Report from the Commission to the European Parliament and the Council - Follow-up Report on the EP 1999 Discharge Resolution for the Commission [EP resolution (A5-0113/2001) on 1999 Discharge/General Budget]
Date: 2001-11-19
Institutions: European Commission
Subjects: European Court of Auditors, activity report, budgetary discharge, general budget (EU), implementation of the budget

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 19.11.2001
COM(2001)696 final

REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT AND
THE COUNCIL

Follow-up Report on the EP 1999 Discharge Resolution for the Commission

[EP resolution (A5-0113/2001) on 1999 Discharge/General Budget]

TABLE OF CONTENTS

1.

2.

3.

3.1.

3.2.

3.3.

3.4.

SUMMARY ............................................................................................................. 4

European Parliament decision closing the accounts in respect of the implementation
of the general budget of the European Union for the 1999 financial year .................. 9

European Parliament resolution containing the observations which form an integral
part of the decision concerning discharge in respect of the implementation of the
general budget of the European Union for the 1999 financial year .......................... 13

Access to information............................................................................................. 13

Statement of Assurance .......................................................................................... 14

Council................................................................................................................... 15

Member States........................................................................................................ 15

i Member States to ratify the Convention on Protection of Financial Interests

ii Member States singled out for criticism in ECA 1999 Annual Report

iii Member States figures on irregularities lower than ECA figures

iv Own resources

v EAGGF Guarantee section

vi Structural Funds

vii Irregularities in ESF

viii Member States auditors to be able to audit to final beneficiaries

€

418m

ix DAS errors of
3.5.

Court of Auditors ................................................................................................... 25

3.6.

3.7.

Anti-Fraud Office ................................................................................................... 26

Commission ........................................................................................................... 28

i Retroactivity and Proportionality - Fléchard

xiv ACEAL

ii Flax

xv A-30 subsidies

iii Adulteration of dairy products

xvi Policy - funds for rights organisations.

iv Enlargement

v Food aid to Russia

vi Nuclear safety

vii "Screening" of Delegations

viii Sarajevo delegation

ix Jerusalem delegation

x Stockholm representation

xi Washington delegation

xii Europe Aid

xiii IRELA

xvii International donor co-ordination (incl UN)

xviii NGOs

xix Development Aid

xx Energy sector

xxi Internal policies

xxii Agencies

xxiii JRC

xxiv Leonardo / BATs

xxv Drug abuse & sex tourism

xxvi Fellowships

2

3.8.Ten Point Plan

56

I Send to EP: DG’s annual plans, A1s descriptions/appraisals, Leavers under Art. 50 & 51; Dismiss A1’s

II Annual Declaration to be signed by DGs

III League table by DG

IV Follow-up of audits, evaluations and budgetary implementation

V Revolving door

VI Whistleblowing:

VII Disciplinary proceedings and sanctions

VIII Blak list

IX Recovery of losses

X Archiving

Annex 2

3

1.

SUMMARY

I/ Context

1/Scope of the Follow-up Report

Article 276 of the Treaty determines the discharge procedure and stipulates that "The
Commission shall take all appropriate steps to act on the observations in the decisions giving
discharge and on other observations by the European Parliament relating to the execution of
expenditure […] At the request of the European Parliament or the Council, the Commission
shall report on the measures taken in the light of these observations and comments and in
particular on the instructions given to the departments which are responsible for the
implementation of the budget." The Commission accordingly, at Parliament’s request,
produces two Follow-up Reports: one relating to the Council recommendation and the other
to the resolution voted by the European Parliament. These reports are sent to all the other
institutions.

2/Object of the follow-up report

In accordance with the Treaty, the object of this Follow-up Report is mainly to present the
action taken by the Commission or that which it intends to take in response to the comments
and recommendations contained in the discharge resolution voted by the European Parliament
on 4 April 2000.

The Commission notes that the recommendations made are already well incorporated in its
actions, whether they concern in-depth reform of management and control (summary section
II) or correction of errors and irregularities under its general mission of protecting the
financial interests of the European Union (summary section III). However, in some cases, the
Commission is not able to satisfy all of Parliament's requirements (summary section IV)
immediately. Finally,
the information transmitted to the
discharge authority enables the European Parliament to exercise effective control of the work
of the Commission (summary section V). Summary section VI provides a conclusion.

the Commission considers that

II/The follow-up in relation to reform of management and control instruments

The resolution voted by the European Parliament largely supports the Commission's own
concerns as regards improvement of financial management and is broadly inspired by the
same philosophy. In this context, the Commission notes that implementation of the reform
meets the recommendations of the European Parliament, in particular with regard to the
10-point action plan. One of the cornerstones of the reform is the amendment of the Financial
Regulation.

1/ 10-point action plan

The Commission considers that in this field, the discharge resolution provides encouragement
and support for its reform policy.

4

This is the case for the increased responsibility of actors, which results in particular in a more
precise definition of the objectives to be achieved by each DG (see detailed point 10.I):
individual job descriptions, evaluation of officials, the annual work plan for each DG. The
annual declaration and the annual report that Directors-General and Heads of Services will
have to sign (see detailed point 10.II), which will provide a better gauge of the quality of the
Commission’s management, pursue the same objective. Although the Commission does not
agree to establish a hierarchy of the performance of its various departments (see detailed point
10.III), owing to the diversity of the policies and management tools of the various DGs, the
Commission considers that these new instruments will enable it to further identify both good
practices and the policies which need further improvement.

Similarly, the reform of the Commission puts emphasis on management controls (including
evaluation) and independent internal auditing of its activities (see detailed point 10.IV). In this
respect, the Commission has strengthened its control and audit resources within each DG and
with the creation of the Central Financial Service and the Internal Audit Service. The
Commission also puts greater stress on evaluation, which will allow it to measure the quality
of its management and to check whether the objectives set are actually achieved. The success
of such a policy requires rational management of information within the Commission, which
will be the subject of a specific work plan (see detailed point 10.X).

Thirdly, like the European Parliament, the Commission is anxious to guarantee the integrity
and transparency of the institution. For this reason, it takes on, as far as it is able, the
objectives set by the discharge authority on the ethics and integrity of public service and on
the strengthening of its powers with regard to disciplinary matters (see detailed points 10.V,
VI and VII).

The protection of the financial interests of the European Union is one of the Commission's
priorities. The improvement of the instruments enabling it to recover sums wrongly paid is a
constant concern and is integrated into the reform process (see detailed point 10.IX). The
Commission has prepared several measures which will make it possible to strengthen and
clarify the powers of each individual, give authorising officers more responsibility and secure
the means of keeping a closer watch on amounts to be recovered. The means of preventing
fraud are also developed (exclusion of suspect tenderers from calls for tenders, exchange of
information with the Member States). Similarly, the creation of centralised databases on
contracts and contractors will make it possible to check all the stages of contractual relations
between the Commission and final beneficiaries (see detailed point 10.VIII).

Lastly, following the so-called Fléchard case: the Commission will adopt guidelines on the
implementation of the proportionality principle concerning debt waivers.

2/ Other reforms

The Commission considers that the discharge resolution supports its action in several other
fields, significant examples of which are:

• the European Parliament devoted a large section of its resolution to external actions. In
this field, and in addition to other measures carried out in the framework of Commission-wide
reform,
the Commission undertook reforms aimed inter alia at clarifying internal
responsibilities, improving the quality of programming, phasing out the Technical Assistance
Offices and closing old and dormant commitments wherever possible. The Commission is
open to pursue a constructive and forward-looking dialogue with Parliament on possible

5

further measures to improve the quality and speed of aid delivery. In general terms efforts are
being made to rationalise the use of human resources, such as the process of devolution to the
delegations or the creation of EuropAid, which are central elements of the management of
external aid reform. On more specific points, such as financial relations with the UN, the
Commission is re-negotiating the EC-UN framework agreement, which should make it
possible to improve the audit and reporting arrangements for EU-financed operations
implemented by UN agencies. Similarly, in the field of nuclear safety in the CEECs the
Commission took measures as from September 2000 in order to simplify and rationalise its
involvement.

• Financial corrections for Structural Funds is an important
item of reform. Two
regulations1 adopted in March 2001 organise the respective responsibilities of the Member
States and of the Commission in this field. They were inspired by the methodology governing
the clearance of the agricultural accounts.

III/ Protection of the financial interests of the European Union

The discharge resolution deals with individual cases involving possible undue or irregular
payments or practices. Some of these cases were communicated to the discharge authority by
the Court of Auditors but also by the Commission itself, as part of its transparency effort with
regard to the budgetary authority.
Information provided by the Commission enabled
Parliament, for instance, to draw conclusions and make recommendations on the management
problems detected. However, as the Commission had as a rule been informed of these cases,
appropriate measures had already been decided in most of them. As part of its broader
mission of protecting the European Union’s financial interests, the Commission endeavours to
correct any irregular situation as soon as possible.

Several significant examples can be quoted:

• Concerning the common agricultural policy, the Commission, in accordance with the
wishes of the European Parliament, has strengthened measures to cope with several problems:

- In view of the persistent weaknesses of Italy and Spain as regards the additional milk levy,
the Commission brought infringement proceedings against these Member States and decided
to reduce advances for four Member States. As a result of this action combined with the extra
powers on sanctions, which the Commission enjoys following the recent revision of the quota
implementing regulation, improvements have gradually been seen in these Member States.

- At the Commission's insistence the Danish agency responsible for export refunds tackled the
many outstanding cases of guarantees not released. This made it possible to reduce the
number of these outstanding cases by a factor of 10. A specific audit on this matter will be
carried out.

- Concerning the cultivation of flax and adulteration of dairy products, OLAF has conducted
investigations covering Spain and Italy. Other enquiries are ongoing and the Commission is
examining what financial measures should be taken in the clearance-of-accounts procedure.

1

Regulations Nos 438/2001 and 448/2001.

6

• Concerning the Structural Funds, the Commission took important measures on ESF
payments in the Netherlands and in Spain. In these two cases, procedures under Article 242 of
the coordination Regulation were initiated.

• Concerning external actions, the Commission has undertaken to monitor closely and
follow up the audits which were conducted, in particular with regard to the representation in
Stockholm where disciplinary proceedings were initiated.
In one case, disciplinary
proceedings were initiated. For another case, the delegation in Washington, the file has been
passed to OLAF. Monitoring has led to financial action, such as the issuing of a recovery
order (the official title is "debit note") with regard to IRELA or to the opening of an OLAF
investigation (for example for ACEAL).

• Concerning the DAS errors detected by the Court of Auditors, the Commission looks at
each one to determine the most suitable actions to be taken. The Commission’s follow-up
action is exhaustive.

Whenever possible and appropriate, the Commission recovers amounts wrongly paid.

The agricultural sector regulations ensure that errors are normally automatically picked up via
the ex-post controls. In the case of structural funds (another area of large expenditure, along
with agriculture) it is not necessary to recover amounts for ineligible expenditure as offsets
against current eligible expenditure can be made.

it

is not always possible to recover amounts initially identified. Further
However,
investigation may reveal no error, or new material facts may come to light, or there may be a
difference in interpretation of the rules. The Commission will take legal action where it feels
its claim is justified.

The Commission has taken an initiative to further clarify the difference between an
irregularity and a fraud with its proposal for a directive of the European Parliament and of the
Council on the criminal law protection of the Community’s financial interests. The proposal
contains a definition of fraud and what constitutes serious fraud. EC Regulation No 2988/95
contains in its Article 1(2) a definition of what constitutes an irregularity.

IV/ Recommendations that cannot be fully implemented

There are no major disagreements between the Commission and the European Parliament.

However, sometimes there is a conflict between a request and the respect of an individual's
human rights.

In other cases, Parliament’s demands come up against specific difficulties making it
impossible to introduce the measures planned. In general, the obstacles are of a legal nature.
Some examples can be found in the 10-point action plan where the Commission cannot
always go as far as the discharge authority demands. The Commission will keep the
appraisals of individual officials internal. Concerning the dismissal of A1 officials,
the
Commission’s power is governed by the provisions of the Staff Regulations, which do,
however, allow considerable sanctions. In the process of administrative reform, proceedings

2

Regulation (EEC) No 4253/88: Reduction, suspension and withdrawal of assistance.

7

dealing with professional incompetence are being developed. The respect of existing legal
obligations also limits the information which OLAF can provide to the discharge authority.

Finally, sometimes, technical or material reasons prevent the Commission from meeting
Parliament’s request. This is especially the case concerning the error rate for the DAS. The
Commission is not in a position to communicate an error rate for the general budget, let alone
by sector.

The Commission shares the discharge authority’s views concerning the principles and
objectives set out by the resolution. But with regard to the new disciplinary board
arrangements, the Commission will stick to its proposal in the White Paper.

V/ Policy of information for the discharge authority

During the discharge procedure, the Commission fully complied with the Treaty obligations
and provided Parliament with a large volume of detailed information which allowed
Parliament to act as the discharge authority.

The Commission has improved its reporting tools. Parliament receives weekly budget
implementation figures. It will receive information concerning the audits of the Commission
via the IAS annual report and the Annual Report of OLAF. The development of audit,
evaluation, control and reporting tools will enable the Commission to supply more detailed
information.

The respect of confidentiality, and correct transmission procedures remains crucial. The 1999
the Framework agreement provides an effective and
discharge procedure showed that
satisfactory framework for cooperation between Commission and Parliament.

VI/ Conclusion

Finally, the Commission would stress that much has been done during the limited time
between the vote on the discharge and the publication of this report. Nevertheless, it is evident
that meeting some of Parliament’s demands will take significantly longer: reforms, enquiries,
changes in management systems have to be studied and prepared carefully if they are to have
maximum positive effects for the coming years. This applies, for example, to changes in the
existing contractual clauses in the field of research policy, the reallocation of staff in the
external action sector or, more generally, the full implementation of the Commission’s reform
process. Nevertheless, the Commission would repeat that its follow-up of the discharge does
not end with the publication of this report, as improvement of management of EU funds needs
a continuous effort.

The discharge procedure is seen by the Commission as an important component in the process
of improving its financial management. This is why it has paid close attention to Parliament's
recommendations. This document shows that there is a broad measure of agreement on the
main principles and objectives and even on the measures which have to be taken to meet
them. They have already produced positive results and the reform process will continue in this
direction.

8

* * *

2.

EUROPEAN PARLIAMENT DECISION CLOSING THE ACCOUNTS IN RESPECT OF THE
IMPLEMENTATION OF THE GENERAL BUDGET OF THE EUROPEAN UNION FOR THE
1999 FINANCIAL YEAR

The European Parliament,

1. to 4. (description of the accounts/resources/expenditures/balance sheet)

5. Is concerned that the failure to draw up comprehensive financial statements indicates a lack
of adequate data checks, management supervision and budget procedures; calls on the
Commission to introduce an effective accounting system to allow anomalies to be discovered
in good time; asks the Commission to introduce procedures to enable each Directorate-
General and delegation to draw up interim aggregate financial statements every six months;
notes that, under the reform programme, the system will be fully operational by 2003;

Commission's reply to Point 5:

The Commission has begun putting in place a new system for the regular data checks. A
first trial was conducted with the closure of the 2000 accounts.

The quality of data extraction for the preparation of the 2000 revenue and expenditure
account was far better than in past years. The Commission performed various checks on
the data of the individual volumes of the revenue and expenditure account in order to
ensure that they were accurate and coherent.

The Commission has given high priority to improving its monitoring systems on budget
implementation. The Commission currently produces for the budgetary and discharge
authority:

• weekly budget implementation tables on the basis of authorising officers' returns in
electronic form, giving continuously the most up-to-date situation on budget
implementation for budget decision-making;

• monthly and quarterly accounting records of implementation published on the Europa
website. The quarterly returns also give a summary analysis of the main features of the
implementation, compared with the previous year;

•

•

a monthly Early Warning System for agricultural expenditure.

the Budget Implementation Plan for 2001, which has been developed with the objective
of becoming an improved management tool for monitoring the implementation of the
budget;

9

•

•

the Annual Financial Management Report, which provides a detailed analysis of
budget implementation and has a focus on budget output, showing what has been
achieved compared with the plan and assumptions when the budget was approved.

the Annual Financial Report, which provides an overview of Community financing,
with a focus on what is achieved with EU budgetary expenditure. The report also
highlights particular priority actions.

The production of full financial statements by each DG will be examined as part of
Action 82 (declaration by Directors-General in their annual activity report) of the White
Paper on Reform.

6. Recalls that the Court of Auditors, in the context of its Statement of Assurance, is of the
opinion that the accounts reflect reliably the Communities' revenue and expenditure and the
financial statement at the end of the year, but as in previous years, has voiced reservations
regarding the effect of a number of errors and weaknesses on the consolidated revenue and
expenditure account, including:

(a) a net understatement of fixed assets of around EUR 240 million, as buildings of the
European Parliament and European Court of Justice are not included and inconsistencies in
the
different Commission
treatment
Directorates-General,

of depreciation between,

even within,

and

(b) an understatement of short-term amounts receivable from Member States, in the area of
own resources and EAGGF-Guarantee debtors,

(c) a material understatement of sundry debtors, essentially sums paid to various intermediate
bodies but not yet transferred to final recipients,

(d) the inaccurate and inadequate presentation of information on advances and payments on
account at 31 December 1999, as a result of incorrect recording by the authorising officers
and technical problems linked to the introduction of SINCOM2,

(e) the understatement of commitments by some EUR 2 600 million,

(f) the overstatement of commitments still to be settled by some EUR 940 million, since they
are maintained in the accounts although they no longer represent an obligation to make further
payments owing to poor monitoring by various Commission departments,

(g) the overstatement of potential receivable amounts;

Commission's reply to Point 6:

(a) The two buildings in question were included on the assets side of the balance sheet at
31/12/2000. Before that they were referred to in the annex to the balance sheet.

In order
to harmonise the valuation rules and the accounting procedures, on
29 December 2000 the Commission adopted Regulation (EC) 2909/2000 on the accounting
treatment of non-financial fixed assets applicable to all the European institutions and it has
also produced an accounting and consolidation manual. (The financial statements of the
individual institutions are now produced in a harmonised manner.)

