Amended proposal for a Council Regulation (EC, ECSC, Euratom) on the Financial Regulation applicable to the general budget of the European Communities
Date: 2001-12-21
Institutions: European Commission
Subjects: financial management, financial regulation, general budget (EU)

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 10.1.2002
COM(2001) 691 final/2

2000/0203 (CNS)

CORRIGENDUM
Annule et remplace la page de couverture
et la page 17 du document COM(2001) 691 du
21.12.2001 (changement de l'acronyme).

Amended proposal for a

COUNCIL REGULATION (EC, ECSC, Euratom)

on the Financial Regulation applicable to the general budget of the European
Communities

(presented by the Commission)

TABLE OF CONTENTS

Amended proposal for a COUNCIL REGULATION (EC, ECSC, Euratom) on the Financial
Regulation applicable to the general budget of the European Communities

EXPLANATORY MEMORANDUM ....................................................................................... 7

1.

2.

2.1.

2.2.

2.3.

Procedure...................................................................................................................... 7

Analysis of the amendments suggested by the other institutions................................. 7

General remark............................................................................................................. 7

Scope of the Financial Regulation ............................................................................... 8

Budget principles ......................................................................................................... 8

2.3.1.

Principle of unity.......................................................................................................... 8

2.3.2.

Principle of annuality ................................................................................................... 8

2.3.3.

Principle of equilibrium ............................................................................................... 9

2.3.4.

Principle of universality ............................................................................................... 9

2.3.5.

Principle of specification ............................................................................................. 9

2.3.6.

Principle of transparency.............................................................................................. 9

2.3.7.

Principle of the unit of account .................................................................................. 10

2.3.8.

Provisions................................................................................................................... 10

2.3.9. Reverse reserve .......................................................................................................... 10

2.4.

Structure of the budget ............................................................................................... 10

2.4.1. Activity-based budgeting and management ............................................................... 10

2.4.2. Removal of negative expenditure and revenue .......................................................... 10

2.4.3. Constitution of a reserve for unforeseen expenditure in the Commission section..... 11

2.4.4.

Flexibility up to 10% of the establishment plan in each institution........................... 11

2.4.5.

Inclusion of the financial perspective in the Financial Regulation ............................ 11

2.5.

Implementation of the budget .................................................................................... 11

2.5.1. Methods of implementation (Articles 50-54 of the Commission's initial proposal).. 11

2.5.2. Role and responsibility of the actors.......................................................................... 12

2.5.2.1. The authorising officer (Articles 56 et seq. of the Commission's initial proposal) ... 12

2.5.2.2. Internal auditor (Articles 80 to 82 of the Commission's initial proposal).................. 13

2.5.3. Waiving of debts ........................................................................................................ 13

2

2.5.4. Commitment............................................................................................................... 13

2.5.5. Keeping and presentation of accounts........................................................................ 13

2.6.

2.7.

External audit and discharge (Articles 122 to 133 of the initial proposal) ................ 14

Special provisions (Part Two).................................................................................... 15

2.7.1.

European Agricultural Guidance and Guarantee Fund, Guarantee Section............... 15

2.7.2.

Structural Funds ......................................................................................................... 15

2.7.3. Research ..................................................................................................................... 15

2.7.4.

External actions.......................................................................................................... 15

2.7.5. Offices ....................................................................................................................... 16

2.8.

Transitional and final provisions (Part Three) ........................................................... 16

2.8.1. Agencies..................................................................................................................... 16

3.

4.

Action taken on Parliament's amendments ................................................................ 16

Conclusions................................................................................................................ 17

Amended proposal for a COUNCIL REGULATION (EC, ECSC, Euratom) on the Financial
Regulation applicable to the general budget of the European Communities ........................... 17

PART ONE COMMON PROVISIONS .................................................................................. 24

TITLE I SUBJECT................................................................................................................... 24

TITLE II Budgetary principles................................................................................................. 24

Chapter 1 Principle of unity ..................................................................................................... 24

Chapter 2 Principle of annuality............................................................................................... 25

Chapter 3 Principle of equilibrium........................................................................................... 28

Chapter 4 Principle of unit of account ..................................................................................... 28

Chapter 5 Principle of universality........................................................................................... 29

Chapter 6 Principle of specification ......................................................................................... 30

Chapter 7 Principle of sound financial management ............................................................... 32

Chapter 8 Principle of transparency ......................................................................................... 33

TITLE III ESTABLISHMENT AND STRUCTURE OF THE BUDGET.............................. 34

CHAPTER 1 ESTABLISHMENT OF THE BUDGET........................................................... 34

CHAPTER 2 STRUCTURE AND PRESENTATION OF THE BUDGET............................ 36

3

TITLE IV IMPLEMENTATION OF THE BUDGET............................................................. 41

CHAPTER 1 GENERAL PROVISIONS ................................................................................ 41

CHAPTER 2 METHODS OF IMPLEMENTATION ............................................................. 42

CHAPTER 3 FINANCIAL ACTORS ..................................................................................... 45

Section 1 Principle of separation of duties............................................................................... 45

Section 2 Authorising officer ................................................................................................... 45

Section 3 Accounting officer.................................................................................................... 46

Section 4 Imprest administrator ............................................................................................... 47

CHAPTER 4 LIABILITY OF THE FINANCIAL ACTORS.................................................. 47

Section 1 General rules ............................................................................................................ 47

Section 2 Rules applicable to authorising officers by delegation and subdelegation .............. 48

Section 3 Rules applicable to accounting officers and imprest administrators........................ 49

CHAPTER 5 REVENUE OPERATIONS ............................................................................... 49

Section 1 Making available of own resources.......................................................................... 49

Section 2 Estimate of amounts receivable................................................................................ 50

Section 3 Establishment of amounts receivable....................................................................... 50

Section 4 Authorisation of recovery......................................................................................... 51

Section 5 Recovery................................................................................................................... 51

CHAPTER 6 EXPENDITURE OPERATIONS ...................................................................... 52

Section 1 Commitment of expenditure..................................................................................... 52

Section 2 Validation of expenditure......................................................................................... 54

Section 3 Authorisation of expenditure.................................................................................... 54

Section 4 Payment of expenditure............................................................................................ 54

Section 5 Time-limits for expenditure operations.................................................................... 55

CHAPTER 7 IT SYSTEMS..................................................................................................... 55

CHAPTER 8 INTERNAL AUDITOR..................................................................................... 55

TITLE V PROCUREMENT .................................................................................................... 56

CHAPTER 1 GENERAL PROVISIONS ................................................................................ 56

4

Section 1 Scope and award principles...................................................................................... 56

Section 2 Publication................................................................................................................ 57

Section 3 Procurement procedures ........................................................................................... 57

Section 4 Guarantees and control............................................................................................. 61

CHAPTER 2 PROVISIONS APPLICABLE TO CONTRACTS AWARDED BY THE
COMMUNITY INSTITUTIONS ON THEIR OWN ACCOUNT .......................................... 61

TITLE VI GRANTS................................................................................................................. 62

CHAPTER 1 SCOPE ............................................................................................................... 62

CHAPTER 2 AWARD PRINCIPLES ..................................................................................... 63

CHAPTER 3 AWARD PROCEDURE.................................................................................... 64

CHAPTER 4 PAYMENT AND CONTROL........................................................................... 65

CHAPTER 5 IMPLEMENTATION........................................................................................ 66

TITLE VII PRESENTATION OF THE ACCOUNTS AND ACCOUNTING....................... 66

CHAPTER 1 PRESENTATION OF THE ACCOUNTS ........................................................ 66

CHAPTER 2 INFORMATION ON THE IMPLEMENTATION OF THE BUDGET ........... 69

CHAPTER 3 ACCOUNTING ................................................................................................. 70

Section 1 Common provisions ................................................................................................. 70

Section 2 General accounts ...................................................................................................... 71

Section 3 Budget accounts........................................................................................................ 71

CHAPTER 4 PROPERTY INVENTORIES............................................................................ 72

TITLE VIII EXTERNAL AUDIT AND DISCHARGE.......................................................... 72

CHAPTER 1 EXTERNAL AUDIT ......................................................................................... 72

CHAPTER 2 DISCHARGE..................................................................................................... 76

PART TWO SPECIAL PROVISIONS.................................................................................... 78

TITLE I EUROPEAN AGRICULTURAL GUIDANCE AND GUARANTEE FUND,
GUARANTEE SECTION........................................................................................................ 78

TITLE II STRUCTURAL FUNDS.......................................................................................... 80

TITLE III RESEARCH............................................................................................................ 81

5

TITLE IV EXTERNAL ACTIONS ......................................................................................... 82

CHAPTER I GENERAL PROVISIONS ................................................................................. 82

CHAPTER 2 IMPLEMENTATION OF ACTIONS ............................................................... 82

CHAPTER 3 PROCUREMENT.............................................................................................. 84

CHAPTER 4 AWARD OF GRANTS ..................................................................................... 84

CHAPTER 5 AUDITING OF ACCOUNTS ........................................................................... 85

TITLE V EUROPEAN OFFICES............................................................................................ 85

CHAPTER 1 GENERAL PROVISIONS ................................................................................ 85

CHAPTER 2 EUROPEAN ANTI-FRAUD OFFICE .............................................................. 87

TITLE VI ADMINISTRATIVE APPROPRIATIONS............................................................ 87

PART THREE  TRANSITIONAL AND FINAL PROVISIONS ........................................... 89

TITLE I TRANSITIONAL PROVISIONS.............................................................................. 89

TITLE II FINAL PROVISIONS.............................................................................................. 90

6

EXPLANATORY MEMORANDUM

1.

