the salary on a member of the Commission with a com-
parable family situation, it being felt that the salary should be set
taking into account the tasks to be performed and the level of
responsibility and previous experience of the High Representa-
tive.

In 1997 it was necessary to act at great speed, subject to political
imperatives; this led to some precipitate decisions to which the
Commission could not object, given the political sensitivity of the
case and the status of the persons concerned. Considering the
OHR(cid:146)s lack of a legal personality at the outset and the need to act
urgently to facilitate the setting up of the OHR in a very difficult
local context, contractual relations between the Commission and
the High Representative were based on exchanges of letters.

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Nonetheless, with the appointment of the third High Representa-
tive in mid-1999 the Commission took the opportunity to review
the matter and find solutions that were more considered, equi-
table and transparent with the OHR (see paragraphs 18 and 19).

Institutional responsibilities

22. Management of the OHR has come under increasing scru-
tiny from donors in the light of the scope of the tasks entrusted
to it and the expense which these entail. Policies for the various
OHR departments are now in place (see paragraph 19), and the
donors intend to see that they are applied with the arrival of a
new High Representative. (On the EU contribution, see the reply
to paragraph 14). A remarkable degree of rationalisation was
achieved in preparing the budget for 2000, which was formally
adopted by the Steering Board at Sarajevo on 29 October 1999.

Conclusion

23. The Commission would point out that the OHR functions
under the aegis of the PIC (Peace Implementation Council) and its
management committee. The Community budget covers 50 % to
53 % of the budget of the OHR. This support is governed by suc-
cessive CFSP Joint Actions adopted by the Council. In this context,
the Commission has gradually succeeded in introducing greater
transparency and rigour into the management of the OHR. The
OHR has responded satisfactorily to the recommendations made
by the Commission, notably following an inspection on the spot
in January 1999. Another mission to ensure these recommenda-
tions are properly implemented was planned for late 1999, but
was put back to March 2000 because the OHR was not free.

As to the OHR(cid:146)s technical measures and internal machinery, the
Commission considers that the Court is trying to assign it respon-
sibilities which properly belong to the management bodies of the
OHR.

SUPPORT FOR HUMAN RIGHTS AND FOR THE NEWS MEDIA

Institutions for the defence of basic rights

28. The EC support is indeed granted on the basis of a project
proposal which includes a comprehensive breakdown of prices
and payments against progress reports. The Commission is aware
of the difficulties institutions such as the Office of the Ombud-
sperson have experienced with the management of their resources.
However, the objective of the solution adopted by the Commis-
sion is to secure maximum transparency and accountability for
the Phare and Obnova contributions. While agreeing with the
Court on the need to accompany the local authorities in making
the institutions sustainable, the Commission wishes to reinstate
the role to be played in this respect by the OHR. The Court sug-
gests making direct payment of contributions to the budgets of
public bodies in the region. This runs counter to the Commis-
sion(cid:146)s approach up to now of favouring support for specific
operations and barring general contributions to the budget of the
beneficiaries save in exceptional circumstances. The Commis-
sion(cid:146)s approach was motivated by concern for sound manage-
ment and accountability.

Support for civil society

29. The Commission services have examined at length the project
on the creation of a Democracy Foundation of Bosnia-Herzegovina.

The project aims to reach goals largely shared by the international
community and, in particular, by the European Commission.

In assisting, together with an intergovernmental organisation, the
development of this project, the European Commission has been
effectively responding to the initiative of the European Parliament.

The European Commission asked the Foundation, which now
legally exists (registered in the Netherlands in the absence of a Law
on Associations and Foundations in Bosnia-Herzegovina), to revise
some aspects of its financing proposal.

The Foundation has revised the project and the Commission is
evaluating the new project with a view to relaunching the internal
procedures required to be able to finance the project.

