Opinion of the Economic and Social Committee on the "Proposal for a Council Regulation (EC, ECSC, Euratom) on the financial regulation applicable to the general budget of the European Communities"
Date: 2001-07-11
Institutions: European Economic and Social Committee
Subjects: financial management, financial regulation, general budget (EU)

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Official Journal of the European Communities

17.9.2001

Opinion of the Economic and Social Committee on the ‘Proposal for a Council Regulation (EC,
ECSC, Euratom) on the financial regulation applicable to the general budget of the European
Communities’

(2001/C 260/08)

On 30 November 2000 the Economic and Social Committee, acting under Rule 23(3) of its Rules of
Procedure, decided to draw up an opinion on the above-mentioned proposal.

The Section for Economic and Monetary Union and Economic and Social Cohesion, which was
responsible for preparing the Committee’s work on the subject, adopted its opinion on 26 June 2001.
The rapporteur was Mr Bento Gonçalves.

At its 383rd plenary session (meeting of 11 July 2001), the Economic and Social Committee adopted the
following opinion with 108 votes in favour and five abstentions.

1.

Introduction

1.1.
The Committee’s work was based on various docu-
ments in addition to the current Financial Regulation (1). The
most important of these documents are:

— the fifteen separate amendments made since 1977 to the
Financial Regulation applicable to the general budget of
the European Communities (2);

— the institutional changes made by the Treaties of Maas-

tricht and Amsterdam;

— the opinion of the Court of Auditors of the European
Communities (No. 4/97 of 10 July 1997) on the Com-
mission proposal of 26 July 1996;

(1) OJ L 356, 31.12.1997, p. 1.
(2) Council Regulation (ECSC, EEC, Euratom) No. 1252/79 of
25.6.1979 — OJ L 160, 28.6.1979, p. 1; Council Regulation
(EEC, Euratom, ECSC) No. 1176/80 of 16.12.1980 — OJ L 345,
20.12.1980, p. 23; Council Regulation (ECSC, EEC, Euratom)
No. 1600/88 of 7.6.1988 — OJ L 143, 10.6.1988, p. 1; Council
Regulation (ECSC, EEC, Euratom) No. 2049/88 of 24.6.1988 —
OJ L 185, 15.7.1988, p. 3; Council Regulation (Euratom, ECSC,
EEC) No. 610/90 of 13.3.1990 — OJ L 70, 16.3.1990, p. 1;
Council Regulation (ECSC, EC, Euratom) No. 1923/94, 25.7.1994
— OJ L 198, 30.7.1994, p. 4; Council Regulation (ECSC, EC,
Euratom) No. 2730/94 of 31.10.1994 — OJ L 293, 12.11.1994,
p. 7; Council Regulation (EC, Euratom, ECSC) No. 2333/95 of
18.9.1995 — OJ L 240, 7.10.1995, p. 1; Council Regulation (EC,
Euratom, ECSC) No. 2334/95 of 18.9.1995 — OJ L 240,
7.10.1995, p. 9; Council Regulation (EC, Euratom, ECSC)
No. 2335/95 of 18.9.1995 — OJ L 240, 7.10.1995, p. 12;
Council Regulation (EC) No. 2444/97 of 22.9.1997 — OJ L 340,
11.12.1997, p. 1; Council Regulation (EC, ECSC, Euratom)
No. 2548/98 of 23.11.1998 — OJ L 320, 28.11.1998, p. 1;
Council Regulation (EC, ECSC, Euratom) No. 2779/98 of
17.12.1998 — OJ L 347, 23.12.1998, p. 3; Council Regulation
(EC, ECSC, Euratom) No. 2673/1999 of 13.12.1999 — OJ L 326,
18.12.1999, p. 1; Council Regulation (EC, ECSC, Euratom)
No. 762/2001 of 9.4.2001 — OJ L 111, 20.04.2001, p. 1.

— the opinion of the Court of Auditors of the European
Communities (No. 2/2001 of 8 March 2001) on the
Commission proposal (3), together with a table comparing
the Commission’s and the Court’s proposals;

— the working document of

the Commission on the

recasting of the Financial Regulation (4).

