Resolution of the European Parliament containing the comments which form an integral part of the decision giving discharge to the Commission for the implementation of the general budget of the European Union for the 1998 financial year (SEC(1999) 412 - C5-0006/1999 - 1999/2050(DEC))
Date: 2000-07-06
Institutions: European Parliament
Subjects: European Parliament, European Union, budgetary discharge, financial year, implementation of the budget

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of the European Parliament containing the comments which form an integral part of the decision
giving discharge to the Commission for the implementation of the general budget of the European
Union for the 1998 financial year (SEC(1999) 412 — C5-0006/1999 — 1999/2050(DEC))

RESOLUTION

THE EUROPEAN PARLIAMENT,

Having regard to Article 276 of the EC Treaty,

Having regard to Article 89(7) of the Financial Regulation, pursuant to which each Community institution
is required to take all appropriate steps to act on the comments appearing in the decisions giving discharge,

Whereas pursuant to paragraph 8 of the same article the institutions are also required to report, at the
request of the European Parliament, on the measures taken in the light of these comments and particularly
on the instructions given to those of their departments which are responsible for the implementation of the
budget,

Having regard to the annual report concerning the 1998 financial year (C5-0266/1999) (1), and the special
reports of the Court of Auditors and the Institutions' replies,

Having regard to the Council recommendation of 13 March 2000 (C5-0154/2000),

Having regard to the report of the Committee on Budgetary Control (A5-0190/2000),

Whereas:

A. Commission President Prodi took office with the ambition of transforming the European Commission
into an efficient and transparent public service conscious of its responsibilities and, in the process, of
combating mismanagement, fraud and corruption at all

levels.

B. Although the new Commission may not be directly responsible for these cases, it is responsible for the

extent to which it succeeds in drawing the requisite conclusions.

C. The European Parliament has stressed the need for zero tolerance in cases of fraud and other irregulari-
ties which cause damage to the financial interests of the Union, while at the same time underlining the
need for objective, transparent disciplinary proceedings conducted in accordance with the rules of due
process and respect for the rights of the defence.

D. The discharge postponed on 13 April 2000 can therefore now be granted although Parliament expects

the Commission to take further measures, which are outlined below.

Statement of assurance

1. Points out that in 1998 for the fifth consecutive time the Court of Auditors declined to provide an
assurance that the transactions underlying the payments for the financial year were, taken as a whole,
legal and regular (2).

2. Points out that against this background the Council failed for the first time to make its recommenda-

tion unanimously.

3. Points out that the figures provided by the Court of Auditors do not indicate a positive trend, that the
number of substantive errors is still high and that the expenditure managed directly by the Commis-
sion is no less affected than Community expenditure effected by the Member States.

4. Concludes that the SEM 2000 reform of financial management introduced in 1995 by the then
Commission has so far failed to produce any tangible results whatsoever in 1998; notes, with a view to
future discharge procedures, that in the Court of Auditors' estimation the potential benefits are unlikely
to be felt until after the end of the current programme planning period in 2000.

(1) OJ C 349, 3.12.1999.
(2) OJ C 349, 3.12.1999, pp. 168 and 169.

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5. Warns of the risk that the current reform could suffer a similar fate and confirms the call made in its
resolution of 13 April 2000 on the postponement of the 1998 discharge for the Commission to arrive
at a positive statement of assurance for the 2003 financial year at the latest.

6. Underlines the need to set verifiable intermediate objectives for this process; calls on the Commission

to formulate such objectives by the end of the year.

Own resources

7. Calls on the Commission to initiate a policy to assess the extent of conformity of national VAT
investigation.

legislation and to submit an initial report shortly,

limited if necessary to a sectoral

8. Calls on the Commission to submit to Parliament and the Council a report analysing the Member
States' VAT revenue since the transitional VAT system was set up, with evaluations and details of the
type of the various frauds which have been detected.

Common agricultural policy

9. Calls on the Commission to ensure that the principle of budgetary universality is respected, in such a
way that the sums recovered by the Commission in respect of Member State expenditure are entered as
revenue in the Community budget, and that corrections made by Member States concerning an earlier
declaration no longer give rise to any offsettings against expenditure for the month concerned.

10. Calls on the Commission to propose suitable amendments to the Financial Regulation and the
regulation concerned, to ensure respect for the principle of annuality and allow expenditure to be
entered in the accounts for the financial year to which it belongs.

11. Calls on the Commission, in the context of clearance of the EAGGF accounts, in future to continue to
assess claims for repayments by Member States on the basis of proven loss to the Union budget and to
carry out flat-rate financial corrections only in cases where no precise figure can be put on the loss.

12. Concludes in the specific case of export of butter to the former USSR that in 1994 the Commission's
Directorate-General for Agriculture after initial in-house resistance from other Commission depart-
ments ultimately suggested to the Irish authorities that the penalty deposit be reduced from ECU 17,6
million to ECU 3 million although according to the Court of Auditors, there was no specific statutory
basis for doing so. Furthermore concludes that the handling of this and similar cases by the Commis-
sion has been contested by the Court of Auditors.

