Report on the financial statements of the European Environment Agency (EEA - Copenhagen) for the financial year ended 31 December 1999 together with the Agency's replies
Date: 2000-09-27
Institutions: European Court of Auditors
Subjects: European Environment Agency, financial control, financial year, management audit, report

27.12.2000

EN

Official Journal of the European Communities

C 373/7

on the financial statements of the European Environment Agency (EEA — Copenhagen) for the
financial year ended 31 December 1999 together with the Agency’s replies

REPORT

(2000/C 373/02)

CONTENTS

Paragraph

Page

THE COURT’S OPINION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-4

MAIN OBSERVATIONS ON THE IMPLEMENTATION OF THE BUDGET OF THE EUROPEAN
ENVIRONMENT AGENCY FOR THE FINANCIAL YEAR ENDING 31 DECEMBER 1999 . . . . . .

Analysis of the implementation of the budget . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Charging of VAT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Staff management. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5-14

5-6

7

8

9

Management of contracts with topic centres . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10-14

Tables 1 and 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Agency’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8

8

8

8

8

8

8

10

12

C 373/8

EN

Official Journal of the European Communities

27.12.2000

THE COURT’S OPINION

1. This report is addressed to the management board of the
European Environment Agency in accordance with Article 13(4)
of Council Regulation (EEC) No 1210/90 (1).

2. The Court has examined the financial statements of the Euro-
pean Environment Agency for the financial year ended 31 Decem-
ber 1999. In accordance with Article 14(1) of Council Regulation
(EEC) No 1210/90 the budget was implemented at the responsi-
bility of the Executive Director. This responsibility includes the
drawing-up and presentation of the financial statements (2) in
accordance with the internal financial provisions provided for in
Article 14 of Council Regulation (EEC) No 1210/90. The Court of
Auditors is required under Article 248 of the Treaty establishing
the European Community to audit those accounts.

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

4. This examination has enabled the Court to obtain reasonable
assurance that the annual accounts for the financial year ended
31 December 1999 are reliable and that the underlying transac-
tions, taken as a whole, are legal and regular.

6. A total of 6,0 million euro of appropriations was carried over
(i.e. 33 % of commitments), mainly concerning operating expen-
diture totalling 5,4 million euro. By way of comparison, appro-
priations carried over from the financial year 1998 to the finan-
cial year 1999 totalled 5,8 million euro, including 4,6 million
euro for operating expenditure. Of these carry-overs, 0,7 million
euro (i.e. 12 %) lapsed.

Charging of VAT

7. Until December 1998, the general Financial Regulation required
expenditure to be charged inclusive of VAT as the latter, once
refunded, could be used again. Since that date (3), the general
Financial Regulation has required expenditure to be charged net
of VAT. The Court calls upon the Agency to incorporate this new
procedure into its own internal rules.

Inventory

8. The Agency should ensure that the inventory is checked at
least once a year with a view to checking its completeness and to
writing down computer equipment which has become obsolete.

Staff management

9. The Court’s audit revealed shortcomings in the keeping of
staff files which had led to the salaries of two recently-recruited
members of staff being established incorrectly. The Agency should
check all its staff files on a regular basis to ensure that they are
comprehensive and that the corresponding data are valid.

MAIN OBSERVATIONS ON THE IMPLEMENTATION OF THE
BUDGET OF THE EUROPEAN ENVIRONMENT AGENCY FOR THE
FINANCIAL YEAR ENDED 31 DECEMBER 1999

Management of contracts with topic centres

Analysis of the implementation of the budget

5. Final appropriations for the financial year amounted to 18,5
million euro, and gave rise to commitments totalling 18,3 mil-
lion euro, 9,2 million euro of which were for operating expendi-
ture (Title III).

(1) OJ L 120, 11.5.1990, p. 4.
(2) Under Article 13(3) of Council Regulation (EEC) No 1210/90, the
accounts for all the Agency’s revenue and expenditure for the finan-
cial year 1999 were drawn up on 20 March 2000 and were sent to
the Agency’s management board, the Commission and the Court of
Auditors and the latter received them on 5 April 2000. The summary
form of those financial statements is published in the tables annexed
to this report.

10.
In order to achieve its objectives, the Agency signed con-
tracts with various topic centres which had been selected in the
Member States. The contracts are based on a standard document,
to which annexes of a more technical nature are added. Inconsis-
tencies were observed between the basic document and the tech-
nical annexes, in particular as regards the nature and duration of
the work.

