Corrigendum to Special Report No 2/2001 concerning the management of emergency humanitarian aid for the victims of the Kosovo crisis (ECHO), together with the Commission's replies
Date: 2001-03-21
Institutions: European Court of Auditors
Subjects: Kosovo, emergency aid, humanitarian aid, report

3.7.2002

EN

Official Journal of the European Communities

C 159/1

I

(Information)

COURT OF AUDITORS

Corrigendum to Special Report No 2/2001 concerning the management of emergency
humanitarian aid for the victims of the Kosovo crisis (ECHO), together with the Commission’s
replies

(Official Journal of the European Communities C 168 of 12 June 2001)

(2002/C 159/01)

The Commission’s replies to the Court of Auditors’ Special Report No 2/2001, which were published in Official
Journal No 168 of 12 June 2001 (pages 18 to 25), included some errors in the paragraph numbering. This cor-
rection contains the correct version of these replies. The report has been reprinted in full so as to help readers
who wish to study the replies, but pages 1 to 17 of Official Journal C 168 have been reproduced without
change.

concerning the management of emergency humanitarian aid for the victims of the Kosovo crisis
(ECHO), together with the Commission’s replies

SPECIAL REPORT No 2/2001

(pursuant to Article 248(4), second subparagraph, EC)

CONTENTS

Paragraph

Page

LIST OF ABBREVIATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

MAP OF KOSOVO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

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

CONTEXT OF ASSISTANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Allocation of funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ECHO’s role . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Emergency procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Framework Partnership Agreements (FPAs) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EC-UN Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Relevance of earmarking funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

MANAGEMENT OF ACTIVITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Mobilisation of funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

ECHO resources and organisation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Appraisal of projects . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-6

7-25

7

8-11

12-18

19-20

21-25

23-25

26-49

26-30

31-32

33

2

3

4

5

7

7

7

8

9

9

10

10

10

12

13

C 159/2

EN

Official Journal of the European Communities

3.7.2002

Paragraph

Page

Tailoring assistance to needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Organisation of procurement and delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Operational reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial monitoring . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Management information systems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Justification for advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Financial settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CONCLUSIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Overall appraisal

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

34-35

36-39

40-42

43-45

46

47-48

49

50-58

50-54

55-58

ANNEX — Breakdown of the 29 contracts examined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

The Commission’s replies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13

13

14

14

14

15

15

15

15

16

17

18

LIST OF ABBREVIATIONS

ECHO

European Community Humanitarian Office

EU

FAO

FPA

FRY

European Union

Food and Agriculture Organisation of the United Nations

Framework Partnership Agreement

Federal Republic of Yugoslavia

FYROM

Former Yugoslav Republic of Macedonia

ICRC

IFRC

KFOR

NATO

NGO

OSCE

SCR

UN

UNHCR

UNMIK

USAID

WFP

International Committee of the Red Cross

International Federation of Red Cross and Red Crescent societies

Kosovo Force

North Atlantic Treaty Organisation

Non-Governmental Organisation

Organisation for Security and Cooperation in Europe

Service commun des relations extérieures

United Nations

United Nations High Commissioner for Refugees

United Nations Mission in Kosovo

United States Agency for International Development

World Food Programme

3.7.2002

EN

Official Journal of the European Communities

C 159/3

ö

J
u
z
M
o
r
a
v
a

Prokuplje
Toplica

ˆ
Zitni Potok

Bojnik
43° 00'

I
Lece

A
Lebane
Jablanica

Ravna Banja

KOSOVO REGION

Usce

21° 30'

The boundaries and names shown and the 
designations used on this map do not imply 
official endorsement or acceptance by the 
United Nations.

21° 00'
ˆ
Grcak

Rataje

Aleksandrovac

Brus

Zlatari

Lepenac

ˆ

Josanicka-
Banja

Pawlica
ˆ
Raska

Blace

Beloljin

HUNGARY

CROATIA

ROMANIA

Belgrade

BOSNIA AND
HERZEGOVINA

YUGOSLAVIA

Duga Poljana

ADRIATIC
SEA

ITALY

KOSOVO

ALBANIA

B
U
L
G
A
R
I
A

Novi Pazar
THE FORMER 
YUGOSLAV REPUBLIC OF
MACEDONIA

Banja

Ibar

ˆ
Lesak

Dren

ˆ

Kursumlija

GREECE

Leposavic´

Y U G O S L A V I A

ˆ

Socanica

Banjska

Gazivodsko
Jezero

Zubin
Potok

Ibar

ˆ
Zvecan

Istok

ˆ
Rakos

Rudnik

-
Durakovac
ˆ

Dobrusa

Vitomirica

Kladernica
ˆ

Lausa

E
S
Podujevo

R

B

Kosovska
Mitrovica

ˆ

G. Lapastica

Nevoljane

Srbica

Poljance

ˆ
Cirez

ˆ
Vucitrn

Sitnica

´
Obilic

Glavnik
Batlava

Orlane

Belo Polje

ˆ

Propastica

43° 00'

Tutin

MONTENEGRO

ˆ
Rozaj

Vrela

N. Selo

BeliDrim
Pec´

Rausic´

42° 30'

Tropojë

Bajram Curri

Paci

Liqeni i Fierz‘s

Krumë

A L B A N I A
Dukagjin

Kukës

Kalimash

42° 00'
ˆ

ˆ
Dzudza

National capital

Regional capital

Town, village

Arni

International boundary

ˆ
Bustrica

Republic boundary
Ar Mola

Autonomous province
boundary

Major road

Secondary road
ˆ

Peskopija

Railroad

Airport

20° 30'

Map No. 4069  UNITED NATIONS
October 1998

´
Zlokucane

Klina

Sicevo´

Dobrosevac
´
Glogovac

V. Belacevac

´

Iglarevo

Komorane

ˆ
Pristina

Kosovo Polje

Marevce

Novo Brdo

ˆ

Ogoste

Barane

Streoc
ö
Decanska Bistrica
ˆ
Decani
Rznic´

K O S O V O
Jablanica
Kraljan

ˆ
Vlaski 
Drenovac
ˆ
Malisevo

ˆ
Lapusnik

Krajmirovce

Lipljan
ˆ

Krajiste

e

Brasaljce

Janjevo

Kosovska
Kamenica

ˆ
Dobrcane

42° 30'

Junik

Ratkovac

-
Dakovica

ˆ
Stimlje

Orahovac

Blace

Suva Reka

Topluga

ˆ

V. Krusa
Pirane

Movljane

ˆ
Urosevac
ˆ
D. Plesina
ˆ

ˆ

Musutiste

ˆ

Korisa

ˆ
Vrbestica

Grebno
Gatnje

Brod
ˆ
Strpce

Prizren
ˆ

Musnikovo

ˆ
Hoca-
Zagradska

Zrze

Erenik

Rogovo

Damjane
m
Dri
Beli
ˆ
Zur

Gnjilane

BinackaMorava

ˆ
Zegra

ˆ

Pozaranje

Rajince

ˆ

Biljaca

Vitina

-
Delekare
ˆ
ˆ
Sasare

ˆ
Presevo

Miratovac 

ˆ
Kacanik

Tabanovce

Vaksince

ˆ
Slupcane

Kumanovo

Skopje

ˆ
Dracevo

42° 00'

a
j
n
i
c
P

ö

Vardar

Lepenac

Brodosavce

G.-Lubinje

ˆ
Dragas

Tearce

ˆ
Sipkovica

Brod

Golema-
ˆ
Recica

Restelica

Tetovo

ˆ
Zelino

Vardar

Treska

ˆ ˆ

Vrapciste

Gostivar

ˆ
Cajle

Brodec

ˆ
Zirovnica

THE FORMER
 YUGOSLAV REPUBLIC OF
MACEDONIA

Titov Veles

0

0

21° 00'

10

20

30

40

50 km

10

20

30 mi

Department of Public Information
Cartographic Section

✈
✈
✈
✈
C 159/4

EN

Official Journal of the European Communities

3.7.2002

SUMMARY

I. The Kosovo crisis was characterised by large population movements in the region between March and July
1999 as well as large scale destruction. Through the European Community Humanitarian Office (ECHO) the
European Union (EU) provided 400 million euro of humanitarian aid in response to the needs of the popula-
tion (see paragraphs 1 to 4). A particular feature of these events was the unforeseeable immediate return in
June 1999 of virtually all displaced Kosovars to Kosovo, necessitating major modifications to the humanitar-
ian aid programme.

II. The main objective of the audit was to assess ECHO’s management of the EU aid for the victims of the
Kosovo crisis, as well as the administrative framework for this assistance. A sample of contracts was selected
to review whether the emergency aid was provided promptly, efficiently, according to needs, in good coopera-
tion with the main partners and whether it was properly monitored. As the audit was undertaken between
July 1999 and February 2000, it did not seek to establish what ultimate impact the expenditure had achieved
(see paragraphs 5 and 6).

III. The context within which EU humanitarian aid is implemented does not facilitate a rapid response to
emergencies. Decision-making and payment procedures at Community level do not allow a rapid reaction. The
contractual procedures for implementing ECHO activities take only limited account of the urgency of a given
situation. ECHO has identified many of the shortcomings internally and is in process of taking action to rem-
edy them (see paragraphs 12 to 18 and 27).

IV. The revised Framework Partnership Agreement (FPA) which regulates the relationship between ECHO and
its implementing partners, contains a number of improvements, but still has some shortcomings. The FPA does
not take into account the special characteristics and mandates of the UN agencies and the Red Cross (see
paragraphs 19 and 20).

V. The Agreement between the European Community and the United Nations of August 1999, concerning
all EU funding of UN agencies, has not resolved all the problems which have troubled relations between the
two organisations. The ’project’-based approach used to comply with ECHO’s contractual requirements means
that a large part of the drafting, reviewing and editing of ECHO’s contracts becomes a costly administrative
exercise. This does not always enable the Commission to obtain a meaningful account of how funds are used
(see paragraphs 21 to 25).