PROCEDURE

On  26  July  2000  the  Commission  adopted  a  proposal  for  the  revision  of  the
Financial Regulation applicable to the general budget of the European Communities
(COM(2000)461 final)  repealing  and  replacing  Council  Regulation  (ECSC,  EEC,
Euratom) No 356/77 of 21 December 1977.

As required by Articles 78h ECSC, 279 EC and 183 Euratom, the proposal was sent
to the Council, the European Parliament and the Court of Auditors.

The  Court  of  Auditors  delivered  its  opinion  on  8  March  2001  and  suggested
amendments to the proposal.

Before  adopting  its  opinion,  on  31  May  2001  Parliament  adopted  a  resolution
containing some 180 amendments to the proposal.

In view of the top priority assigned to reform of the Commission and modernisation
and  the  increased  rigour  in  the  management  of  Community  finances,  the  Council
agreed  to  conduct  an  initial  examination  of  the  proposal  before  it  had  received  the
opinions  of  the  Court  of  Auditors  and  Parliament  and  on  this  basis  adopted
conclusions on 5 June 2001.

The  Economic  and  Social  Committee  adopted  an  own-initiative  opinion  on
11 July 2001.

On  the  basis  of  the  positions  expressed  by  the  institutions,  the  Commission  has
adopted this amended proposal.

2.

ANALYSIS OF THE AMENDMENTS SUGGESTED BY THE OTHER INSTITUTIONS

2.1. General remark

The  institutions  which  have  delivered  opinions  have  endorsed  the  general  line  and
the fundamental points of the initial proposal, in particular as regards:

●

●

●

●

●

simplification  of  the  Financial  Regulation,  rationalisation  of  the  budget
structure,  by  having  only  differentiated  appropriations  and  doing  away  with
negative expenditure, and the restriction of exceptions to the budget principles;

activity-based budgeting (ABB);

budget implementation arrangements and externalisation;

the new role for financial actors;

and the proposed provisions for procurement and grants.

7

2.2.

Scope of the Financial Regulation

In  order  to  reinforce  the  role  of  the  Financial  Regulation,  the  European  Parliament
suggested that it be specified that any regulation containing budget provisions must
comply with the Financial Regulation.

the  amended  proposal, 

The Commission partly accepts this amendment, which is incorporated into Article 2
of 
to
implementation  of  the  budget  must  be  based  on  the  principles  of  Title  II  of  the
Financial Regulation.

that  any  regulatory  act  relating 

to  specify 

2.3.

Budget principles

2.3.1. Principle of unity

Parliament adopted a number of amendments to have the Community budget include
expenditure on European security policy, the Community agencies and the EDF. The
Commission is unable to take up these amendments.

As regards expenditure on the common security and defence policy, the Commission
would point out that Article 28(3) of the Treaty on European  Union expressly rules
out  the  possibility  of  charging  operational  expenditure  with  military  or  defence
implications to the Community budget.

The Commission continues to be in favour of incorporation of the EDF in the budget,
but it believes that the Financial Regulation is not the appropriate  legal instrument.
Entry of the EDF in the budget would mean amending and ratifying the Lomé III, IV
and  IVa  agreements,  the  Cotonou  agreements  and  their  financial  protocol  and  also
amending  the  internal  financial  agreements  for  the  sixth,  seventh,  eighth  and  ninth
EDFs. The financial perspective would also have to be revised.

On  the  question  of  Community  agencies,  the  Commission  cannot  take  up
Parliament's  amendment  to  have  the  agencies  fully  included  in  the  budget,  as  this
amendment  would  amount  to  denying  their  budget  autonomy.  In  order  to  enhance
democratic control and coherence in the discharge for the agencies, the Commission
does,  however,  propose  that  this  be  made  the  responsibility  of  Parliament.
Appropriate  proposals  will  be  made  in  due  course  to  align  the  specific  basic
regulations for the agencies on the recasting of the Financial Regulation.

2.3.2. Principle of annuality

The  Court  of  Auditors  wished  to  drop  the  arrangements  for  the  carryover  of
appropriations, which is an exception to the rule of annuality, and suggested that the
solution would lie in more flexible use of transfers.

The  Commission  cannot  accept  this  suggestion.  It  would  point  out  that  the
arrangements  are  laid  down  in  Articles 78a  ECSC,  271 EC  and  175  Euratom.
Although  these  arrangements  are  indeed  an  exception  to  the  principle  of  annuality,
they exist in all the Member States and meet needs connected with the management
of appropriations.

8

2.3.3. Principle of equilibrium

The Commission believes that its proposal to provide the possibility of raising loans
for  the  sole  purpose  of  investing  in  immovable  assets  is  a  real  application  of  the
principle of sound financial management. It is, however, proposing that Article 13 of
the initial proposal be tightened up to stipulate that loans may be raised for the sole
purpose of acquiring land and buildings and by adding that such loans may be raised
only if they offer every guarantee of sound financial management. These guarantees
will  be  spelt  out  in  the  implementing  rules  for  the  amended  recasting  proposal  as
deriving  from  a  demonstration  of  better  financial  management  by  means  of  a
cost-effectiveness study.

2.3.4. Principle of universality

its  opinion  1/2001, 

Following 
the
Commission's  proposal  that  EAGGF  negative  expenditure  be  treated  as  earmarked
revenue  and  suggested  that  it  be  entered  in  the  budget  as  miscellaneous  revenue.
Parliament took the same position.

the  Court  of  Auditors  again  criticised 

revenue  arrangement - even 

The Commission's view is that the existence of negative expenditure is an exception
to the principles of no-offsetting and transparency. On the other hand the use of the
earmarked 
rule  of
non-assignment - is compatible with the transparency and the ceilings of the financial
perspective  and  does  not  entail  any  financial  losses  for  the  CAP.  In  addition  there
would  be  no  other  incentive  for  discipline  and  effective  management  in  the
implementation  of  the  agricultural  policy  if  the  fruits  of  the  efforts  made  were  not
clearly and visibly linked to this policy area. The earmarked revenue arrangement is,
in the eyes of the Commission, the most appropriate way of providing this link. The
Commission is therefore upholding its initial proposal on this point.

it  breaches 

though 

the 

2.3.5. Principle of specification

Parliament  adopted  an  amendment  which  would  reduce  the  added  flexibility
proposed for transfers and which would mean, for the Commission, the possibility of
transferring  up  to  10%  of  appropriations  between  chapters  within  any  one  title.
Parliament would like to reduce this facility to  5%  of  the  initial  appropriations and
also to give the budgetary authority the right to block the transfers.

The  Court  of  Auditors,  on  the  other  hand,  supported  the  proposed  flexibility.  The
Commission is therefore maintaining its proposal to have the flexibility of being able
to transfer 10% of the initial appropriations, but takes over Parliament's amendment,
supported by the Council, concerning prior information for the budgetary authority.

2.3.6. Principle of transparency

The Court of Auditors criticised the retention of the negative reserve, on the grounds
that it is not compatible with the principle of transparency.

It is quite true that the reasons for this process are more historical  than  logical, but
Parliament  and  the  Council  alike  are  still  very  much  attached  to  it  and  the
Commission sees it as a very useful tool in that it regularly provides a solution to the
differences which arise between the two arms of the budgetary authority during the
budget adoption procedure.

9

2.3.7. Principle of the unit of account

Parliament requested that the principle of the implementation of the budget in euros
be added. Given the political importance of this principle for asserting the role of the
single  currency,  the  Commission  is  incorporating  the  amendment,  which  is  also
supported by the Court of Auditors.

2.3.8. Provisions

The  Commission  proposed  spelling  out  and  laying  down  a  framework  for  the
provisions  of  Article 19(4)  of  the  current  Financial  Regulation  in  Article 40  of  the
recasting proposal. This article provided that each section of the budget could carry a
"provisions" title where no legal basis exists when the budget is established or where
there is uncertainty about the adequacy or need for the appropriations entered on the
operational  lines.  The  procedure  envisaged  was  a  transfer  which  the  Commission
could make on its own initiative.

The institutions are in favour of this "reserve" but have asked  for clarification. The
Court of Auditors would like the facility to cover all  appropriations  (administrative
as  well  as  operational).  Parliament  wanted  to  add  a  further  condition  concerning
uncertainty about the possibility of implementing appropriations in keeping with the
principle  of  sound  financial  management  and  asked  that  the  transfer  procedure  be
spelled out, which would require a decision by the budgetary authority on a proposal
from the Commission.