10

When the 2000 financial year was closed, all the institutions made entries for depreciation.

(b) As regards traditional own resources, the Commission would point out that it is not
currently in a position to give a more accurate figure for short-term amounts receivable
because of the uncertainty about whether they will be recovered.

Pursuant to the accounting principle of prudence, the Commission entered for 1999 a
100% provision for doubtful debts; it did not apply a probable recovery rate for lack of
information.

For 2000, in order to give a more realistic estimate of short-term amounts receivable, the
value adjustment was calculated on the basis of recovery statistics for earlier years and put
at 63%.

In order to improve the valuation of own resources receivable,
the Commission has
presented a proposal for the amendment of Regulation (EEC/Euratom) 1552/89 with a view
to tightening up the procedure for Member States to write off irrecoverable amounts.

The same difficulty exists for estimating EAGGF debts, as hitherto there were no
regulations requiring Member States to provide information about recovery possibilities.
For 1999 for instance, a 100% value adjustment for doubtful debts was likewise entered on
the assets side of the balance sheet as a deduction from receivables. For 2000 the value
adjustment for doubtful debts was estimated on the basis of the information supplied by the
Member States and that emerging from controls carried out.

From 2001 onwards a Commission Decision (EC 2761/99) requires Member States to
inform the Commission every six months of the amount of debts for which the likelihood of
collection is virtually nil (even if legal procedures for recovery are still in progress). It will
then be possible to make a more accurate estimate of receivables.

the
(c) In order to improve the information available about financial intermediaries,
Commission conducted a survey in Directorates-General in 2000 to produce lists of all fund
administrators. As a result the amount of budget advances paid to public or private
intermediaries shown on the assets side of the balance sheet is more comprehensive than in
past years.

This survey of financial intermediaries will be conducted each year.

(d) In its proposal for the recasting of the Financial Regulation the Commission has
clarified the concepts used for types of payment.

(e) These are mainly commitments from the Structural Funds. The reason for the
€
2 600 million understatement is that 1999 was the last year of the 1994-99 programming
period for structural operations. Mainly because of delays in the reprogramming by
Member States, the Commission did not have sufficient time to make the commitments at
the end of 1999 and therefore carried the appropriations forward in order to comply with
the amounts set at the Edinburgh Summit.

This was thus clearly a one-off problem.

11

(f) The Commission keeps a close eye on outstanding commitments by means of a
permanent surveillance programme in all DGs to ensure that
the amount stated
corresponds to current
legal obligations. On 20 November 2000 it presented to the
budgetary authority a report entitled "Strategy on outstanding commitments".

It should, however, be stressed that some commitments must be kept for a number of years
because of legal constraints (legal proceedings, etc.).

the Commission shows in the
In order to improve the information on this subject
off-balance-sheet commitments the position concerning outstanding commitments and it
comments on developments.

(g) Decision C(2000) 1992 of 14 July 2000 laying down the format of the tables for the
transmission of EAGGF Guarantee data distinguishes between amounts to be recovered as
a result of irregularities and fraud (Regulation (EEC) No 595/91) and other receivables.
This information will help in eliminating double entries and hence the overstatement of
potential receivable amounts. Although the decision is not applicable until 1 January 2001,
some Member States sent in the information for 2000. Only for those Member States was it
possible to avoid double entries in the 2000 financial statements.

7. Approves the closure of the accounts for the implementation of the general budget for the
1999 financial year;

12

3.

EUROPEAN PARLIAMENT RESOLUTION CONTAINING THE OBSERVATIONS WHICH
FORM AN INTEGRAL PART OF THE DECISION CONCERNING DISCHARGE IN RESPECT
OF THE IMPLEMENTATION OF THE GENERAL BUDGET OF THE EUROPEAN UNION
FOR THE 1999 FINANCIAL YEAR

3.1.

Access to information

1. Regrets that, even after the conclusion of the Framework Agreement, the Commission has
not forwarded certain information and documents requested by the discharge authority; again
reaffirms paragraph 26(b) of its resolution of 19 January 2000 containing the comments which
form an integral part of
the
implementation of the general budget of the European Union for the 1997 financial year, in
which Parliament points out that it has to have at least as much access to Commission
documents as the Court of Auditors; recalls that Parliament has respected the Framework
Agreement when requesting information from the Commission despite the fact that the rules:

the decision giving discharge to the Commission for

i. are open to very broad interpretation, in particular as to whether a document is deemed
confidential,

ii. may cause undue delays, for example the transmission of documents on 16 February 2001
following the questionnaire of 5 December 2000;

therefore calls, in the light of this experience, for the revision of the Framework Agreement,
this process to be governed by the following principles;

(a) confirmation of the right of any Member of Parliament to demand and receive confidential
information, too, where necessary, from the Commission pursuant to Article 197 EC,

(b) unreserved application of the provisions of Annex VII to the Rules of Procedure on the
consideration of confidential documents, which includes the right of any committee member
to consider the confidential documents,

(c) forwarding of complete original documents without prior alterations or obliterated text;

Commission's reply to Point 1:

The 1999 Discharge procedure was the first
to which the Framework Agreement,
concluded on 5 July 2000 was applied. The Commission sought to apply the agreement
fully and loyally throughout that procedure. Article 4 of Annex III to the Framework
Agreement contains the specific procedure to be followed for its possible revision. An action
concerning the Agreement is currently pending before the European Court of Justice. In
the Commission's view,
the Framework Agreement has proved to be an effective
mechanism, one benefit being that it allows Parliament to receive confidential and other
information.

2. Reminds the Commission of Article 80 of the Financial Regulation, pursuant to which the
analysis of the financial management must supply details as to whether the principles of
sound management laid down in Article 2 of the Financial Regulation have actually been
complied with; regrets that
that document, which is fundamental to budgetary control,
contained no more than highly incomplete information for 1999 and was available in one

13

language only; calls on the Commission to submit a complete analysis for 2000 which covers
all budget headings and is available in all official languages;

Commission's reply to Point 2:

The analysis of financial management for the year 2000 complies with the principles set out
in Article 2 of the Financial Regulation: by presenting a comparison, for all important
budget lines, between expected and actual financial and output implementation, it satisfies
the requirement that ‘quantified objectives must be identified and the progress of their
realisation monitored’. However given that the Budget now contains some 1200 lines, and
in conformity with the principle of cost-effectiveness, the Commission does not consider it
appropriate to report extensively on each and every budget line irrespective of importance.
Instead, and following the Court of Auditors’ remarks that the scope of the comments
should reflect
the
Commission has for the year-2000 financial management report selected for detailed
review those lines with appropriations exceeding
30 million and/or of particular
importance or interest. The emphasis has been on preparing a document which is
manageable in terms of the workload and volumes of data involved. Given the timeframe
and the large size of the document (more than 400 pages of detailed analysis) it is necessary
to produce it in one version only.

the relative importance of

lines being reported on,

the budget

€

3.2.

Statement of Assurance

3. Questions the utility of the global Statement of Assurance for 1999 so long as the figures
are not given; notes that the Court of Auditors, which expends considerable resources of both
the auditor and auditee, has not published substantive and formal error rates in recent years,
which would allow Parliament
to gauge the success or otherwise of the Commission's
management of the Union budget:

(i) recalls that the overall substantive error rate of the Union budget was reported as 4.0% in
1994, 5.9% in 1995 and 5.4% in 1996 and not published for subsequent years;

(ii) notes, however, that the figures for the agriculture sector, provided for the first time by the
competent Commissioner, responsible for the expenditure of EUR 39.5 billion or 47% of the
budget, amounted to 2.52% in 1995, 3.78% in 1996, 1.94% in 1997, 3.29% for 1998 and
3.06% for 1999 and was markedly lower than the global error rate;

(iii) notes that funds managed by other Directorates-General, particularly those jointly
managed with Member States, suffer, as a whole, from much greater error rates; calls for all
remaining Commissioners to inform Parliament of annual error rates, in their respective areas
of responsibility, since 1994 and in the future;

(iv) Welcomes the Court’s willingness to undertake sectoral appraisals as an initial step
towards more transparent and accurate assessments of budget utilisation rates but insists that
the Court modify its approach in the direction of quantifying the error rate and specifying its
results from DAS audits on both a geographical and a sectoral basis;
if necessary,
recommends that the Court identify the additional human and financial resources required to
provide such data;

14

(v) calls on the Court of Auditors to transform the DAS into an instrument enabling the
Discharge and Budgetary authorities to compare and monitor progress in financial
management;

(vi) restates paragraph 1(a) of its resolution of 13 April 2000 on the postponement of
discharge to the Commission in respect of implementation of the general budget of the
European Union for the financial year 1998 that the Commission should cut the error rate of
more than five percent by a considerable rate; calls for this reduction to be made in
conjunction with Member States, on the basis of a method to be discussed by the Court of
Auditors, the Discharge Authority and the Commission; urges the Commission to ensure that
it achieves a positive statement of assurance for budget year 2003 at the latest;

Commission's reply to Point 3:

(iii) The Statement of Assurance (DAS) is the preserve of the Court of Auditors. As part of
a process of continual improvement in the presentation of the DAS, the Court of Auditors
decided some years ago that a descriptive DAS was the most effective method of
communication. The DAS description is a global statement for the Commission’s activities;
the relevant provision of the EC Treaty, Article 248, does not provide for a detailed
breakdown by DG. Therefore, for the four DAS statements made by the Court each year, on
the reliability of the accounts and legality and regularity of revenue, commitments and
payments the Commission is not able to give errors rates, nor details by DG. The DAS for
payments (alone) was negative.

(vi) The Commission has stated that it ‘is committed to do all in its power to improve the
DAS as quickly as possible’ and reaffirms this commitment. The means of achieving a
consistent and long term improvement in the DAS is via improvement to the Commission’s
and Member States' control systems and ensuring the appropriate resources for the tasks.
The reform of the Commission that was set in motion in the first half of 2000 is addressing
these two areas. For example, the financial functions in operational DGs have been
strengthened. The Central Finance Service is in place and so substantially are audit
functions in the DGs, the Internal Audit Service, and the revision of the Financial
Regulation is progressing.

3.3.

Council

4. (the Council:)

3.4.

Member States

5. Recalls that more than 80 % of the Union budget is administered by the Member States:

(i) calls for Member States which have not yet ratified the 1995 Convention on the Protection
of Financial Interests, namely Belgium, Ireland and Luxembourg,
to do so as soon as
possible;

(ii) notes that, in its answers of 26 January 2001 to the questionnaire from the discharge
authority, the Court of Auditors indicates that in its Annual report following Member States
are singled out for criticism;

15

Member

State

TOTAL

Own

Resources

Common

Agricultural

Policy

Structural
Funds

Greece

UK

Spain

Italy

France

Germany

Portugal

Austria

Ireland

Netherlands

Belgium

Finland

Denmark

Sweden

Luxembourg

16

15

15

10

8

8

8

7

6

5

3

3

2

2

2

1

3

1

2

2

3

2

1

1

3

2

1

1

15

12

14

8

6

5

6

6

2

2

1

2

2

2

3

1

(iii) is surprised that figures of irregularities and fraud given by Member States are, as a
whole, much lower than error rates drawn up by the Court of Auditors under the sectoral
declaration of assurance; observes that the figures provided by Member States may give a
distorted picture owing to differences in definitions and methods used by the Court of
Auditors and Member States; invites the discharge authority to investigate this matter;

(iv) Own resources section:

(a) recalls that Member States reported irregularities and fraud of EUR 266.1 million, i.e.
1.92% of the Own Resources budget of EUR 13.8 billion (Regulation (EEC, Euratom)
No 1552/1989); notes that of a total of EUR 214.8 million reported as irregularities by
Member States, 48.7% were identified by the United Kingdom and of a total of
EUR 51.3 million reported as fraud by Member States, 76.8% were identified by Germany;

(b) points out that four Member States, namely Ireland, Luxembourg, Portugal and the
United Kingdom have not reported any cases of fraud in the collection of traditional own
resources;

16

(c) calls on the Commission to explore the feasibility of bringing forward a financial
corrections procedure for Own Resources adapted from the EAGGF-Guarantee clearance of
accounts system;

Commission's reply to Point 5. (iv):

(a) & (b) As the Commission has noted before, the notion of fraud is not consistently
interpreted by the various competent authorities in Member States - largely because the
convention providing for a consistent interpretation has not yet been ratified by them all. In
some Member States, a violation of a Community regulation can only be considered fraud
after the definitive court
in others operational services make this
classification themselves during their inquiries.

judgment, whilst

(c) Prior to tabling a modification of Regulation 1552/89 (now 1150/2000) in 1997, the
Commission examined various ways to make the "write-off" procedure (Art. 17(2) of
Regulation 1150/2000) more transparent and effective. In the framework of that analysis,
the possibility of a "clearance" system was also looked at. It was concluded that such an
approach would be cumbersome for traditional own resources, because unlike the EAGGF
situation, the total number and magnitude of the underlying transactions are an unknown.
The Commission therefore proposed a more straightforward solution under which
Member States would be obliged to report to the Commission all cases above
10,000 for
which recovery had been unsuccessful during the previous 5 years. Where a Member State
had failed to demonstrate due diligence in the recovery process, it would be held financially
responsible. This proposal (COM (97) 343 final) is still under scrutiny by the Council.

€

(v) EAGGF Guarantee section:

(a) recalls that Member States reported irregularities and fraud of EUR 232.1 million, i.e.
the EAGGF Guarantee budget of EUR 39.5 billion (Regulation (EEC)
0.59% of
No 595/1991); notes that of a total of EUR 116.5 million reported as irregularities by
Member States, 70% were identified by Germany, Spain and Italy and of a total of
EUR 115.5 million reported as fraud by Member States, 78% were identified by Germany,
France and Italy;

(b) points out that two Member States, namely, Greece and Finland, have not reported any
cases of fraud in the area of the CAP;

(c) regrets that one Member State, Denmark, had, at 1 February 2001, built up an
unacceptably high level of DKK 2.2 billion (approximately EUR 300 million) as export
refund guarantees, a level that seems too high and of which DKK 6 million (approximately
EUR 800 000) was deposited by companies five years ago; urges the Commission, along with
the Court of Auditors, to audit the handling of export refunds by the Danish Directorate for
Food, Fisheries and Agro Business;

(d) regrets that Italy has been paying the super-levy for the breaching of milk quotas, on
behalf of its farmers,
thereby distorting competition across the Union; attaches great
importance to the establishment of an appropriate legal basis allowing penalisation of
Member States with inadequate management of the milk quota system; urges the Commission
to investigate thoroughly the allegations that skimmed-milk powder subsidised by the
Community may be being reprocessed as fresh milk;

17

(e) regrets that Greece has not set up a vineyard register, despite a legal obligation to do so
since 1992; deplores the Commission’s persistent failure to set up an effective specialised
control body in the wine sector,
in spite of repeated requests by both the Court and
Parliament; asks that conditions attached to the granting of supplementary human resources
for the Commission, in the context of the 2002 budget, include specific and verifiable
measures for the operation of the body in question;

(f) calls for the Commission to extend the clearance period for which financial recoveries can
be made from the current 24 months to 36 months, review the membership of the Conciliation
Body and bring forward a proposal for a legal base enabling the Commission to apply
increasing financial corrections to Member States for repeated weaknesses in control systems,
including for delays in the introduction of IACS;

Commission's reply to Point 5. (v) c.:

The Commission has audited the management of advances and guarantees by the Danish
Directorate for Food, Fisheries and Agro-business (EFFD) as part of a European-wide
enquiry on this subject.

Advances for export refunds are only paid if an acceptable guarantee is lodged. This
guarantee is cleared after the delivery of suitable documentation. In cases of differentiated
refunds the exporter has up to 12 months to deliver proof of arrival and placing in free
circulation in the third country, although such proof can be delivered up to 18 months after
the date of export with a loss of 15% of the export refund. This period can be extended in
well-justified cases. Exports to Russia are currently subject to additional requirements and
exporters have up to two years to deliver the necessary proof of arrival.

is therefore not surprising that,

It
in a major exporting country like Denmark, a
considerable amount of guarantees are held by the EFFD at any time. However, the
Commission has confirmed that the backlog of uncleared guarantees had built up to an
unacceptable level. This entails additional costs for exporters and potential risks to the
EAGGF if recoveries are made late or not at all.

Under pressure from the Commission, in May 2000 EFFD set up an action plan to deal
with the backlog, which consisted of 22 000 cases from before 1 March 1999 with
guarantees of 740m DKK. By 30 April 2001 this had been reduced to 2400 cases with
guarantees of 99m DKK and, by 13 June, to 70m DKK. The plan is to eliminate the backlog
by the end of 2001.

While certain recoveries have been made later than necessary, the Commission did not find
any evidence that EFFD has failed to make recoveries required under the legislation. The
Commission welcomes the steps already taken by EFFD to deal with this problem.

The Commission will carry out a follow-up audit to ensure that the commitments of EFFD
are in fact respected and to check that the problem is finally resolved.

Commission's reply to Point 5 (v) d:

Concerning milk quota

18

The Commission has opened infringement proceedings (still pending) against Italy
(reasoned opinion 97/2228) for incorrect application of the milk quota regime and failure
to collect the levy as well as against Spain (reasoned opinion 97/2227). The problems in
Italy had been pointed out by the report of an Italian Committee of Enquiry. The
Commission has been thorough and persistent in its actions and will continue to pursue
recovery whilst recognising the delays caused by Member States, Regions and individuals
exercising their rights of defence.

The Commission agrees that the milk quota regime has not yet been fully implemented in
Italy insofar as problems remain with collection of the supplementary levy. However, it is
necessary to differentiate between the reasons for non-collection in Italy which mainly
comprise levy appealed to the national courts, incorrect compensation between delivery and
direct sales quotas, and further amounts of uncollected levy. The latter two reasons for
non-collection of the levy are why infringement proceedings against Italy remain open
(reasoned opinion 97/2228). Nevertheless, while the situation regarding levy collection
remains unsatisfactory in Italy, the Commission recognises that major improvements have
been made. Italy has implemented relatively effective control measures retroactively from
the 1995/96 marketing year. However, a serious problem remains as regards the non-
collection of the levy.