VI. ECHO field offices were short of staff. The experts in the field offices faced many implementation prob-
lems without having officials with decision-making powers supporting them locally. This created a gap between
ECHO in Brussels, which had the decision-making powers, and its field offices. ECHO experts had to spend a
lot of time on practical and administrative matters instead of discharging their primary operational responsi-
bilities (see paragraphs 31 and 32).

It was generally hard for ECHO experts to form an opinion on the execution of the activities. Financial
VII.
and operational reporting, as required by the contracts, was not prepared by ECHO partners early enough to
be a monitoring tool. No system existed to provide ECHO with a regular and systematic overview of the situ-
ation. The United Nations High Commissioner for Refugees (UNHCR), the World Food Programme (WFP) and
the International Committee of the Red Cross/International Federation of the Red Cross (ICRC/IFRC) had dif-
ficulties in reporting on the share of their activities that was financed by ECHO (see paragraphs 40 to 46).

VIII. Planning was difficult during the Kosovo crisis due to the fast moving situation. However, activities con-
tinued for longer than initially planned because they were launched late, were sometimes accompanied by the
partners’ desire to use up the budgets for the contracts that had been signed or ECHO’s concern to keep its
partners present on the spot (see paragraphs 27 to 30). In many cases the advances paid to ECHO’s partners
had not been fully used by the time the contract was scheduled to end. In some cases this could have had the
effect of further encouraging contract extensions (see paragraphs 47 and 48).

IX. ECHO staff and experts displayed considerable commitment in an extremely complicated emergency situ-
ation. However, the regulatory and procedural framework and the lack of decision-making power in local
offices had an adverse impact on the capacity of ECHO to respond quickly and effectively to the changing
circumstances (see paragraphs 50 to 54).

3.7.2002

EN

Official Journal of the European Communities

C 159/5

X. ECHO’s administrative procedures should be tailored according to the degree of urgency. A more realistic
and more active approach to the financing and to the participation in the decision-making of United Nations
agencies is required (see paragraphs 55 to 58).

INTRODUCTION

1. The tensions which had existed between Serbs and Albanians
in Kosovo since the province’s autonomy was rescinded in 1989,
developed into armed conflict from March 1998 onwards. After
the failure of diplomatic attempts to find a solution (1), the North
Atlantic Treaty Organisation (NATO) intervened militarily in
March 1999 until it forced the complete withdrawal of Serb troops
from the province in June 1999 (2). The deployment of the Kosovo
Force (KFOR) and the establishment of the United Nations Mis-
sion in Kosovo (UNMIK) (3) followed immediately.

2. The violence precipitated significant population flows from
within Kosovo itself towards neighbouring countries (Albania,
Bosnia-Herzegovina and the Former Yugoslav Republic of Mace-
donia (FYROM)), the other provinces of the Federal Republic of
Yugoslavia (FRY), towards other countries of asylum and lastly a
return to Kosovo as soon as KFOR was deployed. Diagram 1 shows
the scale of population shifts during the principal stages of the
crisis (4). These shifts were accompanied by considerable destruc-
tion in the province of Kosovo, affecting housing, productive
capacity and all areas of economic and social life.

Movement of population from Kosovo to neighbouring countries

Diagram 1

Bosnia and Herzegovina

FYROM

Albania

Montenegro

15.4.1999

29.4.1999

13.5.1999

27.5.1999

10.6.1999

24.6.1999

8.7.1999

800 000

700 000

600 000

500 000

400 000

300 000

200 000

100 000

d
e
c
a
l

p
s
i
d
n
o
i
t
a
l

u
p
o
P

0
1.4.1999

Source: UNHCR.

(1) Agreement reached with Belgrade in October 1998 to withdraw part
of the Yugoslav forces and to deploy in Kosovo 2 000 OSCE inspec-
tors, who were evacuated on 19 March 1999 after the failure of the
Rambouillet negotiations on the status of the province.

(2) On the basis of the Peace Agreement of 10 June 1999, the Yugoslav

forces withdrew completely before 20 June 1999.

(3) United Nations Resolution No 1244 of 10 June 1999 decided to deploy
in Kosovo an international civilian and security presence placed under
its jurisdiction. The civilian presence (UNMIK) was organised into
four branches: a civilian administration (run by the United Nations),
humanitarian aid (coordinated by the UNHCR), reconstruction (cre-
ation of a Task Force by the EU) and institutional consolidation
(OSCE). In order to guarantee security, NATO opted to join forces
with an international force (KFOR).

(4) Estimates of the population of Kosovo prior to the crisis vary. The
Yugoslav Federal Bureau of Statistics put the figure at 1,96 million in
1992, whilst other estimates were 1,5 million and 2,1 million. On
9 June 1999, the UN estimated that there were approximately 500 000
people left in Kosovo. In addition to the population movements
described above, more than 130 000 inhabitants of Kosovo sought
asylum after February 1998 outside the region, in particular in Ger-
many and in Switzerland, and 91 000 refugees in the FYROM were
evacuated temporarily as part of the UNHCR’s humanitarian evacu-
ation programme.

 
C 159/6

EN

Official Journal of the European Communities

3.7.2002

3. The main features of the humanitarian crisis in Kosovo, which
was one of the fastest evolving crises of the modern times, were:

as from June 1999; the coordination of humanitarian aid was
entrusted to the UNHCR;

(a)

immediately after significant assistance programmes were set
up in the neighbouring countries, there was a rapid, massive
and spontaneous return of the refugees in June 1999. This dis-
rupted the newly-drafted plans for a gradual return and neces-
sitated major modifications to the humanitarian aid pro-
gramme;

(b) Albania, the poorest country in Europe, took in the largest
number of refugees. Because of the high level of poverty and
deprivation in the country, it was difficult to differentiate
between the need for aid for the victims of the crisis and aid
for basic infrastructure and for host populations in Albania;

(c)

in the absence of any national authorities in Kosovo, the
United Nations took over the administration of the province

(d) many countries showed considerable interest in direct humani-
tarian intervention in addition to their contribution via inter-
national organisations and, in the EU’s case, via ECHO. The
result was a large number of participants and a large propor-
tion of bilateral funding.

4. Table 1 shows the international community’s main contribu-
tions to emergency humanitarian aid for the victims of the Kosovo
crisis in 1998 and 1999, totalling 1 495 million euro, and the
main channels through which they were implemented. ECHO’s
contribution of 400 million euro accounted for approximately a
quarter of these contributions. During the same period, in addi-
tion to emergency humanitarian aid, the EU allocated 100 mil-
lion euro to budgetary aid for Kosovo’s neighbours (1), and 147 mil-
lion euro to make a start on reconstructing Kosovo.

Emergency humanitarian aid allocated by the international community in response to the Kosovo crisis

(Mio EUR)

Principal donors

ECHO (1998: 22 Mio euro; 1999: 378 Mio euro)

EU Member States

United States of America

Other contributions to UN agencies, IFRC, ICRC

Other bilateral measures

Total

Main channels of implementation

UN agencies

Red Cross Movement (IFRC, ICRC)

NGOs financed by ECHO and EU Member States

Bilateral or non-specified aid from EU Member States

Other bilateral or non-specified aid

Total

Amount

400

408

465

222

n.c.

1 495

Amount

590

107

244

269

286

1 495

%

27

27

31

15

100

%

39

7

16

18

19

100

Figures do not add up due to rounding-off differences.
Source: ECHO 14 point fax system; site www.info.usaid.gov; revised 1999 UN consolidated interagency appeal; ICRC.

(1) 62 million euro for Albania, 25 million euro for the FYROM and 13

million euro for Montenegro.

3.7.2002

EN

Official Journal of the European Communities

C 159/7

5. The aim of the Court’s audit was to assess the management by
ECHO of the emergency humanitarian aid provided by the EU for
the victims of the Kosovo crisis. More specifically, the main objec-
tive was to verify whether ECHO’s procedures and structures
allowed a rapid response and effective cooperation with its main
partners. The audit also sought to ascertain whether the emer-
gency aid was provided at the right time, efficiently and corre-
sponding to needs, and was properly monitored. The audit was
undertaken between July 1999 and February 2000, at a time when
almost all contracts were ongoing. The audit did not therefore
seek to establish what ultimate impact the expenditure had. An
extensive audit of ECHO’s management and activities between
1992 and 1995 was published by the Court in 1997 (Special
Report No 2/97).

6. The review included an examination of a sample of 29 con-
tracts which covered 24 % of the value of the commitments and
32 % of the value of the contracts concluded as at 31 December
1999. The sample was selected so as to cover ECHO’s main part-
ners, the main geographical areas and sectors of intervention as
well as the consecutive Commission Decisions in order to follow
the evolution of the assistance (see Annex ). Further checks were
carried out on the spot in November 1999 in Albania, the FYROM
and Kosovo, as well as at the headquarters of the UNHCR, the
WFP and the Red Cross (ICRC and IFRC).

CONTEXT OF ASSISTANCE

Allocation of funds

ECHO’s role

8. When ECHO was established by the Commission in 1991 its
aims were defined as:

(a)

‘focusing of administrative responsibility ... to ensure manage-
rial consistency and the expertise needed to handle emergen-
cies and adopt the appropriate procedures;

(b) capacity to take direct action at various stages, enhancing the
Community’s presence on the ground: identification of require-
ments, mobilisation of personnel and material for the relief
operation, monitoring and checks, ex post evaluation;

(c)

improved coordination with the Member States, other donors,
non-governmental organisations (NGOs) and specialist inter-
national agencies;

(d) easier mobilisation of the necessary budgetary resources in

major emergencies’ (1).

9. ECHO operates as an active donor, funding the programmes
of UN and international agencies and NGOs, taking responsibil-
ity for monitoring and evaluation and, in some cases, for needs
assessments, also for emergency situations. During the early stages
of the Kosovo crisis, ECHO had limited capacity for needs assess-
ments and monitoring of activities. The assessment of needs was
primarily carried out by the major humanitarian organisations
such as the UNHCR, the Red Cross and the NGOs and formed the
basis for the development of ECHO’s strategy.

10. Diagram 2 shows the place of ECHO in the system of provid-
ing aid to the victims of the Kosovo crisis. It illustrates the large
number of actors as well as the complexity of their relations.