11. These contracts are funded by means of appropriations
entered in Title III of the Agency’s budget, which covers operat-
ing expenditure. As has already been observed, a very large

(3) See Article 27(2a) of the Financial Regulation applicable to the gen-
eral budget of the European Communities, as amended by Council
Regulation (EC, ECSC, Euratom) No 2548/98 of 23 November 1998,
OJ L 320, 28.11.1998.

27.12.2000

EN

Official Journal of the European Communities

C 373/9

proportion of these appropriations is carried over (see para-
graphs 5 and 6). The management of these carry-overs, which
should be given priority owing to the risk of cancellations, partly
explains why some contracts are signed very late in the year.
Thus, commitments totalling at least 1,9 million euro were made
after 15 November 1999 under the heading of operating expend-
iture.

13. Shortcomings also appear in the financial management of
contracts. The procedures for processing payment requests would
benefit from greater formality and stricter application. Financial
files need to contain documents in support of payment requests,
not just a certificate indicating that work has actually been car-
ried out as planned.

12. The extent and recurrent nature of this situation should pro-
vide an incentive for the Agency to improve its system for monit-
oring the implementation of its annual programme with a view
to ensuring that as few appropriations as possible are carried over
and thus that the principle of annuality is observed more strictly.

14. The contracts are financed from commitments under vari-
ous budget headings which correspond to the various topics to be
covered. Payments are charged in such a way that the commit-
ments concerned are used one after another, with the result that
it is impossible to reconcile the implementation of commitments
with the progress made on the corresponding works.

This report was adopted by the Court of Auditors in Luxembourg at its meeting of 27 September 2000.

For the Court of Auditors

Jan. O. KARLSSON

President

C 373/10

EN

Official Journal of the European Communities

27.12.2000

Table 1

Balance sheet as at 31 December 1999 and 1998

(1 000 EUR)

Assets

1999

1998

Liabilities

1999

1998

Fixed assets
Equipment and furniture
Computer equipment

Stocks

Current assets
Subsidy from the Commission
Sundry accounts receivable
Recoverable VAT
Recovery orders
Translation Centre

Subtotal

297
3 322

3 619

12

8 701
55
250
0
0

Cash accounts
Bank accounts — demand accounts
Cash

Subtotal

9 006

4 799
2

4 801

Subtotal

168
2 925

3 093

9

8 568
2
140
4
6

8 720

4 544

4 544

Fixed capital
Own capital
Balance for the financial year

Current liabilities
Commission
Automatic carry-overs of appropriations
Recovery orders
Social liabilities
VAT
Sundry accounts receivable
Translation Centre

Suspense accounts
Sums to be reused (VAT and other)
Payments pending

3 631
– 3 518

3 102
– 4 386

Subtotal

113

– 1 284

8 701
5 964
0
56
250
0
0

8 568
5 755
4
10
140
6
6

Subtotal

14 971

14 489

1 100
1 254

2 354

389
2 772

3 161

Subtotal

Total assets

17 438

16 366

Total liabilities

17 438

16 366

Source: prepared by the Court of Auditors on the basis of data from the Agency.

27.12.2000

EN

Official Journal of the European Communities

C 373/11

Revenue and expenditure account for financial years 1999 and 1998

Table 2

(1 000 EUR)

1999

1998

18 246
118

Total revenue

18 364

Revenue
Subsidy received from Commission
Miscellaneous revenue

Expenditure

Staff expenditure — Title I of the budget
Payments
Appropriations carried over

6 688
179

1 845
396

3 808
5 389

Buildings, equipment and miscellaneous administrative expenditure — Title II of the budget
Payments
Appropriations carried over

Operating expenditure — Title III of the budget
Payments
Appropriations carried over

Total expenditure

18 305

Out-turn for the financial year
Balance carried over from previous financial year
1998 amount for reuse not used
Appropriations carried over from previous financial year which lapse
Exchange rate differences

59
– 4 386
80
695
34

Balance for the financial year

– 3 518

Source: Prepared by the Court of Auditors on the basis of data from the Agency.

17 421
96

17 517

5 908
177

1 999
1 001

3 194
4 577

16 856

661
– 5 500
46
392
15

– 4 386

C 373/12

EN

Official Journal of the European Communities

27.12.2000

THE AGENCY’S REPLIES

VAT. Payments and refunds

The Court states that:

‘7. Until December 1998, the general Financial Regulation required
expenditure to be charged inclusive of VAT as the latter, once
refunded, could be used again. Since that date, the general Finan-
cial Regulation has required expenditure to be charged net of VAT.
The Court calls upon the Agency to incorporate this new proce-
dure into its own internal rules.’