The  Commission  is  proposing  a  new  drafting  which  incorporates  the  condition  of
sound  financial  management  and  the  clarifications  requested  concerning  the
procedural arrangements for the transfer from the reserve to the budget line.

2.3.9. Reverse reserve

Parliament also suggested that when there are serious implementation difficulties the
transfer decision should be taken by the budgetary authority.

The Commission takes up this amendment.

2.4.

Structure of the budget

2.4.1. Activity-based budgeting and management

The  institutions  consulted  approve  the  nomenclature  proposed  for  the  Commission
section,  which  would  provide  a  title  for  each  policy  area  and  a  chapter  for  each
activity,  with  the  administrative  appropriations  grouped  in  a  single  chapter  within
each title.

The Commission therefore maintains its initial proposal with certain clarifications of
the  budget  nomenclature  in  the  light  of  Parliament's  amendments,  but  without
making it too rigid at the level of the Financial Regulation.

2.4.2. Removal of negative expenditure and revenue

The  Court  of  Auditors  has  repeatedly  requested  that  for  the  sake  of  rigour  and
transparency the Community budget should no longer contain any negative amounts.

10

Article 39 of the Commission's original proposal  satisfies  this request  and provides
that the net amount of own resources collected pursuant to the Council decision on
the own resources system be entered in the statement of revenue.

Parliament criticised this Commission proposal and regretted the failure to reveal the
fixed amount returned to Member States by way of own resources collection  costs.
The  Court  of  Auditors,  on  the  other  hand,  suggested  side-stepping  the  question  of
collection costs and mentioning only the entry of revenue available.

The Commission understands  Parliament's concern to present  these collection costs
which are borne by the Community budget but is unable to reconcile this legitimate
concern  with  the  desire  to  restate  the  budget  principles  and  the  refusal  of  negative
amounts. The Commission is therefore not amending the drafting of its proposal on
this point.

The treatment of the former EAGGF Guarantee negative expenditure was discussed
above (point 2.3.4).

2.4.3. Constitution of a reserve for unforeseen expenditure in the Commission section

Parliament passed an amendment which would provide the possibility of entering a
reserve  for  unforeseen  expenditure  in  addition  to  the  two  reserves  provided  for  in
Article 42 of the Commission's initial proposal.

The  Commission  has  not  taken  up  this  suggestion,  the  aim  of  which  is  already
effectively covered by the existing supplementary and amending budget procedure.

2.4.4. Flexibility up to 10% of the establishment plan in each institution

The  Court  of  Auditors  and  the  Economic  and  Social  Committee  are  very  much  in
favour  of  this  flexibility  proposed  in  Article 44  of  the  Commission's  recasting
proposal. Parliament, on the other hand, suggests that such a decision is a matter for
the budgetary authority acting on a proposal from the Commission.

The Commission upholds its position on this point but points out that this flexibility
will  be  applied  within  the  confines  of  the  budget  appropriations  and  is  without
prejudice to other proposals it is making on the Staff Regulations.

2.4.5.

Inclusion of the financial perspective in the Financial Regulation

The Commission considers it inappropriate to include in the Financial Regulation a
mechanism of such a highly political nature as the financial perspective.

2.5.

Implementation of the budget

2.5.1. Methods of implementation (Articles 50-54 of the Commission's initial proposal)

The Court of Auditors called for clarification on the responsibilities flowing from the
various  methods  of  implementation,  and  in  particular  inclusion  of  a  provision
restating  that  the  Commission  is  ultimately  responsible  for  implementation  of  the
budget.

11

Parliament  asked  the  Commission  to  spell  out  what  tasks  can  be  performed  by
executive  agencies  on  behalf  of  the  Commission  and  under  its  responsibility.
Parliament also wanted the Commission to define in its proposed implementing rules
the  conditions  and  rules  governing  the  exercise  of  these  delegated  powers.  Finally
Parliament passed an amendment which would strengthen the Commission's control
and  would require it to report  to  the  budgetary  authority  twice  a  year  on  delegated
budget implementation.

The  Council  likewise  took  this  approach  and  in  particular  requested  that  it  be
stipulated  that  budget  implementation  tasks  may  not  be  entrusted  to  legal  persons
governed by private law.

The Commission takes up most of these amendments in its amended proposal.

2.5.2. Role and responsibility of the actors

2.5.2.1. The authorising officer (Articles 56 et seq. of the Commission's initial proposal)

The institutions supported the move towards empowerment of authorising officers.

The  Court  of  Auditors  would  like  at  the  same  time  to  include  provisions  in  the
Financial Regulation increasing their liability to pay compensation. In particular, the
Court asked for the Financial Regulation to contain a definition of situations in which
authorising  officers  would  be  liable  to  disciplinary  action  and  payment  of
compensation, and that an independent body be set up to be responsible for ruling on
the liability of any official to payment of compensation.

Parliament  takes  the  same  line  as  the  Court  but  would  prefer  to  see  a  specialised
financial irregularities committee set up; it would determine whether the authorising
officer  is  liable  to  payment  of  compensation  and  would  refer  the  case  to  the
disciplinary  procedure  under  the  Staff  Regulations  of  Officials  of  the  European
Communities.  At  the  same  time  Parliament  also  wanted  stronger  guarantees  of
internal departmental control by the introduction of a system of dual checks by two
officials and the separation of the functions of decision and verification.

The Council shared the concern of the other institutions on the authorising officer's
liability  to  payment  of  compensation,  but  does  not  state  whether  it  preferred  the
liability 
the
European Communities or in the Financial Regulation.

the  Staff  Regulations  of  Officials  of 

to  be  specified 

in 

On  the  question  of  the  location  of  this  definition  of  the  liability  of  authorising
officers, the Commission feels that in accordance with action 67 of the action plan in
the Reform White Paper, all officials and other servants should be subject to a single
system of liability to payment of compensation as set out in the Staff Regulations of
Officials  of  the  European  Communities.  The  Commission  cannot  therefore  agree
with the institutions which advocate reinstating in the Financial Regulation specific
provisions concerning liability to payment of compensation.

Action 66 in the White Paper also identified the need to set up a specialised financial
irregularities  panel  which  would  judge  the  conduct  of  any  official.  In  the  amended
proposal the Commission therefore acts on the requests made by the institutions that
such a panel be set up via the Financial Regulation.

12

Finally the Commission takes up Parliament's amendment concerning the tightening
of internal control systems within authorising departments (Article 60).

2.5.2.2. Internal auditor (Articles 80 to 82 of the Commission's initial proposal)

The  Commission  has  broadly  taken  over  the  amendments  suggested  by  Parliament
and the other  institutions.  It  has  not,  however,  adopted the wording  of  Parliament's
amendment 122, which might suggest that the role of the internal auditor is to check
each  transaction,  this  being  at  odds  with  the  spirit  of  the  reform  now  under  way,
which is to give responsibility to authorising officers.

2.5.3. Waiving of debts

In  response  to  the  concern  expressed  by  the  discharge  authority,  the  Commission
intends to stipulate that waiver decisions must be adopted at the level of authorising
officer  (i.e.  the  institution)  and  may  be  delegated  only  as  laid  down  in  the
implementing rules.

2.5.4. Commitment

The  Commission  proposed  a  definition  of  commitment  based  on  the  distinction
between  budget  commitment  (reservation  of  appropriations)  and  legal  commitment
(conclusion  of  contract)  and  also  between  an  individual  commitment  (where  the
amount and the beneficiary are known) and global commitment (where at least one
of the elements needed to identify the individual commitment is still unknown).

As  regards  the  first  distinction  the  Court  of  Auditors  suggested  a  definition  which
includes the financing decision and which could be a source of more confusion than
clarification,  as  was  demonstrated  by  the  initial  debate  in  Parliament.  The
Commission  is  therefore  proposing  that  the  principle  of  its  initial  definition  be
retained but that the three stages be clarified:

1)

2)

3)

first the financing decision taken by the institution under the implementing 
powers conferred on it by Article 202 of the Treaty;

then the budget commitment (reservation of appropriations);

and finally the legal commitment (conclusion of contract).

Finally  the  Court  of  Auditors  wanted  to  remove  the  possibility  of  making
commitments in annual instalments in the case of budget commitments for operations
extending over more than one financial year. The Commission cannot go along with
the  Court  of  Auditors'  suggestions  on  this  point,  as  they  are  at  odds  with  the
legislation  on  the  Structural  Funds  and  the  international  fisheries  agreements  and
would undermine the very principle of the financial perspective.

All  the  institutions  asked  for  a  tighter  definition  of  global  commitment;  the
Commission has gone along with this, restricting it to cases where the beneficiary is
unknown.

2.5.5. Keeping and presentation of accounts

The Court of Auditors criticised the Commission's initial proposal which it considers
inadequate  in  that  the  Commission  does  not  clearly  explain  the  accounting

13

framework  chosen  and  the  accounting  methods,  rules  and  objectives  it  intends  to
apply.  The  Council,  for  its  part,  stresses  the  importance  it  attaches  to  accounts
reflecting the real costs of each of the Community's activities.