A number of general comments and concerns are

1.2.
prompted by all the technical and legal documentation:

— the need for greater discipline

and exigency in
implementing the budget, thereby avoiding or reducing
as far as necessary any exceptions from the eight basic
principles governing budget law;

— the need for greater clarity and discipline in the annual
presentation of accounts, as provided for in Title VI of
Part I of the Regulation, thereby ensuring transparency,
reliability and comparability between financial years and
permitting and facilitating the checks to be made by the
competent authorities;

— the creation of instruments for simplifying verification of
documents and identification of those responsible for
commitments and the fulfilment of all regulatory require-
ments. This will strengthen and enhance the role of
the control authorities, thereby improving transparency
considerably.

1.3.
On 26 July 2000, the European Commission presented
a proposal for recasting the whole of the Financial Regulation,
as part of the process of modernising and simplifying the
European Union’s administration.

(3) COM(2000) 461 final.
(4) SEC(1998) 1228 final, of 22.7.1998.

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1.3.1.
This opinion therefore considers the content of the
Commission proposal for a Council Regulation which recasts
the Financial Regulation applicable to the general budget of
the European Communities (1).

— creation of an overall hierarchy for financial management
legislation, with the Financial Regulation laying down the
basic rules and principles and subordinate regulations
specifying the implementing procedures and more detail-
ed practical rules.

2. General considerations

As already stated above, the current Financial Regu-
2.1.
lation dates back to 21 December 1977. Since then the text
has been amended fifteen times. These amendments have been
to points of detail and have sought in essence to provide a
response to:

— the need for growing discipline and exigency with regard

to Community finances;

— the changes brought about within the Communities by
successive enlargements and the new economic and
financial framework resulting therefrom;

— institutional changes, especially those introduced by the

Treaties of Maastricht and Amsterdam.

2.1.1.
As the Court of Auditors of the European Communi-
ties points out in its opinion (2), the Financial Regulation,
which already displayed a number of inconsistencies ‘owing to
the co-existence of several different sets of rules’, has become
less and less consistent as a result of these fifteen amendments.

2.2.
A proposal for the overall revision of the Regulation
— instead of an indeterminate number of new amendments to
points of detail — is therefore justified.

This overall revision will

2.3.
improve this important
instrument for the financial management of the Communities
in a number of areas where improvements must be made. The
following are the main improvements that have to be made,
though this list is not exhaustive:

— simplification of the rules applicable to the financial
management of the Communities, albeit without neglect-
ing the need for discipline and transparency;

— revision of budgetary nomenclature so as to provide a
more precise definition of terms used in the current
Financial Regulation which have never been defined;

— elimination of terms and expressions used in the Financial
Regulation — not necessarily concerning an exception to
a principle — which contribute towards legal imprecision
or uncertainty, e.g. ‘where appropriate’, ‘in principle’ or ‘if
need be’;

(1) COM(2000) 461 final of 17.10.2000.
(2) Opinion No. 4/97 of 10.7.1997 — OJ C 57, 23.2.1998, p. 1.

The Commission’s main objectives in recasting the

2.4.
Financial Regulation are:

— simplification (along with consolidation, bearing in mind
in this context the fifteen amendments introduced since
1977 and the separate instruments produced in the
meantime such as vade-mecums and sectoral regulations
applicable to the Structural Funds). This need for simplifi-
cation also reflects a concern about the readability of the
document. The new document is thus to be divided into
three parts — part one dealing with common provisions,
part two with specific provisions setting out the excep-
tions which apply in highly specific fields, and part three
with the transitional and final provisions;

— modernisation of the budget structure, to be brought
about by adapting it to activity-based management and
allowing the cost of each political objective or each
activity to be shown in full (activity-based budgeting);

— financial discipline: this will result, according to the
Commission, from the clear presentation of not only the
eight budgetary principles but also the limited exceptions
permitted in applying these principles.

The Committee recognises that, generally speaking, the

2.5.
proposal satisfies these major objectives.

2.6.
Given the wide scope and highly technical nature of
the proposal, this opinion will not consider its content in full.
Instead it will look at the articles which have been added to
the present Financial Regulation or which contain major
changes.

2.7.
The recasting of the Financial Regulation is one of the
present Commission’s most important legal projects, and the
Committee trusts that the unanimous vote required in the
Council for its approval will not be difficult to obtain.