The Commission has made great efforts to enforce the payment of the levy. The present
legislation allows the Commission to reduce the advances when the levy is not paid within
the time limit. For the majority of Member States, no financial correction or only a small
correction is necessary in the clearance of accounts decisions. Up to 1999, reduction of
advances were necessary for four Member States - Greece, Spain, Italy and UK, and in the
case of UK for small amounts, which proves that the regime is correctly applied in the EU.

However, changes to the quota legislation to reinforce the powers of both the Commission
and the Member States with regard to sanctions have been proposed and introduced in the
course of the recent revision of the quota implementing regulation (within the limits of
powers conferred on the Commission by Council Regulation 3950/92 which does not permit
the Community budget
to be the recipient of amounts collected (such as financial
sanctions) other than supplementary levy (and the interest for late payment of levy) in the
event of the overshoot of the national quotas). The new regulation is likely to be adopted
and published by the end of July.

Concerning skimmed-milk powder

Any serious allegations that skimmed milk powder has been reprocessed into fresh milk to
the detriment of the Community budget will be investigated.

Commission's reply to Point 5 (v) (e):

The Commission can merely confirm that Greece is indeed late in setting up a vineyard
register. It should, however, be borne in mind that as a result of the successive extensions
accorded by the Council the final date for completion was only 31 December 2000. At that
date Greece had not made any significant progress. While taking the view that Greece
continues to be under the obligation to set up the register even beyond the final date in the
regulation which allowed Community co-financing, the Commission is especially disturbed
by this delay as the new reform of the wine sector, which has been in force since August
2000, makes the register the central instrument for surveying and controlling wine-making

19

potential. The Commission views the absence of a vineyard register with great concern and
appropriate actions will be taken in the context of the clearance of accounts procedure.

Concerning the Specialised Control Body, it is correct that the Commission could not man
the Body with the posts initially proposed by Parliament in 1996, based on the Court's
remarks. Given the number of posts available and the relative importance of the wine sector
in budgetary terms, priority was given to core clearance of accounts including expenditure
of the wine sector. This was also a consequence of Parliament's demand to allocate 15
additional posts to clearance of accounts in general (which was done in recent years),
which is also in charge of the Specialised Control Body. That figure of 15 included one post
for the Specialised Control Body for wine. It is also underlined that this Body was created
by Regulation 2048/89 as a result of fraud cases (not only implying finance but also health
risks) which seriously disrupted the wine sector both in 1985 and in 1986. For the last
couple of years, the Commission has no evidence of an exceptional high risk for the wine
sector which would justify an over-proportional allocation of audit resources to this sector.

As regards the establishment of a specific control team for the wine sector, it should first be
pointed out that the clearance-of-accounts department assumes its expenditure control
function, including in its work and mission programme enquiries which involve tasks
assigned to the specific control team. From autumn 2001 onwards, specific enquiries will
be launched with the assistance of national experts whose involvement and coordination
are provided for in the work programme. The Commission will not be asking for additional
human resources for this area given that these limited resources could be more effectively
used elsewhere.

Commission's reply to Point 5 (v) f.:

The Commission views this proposal positively and is evaluating it in the light of the
experience gained with the current 24 month period. The results of this review could lead
to a proposal to amend the existing Regulation. The new composition of the conciliation
body was determined by Commission decision with effect from 1 August 2001. Of the five
members, three already belonged to the body as highly qualified experts on EAGGF
Guarantee matters, and the two new ones are highly qualified experts in financial auditing,
as is allowed by Decision 2000/649/EC of 12 October 2000. A Commission notice
concerning these appointments was published in the Official Journal of 17 July 2001
(2001/C 201/02).

The Commission is considering the possibility of increasing financial corrections where
there are repeated shortcomings.

(vi) Structural Funds section:

(a) recalls that Member States reported irregularities and fraud of EUR 120.6 million, i.e.
0.39% of the Structural Funds budget of EUR 30.6 billion (Regulations (EC) No 1681/1994
and 1831/1994); notes that of a total of EUR 97.3 million reported as irregularities by
Member States, 64% were identified by Italy and the United Kingdom and of a total of
EUR 23.2 million reported as fraud by Member States, 99% were identified by Germany,
Italy and the United Kingdom;

20

(b) points out that nine Member States, namely, Belgium, Denmark, France, Luxembourg, the
Netherlands, Austria, Portugal, Finland and Sweden, have not reported any cases of fraud in
the area of Structural Funds;

(c) takes note of the substantial improvements brought about by the new Council Regulation
(EC) No 1260/1999 of 21 June 1999 laying down general provisions on the Structural Funds;
counts on the Commission to make sure that that regulation is applied in full and,
in
particular, to make the necessary financial corrections where Member States are responsible
for irregularities; calls on the Commission to ensure that the decommitting procedure laid
down in that Regulation is fully implemented; calls on the Commission to introduce a
clearance of accounts procedure for Structural Funds;

Commission's reply to Point 5. (vi) (a), (b) & (c):

On 2 March 2001 the Commission issued Regulations Nos 438 and 448/2001 which specify
further the provisions of the basic regulation concerning management and control systems
and financial corrections. It has commenced audits of Member States’ systems to ensure
that they meet the standards required by the new regulations. Under Regulation No 448 the
Commission will be kept informed about financial corrections made by the Member States
and is determined to make corrections itself where necessary, especially for systemic
irregularities, when it will apply flat rates and extrapolation. It adopted internal guidelines
for corrections at flat rates at the same time as Regulation 438.

The Commission has explained to Member States in good time through the Structural
Fund committees how the provisions governing decommitment
in year n+2 will be
implemented.

the
Concerning the EAGGF Guarantee Section clearance of accounts procedure,
Commission considers that
the new management and control systems and financial
corrections regulations, together with the financial correction guidelines, have already
transposed into the Structural Fund rules those parts of the Guarantee clearance procedure
rules that are compatible with the Structural Funds.

The Member States are obliged under the sectoral regulations to notify the Commission of
cases of fraud and irregularity affecting the Community budget. They are, moreover, under
the obligation (Article 280 of the Amsterdam Treaty) to take the same measures to counter
fraud affecting the financial interests of the Community as they take to counter fraud
affecting their own financial interests. The Commission services take every opportunity of
reminding the Member States of their reporting obligations in this regard, in particular in
the framework of the Advisory Committee for the coordination of fraud prevention, whose
role it is intended to enhance to strengthen cooperation both between the Member States
and between the latter and the Commission. With regard to the statistics in the area of
structural measures, the tendency in the year 1999 was for an increase in both the number
of cases of fraud and other irregularities and the amounts concerned. This reflects the
increased efforts made by the Member States in terms of formal notifications. The
considerable variations between Member States in cases reported is striking. The
Commission continuously calls on the Member States to improve their awareness of the
various types of fraud and irregularities so that more consistent results may be achieved.

21

Regarding the distinction between what constitutes fraud as distinct from an irregularity,
the Commission has taken an initiative to fill in the void in this area in 2001 with its
proposal for a directive of the European Parliament and of the Council on the criminal law
protection of the Community’s financial interests. The proposal contains elements from the
1995 Convention on protection of financial interests including in its Article 3 a definition
of fraud and what constitutes serious fraud. The Commission took the initiative to make
this proposal under Article 280 of the Treaty on European Union as it seemed unlikely
given the current state of affairs that the Convention and its associated protocols would be
ratified by all
the Member States, an essential precondition for their being applied
throughout the European Union, in the foreseeable future. Article 1(2) of Regulation (EC)
No 2988/95 contains a definition of what constitutes an irregularity.

(d) regards the trend in the amount of outstanding commitments both in the area of structural
measures and TEN projects as unacceptable; calls for the submission of an emergency
reduction programme coordinated between the Member States and the Commission,
in
particular for pre-1994 outstanding commitments in the area of structural measures; calls for
no extensions requested by Member States to be granted to payment deadlines;

Commission's reply to Point 5. (vi) (d):

Structural Measures

involving
Each Structural Fund has an action plan for the reduction of the RAL,
monitoring of all pre-1994 commitments that should be closed at the end of 2001 with the
exception of legal cases pending. In accordance with the regulation, if payment claims
from the Member States have not been registered, the corresponding commitments will be
cancelled.

In absolute terms, the RAL has been increasing over the period 1994-1999 reflecting the
doubling of the budget over this period.

The RAL for the Structural Funds has remained broadly flat in the last 3 years taking into
account the fluctuation in the budget. The ratio of the RAL at the end of the period to
appropriations for the period has been: 121% for 1998, 136% for 1999 and 126% for 2000
thereby showing no significant change.

In view of these figures, which concern multiannual actions in areas connected with
the productive sector,
infrastructure investments, conversion and modernisation of
training, etc., the Commission would repeat its opinion that the volume of the RAL is
normal. The pre-1994 RAL for the FEDER was too high and intensive action was therefore
€
674 million in June
taken. As a result it has fallen from around
2001. Work continues on reducing it.

1.7 billion in 1999 to

€

The Commission is working with the Member States to clear these programmes in the
course of 2001. The new regulation is intended to close old commitments so the changed
legal base will result in reduced RALs in the future.

The reduction and closure takes time even when selected for intensive action. Decisions for
action need to be based on good supporting documentation and must comply with the
regulations; it may lead to legal action which takes time, but may be necessary in order to
protect the financial interests of the EU.

22

TEN

In order to reduce the amount of outstanding commitments (RAL), measures to reinforce
the management of the TEN projects have been drawn up; for example projects which have
not started within 2 years will now be cancelled (Article 10 of the new TENs Regulation
1655/99).

€
Although the RAL increased from end-1999 to end-2000 (
1078m) these
measures along with increased operational vigilance should result in an effective net
reduction from 2001.

940m to

€

(vii) urges the Member States to comply with the eligibility criteria laid down in the new
regulations, so as to avoid any recurrence of the irregularities that are highlighted each year
and asks to be kept informed of the action taken by the Commission on the irregularities in
European Social Fund operations in Member States, especially:

- Netherlands: Rijnmond-Drechtsteden and Gelderland;

- Spain: Catalonia;

- Denmark: Kolding, recalling that the national authorities did not report the case to the Anti-
Fraud Office;

Commission's reply to Point 5. (vii):

In her letter to Mr Blak (0541 of 28 March 2001), Ms Diamantopoulou reported on the
action taken by Commission staff on the Rijnmond-Drechtsteden and Gelderland and
Catalonia cases.

• On the Rijnmond-Drechtsteden and Gelderland case, the Commission departments
concerned organised a meeting on 22 June 2001 with the Dutch authorities in order to
take a position on the recovery of the amounts wrongly paid in connection with
utilisation of ESF appropriations in the Netherlands. As the Dutch Minister for Social
Affairs was not prepared to accept the repayment plan proposed by the Commission (i.e.
repayment of 1994-96 amounts before summer 2001 and 1998 and 1999/2000 amounts
after completion of the controls), the Commission has applied the procedure laid down
by the Coordination Regulation (Article 24 of Regulation (EEC) No 4253/88: reduction,
suspension and withdrawal of assistance). The Commission informed the Dutch
authorities of this at the meeting.

•

In the Catalonia case an Article 24 procedure has been in progress
December 2000 to suspend all the ESF funds assigned to the two promoters concerned.

since

• Denmark: Kolding – The requirement to report irregularities to OLAF was discussed at
the annual co-ordination meeting with the Danish control bodies on 21 February 2001.
A formal report from the Danish authorities was subsequently sent
to OLAF on
19 July 2001. The case is still being investigated by the Danish police authorities. The
Commission is following it closely and no further payments relating to this project will
be made pending the outcome of the judicial proceedings in Denmark.

23

(viii) calls on Member States who have not yet done so to give their national Court of
Auditors full powers to audit the use of EU-funds down to the final recipient level; welcomes
the reports produced by the Dutch Court of Auditors which have led to steps being taken by
the Dutch Government;

(ix) notes that when examining transactions in order to draw up the declaration of assurance
the Court of Auditors identified irregular payments worth EUR 418 million; invites the
Commission to recover
funds incorrectly paid to Member States and to propose a
simplification of the infringement procedure, which allows a lump sum or penalty payment to
be paid by the Member State, following a judgement by the Court of Justice,
if the
Commission considers that the Member State concerned has failed to fulfil an obligation
under the Treaty (Article 228);

Commission's reply to Point 5. (ix):

Detection of irregularities and recovery of funds is achieved via specific and appropriate
legislation for the different sectors of activity where the Commission acts. The actions that
have been taken by different sectors are detailed below:

Agriculture: Guarantee - The Commission takes into account the results of the DAS in the
EAGGF Guarantee clearance of accounts. As for EAGGF - Guidance - all the DAS cases
have been verified and the recovery is in progress or the undue amounts have been
received, or in particularly serious cases the Commission has launched infringement
procedures against the Member States in question.

Regional Development: As regards the European Regional Development Fund,
the
Commission services are following up all cases of substantive errors on payments identified
by the Court. Further inquiries with the Member States are in some cases still ongoing.
These will allow the Commission to either gather evidence that the necessary corrections
have been made for the errors accepted by the Member States, or will allow the Commission
to reach a final conclusion, for the other cases.

Not all situations of error detected by the Court will give rise to a receipt of funds from the
Member States of amounts paid. For example, if a programme where an error was detected
is not closed there may be offsetting of new eligible expenditure against the non-eligible.

Commission departments responsible for employment activities ensure a close follow-up of
all the substantial errors detected by the Courts of Auditors during the DAS exercise 1999.
The totality of these errors have been reported for appropriate action to the Member States
concerned. As 1999 was the last year of the programming period 94-99, most of the errors
will be corrected in the framework of the closure process of the OPs (2001-2002). Final
payment requests will be adjusted in order to take into account the observations of the
Court, and, when applicable, recovery orders will be issued.

Furthermore the Council Regulation (EC) No 2236/95 of 18 September 1995 laying down
general rules for the granting of Community financial aid in the field of trans-European
networks stipulates that Member States shall take the necessary measures to recover any
amounts lost as a result of irregularity including interest on account of late repayment in
accordance with the rules adopted by the Commission. Commission officials or agents may

24

carry out spot checks, including sample checks, in respect of projects financed under this
Regulation and may examine the control systems and measures established by the national
authorities, which shall inform the Commission of measures taken to that end.

The Commission may require the Member State concerned to carry out an on-the-spot
check to verify the correctness of payment applications. Commission officials or agents may
take part in such checks, and must do so if the Member State concerned so requests.

€

In respect of the administration, two payment errors were identified. The first had a
difference of
75.50 between the declared and correct amounts. No recovery was made as it
was considered that Article 85 of the Staff Regulations was not applicable. The second
error was for a difference of
3 055.32 and two recovery orders were established. The
person concerned is repaying the balance in instalments. At 27 June 2001 the amount
outstanding was
1 444.01. The Commission is continuing its efforts to recover the
remainder.

€

€

€

24 191.87 had been identified. In their request
In the area of fisheries, a payment error for
for reimbursement of expenditure connected with marine surveillance in 1999, the Greek
authorities failed to declare to the Commission the amounts deducted by way of penalties or
interest for late payment. In addition they applied a 0.10% deduction to certain payments to
finance operational expenditure by the Ministry for Development. In their preliminary
contacts with Commission departments on this subject, the Greek authorities did not object
to the amounts in question being deducted from a future payment. A letter was sent to the
Greek authorities on 8 September 2000 expressing the Commission's position, which is the
same as that of the Court of Auditors. As the Greek authorities did not react to the
Commission's letter despite a number of reminders, a recovery order was issued on 14
March 2001. During an on-the-spot visit in July 2001, the Commission officials were
informed that as a result of a mistranslation of its application for repayment, the Greek
authorities took the view that they did not have to repay anything. The Commission has
insisted that the amount be repaid.

A simplification of the infringement procedure would imply a modification of the Treaty.
The Court of Justice has underlined the large margin of discretion the Commission enjoys
regarding the opening of infringement procedures under Article 228 of the Treaty, and the
Commission uses other specialised and effective procedures for recovery of funds where
significant expenditure with Member States occurs (EAGGF and Structural Funds). The
Commission therefore does not see any pressing need to change the procedure at present.

3.5.

Court of Auditors

6. (Court of Auditors)

25

3.6.

Anti-Fraud Office

7. Underscores the urgent need for clarification of OLAF's information policy, so as to allow
account to be taken of three demands, which are contradictory in some respects, in a rigorous
and balanced fashion:

(i) a demand for transparency vis-à-vis the discharge authority;

(ii) a demand for confidentiality for certain information, the disclosure of which is likely to
harm legitimate material and non-material interests;

(iii) a demand for compliance with the presumption of innocence and with the rights to
defence of natural or legal persons called into question;

Commission's reply to Point 7:

OLAF remains fully committed to continuing to provide the European Parliament with
information, in accordance with the legislation in force, on cases of fraud and irregularity
affecting the Communities’ financial interests. Given the need, on the one hand, to respect
confidentiality in such a way as not to jeopardise ongoing inquiries or to harm the
legitimate rights of the defence, and, on the other hand, to inform the Parliament in order
to enable the latter to carry out its discharge duties, OLAF has taken the initiative of
drawing up a draft document on its communication policy with regard to cases of fraud and
irregularity affecting the Communities’ financial interests, which aims to satisfy these
different objectives. The draft document
is now under discussion in the appropriate
Commission's services and has been submitted to the OLAF Supervisory Committee for its
opinion.

