Report by the Court of Auditors on the audit of the operational efficiency of the management of the European Central Bank for the financial year 1999, together with the European Central Bank's replies
Date: 2001-01-10
Institutions: European Court of Auditors
Subjects: European Central Bank, implementation of the budget, management

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Official Journal of the European Communities

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I

(Information)

COURT OF AUDITORS

REPORT BY THE COURT OF AUDITORS

on the audit of the operational efficiency of the management of the European Central Bank for the
financial year 1999, together with the European Central Bank’s replies

(2001/C 47/01)

CONTENTS

Paragraph

Page

INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE EFFICIENCY OF THE MANAGEMENT IN 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Budgetary management and monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Internal control systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Human resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-3

4-10

4-5

6-8

9-10

11-12

The European Central Bank’s replies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

2

2

2

3

3

4

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INTRODUCTION

1. The Court’s mandate with regard to the European Central
Bank (ECB) stipulates ‘an examination of the operational efficiency
of the management of the ECB’ (1). The ECB replaced the Euro-
pean Monetary Institute (EMI) on 1 June 1998 (2). The ECB’s
accounts for the financial year ending 31 December 1999 were
approved by the Governing Council on 16 March 2000 and pub-
lished in April 2000 (3) after they had been audited and certified
on 1 March 2000, without qualification, by an external auditor.

2. The ECB is subject to the financial provisions contained in its
Statute, a detailed interpretation of which has been set out in the
decisions of the Governing Council, which is the budgetary author-
ity of the ECB. The Council comprises,
in accordance with
Article 112 of the Treaty establishing the European Community,
the six members of the Executive Board and the 11 governors of
the national central banks (NCBs) of the Member States which
have adopted the euro.

3. The ECB experienced in 1999 its first year of a central bank
activity starting with the launching of the euro on 1 January 1999.
In accordance with Article 105(2) of the Treaty, the ECB is in
charge of the following basic tasks: definition and implementa-
tion of the monetary policy of the Community, conduct of for-
eign exchange operations, holding and management of the official
reserves of the Member States and promotion of the smooth
operation of payment systems. Dealing with advisory functions,
the ECB, under the provisions of Article 105(4) of the Treaty, sub-
mits opinions to the appropriate Community institutions or bod-
ies or to national authorities on matters in its fields of compe-
tence.

THE EFFICIENCY OF THE MANAGEMENT IN 1999

Budgetary management and monitoring

4. At the stage of the preparation of the budget, high safety mar-
gins were included for many planned expenditures and the initial
budget was thus set at 188,6 million euro (4). Although the mid-
year 1999 budget review forecasted an underspending of approxi-

(1) Protocol 18 (ex 3) on the Statute of the ESCB and of the ECB annexed

to the EC Treaty, Article 27.2.

(2) Five reports on the operational efficiency of the management of the
EMI until 31 May 1998 and of the ECB until 31 December 1998 were
published in the Official Journal: OJ C 394, 31.12.1996 for 1994 and
1995; OJ C 42, 9.2.1998 for 1996; OJ C 164, 10.6.1999 for 1997;
OJ C 133, 12.5.2000 for 1998.

(3) ECB Annual Report 1999.
(4) The initial ECB 1999 budget, i.e. 188,6 million euro was revised three
times in 1999: practically unchanged at the end of March, 190,8 mil-
lion euro at the end of June, 189,6 million euro at the end of Septem-
ber.

mately 26 million euro (5), the budget was not revised accord-
ingly. The Governing Council took note of the intention of the
Executive Board to consider the new forecast for the 1999 year-
end, i.e. 163,7 million euro for overall expenditure, as an ‘internal
budget ceiling’. A formal revision of the budget did not take place.

5. Total expenditure amounted to 152,0 million euro in 1999,
i.e. 93 % of the mid-year forecast of 163,7 million euro, but only
80 % of the final revised budget (189,6 million euro). Under these
circumstances the budget cannot perform its function as a stra-
tegic tool for the effective management and control of expendi-
ture.

Internal control systems

6. Pursuant to the Statute (6), two signatures are compulsory,
with the exception of the President, in order to commit the ECB
for contracts or orders for the supply of goods and services. The
payment procedure is set out by the ECB internal rules which
establish as cornerstone the role of the budget centre managers,
i.e. the persons responsible for a certain part of the budget. The
budget centre managers authorise the payment of the invoice,
having verified its compliance (amounts, goods or services
received) with the commitment. No dual signatories are required
to authorise the payment.

7. As no commitment information system is in place, there is no
systematic verification of the consistency between the commit-
ment and the payment other than that carried out manually by
the budget centre managers. Arrangements should be made to
ensure that in all cases appropriate checks are made before pay-
ments can be executed. The present system in combination with
the fact that the budget is not constraining (see paragraph 5),
leaves expenditure subject to risk.