7.
In 1998, 22 million euro were allocated to the initial Kosovo
crisis. Of the 378 million euro allocated to the Kosovo crisis in
1999, 32 million euro came from regular ECHO budget headings,
and 346 million euro were rapidly transferred in two tranches
from the emergency aid reserve.

11. During the height of the Kosovo crisis, the EU Member States
requested ECHO to prepare daily crisis situation reports. These
reports were to describe the events in Kosovo, the FYROM, Alba-
nia, Serbia and Montenegro. Scarce resources had to be allocated
to this task.

(1) Mandate from the Commission to ECHO, 6 November 1991.

C 159/8

EN

Official Journal of the European Communities

3.7.2002

The place of ECHO in the provision of aid to the affected population

Diagram 2

Commission

DG RELEX
DG DEV

ECHO

EU Member
States and
their
agencies

Other
countries
and their
agencies

UNHCR,
WFP,
other UN
agencies

NGOs

Local
governments
and affected
population

Red Cross
Family

NB: The role of the private sector (experts, suppliers, transporters etc) has been excluded.

Emergency procedures

12. The Regulation (1) provides for the speeding-up of Commis-
sion decisions up to 10 million euro. Furthermore, the Regulation
enables the Commission to determine detailed implementing rules
which it has done through the Framework Partnership Agree-
ment (FPA), which the Commission signs with its implementing
partners.

13. The provisions in the general conditions applied to opera-
tional contracts signed under the FPA relating to emergencies are:

(a) ECHO can decide to finance expenditure incurred by a part-
ner prior to the partner’s request for financing (Article 7(3));

(b) in exceptional and duly substantiated cases, a non-itemised

sum may be included in the budget (Article 10(6));

(c) purchases may be made by ECHO’s partners without recourse

to the tendering procedure (Article 16(3)).

(1) Article 13 of the Council Regulation of 20 June 1996 governing
humanitarian aid empowers the Commission, in an emergency, to
take decisions in respect of measures costing up to 10 million euro
without seeking a prior opinion from the Humanitarian Aid Com-
mittee.

14. The procedures for authorising activities are centralised and
adhere to the Commission’s usual arrangements for circulating
documents. The resulting deadlines are ill-suited to the prelimi-
nary financing of emergency activities. This can be illustrated as
follows. The procedure and maximum payment periods (60 days)
are identical to those which apply to EU budget activities in gen-
eral. The average time taken to pay advances in the sample exam-
ined was 28 days, of which ECHO itself accounted for nine days
(appraisal of the file) but of which 19 days, i.e. more than twice
as long, were accounted for by the remainder of the Commis-
sion’s administrative channels. As NGOs can seldom provide pre-
liminary financing for sizeable activities, these periods delay the
start of activities accordingly.

15. Article 10(6) of the general conditions lays down that in
exceptional, duly motivated cases (no reference is made to emer-
gencies), an unspecified amount may be included in the budget
provided that the partner undertakes to provide details thereof no
later than 15 days after the supplies have been dispatched or the
services provided. ECHO did have difficulty with certain of its
partners in fully enforcing this. When and whether more detailed
financial information under the FPA (document 8) should be pro-
vided under emergency contracts in Kosovo was not clearly estab-
lished. In fact, no contradiction exists between emergencies and
partners’ ability to provide a detailed budget in good time. The
absence of more detailed financial information hindered ECHO’s
own monitoring capacity.

3.7.2002

EN

Official Journal of the European Communities

C 159/9

16. The procedure for the recruitment of external experts, with
the involvement of the Service commun des relations extérieures
(SCR) and the external company responsible for the management
of the experts’ contracts, takes a minimum of three months. This
is too long to react rapidly to an emergency situation. In the
Kosovo crisis, ECHO was able to detach some experts from other
areas, thereby reducing the time needed for their deployment to
four to six weeks weeks.

time and reporting. Moreover, important parts of the FPA user
guide, notably those concerning procurement procedures (3), were
still to be drafted at the end of 1999. This shortcoming had a
negative effect on the economy and efficiency of activities imple-
mented by partners who were still without appropriate internal
controls and know-how in this area. Thus, in two of the cases
examined, bids of subcontractors selected by ECHO’s partners
were not the most advantageous economically.

17. ECHO acknowledged that the Kosovo crisis revealed signifi-
cant shortcomings in the way it was able to react to humanitar-
ian emergencies. In order to identify these shortcomings, and to
propose solutions, ECHO organised the ‘Kosovo crisis lessons
learned seminar’ in November 1999. It included all international
field experts, senior national programme staff and representatives
from ECHO Brussels. The seminar succeeded in identifying struc-
tural inadequacies in ECHO, such as:

20. The FPAs did not to take into account the special character-
istics and mandates of the UN agencies and the ICRC/IFRC. There-
fore contracts with the UN agencies were agreed upon on a case-
by-case basis through exchanges of letters and governed by the
overall EC-UN Agreement.

(a) ECHO does not have the necessary means to respond rapidly
to crisis situations and to provide emergency aid without
delay;

EC-UN Agreement

(b) there is no clear, unambiguous policy for emergency situa-

tions;

(c) the lack of coordination between and with Member States
resulted in widespread duplication of effort and inefficiency;

(d) there is no rapid response emergency team in ECHO which
can be sent to a crisis area, ‘forcing each operational unit to
improvise in each individual situation, leading to a dramatic
loss of time and impact of ECHO emergency aid’ (1).

18. The participants of the seminar identified possible remedial
action. ECHO is in the process of taking action to remedy the
shortcomings identified.

Framework Partnership Agreements (FPAs)

21. United Nations’ entities are multilateral bodies which have
been given mandates by their Member States to whom they are
accountable. They obtain most of their funds from the Members
of the United Nations. The EU, a major provider of funds to the
United Nations, is not a member and therefore as such not part
of this accountability scheme.

22.
In 1997, the Commission and the UN entered into negotia-
tions towards a global Framework Agreement for all EU funding
of UN agencies (4). These discussions resulted in an Agreement
signed on 9 August 1999, on the principles applying to the
financing or co-financing by the Community of programmes and
projects administered by the United Nations. It was intended to
resolve the problems which have troubled relations between the
Commission and the UN agencies (5). However, as the Court
pointed out in paragraph 5.96 of its annual report concerning the
financial year 1999, it has not solved all these problems.

19. A revised FPA was introduced with effect from 1 January
1999 (2). The objectives of the revision were to strengthen part-
nership, improve quality and efficiency, simplify and clarify the
Agreement, and improve flexibility, while maintaining control
over the use of funds. Although the revised FPA contains a num-
ber of improvements, the Kosovo crisis nevertheless exposed per-
sisting shortcomings, in particular in the areas of mobilisation

(1) ECHO note ‘OHRID seminar 6 and 7 November, preliminary sum-

mary impression and conclusion’.

(2) See the 1998 Annual Report, paragraphs 5.85, 5.86, 5.89 (OJ C 349,

3.12.1999).

(3) Documents 14 and 15 concerning procurement procedures.
(4) The question of the EU-UN Agreement has been raised in a wider
context in the Court’s 1999 Annual Report (OJ 342, 1.12.2000, para-
graphs 5.94 to 5.103).

(5) The Commission stated in its communication regarding the strategic
objectives for 2000 to 2005 (COM(2000) 154 dated 9 February 2000
to the European Parliament, Council, the Economic and Social Com-
mittee and the Committee of the Regions) that ‘We are a global actor
and a leader in areas of trade, aid and finance. Yet the Union is not
fully represented in international institutions or United Nations agen-
cies. This is an anomaly which needs to be corrected.’ For its part, in
a motion for a resolution, the European Parliament ‘calls on the Com-
mission and the Member States to back the efforts made to ensure
that the EU’s presence and influence in international organisations are
more representative of its political strength and the extent of its con-
tribution to humanitarian aid’ (PE 286.789, point 15).

C 159/10

EN

Official Journal of the European Communities

3.7.2002

The WFP and ECHO were not able to conclude contracts respecting
the Agreement signed in August 1999. Consequently, two WFP pro-
posals amounting to 15 million euro and submitted on 2 July 1999,
could not be agreed upon even though ECHO recognised the urgent
need for the projects and the funds had already been allocated. 15 mil-
lion euro available for urgent food aid therefore remained blocked until
December 2000 due to administrative problems between ECHO and
the WFP.

Relevance of earmarking funds

23. The Commission considers that its contributions should
cover specific activities (‘projects’) (1), individualised and autho-
rised in advance, with strict limitations on the amendments that
can be made by the contractor without the Commission’s prior
authorisation. Financial contributions are often expressed in the
form of detailed lists of expenditure allocated to a precise destina-
tion and period, an approach known as ‘earmarking’. However,
the objectives pursued can be achieved only if the contracts genu-
inely correspond to the partners’ actual activities and if partners
keep accounts for individual projects which link each instance of
expenditure with a financial contribution. This approach may
correspond to the actual situation in the case of small-scale NGOs
which implement specific projects. Indeed, the managers of these
organisations often consider that ECHO’s detailed guidelines are
an aid to the sound financial management of the projects.

24. However, this approach is less appropriate for the activities
of the major international humanitarian organisations. For
example, in the case of individual ECHO contracts with the UN
and the Red Cross, normally items of expenditure that form part
of these organisations’ large scale programmes are selected, and
combined to form a ’project’ to be financed by ECHO. This com-
plies with ECHO’s contract requirements. It does not, however,
necessarily relate to a discrete activity that is managed and
accounted for separately within the organisation’s system. In this
context a large part of the drafting, reviewing and settlement of
ECHO contracts became a costly administrative exercise, prima-
rily aimed at ensuring compliance with formal requirements. This
exercise can also be a reason behind delays in the provision of
funds.

25. The Court has commented several times in the past that,
apart from the delays that are caused in mobilising contributions
quickly, this does not always enable the Commission to obtain a
meaningful account of how funds were used. It was confirmed
again by the review of ECHO contracts concluded with UNHCR
for the Kosovo crisis.