The  Commission  has  acted  on  these  positions.  The  amended  proposal  contains  a
thorough overhaul of the articles in question in line with the Court's comments. ABB
will  strengthen  the  management  and  monitoring  instruments  as  requested  by  the
Council.

In  addition,  in  response  to  requests  by  the  Court  and  Parliament,  the  Commission
proposes  bringing  forward  the  timetable  for  the  presentation  of  the  provisional
accounts from 1 May of the following year to 31 March.

Parliament also requested that the procedure for the closure of the definitive accounts
be shortened by a month and a half. To match the shortening of the timetable for the
presentation of the provisional accounts, the Commission proposes that the cut be the
same, i.e. one month.

In addition the Commission proposes that the new dates be effective for the first time
in respect of 2005, when the new accounting system could be in place.

2.6.

External audit and discharge (Articles 122 to 133 of the initial proposal)

The Court of Auditors was against the idea of having a specific title in the Financial
Regulation  covering  external  audit.  It  took  the  view  that  the  provisions  of  the
Treaties are adequate and feared that a specific title in the Financial Regulation may
impinge on its prerogatives.

The  Commission  does  not  agree  with  the  Court's  reasoning.  The  reference  to  the
Financial  Regulation  in  Article 279(a)  EC  implies  that  the  Financial  Regulation
should  spell  out  the  external  audit  aspect  (Part I,  Title VI  of  the  existing  Financial
Regulation). What is more, the Treaty provisions are not sufficient in themselves and
require secondary legislation, the Financial Regulation, to define, as does the existing
Financial Regulation, the arrangements for performing the audit function assigned to
the Court of Auditors. The Commission is therefore upholding its initial proposal on
this point.

On the other hand the Court of Auditors and the other institutions were in favour of a
title  on  discharge.  Parliament  adopted  an  amendment  which  would  leave  it  free  to
judge whether or not discharge should be given and which would require that it have
access to all information (including confidential information).

The Commission has not accepted Parliament's amendment concerning the refusal to
grant  discharge,  but  proposes  a  new  wording  which  would  deal  with  a  situation
where  Parliament  does  not  grant  discharge.  The  Commission  has  not  accepted  the
amendments  designed  to  give  Parliament  unlimited  access  to  all  documents,  which
go further than what is provided for in the Treaty.

14

2.7.

Special provisions (Part Two)

2.7.1. European Agricultural Guidance and Guarantee Fund, Guarantee Section.

The Court of Auditors took the view that there is no need for special provisions for
the  EAGGF  Guarantee  Section  since  the  exceptions  they  contain  could  be  either
dropped (as with assigned revenue discussed at 2.3.4 above) or incorporated in Part
One.

The Commission believes that this would hide in the Financial Regulation a section
accounting for half Community expenditure and would detract from the clarity of the
text.

2.7.2. Structural Funds

The  Court suggested  that this  title be dropped. Parliament suggested  a  provision  to
deal with the financial corrections mechanism.

On  this  point  too  the  Commission  is  upholding  its  initial  proposal:  the  title  on  the
Structural  Funds  is  essential  to  anchor  in  the  Financial  Regulation  the  exceptions
allowed  for  the  management  of  these  appropriations.  As  regards  financial
corrections, they are subject to the ordinary mechanisms provided for in Title IV of
Part One,  and  the  procedural  details  suggested  by  Parliament  are  contained  in  the
implementing rules.

2.7.3. Research

The  Court  again  suggested  that  this  title  be  dropped.  The  Commission,  however,
intends to retain it, since it contains exceptions to Part One in the shape of specific
provisions relating to ABB and transfers and specific provisions for the JRC.

2.7.4. External actions

The  Court  of  Auditors  considered  this  title  superfluous.  The  Council,  on  the  other
hand, is in favour of it, in particular because it provides a basis for joint action with
international  organisations  (Article  164).  The  Commission  is  retaining  the  title  for
the sake of coherence and readability.

The  Court  of  Auditors  argued  that  the  minimum  criteria  for  decentralised
implementation of the budget in non-member countries are unrealistic and difficult to
verify  (Article 165).  The  Commission  has  therefore  reviewed  these  criteria  and  is
proposing  a  new  wording  setting  criteria  in  terms  of  objectives  which  do  not
presuppose  an  administrative  structure  identical  to  that  of  the  Community
institutions.

For external actions the Commission has  proposed more time for  the  conclusion of
contracts  than  applied  to  ordinary  operations  (Article  77(2)),  the  deadline  being
31 December  of  year  N + 3,  N  being  the  year  when  appropriations  are  reserved
(budget commitment). The Court of Auditors finds this to be too short, in particular
for development aid projects, whereas the Council finds it too long and would prefer
N + 2. The Commission is therefore maintaining its initial midway proposal.

15

The Commission also proposed in this title (Article 170) an exception to the principle
of co-financing for grants. For the Court of Auditors, which rejects this principle, this
exception  is  not  relevant.  For  the  Council,  on  the  other  hand,  the  rule  and  the
exception  are  both  justified,  but  the  exception  should  be  confined  to  humanitarian
aid, which would mean that implementation of development projects for the poorest
countries  would  be  blocked.  The  Commission  is  upholding  its  midway  proposal
between these two opposing views.

2.7.5. Offices

Arguing  that  other  offices  could  be  set  up  in  future,  the  Court  of  Auditors  and
Parliament  suggested  a  generic  title  for  offices  rather  than  one  for  the  Publications
Office and OLAF alone.

The  Commission  is  taking  up  this  recommendation  by  including  in  the  proposal  a
title on offices with a general chapter containing general rules applying to all offices
and a chapter covering the specific features of OLAF.

2.8.

Transitional and final provisions (Part Three)

2.8.1. Agencies

The  Court  and  Parliament  suggested  that  the  Financial  Regulation  for  agencies  be
drawn  up  in  accordance  with  framework  regulations  adopted  by  the  Commission
after obtaining the opinion of the Court of Auditors, Parliament and the Council.

The Commission accepts this suggestion and is introducing a time-limit for adoption
of these opinions.

The  Commission  also  proposes  that  Parliament  should  give  discharge  in  respect  of
the  implementation  of  the  agencies'  budget  and  that  the  Commission's  internal
auditor  should  have  the  same  powers  over  the  agencies  as  over  Commission
departments.  The specific regulations governing the agencies will have to be adapted
accordingly to comply with the Financial Regulation.

3.

Action taken on Parliament's amendments

The  Commission's  position  on  each  of  the  amendments  adopted  by  Parliament  on
31 May 2001 is annexed.

4.

Conclusions

In accordance with Article 250 of the EC Treaty the Commission is transmitting this
proposal  to  the  Council  for  adoption  within  the  time-limits  set  by  the  Göteborg
European Council.1

1 

Point  18  of  the  conclusions  of  the  Presidency  of  the  Göteborg  European  Council  states:  "The  recast
Financial Regulation should be adopted before the end of 2002".

16

                                                
2000/0203 (CNS)

Amended proposal for a

COUNCIL REGULATION (EC, ECSC, Euratom)

on the Financial Regulation applicable to the general budget of the European
Communities

THE COUNCIL OF THE EUROPEAN UNION,

Having  regard  to  the  Treaty  establishing  the  European  Community,  and  in  particular
Article 279 thereof,

Having  regard  to  the  Treaty  establishing  the  European  Coal  and  Steel  Community,  and  in
particular Article 78h thereof,

Having  regard  to  the  Treaty  establishing  the  European  Atomic  Energy  Community,  and  in
particular Article 183 thereof,

Having regard to the proposal from the Commission1,

Having regard to the opinion of the European Parliament2,

Having regard to the opinion of the Court of Auditors3,

Having regard to the opinion of the Economic and Social Committee4,

Whereas:

(1)

times  have  changed  enormously  since 

Since 
the  Financial  Regulation  of
21 December 1977  applicable  to  the  general  budget  of  the  European Communities5
was  adopted,  in  particular  as  a  result  of  a  series  of  enlargements,  a  financial
perspective  forming  a  framework  for  the  development  of  the  budget  and  changes  to
the  institutional  structure,  that  Financial  Regulation  has  been  substantially  amended
several times. Since  further  amendments are  necessary to  take account,  in  particular,
of the requirements of simplification in legislative and administrative matters and the
tightening  up  of  management  of  Community  finances,  the  Financial Regulation  of
21 December 1977 should be recast in the interests of clarity.

(2)

This  Regulation  should  be  confined  to  stating  the  broad  principles  and  basic  rules
governing all budgetary matters referred to in the Treaties and the detailed provisions

1

2

3

4

5

OJ C 96 E, 27.3.2001, pp. 1.
OJ C
OJ C 162, 5.6.2001, pp. 1.
OJ C 260, 17.9.2001, p. 42.
OJ  L  356,  31.12.1977,  p.  1;  Regulation  as  last  amended  by  Regulation  (EC,  ECSC,  Euratom)
No 762/2001 (OJ L 111, 20.4.2001, p. 1).

17

                                                
(3)

(4)

(5)

(6)

(7)

(8)

(9)

should  be  moved  to  a  Regulation  laying  down  rules  for  the  implementation  of  this
Regulation  (hereinafter:  "the  implementing  rules")  in  order  to  produce  a  better
hierarchy of rules and make the Financial Regulation easier to read.