8.
In 1999, the ECB continued to call upon consultancy firms
for the development of major projects. For the foreign currency
reserves subledger (FCRS) project (see also the Court’s comments
in the 1997 and 1998 reports (7)), the ECB hired consultants from
one firm under contracts which were renewed several times. Of
1,8 million euro paid in 1999 to this firm as consultancy costs for
the project, around 0,7 million euro represented the fees paid to
a single consultant. From January to November 1999, this

(5) Attributable to delays in recruitment and, due to heavier than expected
workload for the year 2000 compliance, to delays in projects.
(6) Protocol 18 (ex 3) on the Statute of the ESCB and of the ECB annexed

to the EC Treaty, Article 39.

(7) OJ C 164, 10.6.1999, for 1997, paragraph 12; OJ C 133, 12.5.2000,

for 1998, paragraph 19.

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consultant invoiced 60 hours almost every week, i.e. the maxi-
mum foreseen by the contract, at an initial rate of 255 euro per
hour, later increased to 306 euro per hour. More than 5,6 million
euro were spent since 1997 but the project had still not been fully
completed at the end of 1999. This experience illustrates the
importance of avoiding future open-ended contracts at high rates
without clear commitment from the consultants as to what is to
be achieved within a given timescale.

Human resources

In the course of 1999, 242 additional staff were recruited and
9.
44 left. At the end of 1999, 732 were employed, of whom 55
held managerial positions.

10.
In July 1998, in compliance with Article 12.3 of the Statute,
the Governing Council adopted the Rules of Procedure (1). These
Rules stipulate that ‘Members of staff shall be selected, appointed
and promoted with due regard to the principles of professional
qualification, publicity, transparency, equal access and non-
discrimination. An administrative circular shall further specify the

rules and procedures for recruitment and for internal promotion’.
Since this circular has not yet been introduced, the application of
the principles cannot be assessed.

CONCLUSION

11. As already pointed out by the Court in 1996 and 1997
reports on the operational efficiency of the management of the
EMI (2), budgetary forecasting and management should be much
improved, so that the budget can serve as an effective control and
management instrument. Significant forecast underspendings
should lead to a formal revision of the budget by the Governing
Council (see paragraphs 4 and 5). The weaknesses in budgetary
procedures, coupled with the absence of a system which ensures
in all cases the consistency between commitments and the sub-
sequent payments leaves expenditure subject to risk (see para-
graphs 6 and 7).

12.
In view of the number of ECB staff, the introduction of the
administrative circular specifying the rules and procedures for
recruitment and for internal promotion should be regarded as a
priority (see paragraphs 9 and 10).

This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 10 January 2001.

For the Court of Auditors

Jan O. KARLSSON

President

(1) OJ L 338, 15.12.1998, p. 28, amended in OJ L 125, 19.5.1999, p. 34
and amended in OJ L 314, 8.12.1999, p. 34; (versions in French, Greek
and Portuguese corrected by OJ L 273, 26.10.2000, p. 40).

(2) OJ C 42, 9.2.1998, paragraph 4.7; OJ C 164, 10.6.1999, paragraph 5.

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THE EUROPEAN CENTRAL BANK’S REPLIES

The European Central Bank (ECB) welcomes the report of the
European Court of Auditors and takes note of the various points
raised by the Court.

The ECB has already initiated first steps towards the implementa-
tion of a uniform commitment information system.

Paragraph 4: It should be noted that for the budget year 2000,
the ECB implemented the mid-year review as a formal reduction
of the ECB’s 2000 Budget by means of a decision of the Govern-
ing Council.

Paragraph 5: The ECB continuously endeavours to further improve
its budgetary forecasting and management.

Paragraph 6: Following a recommendation made on the occa-
sion of the 1999 interim internal audit review, the ECB Manage-
ment supported an amendment of the relevant procedures
(procurement/invoice processing guidelines) in order to provide
clear instructions for the reconsideration and approval of busi-
ness cases by the relevant superiors/signatories in the event of dis-
crepancies between the order and the invoice before a payment is
processed. The Directorate Internal Finance (Accounting) has ini-
tiated the necessary changes to the invoice processing rules, with
the object of requiring a counter-signature from a person respon-
sible for the original order in the event that an invoice does not
correspond to the commitment regarding amounts, goods and
services received.

Paragraph 8: The ECB has authorised different models for con-
tracting external resources, depending on the varying require-
ments of and constraints upon different projects. The model used
for the FCRS Accounting project was chosen after careful consid-
eration of the advantages and disadvantages of different options.
It was characterised by an integration of the external resources
under ECB management in the project organisation. The progress
made by individual consultants and their performance, measured
against their assignments and the time estimates for these assign-
ments, were regularly assessed by the ECB.

Paragraph 10: The administrative circular on recruitment and
promotion has in the meantime been submitted to the Staff Com-
mittee for its opinion and to the Union of the Staff of the ECB for
comments. Even though the circular was not introduced in 1999,
the ECB has nevertheless shown due respect in its selection,
appointment and promotion procedures for the principles laid
down in Article 20 of the Rules of Procedure.

Paragraph 7: All budget centre managers are obliged to record
their commitments on a decentralised basis and use such infor-
mation as part of their overall budget monitoring responsibility.

Paragraph 11: The ECB strives to balance costs and benefits with
potential risk and possible corresponding measures/resource
requirements in a prudent way.