Through contract 99/6001 with the UNHCR (20 million euro),
ECHO financed 44 sub-projects attached to five different UNHCR
projects, accounting for a total budget of approximately 180 million
euro. These projects evolved with the situation, with the result that the
UNHCR submitted to ECHO on 8 October 1999 a reallocation
request, the effect of which was substantial for practically all activities.
ECHO experts were unable to express an opinion on the validity of the
request owing to a lack of information on the UNHCR projects con-
cerned. However, UNHCR’s financial management system showed in
December 1999 that most of the projects submitted to ECHO for
financing had in fact been financed by other donors, whereas most of
the ECHO funds (around 16 million euro) had been allocated to
another project, ex post approval of which was still to be sought from
ECHO.

ECHO contract 99/6108 (10 million euro) was allocated in its
entirety by the UNHCR to the financing of a project worth more than
60 million euro and comprising 55 sub-projects, and was amended
seven times in the course of 1999 so as to reflect work actually done.
The ECHO contract financed 16 % of this vast project and the alloca-
tion of this contribution to specific expenditure is purely theoretical.

MANAGEMENT OF ACTIVITIES

Mobilisation of funds

26. The Commission took six decisions to allocate funds for
humanitarian aid. In total 378 million euro were available in 1999.
On 31 December 1999, only 299,5 million euro (79 %) had been
accounted for in terms of contracts. Additional contracts worth
16,3 million euro were signed by 6 March 2000.

27. On 15 April 1999, the Commission transferred 150 million
euro from the contingency reserve. It decided on 12 May 1999 on
the allocation to its implementing partners. This decision of
150 million euro was intended to cover the period 1 April to
30 September 1999. The 196 million euro decision of 16 July 1999
was to cover the most urgent needs until 31 December 1999. In
reality, funds were slowly contracted during these periods, and
deployed long after the period foreseen had ended. For instance,
only 61 % of the 196 million euro had been contracted on
31 December 1999. According to ECHO, the complexity of the
crisis and the massive and unforeseen return of refugees to Kosovo
justified the extension of the two decisions until 30 September
2000 for the 150 million euro decision and until 31 August 2001
for the 196 million euro decision. Diagram 3 shows, for both deci-
sions, the slippage between the periods which were initially
planned and the period of implementation of the contracts (2).
For each decision, the barred area shows the period during which
the funds were intended to be used, as specified in the decision.
The graph line shows at any time the total value of contracts
under implementation. The grey area shows the slippage.

(1) See clause 1.6 of the Agreement.

(2) The implementation period is from the date on which the expendi-
ture was eligible until the date on which the operation ended. Dates
are as recorded in ECHO’s accounts on 6 March 2000.

3.7.2002

EN

Official Journal of the European Communities

C 159/11

Diagram 3

Planned and actual implementation periods

Mio EUR

200

180

160

140

120

100

80

60

40

20

0

1.4.1999

1.5.1999

1.6.1999

1.7.1999

1.8.1999

1.9.1999

1.10.1999

1.11.1999

1.12.1999

1.1.2000

1.2.2000

1.3.2000

1.4.2000

1.5.2000

1.6.2000

1.7.2000

1.8.2000

1.9.2000

1.10.2000

Mio EUR

Source: ECHO.

200

180

160

140

120

100

80

60

40

20

0

1.7.1999

1.8.1999

1.9.1999

1.10.1999

1.11.1999

1.12.1999

1.1.2000

1.2.2000

1.3.2000

1.4.2000

1.5.2000

1.6.2000

1.7.2000

1.8.2000

1.9.2000

1.10.2000

1.11.2000

1.12.2000

Source: ECHO.

28. ECHO’s general conditions for financing humanitarian activi-
ties allow that the day as from which expenditure can be incurred
(the eligibility date) may be prior to the contract date. Of all con-
tracts concluded as at 6 March 2000, 260 out of 318 contracts
had eligibility dates before the date of contract signature by ECHO.
In seven cases, this period exceeded 100 days. This retroactivity,
however, did not in practice have a significant impact on the

effective period of execution of projects, since NGOs did not make
significant commitments before receiving an advance payment
and Red Cross and UN agencies start their projects regardless of
ECHO financing. The cumulative value of contracts signed by
ECHO, as shown in Diagram 4, is thus the only way to measure
implementation.

C 159/12

EN

Official Journal of the European Communities

3.7.2002

Diagram 4

Cumulative value of contracts signed by ECHO

Mio EUR

Mio EUR

200

180

160

140

120

100

80

60

40

20

0

1.4.1999

1.5.1999

1.6.1999

1.7.1999

1.8.1999

1.9.1999

1.10.1999

1.11.1999

1.12.1999

1.1.2000

200

180

160

140

120

100

80

60

40

20

0

1.6.1999

1.7.1999

1.8.1999

1.9.1999

1.10.1999

1.11.1999

1.12.1999

1.1.2000

1.2.2000

1.3.2000

Source: ECHO.

Source: ECHO.

29. As the situation on the ground changed rapidly, especially in
June 1999, delays in raising funds by ECHO or in starting up and
then implementing activities reduced the relevance and usefulness
of the measures concerned.

occasionally the partners’ keenness to finance their continued
presence pending future activities. It is questionable whether these
extensions were always fully justified by needs.

In response to the integrated call for funds of 7 April 1999 by the Red
Cross, six contracts worth a total of 15,5 million euro were signed
with the IFRC or the ICRC between 24 June 1999 and 21 July 1999.
The activities concerned were either at an early stage when the contracts
were signed or were no longer appropriate because of the sudden change
in the situation in June. Most of the items financed by ECHO under
contract 99/6084 with the IFRC (3 million euro) were not available
for distribution in Albania until September 1999. By this time the
refugees had left, with the result that certain articles were not needed
any more. Distribution of goods under contract 99/6082 with the
ICRC (6,5 million euro, expiring on 31 July 1999) did not commence
until August 1999. At the end of November 1999, 26 % by value of
the goods purchased at a cost of 3,1 million euro remained in storage,
including the entire supply of powdered milk worth 0,4 million euro.

30. The majority of all the contracts with an initial end date
before the end of February 2000 were extended. On the basis of
the activities examined, the main reasons for extensions of con-
tracts were the reorientation of activities justified by changes in
the crisis situation. However, in some cases, contracts were also
extended for reasons of the staggering or reallocation of activities
so as to use the budget provided rather than scale it down, and

For contract 99/6050, ECHO agreed that ‘the amendment will allow
the NGO to cover its operational costs until the end of February 2000
(a six-month extension), which will cover the second distribution of
fertiliser’. Despite piecemeal results and an unclear project proposal,
ECHO decided to finance these running costs in order to keep its pres-
ence in the region.

ECHO resources and organisation

31. ECHO’s original global budget for 1999 was approximately
500 million euro. The 346 million euro transferred from the
emergency aid reserve to the Kosovo crisis was additional spend-
ing which needed to be managed over and above this original
budget. ECHO had to manage these funds without any additional
staff. Due to a lack of staff and a lack of written reports from both
the NGOs and the ECHO office, it was not always possible for
desk officers in Brussels to identify implementation problems at
an early stage and take the necessary corrective actions. Apart
from the missions of ECHO staff, operational functions in the
field were exclusively the remit of external experts, while only cer-
tain authorised officials based in Brussels could take decisions
committing ECHO. There was therefore insufficient decision-
taking capacity in the field at the emergency stage of the crisis.

3.7.2002

EN

Official Journal of the European Communities

C 159/13

In Pristina and Skopje, the ECHO experts spent a consider-
32.
able part of their time arranging logistical matters, such as set-
ting up the office, procurement of necessary equipment, manag-
ing the running cost budget, etc. The use of experts’ time spent
on arranging these practical matters was not an efficient use of
resources.

35. The question of surplus goods, delivered after the refugees
had gone home, is of particular relevance in the case of the Red
Cross. Despite efforts to redirect the aid towards areas in need,
logistical immobility prevented activities from being cancelled or
redirected in good time. For its part, ECHO was unable to inter-
vene in order to prevent a mobilisation of resources which were
not needed.

Appraisal of projects

33.
In the case of emergency contracts, project proposals received
from the NGOs did not specify the allocation of staff costs, and
there is no evidence that ECHO undertook a systematic evalua-
tion of these costs when approving contracts or granting realloca-
tions of operational budgets to staff costs through successive
addenda. Evaluation of staff costs was further hindered by the
lack of detailed budget breakdowns. Thus ECHO did not insist
that all NGOs mobilise sufficient staff resources to implement the
best practices in the field. For shelter, for example, knowing the
key success factors in advance, ECHO could have ensured that
sufficient budget resources were allocated to the preparation and
tailoring of the distribution to the local communities’ needs.

Tailoring assistance to needs

34. ECHO entrusted implementing NGOs with the assessment
of needs, and also with the monitoring of the appropriateness of
assistance delivered. This was a key element to adapting activities
as necessary, given the rapid fluctuations of the number of refu-
gees and the unknown situation in Kosovo. In some of the projects
the NGOs failed in their task of monitoring needs, which led, in
some cases, to inefficient use of resources.

The quantities of fresh food delivered to two refugee camps in Fyrom
between June and October 1999 (contract 99/4006 for 2 million
euro) were not adjusted to take account of the actual number of refu-
gees in the camps. Although the original intention was to deliver 2 kg
of fresh food per week to each person, an average of 12 kg per week
per person was delivered to these camps in July and 10 kg in August.
At the same time, refugees in another camp in Fyrom received 0,2 kg
per week in July and 0,4 kg in August.

The emergency shelter programme in Kosovo used ‘shelter kits’ as a
logistical unit for planning and procurement. Some NGOs assessed
the needs for each damaged house and distributed individual items
from the kit accordingly, which was cost-efficient. However, other
NGOs distributed a single kit per house regardless of the specific need
of each house. This was not in accordance with the requirement to tai-
lor distribution according to needs (size and type of the damage, size
of the house, number of persons in the house) and the latest popula-
tion movements.

The 26 500 radios purchased for 1 million euro under contract
99/6082 with the ICRC were of limited use in the technological con-
text of the Kosovo crisis. They were delivered to the refugees after they
had gone home, and not used as means for emergency communication
as was intended. They were not kept in storage, in order to preserve
ECHO funding. Their potential use in other emergencies was not
envisaged.