As  regards  budget  principles,  the  establishment  and  implementation  of  the  budget
should  respect  the  four  fundamental  principles  of  budgetary  law  (unity, universality,
specification,  annuality),  and  the  principles  of  equilibrium,  unit  of  account,  sound
financial management and transparency.

This  Regulation  should  reassert  those  principles,  keep  exceptions  to  an  absolute
minimum and impose strict conditions on those exceptions.

As  regards  the  principle  of  unity,  this  Regulation  should  state  that  it  also  applies  to
expenditure on the common foreign and security policy and cooperation in the field of
justice  and  home  affairs  where  this  is  charged  to  the  budget.  Decisions  on  the
establishment  plans  of  the  Community  agencies  should  be  taken  by  the  budgetary
authority as part of the budgetary procedure in view of their impact, real or potential,
on the number of European civil servants and on the general budget, via subsidies paid
or planned by those agencies, or the pensions which will be paid to their staff.

As  regards  the  principle  of  universality,  the  practices  of  repayment  of  payments  on
account and re-use should be discontinued; in some cases they should be replaced by
assigned revenue. These amendments should not affect the special rules applicable to
the Structural Funds.

As regards the principle of specification, the Commission needs to have some degree
of  management  flexibility  for  transfers  of  staff  and  administrative  appropriations
between  titles  relating  to  different  policy  areas  and  between  chapters  for  operational
expenditure. This Regulation should allow integrated presentation of the allocation of
financial  and  administrative  resources  by  purpose.  The  procedures  for  transferring
administrative appropriations should be harmonised for all the other institutions so that
transfers between titles are a matter for the budgetary authority and those within titles
a matter for each institution. The budgetary authority should be allowed to constitute
reserves in only two cases: where there is no legal base or where it is not certain that
appropriations are adequate or can be used in accordance with the principle of sound
financial management.

As  regards  annuality,  differentiated  appropriations  should  be  used  in  all  areas,
although  the  technical  arrangements  applied  at  present  to  appropriations  of  the
European  Agricultural  Guidance  and  Guarantee  Fund  (EAGGF)  should  be  retained.
Decisions on carryovers of commitment and payment appropriations should be taken
by  the  institution  concerned  as  a  result  of  the  simplification  brought  about  by  the
abandoning  of  non-differentiated  appropriations.  The  additional  periods  should  be
confined exclusively to the cases where they are absolutely necessary, namely EAGGF
payments.

As regards transparency, the aim is to improve information on implementation of the
budget and the accounts. A strict deadline should also be set for the publication of the
budget  and  the  principle  laid  down  that  it  should  published  provisionally  by  the
the
the  declaration  of  adoption  by 
Commission  between 
European Parliament  and  official  publication 
the
European Communities.  In  addition,  in  order  to  do  away  with  negative  amounts,

the  President  of 
the  Official  Journal  of 

in 

18

negative expenditure should now be treated as assigned revenue. The possibility of a
negative reserve is, however, to be retained.

(10)

Finally, the principle of sound financial management should be defined by reference to
the  principles  of  economy,  efficiency  and  effectiveness,  and  compliance  with  those
principles checked by means of measurable indicators in such a way that results can be
assessed.  Provision  should  be  made  for  evaluation  throughout  the  cycle  of  a
programme.

(11) As  regards  the  establishment  and  presentation  of  the  budget,  budgetary  procedures
should be  harmonised and simplified by elimination  of the distinction, which has  no
practical impact, between supplementary budgets and amending budgets.

(12)

(13)

The Commission section of the budget should present appropriations and resources by
purpose  (activity-based  budgeting),  with  a  view  to  enhancing  transparency  in  the
management  of  the  budget  with  reference  to  the  objectives  of  sound  financial
management and in particular efficiency and effectiveness.

The Commission should enjoy a measure of flexibility in the management of its staff
complement in relation to what is authorised in the budget, especially as the emphasis
in management is now to be on results and not on means. This freedom will, however,
continue  to  be  restricted  by  the  dual  limit  of  budget  appropriations  and  the  total
number of posts allocated; in addition there will be no latitude as regards grade A1 and
A2 posts.

(14) As regards implementation of the budget, there should be clarification of the various
possible  methods  of  implementing  the  budget,  either  on  a  centralised  basis  by  the
Commission or on a shared basis with the Member States or on a decentralised basis
with  third  countries  receiving  external  aid  or  jointly  with  international  public-sector
organisations. It should be possible for centralised management either to be performed
directly  by  Commission  departments  or  indirectly  by  delegation  to  national  or
Community  public-sector  bodies.  The  implementation  methods  must  guarantee  that
the procedures for protecting Community funds are complied with, whatever the entity
responsible  for  all  or  part  of  this  implementation  and  must  confirm  that  final
responsibility for budget implementation lies with the Commission in accordance with
Article 274 of the EC Treaty.

(15) As  the  Commission  is  responsible  for  implementation  of  the  budget,  it  may  not
delegate any tasks of public authority involving the use of discretionary powers. This
Regulation should restate this principle and specify the scope of the tasks that may be
delegated.  It  should  also  be  stipulated  that  private-sector  bodies,  other  than  those
which  have  a  public-service  mission  guaranteed  by  the  States,  should  not  be  able  to
undertake any budget implementation measure but only provide specialist technical or
administrative services or perform preparatory or ancillary tasks.

(16)

For  the  sake  of  compliance  with  the  principles  of  transparency  and  sound  financial
management,  the  public-sector  bodies  or  bodies  with  a  public-service  mission
guaranteed  by  the  State  to  which  implementing  tasks  are  delegated  on  behalf  of  the
Commission  should  have  transparent  procurement  procedures,  effective  internal
controls, a system for presentation of the accounts which is separate from their other
activities and an external audit.

19

(17)

(18)

(19)

(20)

(21)

This Regulation meets the  requirements of  Article  279 of the EC Treaty  by defining
the powers and responsibilities of authorising officers, the accounting officer and the
internal  auditor.  Authorising  officers  are  made  fully  responsible  for  all  revenue  and
expenditure  operations  executed  under  their  authority  and  must  be  held  accountable
for their actions, including, where necessary, through  disciplinary proceedings.  This
empowerment  must  therefore  be  strengthened  by  the  removal  of  centralised  prior
controls  and  in  particular  the  ending  of  the  advance  approval  of  revenue  and
expenditure  operations  by  the  financial  controller  and  of  the  checking  that  payment
constitutes valid discharge by the accounting officer. The accounting officer continues
to be responsible for the proper execution of payments, the collection of revenue and
the  recovery  of  receivables.    He  manages  the  treasury,  keeps  the  accounts  and  is
responsible  for  drawing  up  the  financial  statements  of  the  institutions.  The  internal
auditor performs his duties in accordance with international audit standards. His role is
to provide the institution with reasonable assurances concerning the proper functioning
of the management and control systems  put  in  place by the authorising  officers.  The
internal auditor is not an actor involved in the financial operations and does not have
the  role  of  exercising  control  over  these  operations  ahead  of  the  decisions  by  the
authorising officers; the authorising officers should now assume full responsibility for
these decisions.

The liability of authorising officers, accounting officers and imprest administrators is
not  different  from  that  of  other  officials  and  staff  and  should  be  subject,  under  the
Staff  Regulations  of  officials  of  the  European Communities,  and  the  Conditions  of
Employment of other Servants of those Communities, to the application of the existing
disciplinary and financial compensation measures. On the other hand, certain specific
provisions identifying specific cases of misconduct of accounting officers and imprest
administrators, given the nature of their duties, should be retained; they will no longer
have  any  special  allowance  or  insurance.  In  cases  not  involving  fraud,  in  order  to
provide the appointing authority with the necessary expertise, each institution should
set up a specialised financial irregularities panel which will determine whether or not
an  irregularity  has  occurred  which  could  make  the  official  or  other  servant  liable  to
disciplinary action or payment of compensation and, if it has detected problems with
systems, to report to the authorising officer and the internal auditor. For cases of fraud,
however, this Regulation  should  refer  to  the  provisions  in  force  on  the  protection  of
the  European  Communities'  financial  interests  and  on  the  fight  against  corruption
involving officials of the European Communities or officials of Member States of the
European Union.

The  concepts  of  budget  and  legal  commitment  of  expenditure  and  the  conditions  of
application should be defined. In order to limit in time the potential budget impact of
Commission decisions and to restrict the volume of dormant commitments, the period
during  which  individual  legal  commitments  may  be  made  on  the  basis  of  global
budget commitments should be limited.

This  Regulation  should  define  the  typology  of  payments  which  may  be  made  by
authorising  officers.  Payments  must  be  made  principally  as  a  function  of  the
effectiveness of the action and the results which flow from it.

This  Regulation  should  stipulate  that  the  operations  of  validation,  authorisation  and
payment must be completed within a time-limit which will be set in the implementing
rules and that in the event of failure to respect this time-limit creditors will be entitled
to default interest to be charged to the budget.