2.8.
As the representative of organised civil society — a
term which also includes the social partners and organisations
representing various other interests, the Committee attaches
great
importance to sound and transparent EU financial
management which makes optimum use of resources. It should
be noted in this context that the Committee is also one of the
institutions whose activities are governed by the Financial
Regulation.

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2.9.
The Committee notes that the procedure suggested by
the Court of Auditors but not adopted by the Commission
would have had an indeniable advantage over the procedure
being used now. The suggested procedure involved the estab-
lishment of a top-level working party (including outside
experts) to give detailed consideration to the new financial
rules of the Communities. It could have helped, inter alia, to
shorten the time taken to produce the final version of the
proposed rules.

Because of

2.10.
their importance as concepts and in
providing a framework setting out a budgetary philosophy,
the principles of budget law are considered separately.

3. The principles of budget law

3.2.2.

The principle of annuality is defined in Article 271:

‘The expenditure shown in the budget shall be authorised
for one financial year, unless the regulations made pursuant
to Article 279 provide otherwise.’

3.2.2.1. With regard to the application of this principle, the
Committee recognises that, as the Commission itself states,
natural management requirements do not allow the use of
appropriations to be strictly subordinated to an end-of-year
deadline (1). Hence the justification for the exceptions to the
annuality rule contained in the proposal:

— the ‘additional period’

in the financial year for the
charging of EAGGF expenditure (up to 31 January of the
following year);

Article 2 of the proposal specifies eight basic principles

3.1.
of budget law:

— the carryover arrangements for appropriations (Article 8

of the proposal) (2);

— unity of the budget;

— annuality;

— the arrangements for making appropriations available

again (applicable only to the Structural Funds) (3).

— equilibrium between revenue and expenditure;

3.2.3.
expenditure is spelt out in Article 268:

The principle of equilibrium between revenue and

— unit of account;

— universality of the budget;

— specification;

— sound financial management;

— transparency.

The first seven of these principles are defined in the

3.2.
Treaty establishing the European Community.

3.2.1.
Article 268:

The principle of unity of the budget is set out in

‘All items of revenue and expenditure of the Community,
including those relating to the European Social Fund, shall
be included in estimates to be drawn up for each financial
year and shall be shown in the budget.’

3.2.1.1.
proposal reaffirming and implementing this principle:

The Committee welcomes two points made in the

— the elimination of the controversial negative amounts

(negative revenue and expenditure);

— the inclusion in the Financial Regulation of the oper-
ational expenditure on the common foreign and security
policy (CFSP) and cooperation in the field of justice and
home affairs (JHA).

‘The revenue and expenditure shown in the budget shall
be in balance.’

3.2.4.
Article 277:

The unit of account principle is to be founded in

‘The budget shall be drawn up in the unit of account
determined in accordance with the provisions of the
regulations made pursuant to Article 279.’

3.2.5.
defined in Article 268:

The principle of the universality of the budget is

‘All items of revenue and expenditure of the Community,
including those relating to the European Social Fund, shall
be included in estimates to be drawn up for each financial
year and shall be shown in the budget.’

3.2.5.1.
The proposal retains earmarked revenue as an
exception to this principle (Article 17). Such revenue will exist
on a larger scale in future owing to the elimination of negative
expenditure.

(1) Commission working document SEC(1998) 1228 final of

22.7.1998.

(2) In its opinion No. 2/2001 the Court of Auditors thinks that these
carryover arrangements for appropriations are unnecessary since
they not only have a marginal financial impact but also make the
accounts management systems additionally complicated.

(3) The Court of Auditors also thinks that these arrangements are not

justified.

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In a recent opinion on the financing of

3.2.5.2.
the
common agricultural policy (1), the Court of Auditors stated
that agricultural revenue which hitherto had appeared in the
budget as negative expenditure should be treated as general
revenue and not as earmarked revenue, as it recognised that
‘there may be circumstances in which certain specific receipts,
outside the field of EAGGF-Guarantee, could enable insti-
tutions to spend corresponding amounts for related purposes
without the need for fresh budgetary authorisation’.