Organisation of procurement and delivery

36. Procurement and distribution of basic food and non-food
items co-financed by ECHO through financing of WFP and UNHCR
programmes, was efficient. Goods were centrally procured and
implementing NGOs were made responsible for distribution. How-
ever, for the emergency shelter programme in Kosovo, the three
main donors decided that all of them would operate all over the
province, instead of each taking the responsibility for a certain
area or assigning responsibility to one of them. ECHO followed
the UNHCR approach by assigning seven NGOs in the seven areas
identified for this purpose. Since USAID also appointed NGOs,
each of the three main donors had its own NGO in each region,
which, due to the duplication of work, was not an efficient use of
resources.

37. The seven NGOs contracted by ECHO were each to under-
take procurement. The whole procedure of selecting suppliers
(often including several international trips), concluding contracts,
arranging complicated transportation to Kosovo and finding and
renting warehouses was undertaken by each of them. The NGOs
lacked the expertise for this as well as the means to ensure their
deliveries, which caused delays in programme implementation
and coordination problems.

38. The scheme, with seven primary and 13 secondary distribu-
tors (1), was unnecessarily complex. Cases were observed where
secondary distributors were faced with two primary distributors
or had overlapping regions. Allocation of materials and coordina-
tion between primary and secondary distributors was difficult,
especially in view of the delays in the delivery of materials. In
addition, prioritisation could be managed only at local level instead
of at regional level.

(1) Primary distribution is from the supplier to a local warehouse, sec-
ondary distribution is from the local warehouse to the beneficiary.

C 159/14

EN

Official Journal of the European Communities

3.7.2002

39. Six different agencies (the ICRC, three NGOs funded by
USAID and two NGOs funded by ECHO) were made responsible
for the procurement and distribution of winter wheat seeds and
fertiliser,
instead of a single entity. This led to delays, cost-
efficiency problems, coordination and quality problems also expe-
rienced with shelter material. Due to the limited number of
potential suppliers able to supply the specific seeds needed, NGOs
competed with each other to obtain the quantities they needed.
The Food and Agriculture Organisation of the United Nations
(FAO) had to make considerable efforts to verify that the same
seeds had not been purchased several times.

Operational reporting

40. Monitoring reports are still based on the administrative
timetable for projects and all too often are drawn up only when a
request is made to amend a contract or when the final reports are
submitted. There is thus no regular report on the status of the
projects and consequently no general assessment of activities.

41.
Interim progress reports were drawn up for about half of the
contracts examined. By disguising a general contribution to wide-
ranging activities as specific projects, ECHO contracts with the
UNHCR and the Red Cross made it difficult to draft reports, both
for the partner and for ECHO (see paragraph 24). For this reason,
both organisations sought exemption from this.

Financial monitoring

43. The Commission usually measures the progress of its activi-
ties by the rate at which payments have been made from the
Community budget. This indicator does not reflect the degree to
which ECHO activities are being implemented, because advance
payments are made as soon as contracts are signed (an average of
65 % of contract value for the Kosovo crisis).

44. The only financial information which ECHO in practice
received on the implementation of activities was the final finan-
cial report, which is due three months after contracts have expired.
In the absence of a financial progress report or statement of
expenditure, operational progress reports, where they are drafted,
do not always provide a useful indication of the status of activi-
ties as regards the sound management of funds. In several cases
funds were tied up unproductively without the situation being
detected. The period during which ECHO has no financial infor-
mation at its disposal increases in proportion to the reorienta-
tions and extensions which it grants.

45. Dissociating progress reports from financial reports is not
justified for management purposes and is detrimental to the
monitoring of activities. In several of the cases examined, the
partners provided a detailed budget of activities in support of
requests to extend contracts. However, ECHO never asked for a
statement of expenditure to date, even though such a statement
is necessary for a genuine assessment of the situation, in particu-
lar where requests are made at the end of the period initially
scheduled for implementation of the contract.

42. ECHO’s contributions to UNHCR and WFP programmes are
difficult for ECHO experts to assess and monitor. On the ground,
the UNHCR implements its programmes within the framework of
its internal letters of instruction and the results obtained in the
context of the ECHO operational contract which contributes to
financing them cannot always be assessed separately. The current
on-the-ground monitoring procedures are ill-suited to this kind of
operation, as are the arrangements for preparing budgets and pre-
senting accounts.

Contract 99/5009 to manage the Durres camp in Albania expired
on 5 July 1999. Only when the final financial report was submitted
on 3 November 1999 did ECHO note that only 0,25 million euro of
the 1 million euro budget had been spent, even though 84 % of the
staffing budget had been used. Thus, 0,6 million euro of the 80 %
advance paid remained needlessly unused. No recovery order was issued
by ECHO until March 2000.

For contract 99/07001 with the WFP, neither ECHO Brussels nor the
ECHO office in Pristina was able to provide information on the execu-
tion of the contract. Basic information as to what was provided, or
even in which country the ECHO humanitarian aid was provided, was
not available. Since ECHO had no information on how WFP funds
were used, there is a risk of overlap with assistance provided from the
6 March 1999 decision in favour of the victims of the conflict in
former Yugoslavia (1). Funds from this decision are also used for
ECHO-funded food aid to the most vulnerable.

(1) echo/tps/214/1999/01000; 69 million euro.

Management information systems

46. The Commission’s decisions provide for an indicative alloca-
tion based on geographical destination and for regional appro-
priations which are mainly intended for the Red Cross and United
Nations agencies. However, ECHO’s management information
system does not provide a reliable description of the activities
implemented for each country (and, in the case of the FRY, for
each province) mainly for the following reasons.

3.7.2002

EN

Official Journal of the European Communities

C 159/15

(a) Geographical descriptions do not correspond to needs.
Although Serbia, Montenegro and Kosovo are distinct inter-
vention areas both in the Commission’s decisions and in prac-
tice, the management information system refers only to the
FRY.

(b) Implementation is monitored on the basis of individual Com-
mission decisions, which also include non-emergency aid such
as that provided to Albania. Thus there is no global informa-
tion available concerning the Kosovo crisis.

(c) Activities which were identified as regional actually focused

on a geographical area which was not identified.

(d) Many activities were reoriented geographically without this

being recorded.

Regional contract 99/6029 with the Danish Red Cross (1,25 mil-
lion euro signed on 21 June 1999) was supposed to benefit displaced
people in Albania, the FRY and the FYROM. When the situation
changed unexpectedly in June, it was actually implemented in full in
Serbia. This change was not recorded in ECHO’s management infor-
mation system.

Justification for advances

47.
In the case of 48 % of all contracts concluded under the 1999
decisions for the Kosovo crisis, ECHO paid an advance of 80 %
when the contract was signed, the remaining contracts receiving
an advance of 50 %. In the case of eight (1) of the contracts exam-
ined, expenditure incurred on the date the contract was scheduled
to end was less than the amount advanced. There can be accept-
able operational reasons which justify contract extensions. How-
ever, in situations where initial advances turned out to be exces-
sive due to changing circumstances, it was not always clear from
the files that contract extensions were justified.

For one of the NGOs, which received an advance of 80 %, direct
expenditure accounted for only 25 % of the budget on the date activi-
ties were initially scheduled to end. Following the return of the refu-
gees, ECHO accepted the NGO’s proposal to redirect its activities,
despite the fact that the UNHCR, which was responsible for the coor-
dination of those activities, had already contracted local organisations
to carry them out.

(1) 99/4006, 99/5006, 99/6007, 99/6049, 99/6050, 99/6082, 99/6100,

99/6108.

48. Article 21(3) of the general conditions for ECHO contracts
provides for the payment of an advance of 50 %, with the pos-
sibility of a further payment of 30 % where a partner provides
justification of a sufficient rate of implementation. According to
Article 21(2) of the general conditions, the payment of an advance
of 80 % rather than 50 % must be justified by the nature of the
activities or by a schedule of expenditure. The contract-appraisal
files do not contain such justification.

Financial settlement

49. ECHO is late in calculating and making final payment in
respect of completed activities. A review of activities completed
at the end of February 2000 showed that 51 out of 64 contracts
which were completed before November 1999, i.e. more than
three months previously, had not been settled. The amount to be
settled for these contracts was 54 million euro. In the case of
activities under way before the evacuation of Kosovo in March
1999, the loss of files belonging to ECHO or to its partners delayed
the drawing-up of final accounts.

In the case of contract 98/2002 with the ICRC which expired on
17 February 1999, the final report was submitted on 15 June 1999,
and the final accounts had still not been drawn up by the beginning
of March 2000.

CONCLUSIONS

Overall appraisal

50. The extent and speed of population movements, together
with unexpected changes in the situation, posed problems to all
of the major humanitarian organisations responsible for channel-
ling the considerable amount of aid mobilised by the interna-
tional community in response to the Kosovo crisis. The main
problems encountered were the difficulty in responding immedi-
ately to large-scale needs (see paragraphs 26 to 32) and of coor-
dinating large numbers of participants each concerned with their
own priorities (see paragraphs 36 to 39), and the inertia of the
resulting complex aid mechanism (see paragraphs 34 and 35).

51. The staff and experts of ECHO displayed considerable com-
mitment in identifying and approving numerous humanitarian
aid activities. The speed, effectiveness and efficiency with which
resources were mobilised and subsequently implemented were
nevertheless hampered by a regulatory and procedural framework
which was ill-suited to the urgency of the situation (see para-
graphs 12 to 20) and to the major role played by the agencies of
the United Nations (see paragraphs 21 and 22).

C 159/16

EN

Official Journal of the European Communities

3.7.2002

52. Due to the practice of earmarking funds, ECHO’s contribu-
tions were difficult to integrate into the assistance mechanism in
spite of their considerable volume (see paragraphs 23 to 25).

managing emergency contracts, the management information
systems need to be developed and local offices require appropri-
ate logistical support.

53. The monitoring resources available did not enable ECHO
adequately to control the development of activities on the ground
in a rapidly evolving context. Priority was given to project-
appraisal procedures and the signing of contracts (see para-
graphs 40 to 46).