20

(22) As regards procurement, the Directives of the European Parliament and of the Council
coordinating  the  procedures  for  the  award  of  public  supply,  service  and  works
contracts should apply to public contracts awarded by the institutions acting on their
own  account; their principles  should also govern the  rules  applicable  to  all  contracts
awarded on behalf of third parties.

(23)

(24)

(25)

In  order  to  prevent  irregularities  and  to  combat  fraud  and  corruption  and  promote
sound and efficient management, candidates or tenderers who are guilty of such acts or
have conflicting interests should be excluded from the award of contracts.

For  the  sake  of  transparency,  candidates  and  tenderers  should  be  informed  in  an
appropriate manner about the award of contracts.

Finally,  as  part  of  the  process  of  empowerment  of  authorising  officers,  the  current
Advisory Committee on Procurement and Contracts should be dispensed with.

(26) As  regards  grants,  a  framework  for  the  award  and  monitoring  of  Community  grants
involving  specific  provisions  for  implementing  the  principles  of  transparency,  equal
treatment, co-financing, prohibition of retrospective awards, collective assessment and
control should be put in place.

(27)

(28)

In order to avoid any cumulation, it should not be possible for grants to be awarded to
finance twice the same action or routine expenditure for the same year.

In a similar manner to the rules concerning the award of public contracts, grounds for
excluding  certain  parties  from  the  award  of  grants  should  be  laid  down  in  order  to
have appropriate means of combating fraud and corruption.

(29)

So that the rights and obligations of the institution and of the beneficiary are clear, the
grant award should be the subject of a written agreement.

(30) As regards accounting and the presentation of accounts, it should be stipulated that the
accounts comprise general accounts and budget accounts and it should be added that
the general accounts are based on a system of accrual accounting whereas the budget
accounts  are  intended  to  draw  up  the  budget  outturn  account  and  the  reports  on
implementation of the budget.

(31)

(32)

The  principles  on  which  the  general  accounts  are  based  and  the  financial  statements
are  presented  should  be  defined  by  reference  to  internationally  accepted  accounting
principles  and  the  Council  Directives  on  the  annual  accounts  of  certain  types  of
companies, where they are relevant in the context of the public service.

The provisions on the supply of information concerning implementation of the budget
should be adapted to extend this information to the use of appropriations carried over,
made  available  again  and  re-used  and  to  the  various  Community-law  bodies,  to
improve  the  arrangements  for  providing  monthly  figures  and  the  report  on
implementation, which will be sent three times a year to the budgetary authority.

(33)

The  accounting  methods  employed  by  the  institutions  should  be  harmonised  and,  in
this field, the Commission's accounting officer should have the right of initiative.

21

(34)

(35)

It  should  be  specified  that  the  use  of  computerised  financial  management  systems
should  in  no  way  restrict  the  Court  of  Auditors'  rights  of  access  to  supporting
documents.

The  rather  vague  concepts  of  advance  and  payment  on  account  should  be  removed;
payments  should  be  made  in  the  form  of  pre-financing,  interim  payments  and
payments of the final balance, when the entire amount is not paid in one instalment.

(36) As regards external audit and discharge, although the Commission is fully responsible
for  implementation  of  the  budget,  the  importance  of  management  shared  with  the
Member  States  requires  their  full  cooperation  throughout  the  audit  procedure  by  the
Court of Auditors and the discharge by the budgetary authority.

(37)

(38)

In  order  to  provide  optimum  conditions  for  the  presentation  of  the  accounts  and  the
discharge procedure, the timetable leading up to discharge should be amended.

In order to improve interinstitutional operation, the Commission should present to the
European  Parliament,  at  its  request,  any  information  relating  to  the  year  in  question
required  for  the  smooth  application  of  the  discharge  procedure,  with  due  respect  for
fundamental  human  rights,  the  protection  of  business  secrecy,  the  provisions
governing judicial and disciplinary proceedings and the interests of the Union.

(39)

Special  provisions  should  be  laid  down  for  certain  Community  policies;  such
provisions should be based on the principles of this Regulation.

(40) As regards the EAGGF, the specific management features, relating in particular to the
fact that commitment appropriations and payment appropriations are equal and to the
carryover  arrangements,  should  be  maintained,  although  the  appropriations  for  rural
development will not be covered with effect from 1 January 2007.

(41)

(42)

In order to guarantee the overall amount of appropriations available, revenue from the
EAGGF Guarantee Section should be assigned to it as an overall amount.

Provision should be made for the possibility of advance commitments against EAGGF
and  administrative  appropriations  from  15 November  preceding  the  financial  year  in
question.

(43) As regards the Structural Funds, the provision for repayment of payments on account
and  making  appropriations  available  again  contained  in  the  Commission  declaration
annexed  to  Council  Regulation  (EC)  No 1260/1999  of  21 June 1999  laying  down
general provisions on the Structural Funds should be retained.

(44) As  regards  research,  the  presentation  of  the  budget  should  be  harmonised  with  the
provisions  concerning  activity-based  budgeting,  whilst  preserving  the  flexibility  of
management which the Joint Research Centre currently enjoys.

(45) As regards external action, decentralisation of management of external aid should be
authorised  provided  that  the  Commission  is  given  guarantees  of  sound  financial
management and the beneficiary state is accountable to the Commission for the funds
paid to it.

(46)

Financing  agreements  or  contracts  signed  with  the  beneficiary  state  or  a  national,
Community or international public-sector body or natural or legal persons governed by

22

private  law  must  include  the  general  procurement  principles  laid  down  in  Title V  of
Part One and Title IV of Part Two of this Regulation as regards external actions.

(47) A  special  title  should  be  included  containing  the  general  provisions  for  the
management  of  European  offices.  Given  the  status  and  special  remit  of  the
European Anti-Fraud Office (OLAF), a separate chapter in that title should contain the
special rules for its management.

(48) A  separate  title  should  also  contain  the  special  rules  applicable  to  administrative

appropriations.

(49)

(50)

(51)

It should be stipulated that the special provisions relating to the appropriations for the
EAGGF  Guarantee  Section  will  apply  to  the  programmes  on  rural  development  and
accompanying measures only until the end of the current programming period.

The change in the timetable for the consolidation of the  institutions' accounts should
be  deferred  until  2005  in  order  to  allow  time  to  put  in  place  the  essential  internal
procedures involved.

Time-limits  governing  the  procedure  for  adopting  the  rules  for  implementing  this
Regulation  should  be  laid  down,  in  order  to  ensure  that  any  change  made  to  the
Financial Regulation becomes effective within a reasonable time.

(52) A suitable framework, tailored to the specific management needs, should be provided
for the  financial  rules to apply to bodies set  up  by  the  Communities,  with  their  own
legal personality, which may receive subsidies from the budget. At the same time, and
without in any way impairing the operational autonomy  required by these  bodies  for
the  performance  of  their  functions,  the  substance  of  the  rules  governing  certain
matters,  and  in  particular  discharge  and  accounting,  needs  to  be  harmonised.    The
Commission's internal  auditor  should  exercise  over  these  bodies  the  same  powers  as
over  Commission  departments.    The  specific  provisions  governing  these  bodies  will
have to be adapted accordingly to comply with this Regulation,

HAS ADOPTED THIS REGULATION:

23

PART ONE
COMMON PROVISIONS

TITLE I
SCOPE

Article 1
(Initial proposal: Article 1)

This Regulation lays down the rules for the establishment and implementation of the general
budget of the European Communities, hereinafter "the budget".

For the purposes of this Regulation, the Economic and Social Committee, the Committee of
the Regions and the Ombudsman shall be treated as Community institutions.

Article 2
(New)

All  other  regulatory  instruments  concerning  the  implementation  of  the  revenue  and
expenditure of the budget shall be based on the principles set out in Title II.

TITLE II
Budgetary principles

Article 3
(Initial proposal: Article 2)

The budget shall be established and implemented in compliance with the principles of unity,
annuality,  equilibrium,  unit  of  account,  universality,  specification,  sound  financial
management and transparency as set out in this Regulation.

CHAPTER 1
PRINCIPLE OF UNITY

Article 4
(Initial proposal: Article 3)

1.

2.

The budget is the instrument which, each year, forecasts and authorises the revenue
and expenditure considered necessary for the Communities.

The revenue and expenditure of the Communities shall comprise:

24

(a)

the  revenue  and  expenditure  of 
including
administrative expenditure for the common foreign and security policy and for
cooperation in the field of justice and home affairs and the related operational
expenditure where this is charged to the budget;

the  European  Community, 

(b)

the administrative expenditure of the European Coal and Steel Community  and
the related revenue;

(c)

the expenditure and revenue of the European Atomic Energy Community.

The budget  shall  record  the  guarantee  for  borrowing  and  lending  operations  entered
into by the Communities and payments to the Guarantee Fund for external actions.

Article 5
(Initial proposal: Article 4)

Subject  to  Article  74,  no  revenue  shall  be  collected  and  no  expenditure  effected
unless booked to a line in the budget.

No  expenditure  may  be  committed  or  authorised  in  excess  of  the  authorised
appropriations.