3.2.5.3.
The Committee would, however, reaffirm what it
said in its opinion on the proposal for a Council Regulation
amending Regulation (EC) No. 1258/1999 on the financing of
the CAP (2), namely that in the specific case of the EAGGF
Guarantee Fund, earmarked revenue must be available only for
applications coming under that Fund. In the same opinion the
Committee also welcomed the transformation of negative
expenditure into earmarked revenue as a means of putting the
budget principle of transparency into effect — a view it would
reiterate within the context of the present opinion.

3.2.6.

The specification principle is defined in Article 271:

‘Appropriations shall be classified under different chapters
grouping items of expenditure according to their nature or
purpose and subdivided, as far as may be necessary,
in accordance with the regulations made pursuant to
Article 279.’

3.2.6.1.
The exception to this principle, as the Court of
Auditors recognises in its opinion 4/97 is the possibility to
transfer appropriations.

3.2.6.2.
Transfers of appropriations are also provided for
in Article 274 of the Treaty establishing the European Com-
munity.

The proposal has standardised the procedures
3.2.6.3.
the Community institutions, making it
applicable to all
possible for them to decide about transfers between chapters
and articles, but leaving the decision about transfers between
titles to the budgetary authority.

3.2.6.4.
On the other hand, the Commission has retained
its current powers with regard to transfers of appropriations,
although for operational expenditure there will be a limit on
transfers between chapters within one title. This limit will be
set at 10 % of the initial appropriations on the line from which
the transfer is made.

3.2.6.5.
making budgetary procedures more flexible.

The Committee is in favour of this mechanism for

3.2.7.
out in Article 274:

The principle of sound financial management is set

‘The Commission shall implement the budget, in accord-
ance with the provisions of the regulations made pursuant
to Article 279, on its own responsibility and within the
limits of the appropriations, having regard to the principles
of sound financial management. Member States shall
cooperate with the Commission to ensure that the appro-
priations are used in accordance with the principles of
sound financial management.’

3.2.7.1.
This principle is defined in the proposal by refer-
ence to the principles of economy, efficiency and effectiveness,
thereby helping to delimit the rule more effectively.

3.2.8. With regard to the principle of transparency and its
implementation, the following new points introduced by the
proposal are to be welcomed:

— the requirement that the budget be published swiftly
— two months after its adoption by the European
Parliament;

— the elimination of negative amounts (negative revenue

and expenditure);

— the obligation to publish the consolidated revenue and
expenditure account and balance sheet in the Official
Journal;

— the provision of information (in an annex to the budget)
on borrowing and lending operations contracted by the
Community.

4. The proposal in detail

4.1.
Part I of the proposal — Common Provisions —
contains seven titles: Title I (Articles 1-28), ‘General provisions’;
Title II (Articles 29-44), ‘Establishment and structure of the
budget’; Title III
‘Implementation of the
‘Procurement’; Title V
budget’; Title IV (Articles 83-100),
(Articles 101-114), ‘Grants’; Title VI (Articles 115-122), ‘Keep-
ing and presentation of
the accounts’; and Title VII
(Articles 123-133), ‘External audit and discharge’.

(Articles 45-82),

4.1.1.
Article 1 defines the scope of the proposed text,
which extends beyond the strict framework for the budget and
its implementation to be found in the present Financial
Regulation.

(1) Court of Auditors’ opinion No. 1/2001 (OJ C 55, 21.2.2001),

point 31.

(2) OJ C 123, 25.4.2001.

4.1.1.1.

The proposal now also includes rules relating to:

— the keeping of accounts;

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— procurement;

— the award of grants by the Communities;

— the liability of the authorising officers, accounting officers

and internal auditors;

— external control.

Article 2 is new,

4.1.2.
incorporating in the Financial
Regulation the eight basic principles of budget law, already
commented on above in point 4.

4.1.3.
Article 3(2) includes in Community expenditure and
revenue the administrative and operational expenditure for the
common foreign and security policy and for cooperation in
the field of justice and home affairs — when this is charged to
the budget. This will bring the Financial Regulation into line
with the Treaty of Amsterdam.

The principle of budgetary equilibrium is defined in
4.1.4.
Article 13, which also specifies that the Communities may not
raise loans to cover a budget deficit.

4.1.8.
Bearing in mind the clarity and transparency objec-
tives, it is useful for Article 38(2) to stipulate that in the
classification of revenue and expenditure a ‘title’ is to corre-
spond to a policy area and a ‘chapter’ is to correspond as a rule
to an activity.