54. ECHO’s role and obligations in emergencies are those of an
active donor (see paragraphs 9 to 11). Mechanisms to mobilise
human and financial resources quickly (see paragraphs 27 to32)
and to draw lessons from earlier crisis situations were not in place.
This had an adverse impact on the capacity of ECHO to respond
quickly to the Kosovo crisis.

Recommendations

56.
If the European Union is to continue to allocate large parts
of ECHO’s emergency aid to United Nations agencies, a more real-
istic and more active approach to the financing of these organisa-
tions is required. Genuine participation by the EU in the program-
the UN agencies and
ming and administrative organs of
involvement in the audit arrangements of such agencies would be
appropriate, given the extent of the EU’s contribution to their
financing (see also Annual Report 1999 (1).

57. United Nations and Red Cross programmes need to be under-
stood in their entirety if their implementation on the ground is to
be properly monitored, which is not feasible under ECHO’s cur-
rent arrangements. ECHO should examine whether there are pos-
sibilities for shifting the present focus on measuring inputs, which
does not always reflect the real situation, to the measurement of
outputs based on quantified performance indicators.

55. Administrative procedures (decisions, authorisation of activi-
ties and payments) could be genuinely tailored according to the
degree of urgency. If ECHO assistance is to be more credible and
swift, appropriate decision-making procedures in the field have to
be established for the emergency phase of humanitarian crises. In
addition, sufficient staff needs to be allocated to operational units

58. ECHO should ensure that partners can provide appropriate
logistics when it finances sizeable purchase programmes. ECHO
should consider whether specialised supply agencies could pro-
vide this service with greater speed, economy and coordination
than NGOs acting separately.

This report was adopted by the Court of Auditors in Luxembourg at the Court meeting of 21 and 22 March
2001.

For the Court of Auditors

Jan O. KARLSSON

President

(1) 1999 Annual Report, paragraph 5.102 (OJ C 342, 1.12.2000).

3.7.2002

EN

Official Journal of the European Communities

C 159/17

ANNEX

BREAKDOWN OF THE 29 CONTRACTS EXAMINED:

Type of partner

Number of contracts examined

Total contract amount
(million euro)

15

7

5

2

29

33,0

18,4

34,3

10,0

95,7

By partner type

NGO

Red Cross family

UNHCR

WFP

Total

By geographical area

Kosovo

Albania

Regional

Fyrom

FRY

Total

Area

Number of contracts examined

Total contract amount
(million euro)

10

10

6

2

1

29

35,9

19,2

36,5

2,8

1,3

95,7

By sector of intervention

Sector

Number of contracts examined

Total contract amount
(million euro)

General

Shelter

Food

Medical

Water/Sanitation

Agriculture

Education

Monitoring

Refugee Camp

Total

10

5

4

3

2

2

1

1

1

29

49,6

11,7

14,0

6,1

6,8

3,8

1,6

1,1

1,0

95,7

C 159/18

EN

Official Journal of the European Communities

3.7.2002

THE COMMISSION’S DEFINITIVE REPLY TO THE ‘KOSOVO’ SPECIAL REPORT

SUMMARY

I. The Commission would like to underline that the EUR 400 million budget used in the Kosovo crisis rep-
resented almost a doubling of ECHO’s original budget, with virtually no additional staff. In practice this meant
that ECHO had to manage 12 additional decisions and 500 extra contracts.

II. The Commission accepts that the sample of contracts examined by the Court reflects ECHO’s main part-
ners (in terms of those partners having contracts with larger individual budgets), and the main geographical
areas and sectors of intervention. However, this may have led to insufficient focus on ECHO’s NGO partners,
which together ultimately received more than half of the funds.

In any case the Commission believes a review of the performance of all the organisations involved in the crisis
would show that ECHO’s overall performance was at least equal to that of other similar donor organisations.
The Commission also notes that one of the conclusions drawn by the independent evaluation of the function-
ing of ECHO submitted in April 1999 under Article 20 of the Humanitarian Regulation was that ‘ECHO is
currently financing the delivery of humanitarian assistance at least as well as any other organisation, and prob-
ably better and in a more cost-efficient manner than any other comparable international organisation’.

III.
In respect of the context within which EU humanitarian aid is implemented and its effect on the speed of
implementation, ECHO, as a Commission service, has to ensure that the humanitarian imperative is answered
whilst at the same time practising sound financial management, an obligation that is explicitly imposed by the
Treaties. In the meantime ECHO has taken a number of steps to streamline procedures further.

IV. The special characteristics of the UN are taken into account contractually by virtue of the fact that the UN
agencies agree to respect the conditions of the FPA on a contract by contract basis subject to the supremacy of
the separate EC-UN Agreements as far as the specific issues covered in those agreements are concerned.

V. The UN-EC Agreement itself recognised that certain points remained unresolved and needed further discus-
sions between the UN and the EC which have been started but not yet completed. The Commission agrees that
it is important to pursue these discussions.

In respect of the drafting of project-based budgets for the UN, there are cases where the Court is broadly cor-
rect in suggesting that this had little bearing on the related programme activities. However, in other cases the
project does have a clear identity of its own which permits separate management and also, in many cases they
form part of programmes designed in consultation with ECHO.

The Commission is, in any case, considering the option of financing shares of programmes and discussing the
issue with the UN but believes that, not only are there many implications to the change, but also there are other
linked issues to discuss at the same time (e.g. the accountability of the UN for output performance if controls
of inputs are weakened and the involvement of the Commission in the UN’s accountability scheme). The Com-
mission believes that such a change could create as many new problems as it solved if it was not managed care-
fully.

Even if those issues were resolved, the Commission believes that such a change could only be made after a
revision of the Financial Regulation, to obtain more flexibility in the financing arrangements that the Com-
mission can construct with international organisations, including the UN. The Commission has made propos-
als which would move in this direction.

3.7.2002

EN

Official Journal of the European Communities

C 159/19

VI. A number of ECHO headquarters staff did undertake missions to the field in order to assist with opera-
tional and administrative matters which meant that in most cases communication between Brussels and the
field was not a problem. The only gap the Commission recognises is that in some cases delays did arise due to
the need to get contract approvals from Brussels. However, recognising the need to improve on this, ECHO
has now identified specific staff within its organisation who are on standby to carry out these tasks when
necessary in the future.

VII. Given the scale, complexity and speed of the crisis on the ground it would have been astonishing if
ECHO’s experts had not encountered the kinds of problems with monitoring mentioned by the Court. It is
necessary to keep in a realistic perspective the extent to which regular systematic monitoring is possible in
such large-scale and complex crises, if a donor or agency wants to have an impact within a useful time frame.

In respect of the continuation of contracts longer than initially planned, the Commission wishes to
VIII.
underline that contracts were extended in large part due to the complexity and speed of the crisis and consid-
ers that these decisions were based on operational needs.

In any case, it would clearly be inefficient if ECHO ended contracts under which considerable costs have been
incurred, when, by extending the contracts, substantial tangible benefits could be gained for very low marginal
additional costs.

IX. The Commission believes that in fact ECHO did respond in an effective timescale although the fast-
changing situation on the ground meant that much of the effort needed to be re-orientated. The Commission
does accept that there can be difficulties in finding a balance between financing humanitarian actions in good
time whilst at the same time maintaining financial controls. This is an ongoing challenge faced by ECHO and
all major public sector donor organisations.

Certain of the Commission’s actions to simplify the regulatory and procedural framework have been referred
to already, most specifically the proposed changes to the financial regulations and changes to the decision mak-
ing process. The Commission appreciates the Court’s support on the need for change on some of these issues.

X. The Commission has already approved, at ECHO’s request, the principle of a new framework decision
procedure for emergencies to give further flexibility in responding to such situations. This will be implemented
shortly.

In respect of future relations with the UN, the Commission has instigated meetings both with the UN and the
Court to discuss these matters. Insofar as the issue relates to the possible move to funding shares of pro-
grammes rather than whole projects, the Commission is actively considering this but believes its implications
require careful study and that it would require a modification of the Financial Regulation to which has already
been proposed.

INTRODUCTION

assistance at least as well as any other organisation, and probably
better and in a more cost-efficient manner than any other com-
parable international organisation’.

5.
In any case the Commission believes a review of the perfor-
mance of all the organisations involved in the crisis would show
that ECHO’s overall performance was at least equal to that of
other similar donor organisations. The Commission also notes
that one of the conclusions drawn by the independent evaluation
of the functioning of ECHO from 1996 to 1998 submitted in
April 1999 under Article 20 of the Humanitarian Regulation was
that ‘ECHO is currently financing the delivery of humanitarian

6. The Commission accepts that the sample examined by the
Court reflects ECHO’s main partners (in terms of those partners
having contracts with larger individual budgets), and the main
geographical areas and sectors of intervention. However, this may
have led to insufficient focus on ECHO’s NGO partners, which
together ultimately received more than half of the funds.

C 159/20

EN

Official Journal of the European Communities

3.7.2002

CONTEXT OF ASSISTANCE

ECHO’s role

11. The Commission agrees that the requirement upon ECHO to
prepare daily situation reports probably did create an administra-
tive burden where a similar result could probably have been
achieved with a more simplified process.

Emergency procedures

12. The Commission is seeking to simplify its decision-making
processes generally as part of the Reform process. In addition, for
ECHO the Commission is considering delegating power to ECHO’s
Director to take decisions immediately within certain parameters
in certain predefined emergency situations.

In respect of the Court’s comments that cite the findings
17.
from the seminar which ECHO organised, at its own initiative, in
FYROM, the Commission makes the following remarks.

(a) ECHO’s ability to react in emergencies should be improved by
the facts that ECHO’s staffing is increasing and that from 2001
onwards it is proposed that the Director of ECHO will have
delegated powers to take decisions within certain parameters
in predefined emergency situations.

(b) ECHO’s concerns on emergencies have not been primarily
over the need for policies but more on whether its procedures
were sufficiently adapted for dealing with emergencies. As a
consequence, since the appointment of the new Director of
ECHO in March 2000 several changes to ECHO’s organisation
and amendments to procedures have been implemented.