An  appropriation  may  not  be  entered  in  the  budget  if  it  is  not  for  an  item  of
expenditure considered necessary.

Subject to Article 74, interest yielded by the funds which remain the property of the
European Communities shall be entered in the budget as general revenue.

3.

1.

2.

3.

4.

CHAPTER 2
PRINCIPLE OF ANNUALITY

Article 6
(Initial proposal: Article 5)

The appropriations entered in the budget shall be authorised for one financial year which shall
run from 1 January to 31 December.

Article 7
(Initial proposal: Article 6)

1.

2.

3.

The  budget  shall  contain  differentiated  appropriations,  which  shall  consist  of
commitment appropriations and payment appropriations.

Commitment appropriations shall cover the total cost of the legal commitments entered
into during the current financial year, subject to Articles 77(2) and 167(2).

Payment appropriations shall cover payments made to honour the legal commitments
entered into in the current financial year and/or earlier financial years.

25

4.

1.

2.

3.

4.

5.

6.

1.

Paragraphs 1 and 2 shall be without prejudice to the special provisions of Titles I, IV
and VI of Part Two. They shall not prevent appropriations being committed globally
nor budgetary commitments being made in annual instalments.

Article 8
(Initial proposal: Article 7)

The revenue of a financial year shall be entered in the accounts for the financial year
on  the  basis  of  the  amounts  collected  during  the  financial  year.  However,  the  own
resources for the month of January of the next financial year may be paid in advance
pursuant to the Council Regulation implementing the Decision on the system of the
Communities' own resources.

The  entries in  respect  of value  added tax  own resources,  the  additional  GNP-based
resource  and  any  financial  contributions  may  be  adjusted  in  accordance  with  the
Regulation referred to in paragraph 1.

The  appropriations  authorised  for  a  given  year  may  be  used  solely  to  cover
expenditure committed and paid in that financial year, save as otherwise provided in
Title  I  of  Part  Two,  and  to  cover  amounts  due  against  commitments  from  earlier
financial years.

Commitments shall be entered in the accounts on the basis of the legal commitments
entered  into  up  to  31  December,  subject  to  the  global  commitments  referred  to  in
Article 77(2) and the financing agreements referred to in Article 167(2), which shall
be  entered  in  the  accounts  on  the  basis  of  the  budget  commitments  up  to
31 December.

Payments  shall  be  entered  in  the  accounts  for  a  financial  year  on  the  basis  of  the
payments  effected  by  the  accounting  officer  by  31 December  of  that  year  at  the
latest.

By  way  of  derogation  from  paragraphs 4  and  5,  the  expenditure  of  the  Guarantee
Section of the European Agricultural Guidance and Guarantee Fund (EAGGF) shall
be entered in the accounts for a financial year in accordance with the rules laid down
in Title I of Part Two.

Article 9
(Initial proposal: Article 8)

Commitment appropriations and payment  appropriations  which  have  not  been  used
at the end of the financial year for which they were entered shall be cancelled.

However,  they  may  be  carried  over  to  the  following  financial  year  only,  by  a
decision  taken  by  the  institution  concerned  by  15 February  at  the  latest,  in
accordance with paragraphs 2 and 3.

2.

Commitment appropriations may be carried over in respect of:

(a)

amounts  corresponding  to  commitment  appropriations  for  which  all  the
preparatory stages of the commitment procedure as specified in Article 60 have

26

been completed by 31 December. These amounts may then be committed up to
31 March of the following year;

(b)

amounts which are necessary when the legislative authority has adopted a basic
instrument  in  the  final  quarter  of  the  financial  year  and  the  Commission  has
been  unable  to  commit  the  appropriations  provided  for  this  purpose  by
31 December.

Payment appropriations may be carried over in respect of amounts needed  to cover
existing commitments or commitments linked to commitment appropriations carried
over,  when  the  appropriations  provided  for  the  relevant  lines  in  the  budget  for  the
following  financial  year do  not  cover  requirements.  The  institution  concerned  shall
first use the appropriations authorised for the current financial year and shall not use
the appropriations carried over until the former are exhausted.

The  institution  concerned  shall  inform  the  European  Parliament  and  the  Council
(hereinafter  "the budgetary  authority")  by  15  March  at  the  latest  of  the  carryover
decision taken and shall state, for each budget item, how the criteria in paragraphs 2
and 3 have been applied to each carryover.

Appropriations placed in reserve and appropriations for staff expenditure may not be
carried over.

3.

4.

5.

Article 10
(Initial proposal: Article 9)

Revenue  not  used  and  appropriations  available  at  31 December  arising  from  the  assigned
revenue  referred  to  in  Article  18  shall  be  carried  over  automatically.  The  appropriations
available corresponding to assigned revenue carried over must be used first.

Article 11
(Initial proposal: Article 10)

Where amounts are decommitted as a result of total or partial non-implementation of the actions
for which they were earmarked, in any financial year after that in which the appropriations were
entered in the budget, the appropriations concerned shall be cancelled.

Article 12
(Initial proposal: Article 11)

The  appropriations entered in the budget may be  committed with  effect from 1 January,  once
the  budget  has  been  finally  adopted,  save  as  otherwise  provided  in  Title  I  and  Title VI  of
Part Two.

Article 13
(Initial proposal: Article 12)

1.

If  the  budget  has  not  been  finally  adopted  at  the  beginning  of  the  financial  year,
Article 273 of the EC Treaty, Article 78b of the ECSC Treaty, and Article 178 of the

27

2.

1.

2.

1.

2.

3.

Euratom Treaty shall apply to commitment and payment of expenditure approved in
principle in the last budget duly adopted.

If, for a given chapter, the authorisation of two or more provisional twelfths granted
in  the  circumstances  provided  for  in  the  Treaties  is  not  sufficient  to  cover  the
expenditure necessary to avoid a break in continuity of the Communities' activity in
the area in question, authorisation may exceptionally be given under the procedures
provided  for  in  the  Treaties  to  exceed  that  amount.  In  this  case  the  overall  total  of
the appropriations available in the budget of the preceding year may not be exceeded.

CHAPTER 3
PRINCIPLE OF EQUILIBRIUM

Article 14
(Initial proposal: Article 13)

Budget revenue and payment appropriations must be in balance.

The Communities may not raise loans to cover a budget deficit. They are, however,
authorised to raise loans for the sole purpose of acquiring land and buildings on the
strict condition that such loans offer every guarantee of sound financial management.

Article 15
(Initial proposal: Article 14)

The balance from each financial year shall be entered in the budget for the following
financial year as revenue in the case of a surplus or as a payment appropriation in the
case of a deficit.

The estimates of such revenue or payment appropriations shall be entered in the budget
during  the  budgetary  procedure  and,  where  appropriate,  in  a  letter  of  amendment
presented  pursuant  to  Article  34.  They  shall  be  drawn  up  in  accordance  with  the
Council Regulation  implementing  the  Decision  on  the  system  of  the  Communities'
own resources.

After the presentation of the accounts for each financial year, any discrepancy with the
estimates  shall  be  entered  in  the  budget  for  the  following  financial  year  through  an
amending budget in accordance with Article 37.

CHAPTER 4
PRINCIPLE OF UNIT OF ACCOUNT

Article 16
(Initial proposal: Article 15)

The budget shall be drawn up and implemented in euro and the accounts shall be presented in
euro.

28

However, for the cash-flow purposes referred to in Article 61, the accounting officer and, in
the  case  of  imprest  accounts,  imprest  administrators,  shall  be  authorised  to  carry  out
operations  in  national  currencies  as  laid  down  in  the  regulation  laying  down  the  rules  for
implementing this Regulation, hereinafter referred to as “the implementing rules”.

CHAPTER 5
PRINCIPLE OF UNIVERSALITY

Article 17
(Initial proposal: Article 16)

Total revenue shall cover total payment appropriations, subject to Article 18. All revenue and
expenditure  shall  be  entered  in  full  without  any  adjustment  against  each  other,  subject  to
Article 20.

Article 18
(Initial proposal: Article 17(1))

1.

The  following  items  of  revenue  shall  be  used  to  finance  specific  items  of
expenditure:

(a)

(b)

(c)

financial  contributions  from  Member  States  to  certain  research  programmes
pursuant  to  the  Council Regulation  implementing  the  Decision  on  the  system
of the Communities’ own resources;

interest on deposits and the fines provided for in the Regulation on speeding up
and clarifying the implementation of the excessive deficit procedure;

revenue  earmarked  for  a  specific  purpose,  such  as  income  from  foundations,
subsidies, gifts and bequests;

(d)

contributions to Community activities from third countries or various bodies;

(e)

revenue from third parties in respect of goods, services or work supplied at their
request;

(f)

revenue arising from the repayment of amounts wrongly paid;

(g)

proceeds from the supply of goods, services and works for other institutions or
bodies, including refunds by  other institutions  or bodies of  mission  allowances
paid on their behalf;

(h)

insurance payments received;

(i)

(j)

revenue from payments connected with lettings;

revenue  from  the  sale  of  publications  and  films,  including  those  on  an
electronic medium.