The Agency’s comments are:

The Agency will be in contact with the Commission services,
together with the other Agencies also concerned, to establish the
terms for the review of its Financial Regulation and to have the
adequate amended provisions adopted in 2001.

Inventory

The Court states that:

‘8. The Agency should ensure that the inventory is checked at
least once a year with a view to checking its exhaustiveness and
to writing down computer equipment which has become obso-
lete.’

The Agency’s comments are:

The inventory is continuously updated and regularly verified. But
as noted correctly by the Court the obsolete equipment, still kept
at the premises, is not declassified. The Agency has now estab-
lished a mechanism for clearing the obsolete inventory by requir-
ing its framework contractor to take one obsolete computer back
for each new one delivered.

Personnel Management

The Court states that:

‘9. The Court’s audit revealed shortcomings in the keeping of staff
files which had led to the salaries of two recently-recruited mem-
bers of staff being set incorrectly. The Agency should check all of
its staff files on a regular basis so as to ensure that they are com-
prehensive and that the corresponding data are valid.’

established. A first review has allowed correction of the errors
detected by the Court.

Thematic Centres. Management of contracts

The Court states that:

‘10. In order to achieve its objectives, the Agency signed contracts
with various topic centres which had been selected in the Member
States. The contracts are based on a standard document, to which
annexes of a more technical nature are added. Inconsistencies
were observed between the basic document and the technical
annexes, in particular as regards the nature and length of the
work.’

The Agency’s comments are:

The consistency between the basic texts and the technical annexes
is being checked and corrections made where necessary. And rou-
tine controls are being established as future ETCs are now being
defined and contracted for operation in 2001.

The Court states that:

‘11. These contracts are funded by means of appropriations con-
tained in Title III of the Agency’s budget, which covers adminis-
trative expenditure. As has already been observed, a very large
proportion of these appropriations are carried over (see para-
graphs 5 and 6). The management of these carry-overs, which
should be given priority owing to the risk of cancellations, partly
explains why some contracts are signed very late in the year.
Thus, commitments totalling at least 1,9 million euro were made
after 15 November 1999 under administrative expenditure.’

The Agency’s comments are:

Commitments are made early in the year to gain the maximum
amount of time to develop and deliver the required work. Never-
theless, the possibility to commit additional resources during the
late part of the year helps to use efficiently the limited resources
available, as some adjustments in the scope of work may be
required and extra operational funds may be made available to the
ETCs’ work that helps also to build up the Member States’ capaci-
ties.

The Court states that:

The Agency’s comments are:

Systematic control of the personnel dossiers, that were estab-
lished with the support of Commission DG Personnel, has been

‘12. The extent and recurrent nature of this situation should pro-
vide an incentive for the Agency to improve its system for moni-
toring the implementation of its annual programme with a view
to ensuring that as few appropriations as possible are carried over
and thus that the principle of annuality is observed more strictly.’

27.12.2000

EN

Official Journal of the European Communities

C 373/13

The Agency’s comments are:

It is the intention to minimise this carry-over. Nevertheless, as
expressed under the previous point, part of the work may be only
contracted, for efficiency reasons, at the end of the year. And
besides the ETCs are in operation over a full year, a 12 month
cycle, while new funds, under the current new year budget, will
only come to them in February at the earliest, which results in
some payments being carried over to the next year.

The Court states that:

‘13. Shortcomings also appear in the financial management of
contracts. The procedures for processing payment requests would
benefit from greater formality and stricter application. Financial
files need to contain documents in support of payment requests,
not just a certificate indicating that work has actually been car-
ried out as planned.’

The Agency’s comments are:

The EEA has developed procedures for handling requests for pay-
ment and for the ‘signoff’ of each subvention. Nevertheless we

recognise the value of the Court’s proposal and are in the process
of adapting these procedures further to include supporting docu-
ments, for example progress reports or extracts from technical
reports, as well as the statements in the financial dossiers.

The Court states that:

‘14. The contracts are financed from commitments under various
budget headings which correspond to the various topics to be
covered. Payments are charged in such a way that the commit-
ments concerned are used one after another, with the result that
it is impossible to compare the implementation of commitments
with the progress made on the corresponding projects.’

The Agency’s comments are:

The EEA will as far as possible plan the payment schedule against
the budget credit lines consistent with the actual delivery of work,
initially by asking for more information from ETCs on resources
given to particular tasks. However, ETCs normally deliver a pack-
age of interconnected work over varying time schedules and there
are limits to how closely the budget allocations can be aligned
with progress in the work during the course of the work.