8. Regards it as essential in this regard to continue the debate between OLAF and its
competent committee, the Committee on Budgetary Control, so as to lay down agreed, precise
and binding ground rules on the matter; looks forward to receiving from the Anti-Fraud
Office, under appropriate conditions of confidentiality as laid down in Annex VII of the Rules
of Procedure, the final internal and external reports of investigations into programmes or
organisations that fall under the responsibility of the following Directorates-General; invites
the Anti-Fraud Office to indicate the date the allegation was received, the overall cost, main
problems identified and recommendations to the Commission and/or other parties:

26

Agriculture Directorate-General:

Illicit traffic in butter-based products

External Relations Directorate-General:

Commission delegations including:

Washington,

IRELA (Instituto de Relaciones Europeas Latino
Americanas),

ACEAL (Association
Europe-Amérique latine),

pour

la Coopération

Humanitarian Office:

ECHOFLIGHT - Africa,

International Federation of
former Yugoslavia,

the Red Cross -

Justice and Home Affairs Directorate-General:

European Migrants Forum,

Employment and Social Affairs Directorate-
General:

European Social Fund in the Netherlands, Spain
and Denmark,

Personnel & Administration Directorate-General: Berlaymont building,

Commission's reply to Point 8:

OLAF agrees with the need to have precise rules for informing the Parliament of cases of
fraud and irregularity affecting the Community’s financial interests. With regard to the
specific cases mentioned, the current position is as follows:

BUTTER

The adulterated butter case is a complex one involving criminal organisations and
concerning several Member States. Investigations are continuing. A rogatory commission
has recently been terminated in Italy by the French authorities in the presence of OLAF
investigators and Commission staff with a view to establishing the existence or otherwise of
a risk to public health on the basis of the elements known about the nature of the
adulterated butter as well as regarding the destination of the final product. Recovery action
is under way for those operators who acquired the finished product. The black list
regulation has been applied for some of these economic operators.

WASHINGTON

OLAF is re-examining the Commission’s internal report into the Washington delegation
following the resubmission to it of the report by the Commission services in August.
However, given the conclusions of the report, it is unlikely that an OLAF investigation will
be initiated.

IRELA

The IRELA case is still under investigation by OLAF. Given the complexity of the case and
the need to interview a considerable number of persons, it is anticipated that the dossier will
not be finalised for a further two or three months.

27

ACEAL

OLAF is continuing its investigation into ACEAL.

ECHOFLIGHT

The OLAF investigation into ECHO FLIGHT has been finalised recently. No evidence has
been found of any fraud and in consequence the file has been closed.

EUROPEAN MIGRANTS’ FORUM

OLAF has completed its investigation into the matter of the European Migrants Forum and
a file has been referred to the Belgian judicial authorities.

ESF

OLAF is following closely the developments regarding the European Social Fund in the
Netherlands and is standing ready to provide assistance to the Dutch judicial authorities, if
needed.

BERLAYMONT

Work on the Berlaymont case is ongoing. It is a complex case involving many different
layers of responsibility. OLAF will report on the results of its investigation.

3.7.

Commission

9. Expects the Commission to report back on developments in cases discussed below, in
particular with regard to remedying underlying system weaknesses brought to light by those
cases:

(i) Retroactivity and Proportionality - Fléchard affair

(a) recalls that in 1991 a French company Fléchard agreed to transport 6,750 tonnes of Irish
butter, to the former Soviet Union, upon submission of a guarantee of ECU 17 617 500;
points out that a joint mission by DG VI and the Irish authorities, to Poland in May 1992,
concluded that the transaction "was orchestrated as a fraud from the beginning";

- notes that the Commission adopted on 22 July 1993 Regulation (EEC) No 1938/1993 under
which the guarantee would be lowered to ECU 6 277 500 and applied retroactively to
Fléchard;

- understands that a decision to lower the guarantee to ECU 3 003 750 was adopted during the
meeting of 7 January 1994, chaired by the deputy head of Cabinet of the President of the
Commission, in the presence of the Financial Controller, the Director-General of the Legal
Service and the Director of EAGGF;

- points out that the Anti-Fraud Office, Parliament’s Legal Service, the Court of Auditors, and
the Committee of Independent Experts have questioned the legal basis of the decision taken
by the Commission to lower the penalty to ECU 3 003 750;

(b) regrets that the Commission took an ad hoc decision:

28

- without a sufficient legal basis;

- without carrying out a conclusive investigation into fraud;

- without the involvement of the Commission College or responsible Commissioner on the
basis of a meeting of its senior officials, the minutes of which have disappeared;

(c) welcomes the fact nevertheless that the Commission has:

- acknowledged, for the first time to Parliament, that the handling of the Fléchard case is open
to criticism;

- acknowledged that a more thorough investigation should have been carried out;

- realised the extent of the problems highlighted by the case;

(d) calls on the Commission to:

- state clearly and unequivocally that it would not handle a similar case in the same manner
today;

- bring forward, by November 2001, guidelines on the application of the principle of
proportionality, as promised;

- ensure that the College takes a formal decision in cases involving proportionality for the
waiving of debts greater than EUR 1 million or EUR 100 000, if this represents a reduction
greater than 25%;

Commission's reply to Point 9. (i):

At the April 2001 Plenary, Ms Schreyer made a clear and unequivocal statement on this
case. An interdepartmental working party has been set up in response to Parliament's
request to the Commission to present guidelines on the application of the principle of
proportionality. It is planned that the Commission will adopt a communication on the
adoption of these guidelines. In this way the Commission will shortly be laying down a set
of rules providing certain and transparent protection for the financial interests of the
Communities when debts are waived for reasons of proportionality.

(ii) Flax

Questions why insufficient action was taken by competent authorities in Spain, even though
weaknesses in control systems were reported by the Commission (Financial Control and the
Agriculture Directorate-General) and the Anti-Fraud Office; asks the Anti-Fraud Office to
investigate similar irregularities in the flax sector in other Member States; asks the Committee
on Budgetary Control to continue to monitor developments in those cases; expects the
Commission to apply rigorous financial corrections to Spain and other Member States under
the clearance of accounts procedure; expects the Commission to sanction adequately the
violation of Community legislation both by the producers of flax and by the processing
factories;

29

Commission's reply to Point 9. (ii):

On the basis of the definitive results of the on-going OLAF investigation and the
investigations undertaken by the competent authorities in Spain the Commission will
calculate what part of expenditure under this regime will be excluded from Community
financing. In this context the Commission is at present investigating in the framework of
the Community regulations what financial consequences under the clearance of accounts
procedure can be applied to the Member State concerned. A bilateral meeting between the
services of the Commission, OLAF and the Spanish authorities has taken place. A decision
on correction is being prepared. The Spanish authorities have been informed by letter that
all the expenditure on flax incurred for the financial years 1996 until and including 2000 is
under consideration.

The report on the OLAF investigation into the flax sector in so far as it concerned Spain
has already been transmitted to the Budgetary Control Committee of the European
Parliament. Further inquiries into the flax sector in other Member States in the north and
south of Europe are continuing.

(iii) Adulteration of dairy products

Parliament is alarmed by reports of fraud, involving the adulteration of 35 200 tonnes of
butter, orchestrated by a multi-national organised crime syndicate; recalls that Community
subsidies were paid on what was declared illegally as butter; encourages the Anti-Fraud
Office to continue to coordinate controls in a number of Member States, including Italy,
France and Belgium; calls on the Commission, within the clearance of accounts procedure, to
apply maximum financial corrections, once the results of the investigation by the Anti-Fraud
Office are finalised;

Commission's reply to Point 9. (iii):

OLAF is continuing to coordinate ongoing inquiries into suspected irregularities involving
adulterated butter products (see reply to point 8). Financial corrections will, if appropriate,
be included in a clearance decision based on the results of
judicial
investigations with which OLAF is assisting and will be made in accordance with the
formal procedure under Article 4 (obligations for Member States paying agencies) of
Regulation (EC) No 1258/1999 on the financing of the common agricultural policy.

the national

(iv) Enlargement

(a) regrets, with regard to support for public administration, the lack of a strategy, the general
nature of objectives and the fact that candidate countries appear not to have the capacity to
apply, manage and monitor programmes to prepare for accession; welcomes, however,
improvements in twinning programmes;

(b) deplores, with regard to PHARE, that financial decisions are concentrated at the end of the
year; notes that the Commission was forced to make late payments, because supplementary
and amending budgets were adopted at the end of the year; is concerned about the financial

30

impact this may have on the beneficiaries of programmes or projects; expects that the
adoption of new guidelines will improve tender procedures;

(c) calls on the Commission to ensure that, before accession to the Union, all applicant
countries have introduced proper control systems in the areas of shared management of
Community funds;

Commission's reply to Point 9. (iv):

(a) As emphasised in the Phare review, the Commission shares Parliament’s concerns
about the capacity of the candidate countries and the difficulties that this implies for the
effective absorption of EU assistance. The issue can only be satisfactorily addressed by the
candidate countries themselves. The Commission will help them to do so firstly by raising
awareness (in particular through the Regular Reports and Accession Partnerships) of the
issue and secondly by providing the countries with assistance to address it. This will be a
high priority for Phare.

(b) Phare national programmes in a given year address the weaknesses identified in the
Regular Reports which are only finalised towards the end of the previous year. Typically it
takes six months to develop the Phare national programme. The programme is made up of
projects in many sectors. Only fully developed projects are accepted and it is the speed of
the slowest project that dictates the time taken to develop the programme. It takes a further
four months to pass the programme through all the approval procedures (inter-service
consultation,
committee approval, Commission decision,
budgetary commitment, signature of Financing Memorandum). For 2002 the Commission
will split countries’ national programmes so that projects in Institution Building and
associated investment which are ready can proceed more quickly. This will allow
commitment of a significant part of the budget in the first half of the year.

translation, management

Provided adequate payment appropriations are available, the Commission would now
expect to respect payment times for the Phare programme.

(c) The Commission is working closely together with the candidate countries to help them
introduce “extended decentralisation” for pre-accession assistance whereby
the
Commission waives the right to ex ante control of tendering and contracting carried out by
the countries and relies solely on ex post controls. This can only be done on the basis of a
thorough analysis of the financial management and control systems in place in the
candidate countries. Where possible, the Commission would wish to have such systems
operational in advance of accession in order to ensure that they function correctly.

(v) Food aid to Russia

doubts the appropriateness of the programme to supply agricultural products to the Russian
Federation; wonders whether
the
Commission was unable to enforce its policy with the Russian federal authorities; expects the
Commission to forward the final audit report to Parliament before the end of 2001;

the objectives pursued were realised;

regrets that

31

Commission's reply to Point 9. (v):

the
The Commission made every effort under difficult circumstances to ensure that
in achieving its principal
programme as decided by Council was broadly successful
objective of delivering the food aid to Russia efficiently. Problems arose,
inter alia,
concerning control of the distribution of the food within Russia through the Russian
organisations . The Commission stopped the programme in December 1999. The European
Parliament will be informed of the results of the audit as soon as it is available.

(vi) Nuclear safety

encourages the Commission, to pursue efforts for:

(a) operations undertaken by the European Union in the field of nuclear safety in Central and
Eastern Europe (CEE) and in the new independent states (NIS), to continue its efforts to
improve the management of this aid in the context of the reform process, notably as
foreshadowed in the document on 'Externalisation of the management of Community
programmes' of 12 May 2000 by the Planning and Coordination Group on Externalisation,
and

redirecting funds by creating an independent budget

(b)
strengthening cooperation in the field of nuclear safety for TACIS countries;

line with the intention of

Commission's reply to Point 9. (vi):

(a) The Commission is continuing to improve management of external aid, including aid to
strengthen nuclear safety.

(b) On 6 September 2000, the Commission decided to re-organise the responsibilities for
nuclear safety programmes in support of Central and Eastern European Countries and
Newly Independent States. This decision clarified the responsibilities and, particularly, with
regard to PHARE pre-accession support reduced the number of interfaces between
different Commission actors.

With regard to the PHARE financial instrument, one Commission directorate was given
responsibility over the full project cycle. This directorate subsequently established a “Task
Force for Nuclear Safety” to address both the political issues arising with regard to nuclear
safety in the context of enlargement as well as the delivery of PHARE-funded assistance.
This Task Force became operational during the first half of 2001. The lead directorate
enjoys the support of the transport directorate as the line service in charge of nuclear safety
issues. The concentration of responsibility in DG Enlargement allows the service in charge
of the accession process to combine financial assistance with the pre-accession dialogue
with candidate countries and thus contributes to a concentration of the Commission’s
efforts to ensure the improvement of nuclear safety levels in candidate countries.
Simultaneously, the involvement of EC Delegations in candidate countries and their
reporting to headquarters have been further streamlined to add to the impact of the
Commission’s activities.

32

As a further measure to improve the management of assistance in this field,
the
Commission also adopted new rules for contracts in the field of nuclear safety (for details,
see annex to the Communication COM(2000) 493 final). These rules are intended to result
in an improved delivery of the programmes’ objectives.

Already in the 2001 budget a specific line was created B7-524 "Assistance in the nuclear
sector" with a p.m. The allocation for the nuclear sector will be provided via transfer of
appropriations. In the PDB 2002 the Commission has suggested allocating
85 million for
the purpose of strengthening cooperation in the nuclear sector for TACIS countries.
25 million has been proposed.
Furthermore on the line B7-525 "Chernobyl Shelter Fund"

€

€

(vii) "Screening" of Delegations

(a) regrets that staff and resources allocated to the Commission's delegations are not always
commensurate with the Union's current political priorities or amount of aid disbursed; points
out that there is an uneven attribution of resources, noting by way of example that the
delegation to Mali, responsible for an annual budget of EUR 152 million, is staffed by six
officials while Barbados, with a negligible aid budget, also has six officials; notes that there
are no delegations in key regions including Singapore, Malaysia or any of the Gulf States;

(b) notes that in view of the benefits deriving from Annex X of the Staff Regulations, the
average cost of an official overseas is EUR 270,000 in the first year and EUR 207,000 in
subsequent years, as compared with the average cost of officials in Brussels or Luxembourg
of EUR 120,000; notes that the cost of a locally recruited expatriate is one third of the cost of
an official; encourages the Commission to continue the redeployment programme launched in
1996 in which regional delegations would be created; notes that, since 1996, 70 statutory
posts were redeployed between Delegations and 50 posts from headquarters to Delegations;
considers that a number of official posts in ACP countries could legitimately be replaced with
locally recruited expatriates;

(c) calls for a clear definition of the duties to be conferred on all categories of staff; considers
that a coherent approach must be taken to the question of the ratio of officials to local staff;
calls for a proposal on how to simplify management of auxiliary, temporary and permanent
staff in order to avoid the application of different standards;

Commission's reply to Point 9. (vii):

(a) Concerning the reported uneven attribution of resources in Delegations, the College has
recently decided (COM(2001)381 of 03.07.01) on redeployment of resources within the
External Service, including the opening of new Delegations and streamlining of others.
Concerning the allocation of resources to the Commission Delegation to Barbados, it
should be stressed that this Delegation has regional responsibilities covering 13 countries.
Concerning Parliament’s wish to see the redeployment programme continue, this question
was also addressed in the recent communication on the External Service.

(b) As regards the possibility of replacing officials by locally recruited expatriates, this
possibility is one of the instruments used by the Commission provided the professional
profile makes this replacement possible.

33

(c) Parliament’s call for a clear definition of the duties to be conferred on all categories of
staff is addressed in the ongoing administrative reform programme. As regards the ratio of
officials compared with local staff,
the redeployment of officials initiated in 1996
constitutes a re-balancing of this nature. This exercise will be continued. Concerning
Parliament’s call for proposals on how to simplify staff management in order to avoid the
application of different standards, the different contractual patterns in use in the External
Service are related to the different aspects of the mission statement (temporary or
permanent tasks). The administrative reform programme includes a review of the legal
framework for non-permanent staff (auxiliaries, seconded national experts). Annex X of
the Staff Regulations does not allow for auxiliary contracts nor temporary staff in third
countries.

(viii) Sarajevo delegation

welcomes that at Parliament's instigation the Commission gave greater powers to the Sarajevo
delegation which is now a role model for other offices;

(ix) Jerusalem delegation

(a) welcomes that a further 23 delegations have been selected to take on direct financial
responsibilities, including the delegation in Jerusalem; notes that although aid to Palestine
amounts to EUR 132 million, in 1999 the Jerusalem office was essentially staffed by two A-
grades, one B-grade and one C-grade official; invites the Commission, in view of its new
tasks, to increase the number of staff in Jerusalem beyond the fixed ceiling of officials and
experts, established by the Israeli authorities, by starting negotiations with Israel, as the
delegation itself already suggested in 1999;

(b) stresses the importance of European Union assistance within the framework of the Middle
East Peace Process; points out that both the independent external evaluation and the special
report No 19/2000 by the Court of Auditors, noted that the positive impact of aid was reduced
by a number of factors including the fragmentation of responsibility, a lack of performance
indicators and insufficient coordination with other donors; calls on the Commission, within
the context of the reform of external aid, launched on 16 May 2000, to draw up an action plan
following the audit and evaluation and to report on progress, the first time after six months
and thereafter at least once a year;

(c) notes that the European Union, as the Palestinian Authority’s largest donor, should ensure
that its assistance promotes peace and reconciliation; the Commission should ensure that its
support for Palestinian education does not either directly or indirectly finance expressions of
racial hatred but that, on the contrary, its desire to play a role in the peace process results in
the promotion of peace and reconciliation among the younger generation in a region where
peoples have been subjected to terror for too long;

Commission's reply to Point 9. (ix):

(a) Clearance was received from the Israeli authorities in June 2001 to enable the
Commission to increase the staff by up to 8 persons. Having obtained this authorisation
the Commission Representative’s Office in Jerusalem will receive extra staff as part of the
deconcentration from Brussels of financial control which will take place in 2002; the exact
timetable will depend on the security situation.

34

(b) The reform of the management of the Commission’s external aid programmes is
designed to increase effectiveness, and includes measures to define responsibilities more
clearly through the unification of the project cycle and through devolution to the
Delegations, and to improve the quality of project preparation and monitoring through
better use of performance indicators. Measures for improved coordination were adopted in
January and should have been sent by each Member State to their representatives in the
field (all Commission Delegations have been briefed). A progress report on the
implementation of the Action Plan is being prepared.