Article 39 includes a major innovation, namely the
4.1.9.
ban on including negative revenue and expenditure in the
budget.

The authorisation and existence in the budget of
4.1.9.1.
negative amounts was heavily criticised by the Court of
Auditors in its opinion(1). The Court considered that such
negative amounts not only contribute to a lack of transparency
in the budget process but also infringe the principle of
universality. Furthermore, they make it more difficult to read
and understand the budget.

4.1.10.
The sectoral regulations applicable to agriculture,
where very high ‘negative expenditure’ is provided for (i.e.
the amounts recovered following fraud or irregularities, the
supplementary levy on milk, etc.), stipulate that such expendi-
ture is to be transformed into earmarked revenue. The Financial
Regulation (Article 17 of the proposal) provides for two types
of earmarked revenue:

4.1.4.1.
purpose of investments in immovable assets.

The Communities may raise loans only for the

— that defined in the Financial Regulation (and already

provided for in the current Regulation) and

4.1.5.
Article 21 extends the scope for transferring appro-
priations, by allowing the Commission to transfer appropri-
ations with regard to expenditure on staff and administration
from one title to another without the authorisation of the
budgetary authority. The Committee welcomes this.

4.1.5.1.
Under the current Financial Regulation, transfers
of appropriations are only possible without the authorisation
of the budgetary authority if they are between chapters and
articles within the same section of the budget.

4.1.6.

Article 27 introduces two innovations:

— the principle of budgetary transparency is laid down

[Article 27(1)];

— the consolidated revenue and expenditure account and
balance sheet also have to be published in the Official
Journal [Article 27(3)].

— that provided for in specific Regulations.

4.1.11. With regard to the negative amounts, provision has
only been made for a ‘negative reserve’
limited to EUR
200 million, to be drawn on before the end of each financial
year (Article 41 of the proposal).

4.1.11.1.
The Commission deems it necessary to retain this
‘negative reserve’, which was introduced by the budgetary
authority as a negotiating tool to facilitate the conclusion of
an agreement between the institutions taking part in the
budget procedure. This view is shared by the Committee.

4.1.12.
Article 44 of the proposal introduces some flexi-
bility in the management of the Community institutions’
establishment plans.

4.1.12.1.
Apart from reaffirming the principle (enshrined
in the current Financial Regulation) that the establishment plan
is to constitute an absolute limit for each institution and that
no appointment may be made in excess of the limit set, the
Commission now states that ‘within the limit of the budget
appropriations’ each institution may modify its establishment
plan by up to 10 %, except in the case of grades A1 and A2.

Article 38(1) specifies that the revenue and expendi-
4.1.7.
ture of the Commission and the other institutions is to be
classified by the budgetary authority.

(1) Opinion No. 4/97 of 10.7.1997 — OJ C 57, 23.2.1998, p. 1.

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4.1.13.
Articles 50 to 53 introduce the principle of shared
management with the Member States, especially with regard
to the EAGGF Guarantee Section and the Structural Funds,
which after all account for the lion’s share of the Communities’
operational budget.

4.1.13.1.
This shared management obliges the Financial
Regulation to define a set of rules applicable to the Member
States on the principles and mechanisms of budget manage-
ment and on their obligations to present accounts with regard
to resource management.

As regards the principles of budget management,
4.1.14.
the proposal explicitly obliges the Member States to observe
the principle of sound financial management — Article 45(2)
— while recognising the need for cooperation between the
Member States and the internal auditor [see Article 81(2)].

4.1.19.
The Committee has reservations about the abolition
of the post of financial controller, as the financial controller is
explicitly identified in Article 279 of the Treaty establishing
the European Community as one of the players involved in
Community financing, unless — as the Commission seems to
be considering — the duties of the financial controller are to
be assumed by the internal auditor.

4.1.20.
The authorising officer is thus to assume full
responsibility for the internal controls carried out by his
implementation and
department and for the management,
control methods which he considers appropriate for that
department.