27. Support to the Office of the Ombudsperson, established by
the Dayton Agreement, has been made available through both the
Phare and Obnova programmes since 1996. The Commission,
notably through its Office in Sarajevo, has developed close work-
ing relations with the institution as well as with the Office of the
High Representative, which plays a key role in coordinating the
support to the so called Dayton Institutions.

31. The Court is critical of the support given to clubs (the
(cid:145)embassies of democracy(cid:146) and Euroclubs) created under the aus-
pices of the Council of Europe, and challenges the Commission
on the grounds that their results were not evaluated. While it
must be conceded that this type of support did not produce posi-
tive results in all cases, it is important to emphasise that this was
an experiment in solidarity and that in some cases, for example
in Tuzla, it did have positive results.

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33. The Commission subscribes to the statement made by the
Court on the immediate positive effects. The intention for the
longer term is, in line with the Court(cid:146)s remark, to strengthen the
social services which are the responsibility of the authorities at
entity level.

34. The support provided to the University of Sarajevo through
the (cid:145)Europe for Sarajevo(cid:146) programme was to complement the
Democracy and Tempus related initiatives. EUR 750 000 was
contracted to the World University Service to provide immediate
support for the development of the University. In addition, EUR
3,1 million has been allocated to building rehabilitation for the
faculties of Philosophy, Law, Medicine and Mathematics, which
could not have been funded via the democracy programme or
Tempus.

35. The Commission(cid:146)s strategy was initially to diversify efforts
not only in terms of the areas of intervention but in the instru-
ments to be used. As time goes by efforts may be focused on the
institutions of public life.

Support for the media sector

37. For political reasons, the then High Representative wanted
OBN (open broadcast network) to broadcast before the elections
in September 1996. Consequently, the independent television net-
work was set up very fast in spring and summer 1996 (normally
it takes at least 12 to 18 months to set up a television station). It
is true that, having decided to support OBN because of the politi-
cal relevance of the project and facing very tight deadlines, the
Commission found that it could no longer tie the Community
contribution to the rules of origin that normally govern Phare
operations. Given the urgency of the situation, the Commission
decided that it was more important to meet the goal of the project,
to contribute to setting up an independent press in time for the
elections, than to obey the rules of origin on equipment.

38 to 40. From the outset, this project was atypical of the
projects customarily supported by the Commission: an initiative
of the international community, set up for political reasons from
public funds, it went on to be a private Bosnian television station.

In addition OBN was intended to become profitable, at a time
when the Bosnian economy and therefore the media market
(income from private advertisers) was fragile. Successive manage-
ment teams at OBN presented a series of business plans to the
Commission. In reality OBN is highly unlikely to make a profit in
the very short term, especially since it was set up in particularly
difficult conditions and in a climate of economic uncertainty.

This failure of short-term viability does not mean that there is no
political point to supporting the station, which, in the long term,
will have to build its commercial viability on private advertising
(local, regional, international) rather than increase its financial
dependence on the OHR or international donors. Politically, direct
and exclusive financing by the OHR would tend to brand OBN in
the eyes of public opinion as a TV station tied to the international
community. The project in question was presented by the OHR
and is still considered by it as one of the pillars of international
strategy in Bosnia-Herzegovina. Moreover, this OHR strategy
received backing from the international community as a whole,
in that the need for political and financial support for the TV sta-
tion has been expressly stated in all the conclusions of the Peace
Implementation Conferences (1), since that of London in Decem-
ber 1996 (2). The political importance of the project is evidenced
by the fact that the OHR website has a direct link to information
on OBN.

41. As early as 1994 (when the war in Bosnia was not yet over),
the Commission chose to support independent media in Bosnia-
Herzegovina. The selection of projects, particularly during the
war, was made primarily on professional and political criteria.
Subsequently, monitoring certain of the contracts posed prob-
lems: in practice, good journalists or editors (who take physical
risks in the prevailing situation in Bosnia-Herzegovina) are not
necessarily good financial managers. A 1994 contract for support
for the weekly Dani in Sarajevo, for example, has only just been
closed because of the difficulty of obtaining accounts. Dani, it
should be said, is still today one of the leading independent news
sources in Bosnia-Herzegovina.