13. Welcomes the fact that OLAF has opened an investigation to determine why the minutes of the crucial
meeting of 7 January 1994 in the private office of the then Commission President are apparently
nowhere to be found. Calls on OLAF to forward the report of its investigation to Parliament as soon as
possible and also to report on whether the firm concerned has since been the subject of investigations
by Commission departments or the competent national

investigative authorities.

14. Makes clear that consideration of the case and the issue of possible consequences cannot be concluded

until:

— the results of the OLAF investigation have been assessed, and

— it has been established that the Commission has forwarded to Parliament all available documents

relating to the case.

15. Calls upon its Committee responsible to follow-up on the general issues brought up by this case,

notably:

(a) the retroactive application of Community law;

(b) the criteria that determine the proportionality of the reduction of financial corrections;

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(c) the circumstances under which a significant amount of debt (ECU 135 million) is waived annually

by the Commission under Article 29 of the Financial Regulation;

(d) the extent to which similar cases to the butter exports to the former USSR exist;

(e) the question of who holds ultimate responsibility if individual judgments involve potential losses

up to a set amount;

and to report on its findings in the context of the 1999 discharge.

16. Expects the Commission to cooperate constructively in the clarification of these matters.

Structural measures

17. Considers that the responsibility for implementing the Structural Funds should more clearly delineate
the role of the Commission (if necessary by amending the implementing regulations), and should give
it power to impose penalties which would make it possible genuinely to mitigate any shortcomings.

18. Calls for monitoring of the Structural Funds to be more effective and for mid-term evaluation to be a

genuine instrument of sound management.

19. Considers that the Commission must unambiguously clarify what expenditure is eligible for support,
particularly with regard to the actual
implementation of the Structural Funds as a whole in the
Objective 1 and 2 regions for which they are intended under the regulations, and welcomes the
development of new data sheets on eligibility.

20. Insists that it be kept informed by the Commission about the effectiveness of the controls by the

Member States on the basis of Article 39(1) of Regulation (EC) No 1260/1999.

21. Insists it be informed about general problems in contacts with the Member States relating to the

application of Article 39(2) of that Regulation.

22. Considers that an improvement in the advance estimation of the payment appropriations which will be
required could prevent the substantial differences between budget allocations and budget implementa-
tion in the case of structural measures. Regards the persistent attempts by the Council to cut payment
appropriations for the Structural Funds as causing unnecessary liquidity shortfalls, as well as problems
in their application in regions suffering from both the highest rates of unemployment and the lowest
levels of per capita income.

23. Deplores the persistently large number of irregularities identified by the Court of Auditors, particularly
with regard to expenditure certificates. Calls on the Member States, therefore, to bring their adminis-
trative systems into line with the requirements of the Structural Fund regulations in order to ensure
efficient administration of structural measures in the new programme planning period, 2000 to 2006.

24. Observes with some surprise that even at the end of this programming period measures from before
1989 have still not been concluded, and calls on the Commission to close the 1989 to 1993
programming period more rapidly, making use of the option to cancel commitments automatically.

25. Notes that, despite having been called upon to do so in the past, the Commission still has not ensured
that the payment appropriations of the European Social Fund are brought into line with actual needs.

26. Observes that it was not possible for the Commission to implement satisfactorily the allocation for
integrated measures through multifund projects, entered in the context of the Community initiatives.
Now expects cooperation with other Community programmes at the Directorates-General responsible
to proceed more efficiently once each Community initiative is financed from a single fund.

27. Draws attention to the criticism by the Court of Auditors that the impact of Structural Fund measures
on employment cannot be sufficiently ascertained, and calls on the Council and Commission to
comply with Parliament's reiterated call for the adoption of appropriate indicators and improved
evaluation.

28. Expects the Commission, in the negotiations on the programme planning period 2000 to 2006, to

insist on a better thematic balance in national plans for European Social Fund measures.

29. Hopes that the Commission will adopt more effective measures to eliminate the errors in payments

(eligible expenditure) identified by the Court of Auditors in its Annual Report.

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Internal policies

30. Stresses that it is of great importance that key policy and financial management tasks are carried out by
officials who are fully answerable to the institution for their work and that excessive reliance on
external contractors is to be avoided.

31. Recognises that the budgetary authority will have to take full account of the human and financial
resource requirements of, and the need for redeployment due to, new initiatives requested of the
Commission, respecting the Treaty and interinstitutional
limits agreed by the institutions and the
Member States in the agreement of 6 May 1999.

32. Calls upon the Commission to establish indicators that will enable programme effectiveness and
efficiency to be assessed, taking into consideration the relative significance of administrative costs.

33. Draws the Commission's attention to the fact that Parliament's committees have begun to establish
monitoring mechanisms and recalls its demand that they should be provided with the necessary
information on a regular basis.

Research

34. Deplores the significant incidence of substantive errors in approximately one third of the payments
where the Commission had paid too much, mostly due to ineligible costs having been claimed by the
beneficiaries and, in addition, the formal errors which occurred in almost one fifth of the payments.

35. Deplores the errors and inaccuracies, including deliberate overcharging, in almost two thirds of the
payments based upon cost declarations, due to misinterpretations, insufficient control by Commission
services and the absence of contractually defined penalties in cases of overcharging.