Articles 57 and 58 set out

4.1.21.
the
authorising officer and accounting officer. In particular, the
accounting officer (Article 58) is to be responsible for book-
keeping and management of the treasury, and his powers are
to be extended to include laying down accounting rules and
obtaining accounting information.

the duties of

In the chapter on financial actors — Articles 55
4.1.15.
to 59 — the proposal follows the line taken by the Court of
Auditors and drops the current system of centralised ex ante
controls. More specifically, it

— abolishes the post and duties of the financial controller,
who used to play an important role vetting budgetary
commitments and payments in advance;

— drops the accounting officer’s verification of the validity
of discharge acts and procedures and of observance of
the Financial Regulation’s provisions — a process which
used to give him the power to suspend payments.

Overall, the Committee considers that the duties of
4.1.22.
all the actors involved in budget implementation and control
— authorising officer, accounting officer and internal auditor
— must be spelt out more explicitly. In the case of the
to be made
accounting officer, a clear distinction ought
between book-keeping and management of the treasury.

Articles 60, 61 and 62(2) and (3) contain new
4.1.23.
provisions on the liability of the financial actors. These make
it possible to suspend and discipline authorising officers,
accounting officers and imprest administrators. Principles are
also laid down regarding the hierarchical
liability of these
persons.

The abolition of centralised ex ante controls will
4.1.16.
strengthen the duties and responsibilities of the authorising
officer.

4.1.24.
The Committee considers that there should be rules
for authorising officers which serve the same purpose as those
proposed for accounting officers (Article 63) and imprest
administrators (Article 64).

4.1.17.
It is true that under the current Financial Regulation
the authorising officer already intervenes not only in the
budget implementation procedures but also in the financial
management proper of the institutions. However, under the
proposal he will no longer share these tasks and responsibilities
with the accounting officer.

4.1.18.
The Committee thinks that this extension of the
authorising officer’s powers and responsibilities would justify
the inclusion in the Financial Regulation of rules governing his
responsibility for the correctness and legality of the procedures
which he uses and for the internal audit systems that are to be
implemented.

4.1.25.
The Committee welcomes the new provision in
Article 67 regarding the payment of interest to the Community
budget on ‘every amount receivable that is identified as being
certain, of a fixed amount and due’.

4.1.26.
As a quid pro quo, a new provision in Article 77
stipulates that creditors are to be paid interest from the
Community budget.

Article 68(1) of the proposal

includes the new
4.1.27.
provision that amounts due to the Communities may be
recovered by being offset.

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4.1.28.
Article 69 retains the provision that fines and other
equivalent penalties are not to be finally recorded as revenue
as long as appeals may still be lodged with the Court of Justice.

4.1.36.
Bearing in mind the financial discipline and trans-
parency objectives, the inclusion in the proposal of ‘public
contracts’ [Article 83(1)] and the principles applicable to such
contracts [Article 84(1)] is justified.

4.1.28.1.
However, the proposal differs from the present
Financial Regulation in allowing decisions on clearance of
accounts or financial corrections to be excepted from this rule.

4.1.29.
Article 70 contains a new ‘commitment of expendi-
ture’ concept. This is to be welcomed in the context of
improving transparency. The commitment of expenditure is
to be made up of a budget commitment and a legal commit-
ment, i.e. entering into an obligation with regard to a third
party. The Committee suggests that the meaning of a legal
commitment be spelt out.

4.1.30.
operations which a payment may cover is also welcome.

The specification in Article 75(1) of the different

The Committee considers that the new post of
4.1.31.
internal auditor (Articles 80 to 82) is important. The role of
the internal auditor is to guarantee the quality of the internal
management and control systems.

In the light of the experience gathered by the
4.1.37.
Community and the need for more to be done to fight fraud
and corruption, the Committee welcomes the provision in
Article 84(3) allowing the Community institutions to suspend,
refuse or recover amounts paid for contracts in respect of
which they feel that the award procedure was vitiated by error,
irregularities or fraud.

By the same token it welcomes the inclusion in
4.1.38.
Section 4 of Chapter 1 (Article 88-90) of provisions regulating
exclusion from procurement procedures.

4.1.39.
The proposal chooses to incorporate in this instru-
ment governing the financial management of the Communities
some of the rules already to be found in Community Directives
on public procurement, thereby obliging the Communities to
observe rules and procedures already incumbent on the
Member States (via Directives).