(c) The European Union as a whole, and the Commission in particular, has a proven
record of seeking to promote peace, tolerance and human rights in the Middle East. The
€
50 million to peace-building programmes
Commission has allocated
promoting peace building through joint projects and awareness campaigns. Among these
projects are "Democracy Education for Youths" and "Peace Education - Curriculum
Enrichment". The latter develops guidelines and outlines for lesson plans for joint
educational endeavours, which instil the values of the peace process.

in 1999-2000

The issue of
support to Palestinian education has come up on several occasions. The
Commission finds it deplorable that textbooks containing messages of racial hatred are still
being used in some schools in the West Bank and Gaza and profoundly supports initiatives
taken by the Palestinian authorities in 2000 to phase out the use of those textbooks.

finance the production and distribution of
The European Commission does not
schoolbooks in the Palestinian territories, either directly or indirectly. None of the
Commission's projects in support of the Palestinian authority, include the production or
distribution of textbooks.

(x) Stockholm representation

regrets, as regards the Commission's handling of the Stockholm office affair, the lack of
openness to the discharge authority, delays in the disciplinary case of involved officials and
the failure to investigate other offices for similar cases:

(a) notes that the Commission audit of the Stockholm office in March 1999 apparently
revealed no problems, although allegations in November 1999 following press reports of
alleged malpractice proved partly true; urges the Commission to improve the quality of
audits; regrets procedural delays, pointing out that whilst the Anti-Fraud Office recommended
disciplinary enquiries in May 2000, three disciplinary cases were only transmitted to the
disciplinary board in March 2001; expects the disciplinary proceedings to be concluded in a
consistent, professional and fair manner;

(b) calls on the Commission to inform Parliament of the rules and their application regarding
officials under investigation;

(c) welcomes that audits were carried out in the Commission's representations in Helsinki,
Vienna, Madrid and Barcelona; calls upon the Commission to initiate preventive controls in
all its remaining Representations and to inform Parliament of the results;

35

Commission's reply to Point 9. (x):

(a) Audit tests are not intended to identify fraudulent practices, but to ensure that the rules
are complied with and that the audited structure is working in optimal manner. Financial
irregularities identified during an audit are normally not fraudulent; however any
suspected cases of fraud identified by such means would be passed to OLAF.

The disciplinary proceedings concerning certain local
the Commission's
representation in Sweden were conducted with due diligence and in full compliance with
the requirements of Swedish law. The decisions were taken by the Authority Empowered to
conclude Contracts of Employment within the time-limits laid down by Swedish law and
were not delayed at all. The local staff concerned then had every opportunity to make use of
the appeal procedures available under the procedure applied and their cases are now
pending before the national courts.

staff at

Concerning the three "Stockholm" cases the disciplinary proceedings are still pending. The
Disciplinary Board has delivered an opinion on one case. A second opinion is expected
shortly and the third and final opinion is likely to be delivered in autumn. In principle, the
appointing authority must
then take its decisions on the basis of these opinions in
accordance with Article 7 of Annex IX to the Staff Regulations. However, as regards the
investigation by the Swedish judicial authorities it is still open whether the Swedish
prosecutor will start judicial proceedings against the three officials concerned. If the three
officials should be indicted, the disciplinary procedures will have to be suspended in
accordance with Article 88(5) of the Staff Regulations.

(b) The rules regarding officials under investigation are set out in Title VI and Annex IX of
the Staff Regulations and are further fleshed out in the case law of the Court of First
Instance and the Court of Justice and the administrative practice of the Commission. In the
interest of transparency, the Commission is currently in the process of bringing these rules
together and codifying its practice in a comprehensive code of administrative procedures, a
copy of which will be provided to Parliament.

(c) Audits will be conducted in the Representations in the other Member States.

(xi) Washington delegation

(a) notes that the Financial Controller, following a comparison with the German, British and
Dutch embassies, pointed out highly questionable practices regarding the refurbishment of the
Washington delegation residence, the cost of which was in excess of the sale value, and the
provision of temporary accommodation, at greater than average market value cost, over a two-
year period;

(b) believes that a posteriori approval of overspend on refurbishment by the Advisory
Committee on Procurements and Contracts and approval by headquarters for lodgings of
delegation staff that breach existing standards is questionable; asks the Commission to
investigate this incident and review its buildings policy with respect to delegations;

36

Commission's reply to Point 9. (xi):

The ACPC did not issue an opinion because the case was presented ex post.

The report following an administrative inquiry on the reported practices regarding the
refurbishment of
to OLAF on
6 August 2001.

the Washington Delegation residence was

sent

However, given the conclusions of the report, it is unlikely that an OLAF investigation will
be initiated.

As regards internal rules on lodging, these rules are now under review in order to achieve
better transparency and value for money. Decisions are expected for December 2001.

(xii) Europe Aid

notes that the new 'Europe Aid' service is an important step towards solving existing problems
of arrears in payment appropriations. Nonetheless considers that such a step is not sufficient
to achieve the desired level of efficiency; therefore invites the Commission to draw on the
experience of external agencies in implementing external aid on the ground, provided that
these agencies can demonstrate a higher level efficiency than the existing centralised and
decentralised services; points out that in such cases the activities of these agencies must be
carried out in compliance with policy guidelines set by the Commission and the European
Community's legal framework with regard to financial and accounting standards;

Commission's reply to Point 9. (xii):

The key objective of the measures to reform the management of external assistance, which
were set out in the Commission’s decision of 16 May 2000, is to increase the speed and
quality of the delivery of the Community’s aid to third countries. In particular, the creation
of EuropeAid is partly intended to address the problems of weak political control and
accountability which have arisen through the inappropriate use of Technical Assistance
Offices in this area.

Considerable efforts have been made since the creation of EuropeAid to build links with the
agencies which some Member States have established to implement their bilateral aid
programmes – this
coordination and
complementarity. The Commission envisages cooperating fully with these agencies, within
the framework of the Commission’s own regulations and procedures, and whilst ensuring
the need for Community actions to retain their distinctly Community character.

clearly necessary

interests of

in the

is

(xiii) IRELA

(a) points out that Commission services were alerted to problems regarding the management
of the Europe-Latin America Institute (IRELA) by Financial Control in its report of 6 June
1997 and by the Court of Auditors in its sector letters of 12 May 1998 and 13 November

37

1998, as well as in its special report No 12/2000 of 18 May 2000; regrets that the Commission
audit was only completed in 2001;

(b) asks the Commission to give urgent consideration to the means of solving the problem of
unpaid staff not involved in irregularities and mismanagement, calls on the Commission to
lost owing to gross mismanagement
recover EUR 4.4 million,
including losses
including non-contractual
remuneration of the Director and double payments from parts A and B of the General Budget
and undue travel expenses;

identified by the audit,
incurred owing to ineligible expenditure,

(c) urges the Commission to launch administrative enquiries and, if appropriate in the light of
the Anti-Fraud Office internal enquiry, disciplinary proceedings;

Commission's reply to Point 9. (xiii):

(a) The external audit was launched as soon as possible once the Court had finalised its
own audit.

(b) IRELA is an independent body. The Commission cannot be held responsible for
IRELA's closure. Following the last audit, the Commission has issued recovery orders for
the

3.4 million which remains outstanding from IRELA.

€

(c) The Commission will act upon the forthcoming results of the OLAF investigation.

(xiv) ACEAL

carry out a thorough audit of ACEAL and an investigation of its links with Commission staff
and asks the Commission not to hesitate to launch administrative or disciplinary enquiries in
the event of any apparent favouritism in the granting of contracts by officials to former agents
of the Commission;

Commission's reply to Point 9. (xiv):

The case referred to is under investigation by the Anti-Fraud Office. Should this
investigation provide evidence that favouritism has occurred in the granting of contracts,
then the Commission will decide whether to launch the necessary administrative or
disciplinary enquiries and take any appropriate measures.

(xv) A-30 subsidies

cooperate with the Anti-Fraud Office and the Court of Auditors in auditing institutes or
centres funded almost exclusively from the Union budget and to report to Parliament in time
for the second reading of the 2002 budget; calls for Members of Parliament holding positions
on executive boards or similar boards of organisations that receive a majority of their funding
from the Union or to declare their interest in writing before budgetary debates and votes, in
line with Annex I, Article 1 of Parliament’s Rules of Procedure;

38

Commission's reply to Point 9. (xv):

The Commission adopted the Vade-Mecum on Grant Management in July 1998, with the
aim of:

- Setting sound and transparent standards for the management of Community funds.

- Providing the Commission departments with a common framework for awarding and
monitoring direct grants.

- Developing a reference guide for explaining the Commission’s policy to the other
institutions as well as the public at large, since a version for applicants and beneficiaries is
available on the EUROPA website.

The Vademecum provides for standard grant agreements annexed to which are the General
Terms and Conditions Applicable to Grant Agreements of the European Communities.
These General Terms and Conditions are unalterable by DGs and contain a special clause
for ‘technical and financial control’ in which it is clearly stated that the beneficiary agrees
to the Commission and the Court of Auditors of the European Communities verifying the
use to which the grant is put, throughout the duration of the agreement and for five years
after its end date.

The Vademecum also contains a chapter on audits (general objectives, planning, reports)
as well as concrete tools designed to assist auditors during on-the-spot audits. The
Vademecum came into force on 1 January 1999. The report to the Commission for its first
year of application showed that DGs had increased the number of on-the-spot audits since
the introduction of the Vademecum.

As such the Commission can confirm that audits are or will be carried out, for example on
ECRE, European Migrants Forum, Soul for Europe.

OLAF does not conduct audits as such, but will examine any suspicions of fraud or
irregularity referred to it by the Commission’s services or the Court of Auditors following
the audits of the institutes in question. It has standing arrangements with the Court of
Auditors whereby any suspicions of irregularity found by the Court in the course of its
audits are automatically transmitted to it.

Among the A-30 beneficiaries there are, apart from IRELA, five institutes specialising in
relations with non-member countries.

Each of these institutes submits accounts to the Commission which are certified either by
an external statutory auditor or by an equivalent public sector procedure. On top of that,
Commission services undertake financial checks on a sampling base. In 2001, by
September, one out of the five institutes had been checked. The visit did not reveal
particular problems.

(xvi) calls on the Commission to develop an information policy which promotes dialogue by
making it possible for all organisations respecting fundamental human rights to apply for
funds;

39

Commission's reply to Point 9. (xvi):

The Commission agrees wholeheartedly with the Parliament that it is necessary to develop
an information policy that promotes dialogue. On 27 June 2001 it adopted a
communication on “A new framework for cooperation on activities concerning the
information and communication policy of the European Union”. As the document states,
one of its primary aims is to “enlist support for objectives which include developing a
proper dialogue with the public, bridging the gap between the Union, and the public and
ensuring that people have access to the right information”. The objective is to foster greater
understanding of the Union and its policies. The communication was endorsed by the Inter-
Institutional Group on Information at its meeting on 3 July 2001.

funding is extremely important. The relevant
Clearly access to information about
Directorates-General,
there is wide dissemination of
information and that it is easily accessible to organisations who may wish to apply for
funds. Steps are constantly being taken to improve the provision of this information.

therefore, seek to ensure that

Respect for fundamental rights is a Treaty obligation (Article 6).

(xvii) International donor co-ordination (including the United Nations (UN))

(a) regrets that despite requests in both discharge questionnaires the Commission has been
unable to indicate the amount of funds channelled through the United Nations as a whole, as
well as individual agencies; requests details including objectives of support, amounts
committed, amounts spent, impact of aid and action taken following audits and evaluations;

(b) is concerned about funds channelled through the United Nations International Drug
Control Programme, asks for information and follow-up; notes that Commission audits have
revealed the high risk of double payments to beneficiaries, once through the Commission and
once more via UN agencies such as via the United Nations High Commission for Refugees;
regrets that the World Food Programme has not allowed audit access, leading to the delay or
even blockage of projects;

(c) regrets that the Commission has failed to ensure full compliance of EU-funded investment
promotion activities with core International Labour Organisation and other international
human rights standards;

(d) calls on the Commission to ensure control and visibility of funds under mandate to
international organisations; make its financial assistance provisions subject
to obtaining
sufficient information on the use of the funds spent by international organisations acting in
parallel with the Commission and, where there is found to be too little transparency, to halt
the contribution to the UN agencies concerned;

40

Commission's reply to Point 9. (xvii):

€

(a) In its communication of 2 May 2001 "Building an effective partnership with the United
Nations in the fields of development and humanitarian aid", the Commission quotes a
figure for the overall contribution by the European Union to the activities of the United
Nations agencies (
354 million a year on average). The Commission expects to be able to
give more detailed information for 1999 soon with further improvements for 2000 and
beyond. This estimate is currently being updated. It will then be possible, after the data
to take a more
have been compared with those of certain United Nations agencies,
qualitative approach and analyse our partners' mandates. The Commission has
undertaken, in accordance with the objectives of the communication as confirmed by the
Council conclusions of 31 May 2001, to develop a more selective approach based on results
and performances with a view to determining the most strategic United Nations partners.

(b) Besides the fact that no new contracts have been concluded with the UNDCP, the EC
informed the UNDCP (letter from Mr Prodi to Mr Arlacchi of 21 March 2001) that its
services are considering undertaking an audit on all ongoing contracts. The UNDCP gave
a formal assurance that the Commission would be given access to any information needed
within the framework of the EC/UN agreement. In addition to this, the Commission asked
for the reports of the UN Internal Oversight Office on this matter. The results of this review
and the findings of the external audit body of the UN, would be of great importance for the
assessment and planning of any EC audit activity considered necessary.

In respect of those instances where the Commission and UN bodies are funding the same
third party, the Commission’s auditors are required to carry out their work in accordance
with standard audit methods. Standard audit methods require that auditors review the
accounting systems of third parties to ensure that the systems are accurate and reliable. To
date, ECHO has not needed to issue a recovery order against an NGO in respect of double
recovery of funding through the UNHCR.

(c) At a general level, the Community's support aims to help partner countries' own
analysis of the general policy and the institutional and regulatory framework in which the
private sector, both foreign and domestic, is active. The goal is to anchor or enforce labour
norms and standards in national laws for different issues such as forced labour, child
labour, health and safety protection:

- In its direct support
to enterprises the Commission stresses the importance of the
voluntary nature of ‘codes of conduct’ and/or ‘social labelling’. However a code of conduct
is no substitute for national laws that respect the fundamental rights of workers. In this
area the Commission supports the introduction of existing international rules, such as
developed by the ILO and the OECD guidelines, or for example, the so-called ‘Sullivan’
principles (good practices against racial discrimination in the workplace).

- Moreover, the Commission demands commitment to fair and social behaviour from the
beneficiary enterprise who benefit from direct support e.g. by demanding a declaration to
abstain from child labour and compliance with national
laws for health and safety
requirements.

41

- In other projects the Commission’s support has helped notably NGO’s to discuss, sensitise
and assess the conduct of multinational investors and it supports awareness campaigns in
developing countries.

- The Commission contributes to capacity building of local organisations to reinforce
workers associations to enhance dialogue with the public sector and business. It can
equally help chambers of commerce to introduce know-how on modern practices and
requirements e.g. on health and safety measures or how to improve corporate governance.

(d) In its communication of 2 May 2001, the Commission undertook to develop possibilities
for cooperation with the United Nations in compliance with the requirements of the
Community rules on verification and financial information.

Agreement was reached in 1994 on application of the verification clause and this
agreement has been subsequently extended. The standard grant agreement with
international organisations produced by the Commission, which is already being used with
many international bodies, contains very strict clauses on matters of visibility such as
verification and reporting. In some cases the arrangements for the application of the
verification clause have been the source of problems.

The Commission would draw attention to the fact that the cooperation arrangements and
more particularly the arrangements for the application of the verification clause to
operations conducted by United Nations agencies and the reporting arrangements are
currently the subject of negotiations on the revision of the 1999 EC-UN framework
agreement. The results are due in autumn.

(xviii) Non-governmental organisations

(a) encourages the Commission to continue its general audit plan for NGOs based on risk
analysis and welcomes the action of the Development Commissioner for not hesitating to
recover monies lost owing to mismanagement by various NGOs;

(b) notes that although the Commission was aware of problems in March 2000, an audit of
CLONG (Liaison Committee of NGOs to the EU) was only started in October 2000; looks
forward to receiving the audit report as soon as it is finalised;

(c) notes that CLONG has not made all documentation available to the auditors, neither
during the first visit to the NGOs nor in the contradictory procedure; encourages CLONG to
submit any further information immediately; calls on the Commission to take full account of
any further documentation in the recovery procedure; expects the Commission to unblock the
funds put on hold when the recoveries issue has been settled and sufficient guarantees as to
the proper financial management have been established;

(d) welcomes that, following allegations of misuse and diversion of humanitarian aid in
Yugoslavia in November 1999, ECHO, together with the International Federation of the Red
Cross, commissioned an audit of the Yugoslavian Red Cross; is concerned about the risk of
double payments, excessive invoicing and weaknesses in management control systems; calls
on the Commission to apply lessons from its audit of the International Federation of the Red
Cross in Yugoslavia to similar operations in other countries;

42

Commission's reply to Point 9. (xviii):

(a) The Commission will continue its general audit plan for NGOs.

(b) The audit report in question was sent to Parliament on 20 February 2001.

(c) An agreement to this effect was approved by the Commission in April 2001.

(d) The lessons learnt from the audit have been clearly identified:

- It is often more effective for the Commission to launch an audit directly rather than rely
on an intermediate organisation with which it has a contract.

- An important factor critical to success is to involve the auditors at the earliest dates
possible, once the allegations have been made.

- More audit controls in the field, and not just at the headquarters of organisations, are
necessary and will be performed.

These elements will be taken into consideration in the Commission in future appropriate
circumstances.