(c) ECHO made many efforts to coordinate activities including
providing daily updates on operations to Member States. The
Commission does not believe that any lack of coordination
between or, with Member States can be held to be primarily
the Commission’s or ECHO’s responsibility.

13. The three specific FPA items mentioned by the Court, under
which derogations are allowed for emergencies, are in practice the
key areas where emergency flexibility is required.

(d) ECHO is at present researching the possibility of launching a
tender to have a technical assistance capacity available on
demand, for specific use in emergencies.

In order to accelerate the payments process for ECHO, ECHO
14.
has requested Directorate-General (DG) AUDIT to make one offi-
cial specifically responsible for fast track clearance of ECHO pay-
ments.

ECHO shares the recognition by the Court that, NGOs can sel-
dom provide preliminary financing for sizeable activities. It is one
of the reasons that advances of 80 % under many contracts were
felt to be necessary in the Kosovo crisis.

15.
In respect of the absence of more detailed financial informa-
tion under emergency contracts, it is true that ECHO did have dif-
ficulty with certain of its partners in fully enforcing this. The
questions of when and whether to provide more detailed financial
information under the FPA are to be clarified. In the next revision
of the FPA, ECHO intends to make more explicit the requirement
to provide supplementary information within a specified time
period.

Furthermore it should be noted that only a minority of the con-
tracts in the Kosovo crisis were under the emergency format which
gave rise to this problem.

18.
In respect of remedial actions to address problems identified
at the ECHO seminar, in June 2000 ECHO adopted a new organi-
sation structure following the approach of activity based manage-
ment by rationalising the organisation and clarifying tasks. This
new structure led to a redeployment of human resources where
today more than 60 % of the personnel are concentrated on
ECHO’s core activities.

These factors have also led ECHO to define its programming prin-
ciples for 2001 to include, for example, to seek more balanced
per-beneficiary allocations; to focus on unstable post-crisis situ-
ations; to make more systematic use of lessons learnt and evalu-
ations; and to continue to intervene in ‘forgotten crises’.

The Reform White Paper has also led ECHO to undertake a num-
ber of actions. These have included, for example, the reinforce-
ment of ECHO’s budget unit; the creation of an independent audit
capability jointly with the SCR (action 81); and a review and
assessment of current internal controls and financial processes
(action 84).

16.
In respect of the speed of recruitment of experts, ECHO is
examining the possibility of setting up a framework contract in
order to establish a nominated list of experts on standby, which
should allow an even quicker deployment.

19. Following experience of the revised FPA in 1999 and 2000,
ECHO is in the process of further updating and adapting it. It is

Framework Partnership Agreements (FPAs)

3.7.2002

EN

Official Journal of the European Communities

C 159/21

intended to complete this process in a shorter time frame than the
previous exercise. A first technical phase came into force on 1 Feb
2001. A second phase, to be completed by the end of the first
semester 2001, will address a limited number of more substantial
questions; ECHO will consult with its partners during this pro-
cess.

In any case, items of expenditure brought together for an ECHO
project should all be logically linked together and not random
collections of costs which exist within the programme.

EC-UN Agreement

21. Since the EU is not a Member of the UN, accountability for
EU contributions has to be established through contracts on a
case-by-case basis. The 1999 EC/UN Financing Framework Agree-
ment has facilitated cooperation with the UN system.

22. The Commission agrees that not all the problems in EC/UN
relations have yet been solved, indeed the EC/UN Agreement of
9 August 1999 explicitly identified certain areas which required
further review. It is essential that a mutually satisfactory solution
is found to the problems encountered in the concrete application
of certain elements of the EC/UN Agreement, such as reporting.
However, the Commission believes that both the UN and Com-
mission will need to change and that the changes will require
careful thought.

25. The Court is correct that the UN does not always provide
ECHO with adequate information about its performance at the
project level. However, changing the basis of the relationship so
that ECHO contracted at a programme level rather than project
level could create other problems if the change was not managed
carefully. Issues which need to be considered include the need to
move from input controls to output controls and the possible
inclusion of the Commission in the UN accountability scheme.

The Commission also believes that such an approach would not
be totally consistent with the current Financial Regulation. A revi-
sion of the Financial Regulation is under way and, in that context,
the Commission has proposed a modification that would allow it
to negotiate appropriate implementation modalities with interna-
tional organisations should they be agreed.

In respect of the example cited of the UNHCR use of ECHO funds,
it has clearly been difficult for the UN to track project level changes
in its accounting systems, but hopefully this will be overcome
with the improved software and financial reporting system being
installed at the UNHCR.

The failure to conclude contracts with the WFP at an earlier stage
was largely due to the WFP’s initial outright refusal to allow access
to original documents during an ECHO verification visit in July
1999. This led to the temporary suspension of payments in 2000.
There were also problems on the specific contracts mentioned
due to the WFP’s refusal of many requests to supply details of
budgets. ECHO, with the agreement of the Legal Service and DG
AUDIT, continued to maintain contacts with the WFP in order to
find solutions to the problems. The WFP finally made the infor-
mation requested available both for the verification and for the
budgets in accordance with ECHO’s original requests. Since then
the WFP and ECHO succeeded in using the funds concerned.

MANAGEMENT OF ACTIVITIES

Mobilisation of funds

26.

(No Commission response to this point).

Relevance of earmarking funds

In respect of the rate of use of funds during 1999 as a whole,

27.
a number of issues are relevant:

24. There are cases where the Court is correct that the projects
identified by major international organisations within their pro-
grammes for ECHO’s contracts are somewhat theoretical. How-
ever, this is not always the case as in some cases the projects have
a clear life of their own and can be separately managed. In any
case, ECHO is often involved with the partners in the construc-
tion of the programme in the first place so that in practice ECHO’s
role can be wider than simply the project in the contract.

(a) of the EUR 378 million, EUR 50 million was a contingency
which was specifically reserved for later use — thus 91 % of
the specifically allocated funds (excluding this contingency)
were accounted for in terms of contracts before 31 December
1999;

(b) a major problem was the way the nature of the crisis was
completely changed when the Kosovars all returned to Kosovo
suddenly and unexpectedly after KFOR entered the area;

C 159/22

EN

Official Journal of the European Communities

3.7.2002

(c) one of the problems that ECHO faced was getting proposals
from its partners that corresponded to ECHO’s strategy as
many partners were more concerned with infrastructure recon-
struction than humanitarian relief.

Given the circumstances then existing, the time frame and the
resources available to ECHO, the fact that 91 % of the specifically
allocated funds were entered into contracts counts as a significant
achievement.

The relatively slow rate of use of funds in the middle of 1999 was
primarily caused by the unforeseeable, rapid, massive and spon-
taneous return of Kosovar refugees in June 1999. The entire
humanitarian aid community was required to take time to reas-
sess the needs and modify their contracts at that time.

28. Dates of eligibility of expenditures are agreed with the part-
ners for each of the contracts. It is usually the partners that request
retroactive dates, although ECHO may suggest that the facility
exists.

29. Delays in the start up of operations and the signing of con-
tracts were of course also linked to the difficulties with the situ-
ation in the field.

The Commission believes that delays in using funds in 1999 did
not materially reduce the relevance and usefulness of Commis-
sion financed activities, indeed EUR 53,6 million of humanitar-
ian aid was already contracted by April 1999. In the context of
the complexity of the crisis the Commission does not consider
that the delays were unreasonable or that any other alternative
was available.

In respect of the difficulties encountered by the IFRC and ICRC
the return of refugees in June 1999 was spontaneous, massive and
rapid, as a result the major assistance programmes just under way
in the neighbouring countries, planned on the assumption of a
progressive return of refugees, were wrong-footed. ECHO’s actions
were mirrored by other humanitarian actors.

30. The Commission believes that the contract extension given
in the Court’s example was fully justified on operational grounds.
In any case, it is worth presenting the dilemma that frequently
arises in deciding whether or not to extend a contract, particularly
in situations as fluid as in the Kosovo crisis. The majority of
humanitarian contracts signed by ECHO take place in two stages.
A disproportionately large share of total contractual expenditures
(e.g. commodity procurement) are committed in this first stage.
The second stage takes place in the field where the partner

carries out distribution, rehabilitation etc. In the second stage
there can be many unforseeable reasons for which operations are
temporarily prevented from being carried out or the implementa-
tion is slowed. Even leaving aside humanitarian reasons, given the
large funds committed in the first stage, it would usually be against
the principles of sound financial management to refuse a contract
extension where that extension would achieve tangible results for
a low marginal cost — even if the results are sometimes inferior
to what was initially intended.

In respect of the example contract amendment which the Court
believes was agreed in order to keep the NGO’s presence in the
field without sufficient operational justification, the operational
background to this is that the project was originally a shorter-
term project to supply food but, after the return of the Kosovars
to their homes, this was changed to a longer-term project to sup-
ply agricultural inputs. The Commission considers that the amend-
ment was justified for the following reasons. Firstly, the Commis-
sion believes that clear proposals were presented both for the
original project and for the amended project. Secondly, due to its
changed nature, the amended project was for a longer period than
the original project which led to the justified need to keep staff in
the field. Thirdly, whilst it is true that, as with most partners, the
NGO did suffer some delays in deliveries due to the logistical
problems in the local area, following his field review — which
included obtaining the direct opinions of the beneficiaries —
ECHO’s expert considered that the final result of the project was
‘efficient’ and ‘coherent’.

ECHO resources and organisation

31.

(No Commission response to this point).

32. Members of ECHO’s finance unit spent several weeks in Pris-
tina to help with logistical matters. In practice, ECHO believes,
that at the time there was no alternative left open other than to
react in this manner. Since that time, regional administrative
assistants have been appointed in the Ivory Coast on 1 July 1999,
in the Horn of Africa on 1 September 2000, and in Skopje on
18 September 2000, to offer more flexibility on this issue and cer-
tain members of ECHO’s finance unit are permanently on standby
for deployment into these situations.