Management of the transactions

42. The Commission agrees with the Court of Auditors that the
terms of reference have rarely been of use as a monitoring tool.
The Commission is preparing to tackle this situation, if need be
by issuing the requisite recovery orders.

43. The Commission wishes to point out that at certain times,
particularly when contributing to stabilisation and peace pro-
cesses, the conditions of work on the ground inevitably present
difficulties and risks.

(2)

(1) Peace Implementation Conferences (PIC), at which are represented
France, Canada, Germany, Italy, Japan, Russia, the United Kingdom,
the United States of America, the EU Presidency, the European Com-
mission, the United Nations, the UNHCR, the OSCE and NATO.
(cid:145)The Council recognises the pressing importance of independent
media questions and agrees on the need to contribute to the funding
of the second phase of the Open Broadcast Network project under its
two-year consolidation plan. The Council welcomes the reinforced
role of the Office of the High Representative in coordinating assis-
tance to the independent media.(cid:146) For later PIC conclusions, see the
website of the OHR(http: //www.ohr.int/pic.htm).

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In the particular case of aid to press outfits, the background to the
selection process, as explained in the reply to paragraph 41, was
not conducive to lodging audited accounts.

44. The Commission regrets that at the time some cases were
not followed up diligently by the central departments in Brussels.
As the Court states, the delay in receiving implementation reports
was the primary problem. Most of the beneficiaries, small NGOs
and local press organisations, were not able to find interlocutors
on the spot who could advise them on monitoring their projects.

45. Devolved management by the delegations should in future
guarantee better monitoring of most projects. Management from
Brussels suffered from understaffing, which is all the more telling
when the programme to be administered consists of a large num-
ber of small contracts.

SUPPORT FOR THE ELECTORAL PROCESS

(ii) The supply of supervisors by the Member States

Delivery of EU supervision manpower lay exclusively in the
hands of Member States aiming for an overall target share of
the total OSCE supervision field force. Budget flexibility was
needed to deal with any aggregate under- or over-supply of
supervisor numbers and the duration of their stay in the field.
Similarly, the final mix of national origins had implications
for aggregate transport costs to the region. For example, rela-
tively more supervisors from Scandinavia and less from Italy
would cause the aggregate transport bill to rise.

(iii) Provision and costing of supervision support services by the OSCE

The Commission had no independent source of financial
information on the cost of providing support for supervisors
in the field. Reliance had to be placed on OSCE estimates
already approved by Member States at the OSCE in Vienna.
Prudence suggested flexibility of EU budget design given the
estimated nature of support costs. The cost of support ser-
vices to be provided by the OSCE were estimated in Austrian
schillings but much of the expenditure in the field would be
in US dollars. Currency exchange rate uncertainties pointed to
the need for flexibility.

A maximum was set for the EU disbursements to establish a
clear ceiling to the financial flexibility needed for effective
field operations by EU Joint Action supervisors.

46 to 49. The Commission would point out that the prepara-
tion documents were the supervision projects complete with
costings sourced from OSCE election budgets. This material had
already been approved by EU Member States in Vienna in their
role as OSCE participating states. The Council took the view that
the OSCE material provided a sound basis for Joint Action design.

(iv) OSCE perceptions

The Commission made it clear in all contacts with the OSCE
that EU funding was not a lump sum but a sum earmarked
specifically for the costs of supporting the EU Joint Action
body of supervisors.

The provision of support for elections in Bosnia-Herzegovina was
not a standard financial and technical cooperation-type project
and contract. The Joint Actions were designed to facilitate EU par-
ticipation within the OSCE framework during an evolving post-
war situation. They were not designed as budgetary support to
OSCE.