(xix) Development aid

notes that in 1999, out of EUR 6.5 billion spent on external co-operation activities, including
development aid, only 1 per cent of this total was spent on health; notes also that detailed
figures for sectoral spending remain unavailable for category 4 in Latin America and Asia,
although these have been available for over twenty years for the ACP states; urges the
Commission to report fully on all external assistance according to OECD DAC methodology;

Commission's reply to Point 9. (xix):

The Commission accepts that
there is a need to further improve the management
information systems. The 1% figure is likely to underestimate the total support to the health
sector; health in cooperation activities is a key political priority for the Commission. As
intended, the Commission is implementing measures to adopt OECD/DAC standards in all
regions
for 2001. Significant
implementation effort will be required to ensure a resultant high quality of reporting, and
the Commission currently expects to be compatible with the standards by 2003.

reporting on commitments and disbursements

for

(xx) Energy sector

regrets the Commission's discontinuation, in 1999, which means that EUR 5 million out of
EUR 15 million will remain unused, of the SYNERGY programme which focuses on small
scale and flexible projects to favour dialogue and co-operation between the EU and third
countries; calls for the best projects of the call for proposals of 1999 to be transposed
immediately in order to disburse funds foreseen under the 2001 budget; calls for a new call
for proposals with a lower minimum threshold but with criteria that specify high quality and
allowing bigger but also small and medium sized projects to be taken into account;

43

Commission's reply to Point 9. (xx):

€

A new call for proposals was published on 8 June 2001 (OJ C No 165/10) with a new
250 000. This amount follows the new guidelines adopted
minimum threshold amount of
by the Council on 9 April 2001 and corresponds to an increase compared with the previous
€
calls with an average threshold amount from
150 000. Flexibility as to the
threshold will continue to apply for projects that present characteristics of high quality as
well as obvious benefit to the programme.

100 000 to

€

Participants in the 1999 call have been invited, by letter, to resubmit their initial proposals.
If necessary, clustering of projects can be proposed by the project applicant. The
cancellation of the call for proposals has allowed a reorientation and strengthening of the
programme. The expenditure is now subject to new reinforced budgetary procedures put in
place with the setting up of the new Directorate-General for Energy and Transport.

€

15 million.
The total financial reference amount set in the Council Regulation is indeed
Taking into account the amounts adopted from 1999 to the PDB 2002, the total for the
22.7 million. Given the outturn figures from 1999 and expectations for
programme will be
2001 and PDB 2002,
17.2 million. The financial
2.2 million. Thus the cancellation of the 1999
reference amount should be exceeded by
call for proposals will be unlikely to have any negative impact on the implementation of the
budget.

the total executed budget will be
€

€

€

The commitments for 2001 and 2002 will be made in the framework of reinforced financial
procedures.

(xxi) Internal policies

(a) asks the Commission to make provision for contractual penalties in the event of excessive
expenses being claimed;

(b) asks the Commission to require beneficiaries above a certain size to submit a certificate by
an independent auditor attesting the correctness of the expenses claimed and the eligibility of
expenditure for subsidy in accordance with contractual conditions;

Commission's reply to Point 9. (xxi):

Most of the expenditure on internal policies concerns research. The following answers
address this major area.

(a) Strengthening of provisions on controls and penalties is of high priority for the
Commission. The
in the Commission Communication
2001,
COM(2001)254, provides appropriate guidance within a global strategy for this purpose.

action plan for

The current legal framework for direct expenses and particularly contracts under the
5th Framework programme of the European Community already includes measures to
protect
the
interests of
reimbursement of the entire Community financial contribution.

the Community,

in particular,

the financial

including,

44

Discussions are currently taking place between the relevant services, including OLAF and
the Commission's Legal Service, in order to assess the form and content of a draft of a
sectoral anti-fraud Regulation based on Art. 280 of the EC Treaty (co-decision) and in
particular the question of application to running contracts.

technological development and demonstration activities,

In its proposal for the Framework Programme 2002-2006 of the European Community for
the Commission is
research,
taking concrete initiatives to ensure that
the European
Communities are protected by effective checks and, in case of detected irregularities,
through appropriate measures as well as deterrents and proportionate penalties.

the financial

interests of

The following are particular points of focus in respect of providing a reinforced legal
framework in contracts:
– the introduction of specific and detailed penalty contractual clauses to protect

the
financial interests of the Community, in addition to financial technical auditing and
controls in relation to the work performed;

– the application of administrative penalties for all intentional or negligent irregularities
in the implementation of the contracts, in accordance with the framework Regulation
No 2988/95, and/or the above-mentioned sectoral Regulation, including the ineligibility
of their authors to participate in current or future indirect actions.

– the fact that recovery orders in case of irregularities or fraud be more easily enforceable

applying all the possibilities of Article 256 of the EC Treaty.

(b) With regard to the certification by an independent auditor attesting the correctness of
the expenses claimed, the Commission has started pilot projects in the context of the
CRAFT contracts as well as the calls for proposal of the IST programme launched from
2001 onwards.

Specific implementation arrangements have been defined and contractual arrangements
have been decided upon. The IST pilot project
includes an obligation to have audit
certificates for most partners at the end of the project, as well as, in selected cases, for the
first reporting period, in order to allow the Commission to evaluate initial results of those
pilots at an early stage. Those pilot projects will be monitored and evaluated.

In the meantime, the Commission is looking into the possibility of having an independent
auditor certificate attesting the correctness of the expenses claimed for the implementation
of new instruments of the next Research Framework Programme 2002-2006, particularly
in the case of integrated projects.

The costs and benefits of certification by an independent auditor, along with the threshold
for implementation need to be assessed.

Such certificates will not restrict the Commission nor stop it from carrying out its own
checks.

(c) Calls on the Commission to draw up detailed breakdowns of implementation in the
financial year 2000 of the SOCRATES (B3-1001), YOUTH (B3-1010) and CULTURE
(B3-2008) programmes;

45

Commission's reply to Point 9. (xxi) - (c):

Detailed explanations on budgetary implementation of the programmes in question were
published in the revenue and expenditure accounts for 2000 (Volume I Tome II) on pages
148 to 158 (SOCRATES), 159 to 165 (YOUTH) and 173 to 178 (CULTURE).

(xxii) Agencies

(a) notes that appraisals of satellite agencies by the Court of Auditors and the Commission
have, on the whole, focused on purely financial matters; calls for regular independent
evaluations to determine how effectively the agency fulfils its mission; calls for the results of
the evaluation and recommendations to be made public;

Commission's reply to Point 9. (xxii) (a):

The Commission’s Communication on evaluation from July 2000 (SEC(2000)1051)
stipulates that all DGs and Services have to ensure that the activities they manage are
subject to an overall ex post or interim evaluation at intervals not exceeding six years,
depending on the nature of each activity. In the case of multi-annual programmes at least
one thorough evaluation in the life cycle of the intervention is needed. The Commission
services will design their evaluation programmes so that this requirement will be fulfilled,
adjusting the choice and timing of evaluation projects to decision-making needs. In
general, these provisions also apply to the evaluation of agencies.

Some agencies have already been subject to an evaluation (for example, the European
Environment Agency in 2000), for others (CEDEFOP, European Agency for Safety and
Health at Work) the evaluation results will be available soon. The Commission compiles
once a year a report on all evaluation activities and publishes an “Annual Evaluation
Review”, including a summary of each completed evaluation project and information on
the availability of the final report, which is regularly transmitted to the Council and
Parliament.

Status of evaluations for agencies:

•••• Arthur Andersen conducted an evaluation of the European Environment Agency in
1999/2000. The evaluations coordinator of the services of the Commission was a member of
the steering committee. The specifications were heavily based on the evaluations of
programmes conducted by the services of the Commission, which followed closely the
evaluations guide drawn up by the services of the Commission in 1997. This evaluation was
in response to a requirement in the Agency's regulation. It was designed to appraise
implementation of this regulation and in particular the Agency's performances and its
environmental information and observation network and its thematic centres. While it
looked at resources aspects, the accent lay on the substance of past achievements and
recommendations for the future. The results and recommendations were transmitted to
Parliament and an environmental expert from Parliament was a member of the steering
committee.

46

•••• An evaluation of the European Agency for the Evaluation of Medicinal Products
(EMEA) was conducted by a firm of outside consultants. The Commission will be adopting
the official report in October on the evaluation of the operation of the EMEA and the
arrangements for the evaluation of medicinal products. This report will then be officially
sent to the Council and Parliament.

••••The evaluation report of CEDEFOP has been finalised.

•••• The evaluation of agencies and observatories (Bilbao, Dublin, Vienna) has been
launched. Results will be made available in 2001 (Bilbao) and 2002 (Dublin, Vienna). The
evaluation will cover the way each "agency" carries out its specific missions and the results
gained in the framework of their implementation; financial matters will be dealt with in a
"value-for-money" context.

(b) notes, for those agencies not based in the capital city of the Member States, the substantial
difference in the cost of living between the location of agencies and the capital of the
corresponding Member States; calls on the Commission to re-examine the system of
weightings applied to agencies;

Commission's reply to Point 9. (xxii) (b):

The system of weightings applicable to officials and other servants of the European
Communities already provides that where objective factors show a substantial and
permanent difference in the cost of living, weightings may be introduced for places of
employment other than capitals, including the headquarters of decentralised Community
agencies. However, given the cost of statistical surveys away from capitals, the Commission
conducts such verifications only when it has knowledge of such objective factors. In this
connection the Commission would point out that the system of weightings used for the
Agencies and for the other institutions is the same.

(c) Expects the Management Board and management of the European Monitoring Centre on
Racism and Xenophobia, with due regard for their respective roles, to take the measures
needed to ensure that, in future, the accounting systems are modernised and that staff are
recruited and supply, goods and services contracts are awarded in compliance with all the
rules in force;

Commission's reply to Point 9. (xxii) (c):

The comments of the Parliament are duly noted. In addition, the Commission will, in its
relations with the Monitoring Centre on Racism and Xenophobia, take into account the
observations made by the Court of Auditors following its recent mission.

(xxiii) Joint Research Centre

recalls that, in its special report No 10/2000 on the public contracts awarded by the Joint
Research Centre, the Court of Auditors asked that all irregular, questionable and dubious
practices, identified during the course of the audit, should be terminated by appropriate
means; recalls that financial penalties for authorising and accounting officers have not been
laid down in the Financial Regulation, which has been in existence for more than 20 years;
calls on the Commission, in conjunction with the reform of the Financial Regulation, to make
proposals to this end without delay;

47

Commission's reply to Point 9. (xxiii):

The Commission took immediate firm action so that by the time of publication of the
special report the administrative weaknesses identified by the Court had already been acted
upon.

Administrative inquiries had also been carried out and disciplinary proceedings conducted
and penalties imposed. The Commission therefore feels that the problems to which the
Court was referring have been resolved, but a watch will be kept on the situation by means
of regular internal audits.

As regards the Financial Regulation, the Commission has, in its amended proposal, given
effect to Action 66 of the White Paper on reform and to a similar amendment made by the
European Parliament. It is accordingly proposing that a specialised financial irregularities
panel be set up in each institution to determine whether an irregularity has been committed
and give an opinion on whether disciplinary proceedings be taken against an authorising
officer by delegation or subdelegation with the possibility of financial penalties. Pursuant
to Action 67 of the White Paper, the financial liability of financial actors is governed solely
by the Staff Regulations.

(xxiv) Leonardo

Notes that with regard to the Leonardo da Vinci budget heading the Commission, because
inter alia of pressure from Parliament and as a result of a legal complaint to the Brussels
public prosecutor’s office, terminated the contract with the AGENOR technical assistance
office; acknowledges that the Commission has in the meantime adopted measures concerning
management of Community programmes and external technical assistance; demands that the
Commission provide Parliament, within six months, with a meticulous assessment of the
current situation with regard to all external technical assistance;

Commission's reply to Point 9. (xxiv):

1. On the question of externalisation, the Commission has presented to the institutions:

-
the proposal for the recasting of the Financial Regulation which prevents private
sector bodies (TAOs) taking part in implementation of the Community budget and restricts
their involvement to "technical expertise tasks and administrative, preparatory or ancillary
tasks involving neither the exercise of public authority nor the use of discretionary powers
of judgment";

-
the proposal for a framework regulation on executive agencies, public bodies
designed as a tool for externalisation to manage Community programmes which are
currently handled entirely or in part by TAOs.

The Commission has also prepared a new guide and model contract on technical

2.
assistance (use of private-sector bodies) which will shortly be distributed to departments.

The Commission has already supplied Parliament with information and will give an
up-to-date situation of the TAOs.

(xxv) Drug abuse and sex tourism

Criticises the obvious management deficiencies affecting the following budget lines:
B7-6210 North-south cooperation schemes in the context of the campaign against drug abuse
B7-663 Campaign against sex tourism in third countries;

48

Commission's reply to Point 9. (xxv):

€

line was prepared and carried out

In 1999 the budget line B7-6210 (North-south cooperation schemes…) was allocated
€
in
9.8 million. Programming for that budget
accordance with the rules. For the ACP region, a number of projects had been prepared
for about
3.5 million for the end of the year. The services where the responsibility for
the identification, preparation and finalisation of financing proposals lay with the
geographical, instead of the thematic units - had decided to put the emphasis on the use
of geographical budget lines instead of small thematic budget lines. Human resources
this approach was a considerable
were allocated accordingly. The result of
€
undercommitment for the ALAMED regions, only
2.2 million (for Latin America) being
committed for these regions out of an allocation of
7million. The commitment for the
ACP region - although largely in excess of the initial allocation – could not make up for
the undercommited allocation for the ALAMED countries.

€

In addition, during the reorganisation of the Commission in November 1999,
the
internal rules on the management of the budget were modified and responsibility for this
budget line was changed in particular through an untimely transfer of responsibilities at
the end of the year. The reorganisation did also generate delays in the preparation of the
projects. However, in order to avoid any undercommitment of allocated resources, the
Commission decided to transfer the appropriation to the environment budget line, which
at that time did not have sufficient funds.

Corrective measures were taken during the budget year 2000 and resources allocated for
both the ALAMED and ACP regions were fully committed following agreement between
the Commission departments, in particular with the establishment of a coordinating and
programming task force between departments.

Budget line B7-663 (Fight against child sex tourism in third countries) was set up in
1997 to enable the Commission to implement the general framework for the fight against
child sex tourism, provided for by COM (96)547. In this context the activities focused on
curbing the factors underlying this phenonemon in both the origin and destination
countries.

€

The initial amount (ECU 500 000) was doubled in 1999. The commitment appropriations
of

1 million were maintained at the same level in 2000.

In operational terms, in 1999,
projects,
campaigns:

in the more general

€

768 652 was committed for the implementation of three
the awareness and communication

framework of

(1)

(2)

(3)

Development of the Internet platform against the sexual exploitation of children
in tourism

Adoption of the code of conduct for tour operators against child sex tourism

Production of guidelines for journalists and media concerning the coverage of
issues related to the sexual exploitation of children.

Moreover, this enabled the Commission to participate actively in several travel fairs and
to produce and publish relevant information material.
€

Detailed information concerning this commitment of

768 652 is given below:

49

Commitments 1999

Budget line B7-663

60%

122,954

des

Terre
hommes
(TDH)
Deutschland

ECPAT
Sweden

60%

239,396

exploitation
connected

Internet platform against
of
sexual
children
to
tourism” for tourists and
tourism professionals –
Phase I

Code of Conduct for tour
operators against
child
sex tourism– Phase I

International
Federation of
Journalists
(IFJ)

60%

32,610

Project “Enhance media
awareness of the ethical
dimension of responsible
tourism” – Phase I

STRATCOM-
consultant

European
Commission

100%

111,270

Technical support

100%

188,759

Participation
and
exhibition in 1999 and
2000 Tourism Fairs

European
Commission

100%

73,663
(10.075+
10.588+5
3.000)

Publication material

Setting up of necessary
structures, completion of
the internet searches and
design of
internet
platform.

the

of

the
Establishment
participant
network
of
the
countries, design of
evaluation procedure and
body.

Establishment
of
guidelines for journalists
for
and
ethical
professional performance
in reporting, development
of a common approach
between journalists and
trade unions
on joint
information strategies.

Production
and
dissemination of flyers on
the EU action to combat
child sex tourism and
organisation of groups for
discussion with the travel
industry.

Wide-ranging awareness
raising

(xxvi) Administrative expenditure

(a) recalls that, in 1999, the annual cost of invalidity pensions in all institutions, awarded to
invalidity, was around EUR 114 million for
officials in the case of total permanent
approximately 2 700 officials; notes that 28 779 officials worked in all European institutions
in 1999; observes that the high incidence of retirement on grounds of invalidity indicates
undue use of such retirement arrangements as part of personnel policy; would welcome a
comparative study of invalidity rates in Member States and other international organisations
from the Court of Auditors; calls on the Commission to report on underlying causes for such
problems and ensure that existing provisions are strictly enforced;

(b) recalls that an EU-US fellowship programme was set up 20 years ago, whereby EU
officials, with at least five years’ experience, may be sent on long-term mission to American

50

academic institutes; regrets that no such programme exists for European universities; calls on
the Commission to carry out an evaluation of the cost-effectiveness of the programme before
the start of the next discharge procedure;

Commission's reply to Point 9. (xxvi):

(a) INVALIDITY PENSIONS

1. Invalidity retirements

Over the last 10 years, the number of retirements on grounds of invalidity in the European
institutions has been as follows:

Year

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

All institutions

Invalidity
Retirements

Population

%

Invalidity
Retirements

Commission

Population

143

134

126

140

142

153

153

157

202

205

212

24 018

24 629

25 567

26 359

26 984

28 868

29 651

30 048

30 384

30 599

30 819

0.59

0.54

0.49

0.53

0.53

0.53

0.52

0.52

0.66

0.67

0.69

108

104

89

99

109

113

119

107

140

151

153

16 720

17 175

17 952

18 576

19 027

20 143

20 831

21 190

21 495

21 603

21 703

%

0.65

0.61

0.50

0.53

0.57

0.56

0.57

0.50

0.65

0.70

0.70

The percentage of retirements remained relatively stable – at around 0.53% – until 1997
and then rose to 0.69% in 2000.