4.1.32.
The importance of the internal auditor has been
heightened by the abolition of the post of financial controller,
as mentioned above.

4.1.40.
It is with this objective in mind that there are new
basic provisions in Section 6 of Chapter 1 (Articles 92-95) for
the submission, opening and evaluation of tenders and new
provisions in Chapter 2 (Articles 97-100) for contracts award-
ed by the Community institutions on their own account.

4.1.33.
The Committee endorses the opinion of the Court
of Auditors that, given the importance of the internal auditor’s
role, his independence should be clearly and expressly stated
in Article 80, using the wording proposed by the Court:

4.1.41.
The proposal lays down provisions for grants for
the first time (Title V of Part 1, Articles 101-114) as a result of
their growing importance as a Community aid instrument.

‘In carrying out his duties, the internal auditor shall be
responsible only to the institution that designated him and
shall report direct to the institution.’

It is pointed out that the internal auditor has already
4.1.34.
been made one of the financial actors by recently published
amendments to the present Financial Regulation (1). These
amendments, besides creating the post of internal auditor,
separate the control and auditing functions which have both
been performed by the financial controller in the past.

4.1.35. Many of the procurement provisions (Title IV of
Part I of the proposal) are new.

(1) Council Regulation (EC, ECSC, Euratom) No. 762/2001 of

9.4.2001, OJ L 111, 20.4.2001.

4.1.42.
highlight the following positive aspects:

In this entirely new field the Committee would

— the requirement that grants must be covered by a written

agreement — Article 101(1);

— the fact that grants must not produce a profit for the
beneficiary and must be subject to the principles of
transparency and equal treatment, may not be cumulative
or awarded retrospectively and must involve co-financing
— Article 102;

— the possibility of granting exceptions to the co-financing
principle, by allowing an action to be financed in full by
the budget ‘if this is essential for it to be carried out’ —
Article 155;

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— the rule that a grant presupposes a publication of calls

for proposals — Article 103(1);

— the annual publication of the programme of grants and
of the grants actually awarded — Article 103(1) and (2);

Title V (Articles 157-161), ‘Office for Official Publications of
the European Communities’; Title VI
(Articles 162-165),
‘European Anti-Fraud Office’; and Title VII (Articles 166-168),
‘Administrative Appropriations’.

— the general principle that grants may only be awarded for

actions that have not yet begun — Article 105;

4.2.1.
EAGGF Guarantee Section — Articles 135 and 140.

Two new provisions are to be introduced for the

— the fact that non-profit-making legal persons are to be
the preferred recipients of grants — Article 108(1).

Despite its generally favourable assessment of the
4.1.43.
proposed financial rules for grants,
the Committee rec-
ommends that in the near future (bearing in mind the planned
reappraisal of the Financial Regulation every three years) an
assessment be made of how the current rules have been
applied in practice.

4.1.44.
Also new is the list in Article 115 of what the
financial statements are to contain. Implementation of the
principles of transparency and sound financial management is
bound to benefit from:

— the annex, which is to supplement

the information
provided in the balance sheet and revenue and expendi-
ture account;

— the presentation, in consolidated form, of all the financial

statements;

— the listing of the accounting principles which are to
govern the drawing-up of the financial statements —
Article 116(1) and (2);

— the possibility of the Community institutions being able
to correct their financial statements after they have been
initially presented to the Court of Auditors as ‘provisional’
statements — Article 118(1).

4.1.45.
The principle of shared management with the
Member States, which has already been referred to above in
5.1.13, is to involve Member States in:

— the preparation of the Court of Auditors’ annual report

— Article 128(3) and (4);

— the special reports produced by the Court of Auditors —

Article 130(2);

— the action taken on any comments made by the European
Parliament in the course of the discharge proceedings —
Article 133(2).

4.2.
Part II of the proposal — Special Provisions — contains
seven titles: Title I (Articles 134-140), ‘European Agricultural
Guidance and Guarantee Fund, Guarantee Section’; Title II
(Articles 141-145), ‘Structural Funds’; Title III (Articles 146-
147), ‘Research’; Title IV (Articles 148-156), ‘External Actions’;

4.2.2.
visions with regard to this fund’s financial management, i.e.