50. The Commission considers that the lack of a specific expiry
date in the joint action is adequately explained by the need for
flexibility for the reasons already stated above. As to appraisal,
Article 5 of the text of the Joint Action (96/406/CFSP) of 10 June
1996 states: (cid:145)The Council shall take stock of implementation of
this joint action(cid:146). The Member States had the opportunity for such
stocktaking within the framework of the OSCE.

To be effective, the nature and duration of EU-designed support
for the Dayton Peace Process (there was no alternative to working
through OSCE) had to be flexible for the following reasons:

(i) The nature of the process in Bosnia-Herzegovina: real-time conflict

resolution

The task of election supervision was essentially a component
in a dynamic process of conflict resolution. A number of key
elements in the process had to be designed, negotiated and
agreed with the Parties to Dayton, in real time, during the
run-up to the polls. This was the case with much of the struc-
ture of the election cycle and the timing of some of its major
component parts. The OSCE Chairman of the Provisional
Election Commission was obliged, when all else failed and
often at the last minute, to use his extraordinary powers of
decision. Real-time problem resolution and decision making
were integral parts of the election process.

51. To this the Commission would point out that it used the
only cost information available at the time and that this had
already been approved by Member States in Vienna in their role
as OSCE participating states. Independent verification was diffi-
cult within the timeframe.

In order to avoid this type of situation, the Commission was keen
to improve the budget estimates for joint actions and drafted a
standard financial statement specifically for the CFSP so as to
improve the definition of both the individual cost forecasts and
the context for implementation of joint actions adopted by the
Council.

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Official Journal of the European Communities

C 85/45

It should be stressed that the Commission(cid:146)s responsibility in
52.
this matter does not give it any discretion as to either the benefi-
ciary (chosen by the Council) or the amount and composition of
the budget set by the OSCE, and that, moreover, its departments
had no expertise likely to help them judge whether the budget
estimates were sound, whereas the OSCE had specialist depart-
ments responsible for this type of operation.

55. Since it is not part of the remit of the auditor of the OSCE
to certify the accounts produced by the OSCE(cid:146)s Accounting Officer,
those accounts will be subject to a review on the spot by the inde-
pendent expert sent by the Commission.

(a) The Commission points out that flexibility was needed in the
circumstances. The budgets annexed were in the spirit of the
Joint Action for decisions adopted by the Council. The maxi-
mum amount was always specified in the agreements them-
selves.

56. The OSCE was given a political mandate by the international
community to supervise the elections. It proved difficult to give
the EU presence on the spot the political visibility one would have
wished. However, the Commission did what it could to inform
the European contingent of the operations undertaken by the EU
in Bosnia-Herzegovina.

(b) The Commission would point out that the EU Joint Action
supervisors were the only beneficiaries of Joint Action funds
and were entirely financed from this source. The standard
financial statement drafted by the Commission contains a
table listing the other contributions, to give an overview of all
the financing, including financing in kind, supplied in the
framework of a Joint Action or Council CFSP Decision.

(c) and (e) In order to avoid a repetition of this situation, the
comments made by the Court were systematically taken on
board in new contracts drawn up by the Commission.

(d) The estimates were based on individual costs which the Com-
mission checked when the financial reports were submitted.

(f) An advance of 80 % was granted given the urgency and the
political importance of the first elections and the OSCE(cid:146)s
apparently justified requests. This percentage was later sub-
stantially reduced, to 60 %, in particular because the Commis-
sion found from the financial reports submitted by the OSCE
on the two first contributions that OSCE forecasts were exces-
sive compared with the expenditure incurred.

(g) The Commission will examine the possibilities for improving
the accounts which the OSCE should provide. The planned
audit should help to clarify the matter.

53. The Commission notes the Court(cid:146)s remark on relations with
the OSCE, which is fully in keeping with the efforts made by the
Commission in that regard.