Appraisal of projects

33. Most project proposals included enough detail to allow ex
ante control of the staff resources although some emergency con-
tracts did not. One of the means of accelerating the implementa-
tion of emergency contracts was to accept that full details were

3.7.2002

EN

Official Journal of the European Communities

C 159/23

not required at the ex ante stage. In any case, the Commission
would like to draw attention to the realities of emergency actions.
Uncertainties are always present: the difficulty in predicting how
the crises will evolve, difficulties in identifying needs, difficulties
in coordination with other donors and aid agencies, difficulties in
locating experienced personnel and suppliers etc. Balance has to
be found between the time needed for complying with the pro-
cedural and regulatory frameworks under which public sector
humanitarian aid takes place and the humanitarian imperative of
meeting needs in the field.

Tailoring assistance to needs

34. The Commission accepts that some NGOs’ monitoring was
inadequate and this may have led to some inefficient use of
resources. It is, however, not altogether surprising to find that
some NGOs faced difficulties in this area in this complex and fast-
changing crisis.

37. Please refer to the Commission’s response to paragraph 39.

38. Please refer to the Commission’s response to paragraph 39.

39.
In respect of secondary distributors and multiple contract-
ing for procurement, not all of the difficulties encountered by the
NGOs in the area of procurement were foreseeable and even if
they could have been they weren’t necessarily avoidable. In any
case, it is not clear that there would have been any direct cost-
efficiency in all the seeds being purchased by one entity whereas
the use of several NGOs did give ECHO a lower level of risk and
some greater flexibility than would have been the case if only one
or two organisations had been used.

Whether or not the use of one organisation would have been
more efficient remains hypothetical.

Although the allocation of food in FYROM may not have been
optimal it is not clear that food was actually wasted.

Operational reporting

Although the allocation of shelter kits in Kosovo may not have
been optimal it is not clear that any were actually wasted. In fact,
in some cases ECHO did identify this problem at the time and
requested NGOs to improve the adaptation of their kits.

35. The IFRC was only one agency among many to have been
wrong-footed by the unforeseeable return of the refugees.

40. Under the FPA contract, monitoring reports should be drawn
up on a regular basis and in many cases they are. Where NGOs
do not provide this information, ECHO attempts to ensure that it
is received.

41. ECHO has had difficulties obtaining progress reports on
operations from some of its major partners. This is a matter of
ongoing discussion between the different parties. However, the
Court’s remarks in paragraph 40 indicate the difficulties which
can arise when such progress reports are not followed.

The delivery of radios to refugees after they returned home was
certainly less useful than it would have been in Albania but, given
the continuing uncertainties of the situation and the fragile infra-
structure they did have some value to the returned refugees. Part
of the problem was the difficulty in getting a swift response from
the ICRC at the time in order to adjust the contractual arrange-
ments.

42. Difficulties for ECHO’s experts in monitoring the operations
of some of its major partners, have to be considered in the con-
text of the wider complex issues underlying those relations, and
also of the obligations on ECHO to ‘earmark’ its funds to projects
and the fact that the Commission is making proposals to adapt
this obligation.

Organisation of procurement and delivery

In respect of possible overlaps of funding of WFP contracts, to the
extent this was a problem it arose due to the difficulty of obtain-
ing information from the WFP on the execution of its contracts.

36.
In respect of division of the emergency shelter logistical
operation into seven regions, in fact the UNHCR acted as coordi-
nator between UNHCR, OFDA and ECHO and all NGOs financed
by one of those donors were allocated a list of villages for which
they took responsibility and for which effective coordination took
place once a week. It is probably the case that some NGOs with
independent funding implemented shelter programmes which
they did not coordinate under the UNHCR’s umbrella coordina-
tion.

Financial monitoring

43.
In most contracts advances are usually consumed very soon
after they are paid. Given the complexity of the Kosovo crisis this
was probably less true in this case than usual.

C 159/24

EN

Official Journal of the European Communities

3.7.2002

44. For the standard operational contracts, quarterly reporting
by ECHO’s partners is required, on document 4 of the FPA. This
document requires the partner to give financial details as to the
execution rate of the budget, to state any changes to initial and/or
modified budget, to state the proposed reallocation of unused
amounts. Whilst this is not a detailed report this is useful financial
information.

48. The question of whether to give 50 % or 80 % advance is
always given consideration by both the desk officer and the
finance unit. It is true that their reasoning is not systematically
noted on the file but the fact that the majority of contracts received
only 50 % advances indicates that such consideration does take
place.

Emergency contracts are intended to be of short duration and
thus there is relatively little opportunity to make interim reports.

It is also the case that for all contracts signed with UN partners
after the EC/UN Agreement entered into force in August 1999 it
was envisaged that an 80 % advance would be more usual, with
the possibility of advances up to 95 % upon justification.

In all cases, where the partner requests a budget amendment or
complementary payment ECHO requires a detailed interim finan-
cial report.

Financial settlement

45. ECHO’s partners are already obliged to provide financial
reports in all cases which concern the reallocation of contract
budgets or complementary payments. This principle should prob-
ably be extended to include extensions of contracts.

In respect of the low usage of funds for the Durres camp, having
become aware of this in November 1999 through the NGOs’ final
financial report, the Commission contacted the NGO to obtain
further details and understanding of the situation. A recovery
order was established on 10 March 2000 and the partner reim-
bursed the amount on 29 May 2000.

Management information systems

It is more difficult to prepare data on humanitarian crises
46.
where the crises may involve several geographical regions and
refugees themselves may cross several State frontiers. The infor-
mation is always obtainable. It is just that it requires more manual
intervention in the more complex crises than in the less complex
crises. ECHO is currently improving its management information
systems which should eventually allow such information to be
more easily accessible.

Justification for advances

49. ECHO’s contracts with partners stipulate that their final
financial reports, which are required to support their request for
final contract payments, should be submitted within three months
of the end of the projects. In practice, most partners take most of
the three months (and sometimes more) to submit their reports.
Following receipt, the Commission needs to perform validity
checks before making the final payment and closing off the con-
tract and then put in motion the actual process of raising pay-
ment. It is therefore unsurprising that the final payments for the
contracts completed by November 1999 had not been paid by
February 2000.

The delay in liquidating contract 98/2002 was caused by a num-
ber of factors: the operational unit staff members responsible for
evaluating the final reports were overstretched; this contract and
a number of others signed before the evacuation of Kosovo in
March 1999 suffered from delays in liquidation as the local offices
of ECHO and the ICRC were ransacked and papers were lost; the
ICRC claimed that it requested an amendment to this contract
from ECHO Brussels but no trace of such an amendment request
was found. The contract was finally paid by end June 2000.

CONCLUSIONS

Overall appraisal

47. Given the high level of expenditure incurred in the early part
of every operation and the fact that the vast majority of ECHO’s
partners have been operating for a number of years and thus
present a lower level of financial risk, advances of funds of up to
80 % can be justified.

For contracts signed between ECHO and its major UN partners
after the EC/UN Agreement entered into force in August 1999 an
advance of 80 % became more common. Indeed advances to UN
bodies can be up to the level of 95 % with justification.

Please also see the Commission’s response to paragraph 48 below.

50. The Commission agrees with the Court that there were many
extreme features in this particular crisis which made it particu-
larly difficult to manage.

Please see the Commission’s detailed responses to paragraphs 27
to 32, 36 to 39, 34 and 35.

51. Considerable efforts have been and continue to be made
within the Commission to seek a constant improvement and to
alleviate unnecessary difficulties. However, this is always within
the context that procedures will inevitably be required to protect
public funds.

3.7.2002

EN

Official Journal of the European Communities

C 159/25

Please see the Commission’s detailed responses to paragraphs 14,
15 and 17 to 19, and 21 to 22.

52. Changing the practice of earmarking of funds to specific
projects could have many consequences which require careful
consideration. For example, the Commission is not yet satisfied
that the UN’s programme reporting procedures (which are still
orientated towards inputs rather than outputs and outcomes)
would yet justify reducing the element of control which ECHO
currently gains by operating with project funding. The Commis-
sion is considering this and in any case is making proposals to
simplify the Financial Regulation on this point. However, it believes
that changing this approach requires careful consideration and
negotiation.

Please see the Commission’s detailed responses to paragraphs 24
and 25.

In respect of monitoring the use of resources, this is among
53.
the most difficult parts of the whole process. Though controls on
project-appraisal and contract-signing were more evident, con-
siderable efforts — which were sometimes frustrated — were also
going into monitoring, indeed the Commission had 9 field experts
working on monitoring by the peak of the crisis.

Please see the Commission’s detailed responses to paragraphs 46
and 49 to 51.

54.

(No Commission response to this point).

The Commission’s responses to the Court’s summary lists some
of the considerable number of improvements to its systems which
ECHO and the Commission have undertaken since the date of the
audit, in order to be capable of responding even more effectively
to emergencies. However, the Commission does accept the need
for this process of procedural improvement to continue.

At the same time, the Commission believes that the huge scale of
the crisis and the speed with which matters changed on the ground
were bigger adversities in the Kosovo crisis than were ECHO’s or
the Commission’s procedures.

56. Concerning the development of the EU’s role within the UN,
the Commission has taken the initiative to try to strengthen the
dialogue with the UN in the past year and is currently awaiting a
response from the UN for a date to start negotiations on some of
the matters outstanding from the EC/UN Agreement.

57. The Commission has already started the discussion, inter-
nally and with the UN, on the issue of programme or project
focus although it will take some time to consider all the many
implications of this change, particularly as it will require changes
for both the Commission and UN and if not managed properly
may lead to more work for both sides.

The Commission welcomes the Court’s recommendation to exam-
ine moving from a focus on inputs to the measurement of out-
puts based on performance indicators.

Recommendations

55. The Commission believes that substantial efforts have been
made in order to adapt the procedures to allow for speedy and
effective reactions. These efforts are continuing.

Please see the Commission’s detailed responses to paragraphs 12
and 17 and in the summary.

In respect of considering whether specialised supply agen-
58.
cies could provide logistical services this point was raised by
ECHO in its FYROM report. There are a number of international
agreements that affect procurement by public sector bodies. These
would have to be examined before the Commission could create
framework contracts with specialised agencies for procurement,
logistics and supply functions. However, the Court’s support for
this idea is welcome.