In the Commission, part of this increase was due to objective factors concerning the
ageing of the workforce. Furthermore, the large number of retirements on the grounds of
invalidity related to psychological conditions (46% of such retirements in the last four
years) should be noted.

2. Checks on retirements on the grounds of invalidity – Decision-making procedure

The procedure for retirement on the grounds of invalidity is begun at the request of the
member of staff or, in the case of staff who have taken more than 365 days of sick leave
over 3 years, by the administration. In either case the appointing authority requests the
opinion of the Medical Service which, if the state of health of the person in question is
unlikely to improve within a period which would permit a resumption of work, convenes
an Invalidity Committee.

51

The Invalidity Committee comprises three doctors: one appointed by the Medical Service, one
appointed by the member of staff and one appointed by common accord between the other two. It
issues an opinion on the invalidity, on whether or not it is professional in origin and on whether
the member of staff’s state of health should be regularly reviewed subsequently. The appointing
authority takes its decision on this basis.

Most applications for invalidity are justified and succeed. The responsible work of the Invalidity
Committees3 is documented by a number of statistics:
•

the average age of retirement on invalidity pension is 52.2 years and average seniority in
the service is 20.6 years (figures for the last four years);

•

•

•

the percentage of retirement on invalidity in the OECD is 0.55%, similar to the figure for
the Commission;

the percentage of retirement on invalidity in the national public services varies between
0.36% and 1.07% (figures provided by EUROSTAT). These figures, and any comparisons
which may be made, have to be treated with caution, as some figures are already 10 years
old and as EUROSTAT received very little information from the Member States (in
particular regarding which people are covered by the figures);

finally the average age of death among those invalided out is 10 years lower than that for
those receiving retirement pensions.

To conclude the allegation that “the high incidence of retirement on grounds of invalidity
indicates undue use of such retirement arrangements as part of personnel policy” is not supported
by the facts.

The Court of Auditors is currently completing an audit of expenditure by the Sickness Insurance
Fund before and after retirement on invalidity and then intends to carry out an audit on the
operation of the Invalidity Committees.
3. Budgetary impact of invalidity

The invalidity pension is:

-
-

in the case of professional invalidity: 70% of final salary
in other cases of invalidity: the retirement pension which the member of staff would have
received if he had remained in active service until the age of 65.

€
124 million and went to

In 2000 payments of invalidity pensions (for all the institutions) cost
2 885 people broken down as follows:

- 1 159 aged under 60

- 586 aged from 60 to 65
- 1 141 aged over 65.

The situation from a budgetary point of view is therefore distorted because those aged over 65
continue to be included although they should really be counted under the retirement pension
€
50
scheme. If only the 1 159 aged under 60 are counted, the budget for 2000 would be about
million.

3

This should be confirmed in 2001 by the Court of Auditors, which is currently completing an audit of
expenditure by the Sickness Insurance Fund before and after retirement on invalidity and which then
intends to carry out an audit on the operation of the Invalidity Committees.

52

4. Improvements proposed under the reform

The orientation document “Pay and pensions” approved by the Commission on
28 February 2001 as part of the Reform proposed a number of measures to make the
invalidity arrangements more coherent. This includes the termination of certain provisions
which sometimes make invalidity more attractive than the normal retirement pension.
These include:

-

-

-

-

-

replacement of the invalidity pension by an invalidity allowance to be followed by a
retirement pension to be taken from 65, unless the maximum rate was achieved earlier;

fixing the invalidity allowance at 70% of the last basic salary instead of calculating the
hypothetical pension which would have been received at the end of a complete career;

no further salary steps;

setting the minimum invalidity allowance at the basic salary of a D 4/1 official (instead
of at 120% of a D4/1 salary);

anti-duplication: in the case of any allowance of the same type or the result of any paid
activity, the part which, when added to the invalidity allowance, exceeds the last basic
salary, will be deducted from the allowance.

(b) FELLOWSHIPS IN THE UNITED STATES

1. Purpose and origin

This is an annual programme (managed by a Commission unit) provided by certain
American universities and research centres which, wishing to familiarise their students and
staff with European issues, offer to receive an official from the European institutions to
teach certain classes and/or to conduct research.

It dates back to the early 1970s when the Commission was invited to send fellows to certain
universities or research institutes in the United States (Harvard University and the
Brookings Institute in Washington) in order to familiarise their students with European
issues.

It is a programme responding to this specific need designed to offer training and exchanges
with the European Union's main trading partner. It would therefore be difficult to extend
such a specific programme to European universities. If such a need were to exist, it would
seem more appropriate to respond to it by other means outside this programme.

A sporadic measure in the early days, the programme was then structured as a result of its
growing success and extended to nine of the most prestigious American universities and
research centres, both public and private, offering high-quality education favouring
European affairs (Annex 1). After first being limited to Commission officials it was later
opened up to officials from the other European institutions (Parliament, Council, Court of
Justice etc.).

From 1977 to 2001, out of the 106 fellows who took part in the programme 22 came from
institutions other than the Commission

53

For the 2000-2001 academic year seven fellowships have been awarded for stays at
Harvard University, Texas University, Duke University, George Mason University
(Virginia), Tufts University, University of Washington in Seattle.

2. Programme of the fellows

The mission of the fellows includes, depending on the programme and their interests, a
combination of the following:

. teaching of European and international affairs to graduate and/or post-graduate classes
or seminars;

. personal research (e.g. A study of technology transfer in North America: proposals for
improving technology transfer in EU research and development programmes, East Asia
policies of the US and the EU, etc.), some of which is published (e.g. The Euro from a
European Union point of view, Environmentally-friendly decision-making in structural
policies - an analysis of the mechanisms and practice in the US and conclusion for the
European Union, etc.);

. assistance to students and teaching staff on European affairs;

. lectures on European affairs both within the university and to the political and business
world.

At the end of their stay the fellows submit a report on their activities during the stay to the
selection committee.

3. Selection of participants.

- Candidates are subject to selection by a high-level committee entitled Committee on
Fellowships and Academic Visits set up in 1978.

This Committee is currently chaired by a Director-General and a chef de Cabinet with
in the
representatives of
Committee's work via a representative of the secretariats of Parliament and the Council.

five other departments. The other institutions take part

As they are required to share their knowledge and experience in high-level university
programmes and be informal ambassadors for the European institutions, fellows must be
officials who, in addition to a command of English and very good interpersonal and
research skills, have an excellent knowledge and experience of European affairs in the
political, economic or legal field. In actual fact participants have in general far more than
the required minimum of five years' experience of European institutions and policies, most
of them when selected being in Grades A5-A3.

4. Cost benefit analysis

4.1 Benefits

The direct benefits of this type of training are not easy to quantify. The following, however,
can be put forward as benefits both for the fellow and for the institution:

54

. For individuals the programme enables fellows to broaden their knowledge and
experience by taking part in the host university's teaching and research programmes,
usually in a particularly stimulating environment. It also provides an opportunity to forge
useful links and informal contacts with the American academic, political and business
world.

While gains in terms of knowledge, experience and networking depend of course on each
programme, the following remark sums up the benefit which participants can gain: "the
Harvard fellowship provides an exceptional opening of the mind, high level of training and
the possibility to look in depth at a field of research. The overall result is highly positive and
the experience enriching in both professional and human terms".

For the institution for which the fellow works, this programme is a (modest) component of
management training available to middle and senior managers.

It gives fellows the opportunity to deepen their knowledge and acquire new and frequently
specialised knowledge in the field of international relations, political, economic and
commercial relations in particular between the United States and the European Union.
This highly-specific programme will continue to be included on the training programme for
managers.

As is stressed in a number of reports, the contacts which the programme facilitates, not
only with the academic world but also with the political and business world, make it an
unequalled method of representation, broadcasting and influence about and for the benefit
of European institutions and policies.

In this connection one fellow pointed out that "[these lectures] certainly provided a good
opportunity to put a number of misconceptions about
the EC/EU into a clearer
perspective". Similarly another participant stated that "the EU fellowship scheme is amply
justified by the positive influence this can have on potential leaders in the United States".

4.2. Costs

The expenditure involved in these visits is covered by mission expenses.

The visits are treated as long-term missions (defined as stays of at least four weeks in the
same place) and therefore, as provided by Article 13(7) of Annex VII to the Staff
Regulations, the mission allowance (including hotel costs) is reduced by a quarter.

The 2000 budget for all the fellowships (2000/01 programmes) amounts to
around 0.8% of the Commission's total missions budget.

€

340 000, or

On top of this direct cost comes the indirect cost of the absence of high-ranking officials
during this period, put at one per thousand of the wagebill (7 to 9 fellows a year relative to
the number of Grade A officials eligible, for a period of nine months).

These gains in terms of knowledge, experience and networking, combined with the impact
on the American students show a clear benefit for the institutions and more than offset the
direct and indirect costs, which are indeed relatively small, associated with this programme
and which can therefore be considered a reasonable investment in the training available to
a limited number of officials.

55

3.8. Ten Point Plan

is determined to closely monitor

10. Congratulates and encourages the Budget Commissioner who has been striving to drive
through much-needed change; acknowledges that, in response to repeated calls by Parliament
to reduce unacceptably high error rates, the Commission submitted action plans in February
2000 and in February 2001;
the follow-up and
implementation of the action plan; regrets the absence of a “performance scoreboard” to judge
the effectiveness and efficiency of the management of taxpayers' money by the Directorates-
General of the Commission under the MAP2000 and SEM2000 reform programmes;
welcomes that, at Parliament’s request, the Commission has embarked on comprehensive
root-and-branch reform and has proposed a recasting of the Financial Regulation in order to
improve financial management; expects the Commission to make a commitment to those
items in the following ten-point plan that have not already been addressed by the Commission
reform and report back in a progress report on Commission reform before the next discharge
procedure begins in November 2001; asks the Commission to:

Commission's reply to Point 10:

The Commission thanks the rapporteur, the relevant Committee and the Parliament for its
encouragement.

The Commission will submit a further progress report summarising the implementation of
reform up to September 2001 in the last quarter of 2001.

I. Annual Plans: submit, for the first time, a summary by Directorate-General of all completed
and outstanding tasks for 2000, since annual work plans for each of the 29 Directorates-
General and job descriptions of all 59 officials who occupy A1 posts were not established for
1999, or for any prior year; welcomes that under Action 22 of the White paper on Reform, the
Commission would carry out individual performance appraisals of A1 and A2 officials in
April 2001; regrets substantial delays whereby the first appraisal will only start by the end of
2001, as stated in the Commission decision of 22 December 2000 on the appraisal, selection
and appointment of senior Commission officials (SEC(2000) 2305); calls for the transmission
of annual work plans and, on a confidential basis, appraisals of A1 officials; asks the
Commission to inform Parliament of the number of officials that have left under Articles 50
and 51 of the Staff Regulations; calls on the Commission to take into account the staff
appraisals; invites the Commission to implement measures that will allow it to dismiss A1
officials whose career development reports indicate that performance is inadequate;

Commission's reply to Point 10. I.: Job descriptions for A1 officials

The Commission reconfirms its intention to proceed with the establishment of
job
descriptions for the entirety of the staff, including A1 and A2 officials. On the basis of a
pilot project in 2000, the services of the Commission are currently preparing guidelines
which will, at the end of the negotiations, be the subject of a Commission Decision in the
autumn of 2001. Following this decision, job descriptions will be established and the
Commission reconfirms its commitment to communicate those relating to A1 officials to the
Parliament.

Evaluation of A1 officials

Timing

The Commission Decision of 22 December 2000 provides for a system of performance
appraisal for senior Commission officials to be designed and carefully implemented, using

56

methods which are best adapted to the role, organisation and culture of the Institution. In
this task the Commission will use the assistance of external professional consultants.

Launching and completing the calls for tender in strict accordance with the rules of the
public procurement Directives takes time. That is the reason why the first appraisal exercise
cannot be completed before 2002.

Communication of the A1 appraisals to the EP

The Commission Decision on senior personnel enumerates in a restrictive way the
Institutions who could have access to the appraisals and the reasons for requesting the
access in question:

“Appraisals of individual officials would be placed in their personal files, but would remain
confidential to the Institution for internal use. Access to the appraisals from outside the
Commission would only be permitted to authorised EU Institutions (notably the ECJ and
the ECA) to fulfil their principal Treaty obligations, but in accordance with Article 287 of
the Treaty”.

Dismissal of A1 officials

The decision on senior personnel provides that in the event of two successive unsatisfactory
assessments,
to other duties
following normal selection procedures or by a decision under Article 7 of the Staff
Regulations. Underperforming officials could also be downgraded.

the Commission may consider reassigning the official

Number of officials to whom Article 50 has been applied

For the period 95-99:

25

In 2000:

Up to 30 June 2001:

5 A1 and 2 A2

2 A1 and 10 A2

Total population today is:

254

No officials left in 2000 under Article 51 of the Staff Regulations. The Commission will
incompetence. As stipulated in the
introduce new procedures regarding professional
Commission’s decision of 22 December 2000 on the Appraisal, Selection and Appointment
of Senior Commission Officials, these new procedures should also be applied mutatis
mutandis to officials of grades A1 and A2.

Within the framework of ABM, the annual management plan (AMP) is in the first instance
the tool used by each department to organise and improve the management of its activities
and resources on the basis of objectives set. It is also the instrument that translates the
Commission’s political priorities into concrete actions and ensures their follow-up,
monitoring and evaluation. It contains all the elements (objectives, indicators, description
of monitoring and reporting systems and of evaluation plans, human and budgetary
resources) that enable each service to follow up actively, efficiently and effectively the
implementation of its activities. Work on the AMP for 2002 will commence in the second
half of 2001. The work programme is published each year.

II. Annual Declaration: ensure that each Commissioner, Director-General and Head of
Delegation signs an annual declaration of assurance, for the first time by June 2001, that
adequate internal controls have been put in place; also ensure that each of these persons signs

57

annually, for the first time by March 2002, a statement that all funds for which he/she is
responsible have, as far as he/she is aware, been spent in accordance with the principles of
sound and efficient management; notes that the consequences of not signing, and of not living
up to the expectations deriving from such assurances and statements, as well as the
consequences for the chain of responsibility would have to be clarified;

Commission's reply to Point 10. II.:

As provided for by Action 82 of the White Paper on administrative reform and included in
points 4.9 and 4.10 of the Charter for authorising officers by delegation adopted by the
Commission on 13 December 2000, each Director-General and Head of Service will be
required, from 2002 onwards, to draft an annual activity report to which will be attached
information concerning budgetary and accounting management in the Directorate-General
or Service concerned, and to sign a declaration certifying that departments are operating
correctly and in particular that the internal control system put in place is reliable.

The purpose of the report and declaration is to improve internal management of financial
and human resources and in no way alters the accountability of the full Commission to the
discharge authority nor the responsibilities of the Directors-General and Heads of Service
in relation to the Commission. Their responsibility as authorising officers by delegation
remains unchanged and is therefore translated in the declaration but is in no way extended.

The declaration will express the reasonable assurance of the Director-General or Head of
Service, based on their own judgment and on the information available, that the resources
assigned to the activities described in the annual report have, during the past year, been
used in accordance with the principles of
legality, regularity and sound financial
management and also that they intend to improve, wherever necessary, the management
and/or internal control systems under their responsibility.

relate

In drafting their declarations Directors-General and Heads of Service may make any
qualifications which prevent them giving their reasonable assurance. Such qualifications
will
the
Directorate-General which are known to the authorising officer by delegation. When
bringing them to the Commission's attention, the authorising officer by delegation will also
indicate the measures and timetable planned to remedy them.

controls within

organisational

shortcomings

internal

in

to

When it has received all the individual reports and declarations the Commission will have
to adopt a summary report. In this way the Commission will take note of any qualifications
made, will pass judgment on the remedies and timetable proposed and will ensure that they
are implemented. The summary report will thus become not only an internal management
tool taking stock of the results and performances of Commission departments, but also an
additional source of information for the institutions on the management of the institution.

The content and scope of these reports and declarations and the procedure for their
finalisation and internal and external utilisation were covered by the communication
adopted by the Commission on 27 June 2001 (SEC (2001) 875/6). The Commission decided
that the annual report, comprising the declaration, will be drawn up by no later than 1 May
each year.

58

In June 2001 the Directors-General and Heads of Service produced an interim report and
declaration setting out the measures taken to implement financial reform. In line with the
factual content of the reports, the declaration merely states that the information gives a true
and fair view.

to the other
This first exercise also gives the Commission the opportunity to report
financial reform. It
institutions, and Parliament
demonstrates the priority which the Commission is attaching to ensuring that
the
transitional phase is advancing smoothly and informs them of the results expected in 2002
in the light of the progress made in 2001.

in particular, on the progress of

introduce a suitable management

information system to allow a
III. “League table”:
qualitative and quantitative assessment to be established and thereby share best-practice
across the Commission; notes that a statistical breakdown, by Directorate-General, was not
available for the 2 805 commitment proposals, payments and recovery orders, rejected in
1999 by the Financial Controller and Accounting Officer, on a number of grounds including
errors due to incorrect draft contracts,
ineligible beneficiaries,
insufficient consideration of economy and value for money as well as duplicate payments;
calls for a comparison of Directorates-General on a number of management criteria including:
payment delays,
'reste à liquider', recoveries initiated and completed, actual to planned
execution, hours of training, average time of vacancy of posts and action following financial
audits, performance evaluations, allegations of malpractice by whistleblowers and reports by
the Anti-Fraud Office;

ineligible expenditure,

Commission's reply to Point 10. III.:

As stated in the reply to the previous point (10.II), as from 2002 Directorates-General will
systematically prepare annual activity
the
Director-General on the adequacy of the internal controls in his service. The Commission
considers that the summary of the Annual Report of the DGs is one of the elements on
which to judge the performance of the Commission. The Commission, for the 2000 Annual
Report, will produce a summary monitoring the implementation of the reform in each DG.
Information on budget outturn, dormant commitments, outstanding amounts on
commitments and payment times will be provided.

declaration by

including a

reports

League tables comparing the performance of the services against the indicators given risks
misleading the reader because of the widely varying circumstances facing different DGs
and services, and it would also therefore be difficult to make a meaningful comparison
between DGs.