Article 135 lays down a number of specific pro-

— the principle of equality between commitment appropri-

ations and payment appropriations;

— the possibility to carry over payment appropriations from
one financial year to the next (exception to the principle
of annuality).

In recognition, too, of this fund’s distinctive role,
4.2.3.
importance and impact within Community policy-making, the
advance commitments for routine management expenditure
under
in
Article 136(3)] may be for more than the amount normally
specified for advance commitments for routine management
expenditure (see Article 167(1) of the proposal).

the EAGGF Guarantee Section [provided for

4.2.4.
Article 140 provides for a system of earmarked
revenue for the EAGGF Guarantee Section, thereby introducing
an exception to the principle of universality.

4.2.5.
A new title — ‘Structural Funds ’ — has been added
to Part II. This includes the Cohesion Fund and the pre-
accession structural and agricultural measures (Articles 141-
145).

4.2.6.
Although the sectoral regulations for these funds and
agricultural measures will probably continue to contain their
own financial provisions, the fact that the Financial Regulation
is to set out the relevant basic principles of financial manage-
ment is to be welcomed.

4.2.6.1.
The Committee thinks that the sectoral regulations
for funds and agricultural measures will have to continue to
include specific provisions, but that it is important to ensure
that these specific provisions are not in fact derogations from
the principles.

The decentralised management of certain external
4.2.7.
actions is to be allowed in beneficiary third countries subject
to scrutiny by the Commission — Articles 150-151 (new).

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4.2.8.
A new title (Article 162-165) has been introduced.
This lays down basic rules for managing the budget of the
European Anti-Fraud Office (OLAF), created by the Com-
mission’s decision of 28 August 1999.

5.2.1.
To this end, the Commission has proposed that
major steps be taken with regard to transparency, and that
the legal, financial and accounting definitions be improved
significantly. This should also improve legal certainty.

4.2.9. With regard to administrative appropriations, the
proposal specifies that commitment and payment appropri-
ations are to be equal — Article 168(1) — though routine
management expenditure may be committed in advance from
15 November of each year (this possibility already exists in the
present Financial Regulation).

4.3.
Part III of the proposal — Transitional and Final
Provisions — contains two titles: Title I (Articles 169 and 170),
‘Transitional Provisions’; and Title II (Articles 171-176), ‘Final
Provisions’.

Appropriations

4.3.1.
and
accompanying measures are to be subject to the EAGGF
Guarantee Section rules until 31 December 2006 (Article 170).

development

rural

for

Finally, Article 173 stipulates that

4.3.2.
the Council-
European Parliament conciliation procedure is to be used for
the Community’s financial rules. This procedure is laid down
in Article 140 of the present Financial Regulation. In view of
the importance of this matter for the functioning of the
Communities, the need for the European Parliament and
Council to agree in principle is welcomed.

5. Conclusions

The Committee broadly welcomes the content of the

5.1.
proposal.

5.2.
The proposal includes provisions which will allow the
eight basic principles of budget law to be implemented more
effectively.

Brussels, 11 July 2001.

5.3.
The proposal reflects some of the new realities of
Community life, as it is bound to do (grants, Structural Funds,
Anti-Fraud Office).

5.4.
In such an extremely technical and practically
important field as the Community’s financial rules, efficiency
and flexibility should be aspired to without sacrificing the
equally important objective of discipline. It is against the
background of
trying to strike a balance between these
objectives that a number of concerns voiced by the Court of
the proposal — and duly
Auditors in its assessment of
considered by the Committee — should be set.

5.5.
The Committee agrees with the Commission proposal
to grant all institutions the power to make transfers between
chapters in their own budgets without the prior authorisation
of the budget authority.

5.6.
It should be borne in mind that any assessment of the
Communities’ financial rules cannot focus exclusively on the
Financial Regulation. There are also one or more further
sets of (secondary) implementing rules, which must form a
harmonised and mutually compatible whole. Therefore, the
proposal
for a Financial Regulation should have been
accompanied by a draft set or sets of procedural rules for
implementing the basic Regulation.

5.7.
Finally, the Committee trusts that the new Financial
Regulation will provide an active and efficient instrument for
sharing the financial management of the Communities more
closely with the Member States. This is the ideal
future
scenario.

The President

of the Economic and Social Committee

Göke FRERICHS