57 and 58. The operations financed from 1996 allocations for
human rights and democracy were subject to redefinition and
addenda to the initial contracts in mid-1997, in order to cover the
1997 municipal elections as well.

It is true that the accounts for the contracts in question were not
always closed for various reasons: the Commission has still not
received the final reports despite several reminders to the OSCE,
and in addition there was confusion regarding the late presenta-
tion of certain interim financial reports by the OSCE; the restruc-
turing of the Relex DG and SCR in mid-1998, when staff and files
were reassigned, delayed closure even more and the general short-
age of staff in external relations meant that not all priorities could
be covered at the time.

The Commission is planning a full audit of OSCE operations
financed by the Community budget from CFSP funds and democ-
racy funds by an independent expert at OSCE headquarters in
Vienna for the end of 1999/early 2000.

59.
It should be stated that the Commission received reports on
the 1996 use of Community grants, on the basis of which it
drafted amendments to the contracts with a view to the 1997
elections; it is true that the Commission still has not obtained the
final reports relating to the 1997 phase of these (amended) con-
tracts; the reports produced by the OSCE are too succinct to enable
eligible expenditure incurred to be identified and sums to be li-
quidated. The object of the forthcoming audit is precisely to pro-
vide a thorough review of the implementation by the OSCE of its
contractual commitments and the amounts to be liquidated.

54. The Commission selected an independent expert to carry
out checks on the spot at the end of 1999 on the overall contribu-
tions to the OSCE. Any decommitments required will be made,
depending on the results of the checks.

60. The Commission agrees that its financial relationship with
the OSCE requires re-examination. The audit will provide a con-
tribution to this exercise.

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The Court(cid:146)s observations, however, touch on wider issues. They
raise the question of the degree to which the Commission should
use the more politically appropriate channels such as the OHR
and OSCE in this case, or other bodies with a specific interna-
tional vocation or mandate in other circumstances, when their
rules and administrative procedures do not necessarily accord
with Community practice.

The Commission would like to receive clear guidelines on this
from the Budgetary Authority. It cannot continue to be put in a
situation where it must shoulder responsibility for matters that
are beyond its remit.

CONCLUSION

62. The Commission takes note of the Court(cid:146)s recommendation
that contributions to current financing may be preferable in some
cases to project financing. The Commission notes that the Court
makes this kind of financing conditional on there being a mecha-
nism for rendering the accounts and that the Commission is called
on where necessary to help strengthen existing inspection mecha-
nisms. While accepting the logic of the Court(cid:146)s argument, the
Commission wishes to emphasise the following two points. It is
not realistic to expect the conditions to be easily fulfilled for
operations in destabilised societies. It is also clear that there are
limits to the tasks which can be imposed on the Commission, par-
ticularly in relation to the implementation of adequate procedures
by other international institutions.

63. The Commission agrees with the principle that care must be
taken with the terms of reference and budgets of projects, and it
is trying to improve the instruments in question, as stated in a
previous answer (see paragraph 43).

With regard to support for OBN, the Commission would repeat
that despite the difficulties encountered, OBN is still considered
one of the pillars of OHR strategy in Bosnia-Herzegovina.

64. The process of development of civil society must necessar-
ily go through different phases to take into account specific cir-
cumstances; in the Balkans, the postwar phase had to focus on
support for the formation of pressure groups and their various
initiatives while in subsequent phases it is possible to target pri-
orities according to developments in the different areas.

In this perspective, the Commission(cid:146)s invitation to submit pro-
posals for projects to be carried out under Chapter B7-7 0 clearly
identifies among the priority topics for 1999 for budget heading
B7-7 0 0 (former Yugoslav republics):

(cid:151) the development of democracy, the rule of law and civil soci-
ety, the peace process, easing tension, interethnic dialogue,

(cid:151) equal participation of women in decision-making processes,

(cid:151) promotion of free and independent media and press freedom,

(cid:151) vulnerable groups.