The Commission will draw up a summary report to identify the advancement of reform in
all the DGs.

As regards “allegations of malpractice by whistleblowers” reference is made to point 10 VI.

IV. Follow-up of audits, evaluations and budgetary implementation:

(a) Audits: transmit, on a bi-annual basis, to the discharge authority a synthesis of key
findings,
internal audits carried out by the
Commission; notes that action following audits carried out by the Financial Controller in

recommendations and follow-up of all

59

1999 has not always been swift, effective or comprehensive; asks the Commission to indicate
what action was taken following the audits listed in Annex 3;

Commission's reply to Point 10. IV.:

The IAS Annual Report for 2000 sets out how the IAS was established in 2000, how its
capacities were gradually built up and which audit activities were undertaken and, in fact,
were ongoing as of 31 December 2000. An IAS Interim Report for 2001 on interim results
will be presented during the second half of 2001.

The procedure prior to the formation of the IAS was that directorates general took action
on the weaknesses identified in audits. Financial Control would follow up on these
subsequent audits. This approach has been strengthened with the formation of the IAS and
the Audit Progress Committee, which makes an overall follow-up on recommendations.

(b) Sectoral evaluations: undertake regular policy evaluations by sector and present results to
the Committee on Budgetary Control in the presence of the relevant policy Director-General,
the relevant Member of the Court of Auditors and a delegation from Parliament's relevant
specialised committee;

Commission's reply to Point 10. IV. (b):

to the principle of collective responsibility of the full Commission and in
Subject
accordance with the framework agreement on relations between Parliament and the
Commission, the Members responsible for the budget and administrative reform will
present the summary report on the annual reports of Directors-General to the appropriate
bodies in Parliament, in particular the Committee on Budgets and the Committee on
Budgetary Control.

The other Commissioners will give their political assessment on the areas for which they
are responsible in accordance with the arrangements agreed with the parliamentary
committees. They may ask the Director-General to present his management report to the
parliamentary committee in question.

The Commission will be happy to present results of evaluations carried out.

(c) Implementation figures: send a representative to the Committee on Budgetary Control to
present and explain the quarterly budget implementation figures, outlining and examining any
trends or potential areas of concern as well as problems relating to late payments, in order to
allow Parliament to fulfil its priority to monitor closely budget expenditure at regular intervals
during the course of the year; regrets that the analysis for financial management for 1999 is
incomplete and only available in one language; calls on the Commission to make a full
analysis for subsequent years and make this available in all languages;

Commission's reply to Point 10. IV. (c):

Parliament is regularly kept informed of the implementation situation and the Commission
has recently started forwarding to Parliament's Committee on Budgetary Control and to the
the actual
other Institutions a weekly list showing, under each budgetary heading,
implementation of commitments, of payments and of commitments remaining to be paid
(RAL).

60

The Commission informs the Parliament in real time, this being a lot more rapid than
before, though this is only possible in one language.

The Commission will be happy to present this new form of presenting the implementation
figures.

V. “Revolving door”: tighten the interpretation of and strictly apply existing provisions to
avoid the state of affairs where former Commissioners, cabinet appointees and officials are
able to use their in-house knowledge and expertise, in an inappropriate manner, in the service
of private interest groups or industry; points out that this occurred for a number of senior
persons in 1999; notes that provisions4 exist whereby the Commission must specify those
posts which debar officials who have held them from engaging in any occupation, whether
gainful or not, for a period of three years after leaving the service; asks for details of such
posts and information on the application of such, or similar, provisions to former
Commissioners, cabinet appointees, heads of Delegation or Representation or Director
Generals;

Commission's reply to Point 10. V.:

Increasing attention has been paid in recent years to the ethics and integrity of public
services, because an effective ethical framework in public services is a prerequisite to, and
underpins, public trust. The Staff Regulations contain specific rules both on the substantive
obligations applicable to former officials and temporary staff who take up posts in the
private sector and on authorisation procedures. Articles 16, 17 and 18 of the Staff
Regulations provide that they are under an obligation of integrity and discretion. The
Commission ensures strict application of these rules. The former officials or temporary
staff must therefore avoid use of any potentially sensitive information acquired in the
course of their duties in the Commission.

Article 16 of the Staff Regulations provides that the Institutions should list jobs from which
former officials are debarred for a period of three years from the date of leaving service. In
practice, it has not been possible to draw up a comprehensive list. However, particularly
for senior officials, thorough consideration by means of an ad hoc procedure is given to
appointments before the official concerned receives authorisation to take up the new job.
to full and continued compliance with the terms and
That authorisation is subject
principles of the Staff Regulations. The authorisation procedure set out in Article 16 of the
Staff Regulations is being reviewed as part of the Reform exercise.

As far as former Members of the Commission are concerned, they are answerable for their
activities and conduct under the Treaties (Article 213(2) of the Treaty establishing the
European Community).
In addition, the Code of conduct for Commissioners obliges
former Members of the Commission to inform the Commission, whenever they intend to
take up a professional activity within one year after leaving the Commission. If the activity
is related to the former portfolio the Commission will decide after consulting a "committee
on ethics" about the compliance of the activities with Article 213 TEC.

VI. Whistleblowing: ensure that the discharge authority is informed, at least on an annual
basis, of all completed investigations into allegations of serious wrongdoing, including the
date the allegation was made, a description of alleged wrongdoing, action taken within the

4

Article 16 of the Staff Regulations

61

Commission, date of disclosure to the Court of Auditors and/or Anti-Fraud Office and details
of any follow-up action including the launching of administrative or disciplinary proceedings
and measures taken to protect the legal position of the whistleblower in question; welcomes
that the Commission adopted, on 29 November 2000, a consultative document on raising
concerns about serious wrongdoing (SEC(2000) 2078); welcomes that the Commission has
satisfactorily investigated allegations, forwarded by the Committee on Budgetary Control,
including those regarding the use of Community funds in Bolivia (technical assistance),
Columbia (Tumaco housing project) and Lebanon (UNRWA refugee camps);

Commission's reply to Point 10. VI.:

In the period from January 2000 to July 2001, no disciplinary procedures have been
initiated on the basis of legitimate concerns about possible wrongdoings raised by
Commission officials.

Supplementary information was provided by an official acting as a whistleblower, which
assisted in the finalisation of an OLAF investigation, whose findings have been transmitted
to the Commission and the judicial authorities concerned.

VII. Disciplinary proceedings and sanctions: provide summary information on closed
administrative enquiries and disciplinary procedures; notes that the Commission provided
information on 14 of the 26 cases opened, conducted or finalised in, or concerning
expenditure from the year 1999; considers that 12 pending cases should be dealt with under
the next discharge procedure; calls on the Commission to apply strictly suitable penalties
against persons, be they Commissioners, cabinet appointees or officials, found to have been
grossly negligent in their duties; recalls that officials may be stripped of their pension rights
under the Staff Regulations; asks to be informed how the revised disciplinary procedure
operates, with emphasis on external supervision; takes note of the Commission consultation
paper of 29 November 2000 (SEC(2000)2079) on reform of the disciplinary procedure; notes
that the proposals it contains are inadequate because:

(a) the external element provided for is too weak: only the chairman of the disciplinary board
would be appointed from outside the institution on an annually extendable contract only,

(b) the project establishment of an additional Investigation and Disciplinary Office to carry
out administrative inquiries will lead to overlapping remits and conflicts with the European
Anti-Fraud Office OLAF, on which the Commission has already conferred responsibility for
administrative inquiries in cases of serious breaches by officials of their obligations under the
Staff Regulations,

(c) the issue of the financial liability of officials for the damage they have caused has been
completely excluded and, to date, the Commission has made no proposals whatever in this
connection;

62

Commission's reply to Point 10. VII.:

The Commission will provide the Committee on Budgetary Control with summary
information on disciplinary procedures for the next discharge, as was done the last time.

(a) The Commission does not agree that the external element provided for is too weak.

The role of the chairman is an important one: he is responsible for the composition of the
Disciplinary Board and for appointing a member of the Board as rapporteur. In addition,
the chairman ensures that the various decisions taken by the Board are implemented and
that all relevant information and documents are brought to the attention of each of its
members. This includes conducting additional inquiries, consulting the Legal Service,
calling for witnesses, and forwarding the opinion of the Board to the appointing authority.

The fact that the chairman is external ensures a neutral approach, and while he does not
vote on matters before the Board, save on procedural questions or in case of a split vote, he
does play an important role in ensuring that the Board performs its duties correctly.

(b) In July 2000, the Commission created a specific Unit within its Directorate General for
Personnel and Administration which is dedicated to the preparation and handling of
disciplinary cases. This Unit took up its functions in January 2001. It will be reinforced
and called the “Investigation and Disciplinary Office”. Its remit is clearly distinctive from
that of OLAF, which has priority competence in terms of the investigation of certain kinds
of serious wrong-doing. Therefore, in case any doubt may exist, the Commission always
consults OLAF in identified cases or possible misconduct to make certain that OLAF is not
itself undertaking an enquiry or intending to do so. The close cooperation between the Unit
responsible for disciplinary and administrative procedures and OLAF will be codified in a
cooperation agreement, elements of which will be included in a manual of internal
procedures.

(c) In its Communication "New orientations for the reform of personnel policy" of 18 July
2001 (SEC(2001) 1202/6), the Commission has acknowledged that Article 22 of the Staff
Regulations is of obvious importance, not only as the remaining plank of the reform of
disciplinary proceedings, but also in the context of the reform of financial management.
The Commission has further stated that there is a need to develop guidelines on the
application of Article 22 in the future.

While stating that the overarching principle should be that personal financial liability
remains exceptional, since it
the
Commission has given orientations as regards the main elements to be covered by such
guidelines.

is not appropriate for minor faults or mistakes,

In addition, where serious misconduct amounts to a breach of national criminal law, the
appointing authority brings the case to the attention of the national judicial authorities.

VIII. "Blak list": maintain a central database, in line with best practice in international
organisations such as the World Bank, containing the names of companies and individuals
found to have defrauded the Union budget so as to avoid contracts being granted by different
departments to the same companies or individuals; asks that details of convicted defrauders
are published on the Commission website; regrets that an early warning system, the so called
grey list, is poorly understood and is not strictly enforced throughout the Commission; points
out that no preferential treatment should be given to organisations with direct links to persons
working or having worked in European institutions; asks that both the Blak and grey lists be
cross-referenced to the central register of invoices foreseen in April 2001 under Action 11 of

63

the White paper on Reform (COM(2000) 200) and to the central contracts database foreseen
in June 2001 under Action 74 of the White paper on Reform; asks the Commission to put
forward proposals to amend the Council Regulation (EC) No 1469/1995 of 22 June 1995 on
measures to be taken with regard to certain beneficiaries of operations financed by the
Guarantee Section of the EAGGF in order to list companies under suspicion of wrongdoing or
fraud; asks the Commission to ensure that all external contractors indicate whether they have
worked in European institutions; reserves the right to make enquiries concerning individual
contracts; calls on the Commission to put forward a proposal for a legal base enabling the
Commission to add the names of companies and individuals to the Blak list;

Commission's reply to Point 10. VIII.:

The Commission shares the objectives of the European Parliament that, in principal,
companies and individuals who have been found to have acted against the financial
interests of the Union budget should not be granted contracts by the Union. This principal
is spelled out in the recast of the Financial Regulation.

Therefore, in the framework of an early warning system, the Commission is committed to
preventing future contracts from being concluded with companies or individuals found to
have defrauded the Union budget. The Commission fully agrees with the need to protect the
Community's financial interests via a system embracing all Commission departments,
thereby avoiding fragmentation and consequent
inconsistencies in dealing with the
problem.

However, the rules to which Community institutions must adhere when creating lists of
contractors for the above purposes, should not be overlooked. If the processing methods set
up to this effect by the Commission infringed the legitimate rights of contractors, this could
render the mechanisms created inapplicable.

In particular, Regulation (EC) 45/2001 on the protection of individuals with regard to the
processing of personal data by the Community institutions and bodies and on the free
movement of such data, sets a number of limitations to the power of the Commission to
draw up, circulate and make use of lists containing data on individuals.

It should be pointed out that the early warning system described along with the quoted
article of the recast Financial Regulation, should be seen only as an instrument and a
support for authorising officers, who remain fully responsible for the decision to proceed
on a case-by-case basis.

On a broader scale, the different actions of the White Paper and in particular Action 94
(“fraud-proofing” of contract management) are being implemented by the Commission in
both a preventive and dissuasive perspective. The objective is to secure control of the whole
life cycle of a contractual relation (and the related documents) and also to make it possible
to trace the performance records of each contractor. This will create in the Commission a
general environment which is more favourable to sound and efficient protection of the
Community's financial interests.

64

The Commission has adopted a proposal for a directive on the coordination of procedures
(COM (2000) 275 final of 30.08.00) for the award of public supply contracts, public service
contracts and public works contracts, which introduces a compulsory mechanism for
excluding tenderers who have been convicted of belonging to a criminal organisation,
corruption or fraud against the Communities’ financial interests and also an optional
mechanism for ruling out economic operators who are « not reliable ». In addition, under a
special initiative to be introduced in November 2001, a system is to be set up for exchanging
information between Member States, allowing tenderers who have been convicted of certain
offences to be excluded from public contracts.

OLAF is in contact with Commission departments and has begun work on revising the
"black" list mechanism in the agricultural sector with the aim of clarifying the existing
provisions to ensure a more coherent application of the regulation. A proposal for an
horizontal regulation proposing to extend the scope of the "black" list to other sectors is
envisaged for 2003.

IX. Recovery of losses: ensure that there is no laxity or omission in the recovery of funds
unduly paid to Member States, companies or individuals; calls for a regular progress report, at
least on an annual basis, from the central recovery department, set up in July 2000, indicating,
by Directorate-General, all cleared and outstanding recovery requests; urges the Commission
to recover irregular payments discovered by the Court of Auditors for the financial year 1999
as soon as possible and in future to launch recovery proceedings within three months of
receipt of details of irregularities from the Court; calls for the Commission College to take a
formal decision, similar to those taken under the clearance of accounts procedure, for the
waiving of debts greater than EUR 1 million; ensure that a “firewall” is introduced so that
decisions taken by civil servants are exempt from any political interference;

Commission's reply to Point 10. IX.:

The reports on debt recovery will be provided when the revenue and expenditure account
for 2001 is presented after the adapted computer applications now being developed have
been introduced.

The Commission communication on implementation of Action 96 "More effective
management of recovery of unduly paid funds" did not opt for setting up a central recovery
department but provides for strengthening and improving the sharing of tasks between the
actors involved - i.e. authorising officers and accounting officer - in the debt recovery
procedure.

As a result of the empowerment of authorising DGs under Action 96, they will have to set
up appropriate structures for issuing recovery orders in compliance with the principle of
sound financial management.

In connection with the discharge for implementation of the 1999 budget the Commission
has undertaken to ensure that a decision is taken at the appropriate level concerning the
waiver of debts of over
1 million. This measure will be incorporated in the forthcoming
issue of the internal procedure provisions for debt recovery which are currently being
overhauled.

€

Any decision with financial impact - in particular the issue, reduction or cancellation of a
recovery order - must be taken in compliance with the procedures laid down by the
Financial Regulation.

65

Finally the Code of Good Administrative Behaviour for Staff of the European Commission
lays down guidelines of objectivity and impartiality stating that "staff shall always act
objectively and impartially, in the Community interest and for the public good. They shall
act independently within the framework of the policy fixed by the Commission and their
conduct shall never be guided by personal or national interest or political pressure."

X. Archiving: introduce, in the light of best practice in Member States and using the latest
cost-effective technology, electronic archiving of all documents to avoid files being lost or
mislaid; deplores that no visible action has been taken, although, in paragraph 1(e) of its
abovementioned resolution of 13 April 2000 on the postponement of the discharge for the
1998 financial year, Parliament asked the Commission to present a detailed regulation on new
archive routines and launch full administrative enquiries where documents are found to be
missing.

Commission's reply to Point 10. X.:

The Commission has undertaken a major review of all procedures and rules concerning the
archiving and management of documents. Because of the increase in the number of media,
input and output points, and procedures managed by often decentralised departments, the
rules need to be clarified and security guaranteed for the safekeeping of documents and
mail. The introduction of modern and coherent document registration and archiving
systems was also underlined in connection with the planned transition to the
e-Commission.

The development of an exclusively electronic archiving system covering all Commission
documents would require massive investment and a great deal of time. It could not be
conducted without
existing systems and technological
developments.

taking into account

the

The Commission will accordingly shortly be receiving for approval a decision repealing and
replacing the 1986 decision to remedy certain shortcomings in particular following the
massive increase in the use of information technology and also a major workplan which
should eventually result in the introduction of secure and reliable document management
systems.

66

The Parliament requested certain additional audit reports which are included in Annex 2 to its
Resolution as follows:

Annex 2

AUDIT REPORTS REQUESTED BUT NOT YET RECEIVED BY THE RAPPORTEUR FOR THE
DISCHARGE

DIRECTORATE GENERAL

AREA

Regional Policy

Audits and evaluations of Member States

Joint Research Centre

Internal audit reports

External Relations

All inspection reports of delegations (Angola, Bolivia, Bosnia,
Gambia, Lesotho, Malawi, Nicaragua, Pakistan, Romania,
Senegal, Swaziland, Switzerland and Tanzania)

Humanitarian Aid Office
(ECHO)

Report on the main recommendations of audits and on
subsequent action including recovery of funds

Red Cross in Yugoslavia

Enlargement

Report on the main recommendations of audits and on
subsequent action including recovery of funds

Personnel and
Administration

Audits of A-30 budget lines (Community subsidies)

Informatics Directorate

Integrated Resource Management System

Economic and Financial
Affairs

Internal audit reports

Press

Audits of
Barcelona)

representations

(Helsinki, Vienna, Madrid and

Commission’s reply:

The Commission is providing information in the appropriate form.

67