36. Calls on the Commission rapidly to ensure the clarification and simplification of its standard contracts
in order to reduce the risk of

and give precise and unambiguous definitions of eligible costs'
overcharging.

37. Calls on the Commission to eliminate defects inherent in the system by revising the legislation and to
improve the legality and regularity of payments by improving and intensifying its control of cost
claims submitted by beneficiaries.

38. Asks the Court of Auditors for an in-depth examination of the legality and regularity of payments, in
particular in the research area, which accounts for almost two thirds of the internal policy budget.

39. Believes that improved management and coordination across the participating directorates-general is
essential to ensure the effectiveness of research programmes and that progress should be closely
monitored with regular reporting to the committee responsible.

40. Requests from the Commission an in-depth assessment of the Performance Audit of the Joint Research

Centre (JRC) of 28 April 1998 and a report on the lessons learnt.

41. Calls on the Commission, when submitting new legislative proposals, to pay closer attention to the

following:

(a) transparency, simplicity and clarity;

(b) optimum opportunities for auditing;

(c) penalties for violations of the rules and deliberately inaccurate statements of costs to apply to all

involved who have made errors in that connection.

External aid

42. Notes that the situation with regard to invitations to tender under the TACIS and PHARE programmes
has not changed despite the comments by the Commission Financial Controller and the European
Court of Auditors on the 1997 and 1998 financial years.

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43. Notes that this situation presents a potential risk of harming the financial interests of the EU in the

recipient countries and continues to be harmful to its image with these countries.

44. Repeats its calls to the Commission in its resolution of 4 May 1999 (1) when the 1997 budget
discharge was postponed, and now expects rigorous measures and a clear response from the Commis-
sion.

45. Once more calls on the European Court of Auditors to carry out an audit of the procedures for
invitations to tender and on record-keeping in the context of the PHARE and TACIS programmes.

46. Points out that in the selection and supervision of the firm that was responsible for the transportation

of humanitarian aid in connection with ‘Echo Flight’, there were serious omissions.

47. In the case of lessons to be learnt from the ECHO affair, notes that the Commission has stated its
readiness to reopen disciplinary proceedings if new evidence comes to light, but is not satisfied that the
Commission has not yet made a commitment to introduce an external element in its disciplinary
procedure.

Reform of disciplinary procedures

48. Considers that the disciplinary cases raised by the 1998 discharge procedure reinforce its call, made in
its resolution of 19 January 2000 on the second report of the Committee of Independent Experts
(paragraph 37) for the long-standing provisions in the Financial Regulation and the Staff Regulations
concerning officials' financial liability for the damage their actions cause no longer to be left to internal
Commission bodies, but that instead this task should be entrusted to a chamber for disciplinary
procedures for budgetary irregularities in the Court of Auditors or the Court of Justice.

Functioning of control systems

49. Notes with concern that in 1998 the already small number of checks by Commission services in the

area of the Structural Funds was significantly reduced.

50. Regards it as a sign of the weakness of the Commission's financial control that despite the high error
rate found by the Court of Auditors in 1998, in not a single case did Financial Control withhold
approval.

51. Reaffirms its call for the Commission, made in its abovementioned resolution of 19 January 2000
(paragraphs 10 and 11 (f)) to strengthen on a lasting basis the role of the financial controller in line
with the Court of Auditors' recommendations through the following measures:

(a) instead of across-the-board prior checks targeted prior checks carried out on the basis of risk

analyses or at the request of the authorising officer concerned;

(b) financial control staff must not be subordinate to the directors-general monitored but independent
financial control must be retained and decentralised in accordance with Article 24 of the Financial
Regulation.

Parliament's access to information

52. Recalls that the Commission is required, pursuant to Article 276 of the EC Treaty, to submit any
necessary information to Parliament at the latter's request in connection with the discharge procedure.

53. Reaffirms the fundamental principles set out in particular in paragraph 26 of its resolution of 19
January 2000 on the discharge for the 1997 financial year on Parliament's access to information.

54. Notes that the Commission and the European Parliament have concluded an interinstitutional agree-
ment concerning Parliament's access to information; underlines its determination to follow closely the
implementation of this agreement, in particular to ensure that the rights of individual Members will not
be infringed.

(1) OJ C 279, 1.10.1999, p. 119.

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55. Regrets that in the 1998 discharge procedure the Commission has refused to submit reports and
minutes concerning administrative investigations that it submitted to the Court of Auditors.

56. Points out that Parliament, as the discharge authority, expects the Commission:

(a) to inform the competent judicial authorities fully of cases where there is a suspicion of fraud;

(b) to fulfil

its obligation under Articles 73 and 74 of the Financial Regulation;

and that Parliament must be granted access to the relevant documents in order to establish to its
satisfaction that the Commission is fulfilling its obligations.

57. Recalls that the transmission of confidential information must comply with the provisions governing

judicial and disciplinary proceedings.

58. Calls on the Commission therefore to reconsider its position and, as guardian of the treaties, to ensure
that Parliament is able to comply fully with its supervisory obligations within the framework of the
discharge procedure.