29

2.

3.

1.

2.

1.

2.

3.

A legal basis may also assign the revenue for which it provides to specific items of
expenditure.

The  budget  shall  carry  lines  to  accommodate  the  categories  of  assigned  revenue
referred to in paragraphs 1 and 2 and wherever possible shall indicate the amount.

Article 19
(Initial proposal: Article 17(2))

The  Commission  may  accept  any  donation  made  to  the  Communities,  such  as
foundations, subsidies, gifts and bequests.

Acceptance of donations which may involve some financial charge shall be subject to
the authorisation of the European Parliament and the Council, which shall act on the
matter within two months of the date of receipt of the request from the Commission. If
no  objection  has  been  made  within  that  period,  the  Commission  shall  take  a  final
decision in respect of acceptance.

Article 20
(Initial proposal: Article 18)

The  implementing  rules  may  specify  the  cases  where  certain  revenue  may  be
deducted  from  invoices  or  requests  for  payment,  which  shall  then  be  passed  for
payment of the net amount.

The  cost  of  products  or  services  provided  to  the  Communities  incorporating  taxes
refunded  by  the  Member  States  pursuant  to  the  Protocol  on  the  Privileges  and
Immunities  of  the  European  Communities  or  by  third  countries  on  the  basis  of  the
relevant agreements shall be charged to the budget for the ex-tax amount.

Adjustments  may  be  made  in  respect  of  exchange  differences  occurring  in  the
implementation of the budget. The final gain or loss shall be included in the balance
for the year.

CHAPTER 6
PRINCIPLE OF SPECIFICATION

Article 21
(Initial proposal: Article 19)

Appropriations shall be earmarked for specific purposes by title and chapter; the chapters shall
be further subdivided into articles and items.

Article 22
(Initial proposal: Article 20)

1.

Each institution may, within its own section of the budget, propose to the budgetary
authority transfers from one title to another.

30

Proposals made by the other institutions for transfers from one title to another shall
be  forwarded  by  the  Commission  to  the  budgetary  authority  for  its  decision.  The
Commission may attach its own opinion to such proposals.

Each  institution  may,  within  its  own  section  of  the  budget,  transfer  appropriations
from one chapter to another and from one article to another. These institutions shall
inform the budgetary authority and the Commission of the transfers they have made.

The provisions of paragraphs 1 and 2 are without prejudice to the specific provisions
of Article 23 as regards the Commission.

2.

3.

Article 23
(Initial proposal: Article 21)

1.

The Commission may, within its own section of the budget:

(a)

(b)

(c)

transfer  appropriations  within  articles  and,  with  the  exception  of  expenditure
on staff and administration, from one article to another within each chapter;

as regards expenditure on staff and administration, transfer appropriations from
one  title  to  another  provided  that  the  appropriations  are  used  for  the  same
purpose;

as  regards  operational  expenditure,  transfer  appropriations  between  chapters
within  the  same  title,  up  to  a  maximum  of  10%  of  the  appropriations  for  the
year shown on the line from which the transfer is made.

Three weeks before making the transfers referred to at points (b) and (c) of the first
subparagraph, the Commission shall inform the budgetary authority of its decision.

The Commission may propose to the budgetary authority, within its own section of
the budget, transfers other than those referred to in paragraph 1.

Article 24
(Initial proposal: Article 22)

The  budgetary  authority  shall  take  decisions  on  transfers  of  appropriations  as
provided  for  in  paragraphs  2,  3  and  4,  save  as  otherwise  provided  in  Title  I  of
Part Two.

In  the  case  of  proposals  for  transfers  of  appropriations  relating  to  expenditure
necessarily resulting from the Treaties or from acts adopted in accordance therewith,
the  Council  shall,  after  consulting  the  European  Parliament,  act  by a  qualified
majority  within  six  weeks,  except  in  urgent  cases.  The  European  Parliament  shall
deliver its opinion within such time as will permit the Council to take note of it and
to  act  within  the  stipulated  time-limit.  Where  the  Council  does  not  act  within  this
time-limit, the proposals for transfers shall be deemed to be approved.

In  the  case  of  proposals  for  transfers  relating  to  expenditure  other  than  that
necessarily resulting from the Treaties or from acts adopted in accordance therewith,
the  European  Parliament  shall,  after  consulting  the  Council,  act  within  six  weeks,

31

2.

1.

2.

3.

except in urgent cases. The Council shall deliver its opinion, by a qualified majority,
within such time as will permit the European Parliament to take note of it and to act
within the stipulated time-limit. Where no decision is taken within this time-limit, the
proposals for transfers shall be deemed to be approved.

Proposals  for  transfers  relating  both  to  expenditure  necessarily  resulting  from the
Treaties or from acts adopted in accordance therewith, and to other expenditure shall
be  deemed  to  be  approved  if  neither  the  European Parliament  nor  the  Council  has
decided otherwise within six weeks of the date on which the two institutions received
the proposals. If, in the case of such proposals for transfers, the European Parliament
and the Council reduce the proposed transfer by different amounts, whichever is the
smaller of the amounts accepted by one of the two institutions shall be deemed to be
approved.  Where  one  of  the  institutions  rejects  the  principle  of  the  transfer,  the
transfer shall not be made.

Article 25
(Initial proposal: Article 23)

Appropriations  may  be  transferred  only  to  budget  lines  for  which  the  budget  has
authorised appropriations or carries a token entry (p.m.).

Assigned revenue may be transferred only if it is used for the purpose to which it is
assigned.

Article 26
(Initial proposal: Article 24)

Transfers within the titles of the budget devoted to the EAGGF, Guarantee Section,
the  Structural  Funds  and  research  shall  be  the  subject  of  special  provisions  under
Titles I, II and III of Part Two.

Decisions on transfers to allow the utilisation of the reserve relating  to Community
loans and loan guarantees to third countries and the reserve for emergency aid shall
be taken by the budgetary authority on a proposal from the Commission.

4.

1.

2.

1.

2.

The  procedure  provided  for 
the
European Parliament  and  the  Council  are  unable  to  agree  on  an  amount  different
from  the  one  indicated  in  the  Commission's  proposal  or  if  they  fail  to  act,  the
Commission's proposal for a transfer shall be deemed to be approved.

in  Article 24  shall  apply.  However, 

if 

CHAPTER 7
PRINCIPLE OF SOUND FINANCIAL MANAGEMENT

Article 27
(Initial proposal: Article 25)

1.

Budget  appropriations  shall  be  used  in  accordance  with  the  principle  of  sound
financial management, that is to say, in accordance with the principles of economy,
efficiency and effectiveness.

32

2.

3.

4.

1.

2.

1.

2.

The principle of economy requires that the resources used by the institution for the
pursuit  of its activities  shall  be  made  available  in  due  time,  in  appropriate  quantity
and quality and at the best price.

The principle of efficiency is concerned with the best relationship between resources
employed and results achieved.

The principle of effectiveness is concerned with attaining the specific objectives set
and achieving the intended results.

Objectives which can be checked by means of measurable indicators shall be set and
achievement of these objectives shall be monitored.

In order to apply the principle of sound financial management, the institutions shall
evaluate programmes or actions regularly.

Article 28
(Initial proposal: Article 26)

Any proposal submitted to the legislative authority which may have an impact on the
budget,  including  changes  in  the  number  of  posts,  must  be  accompanied  by  a
financial statement.

During  the  budgetary  procedure,  the  Commission  shall  provide  the  necessary
information for a comparison between changes in the appropriations required and the
initial  forecasts  made  in  the  financial  statements.  This  information  shall  include
progress made and the stage reached by the legislative authority in its consideration
of  proposals  presented.  The  appropriations  required  shall,  where  appropriate,  be
revised in the light of the deliberations on the legal basis.

CHAPTER 8
PRINCIPLE OF TRANSPARENCY

Article 29
(Initial proposal: Article 27)

The  budget  shall  be  established  and  implemented  and  the  accounts  presented  in
compliance with the principle of transparency.

the  budget  and
the  European  Parliament  shall  have 
The  President  of 
amending budgets,  as  finally  adopted,  published  in  the  Official  Journal  of  the
European Communities.

The  budget  shall  be  published  within  two  months  following  the  date  on  which  the
budget is declared finally adopted.

The consolidated financial statements shall be published in the Official Journal of the
European Communities. The financial management reports and analyses drawn up by
each 
the
European Communities.

institution  shall  also  be  published 

the  Official  Journal  of 

in 

33

Article 30
(Initial proposal: Article 28)

1.

2.

Information on borrowing and lending operations contracted by the Communities for
third parties shall appear in an annex to the budget.

Information on the operations of the Guarantee Fund for external actions shall appear
in the financial statements.

TITLE III
ESTABLISHMENT AND STRUCTURE OF THE BUDGET

CHAPTER 1
ESTABLISHMENT OF THE BUDGET

Article 31
(Initial proposal: Article 29)

The European Parliament, the Council, the Court of Justice of the European Communities, the
Court of Auditors, the Economic and Social Committee, the Committee of the Regions and the
Ombudsman shall draw up an estimate of their revenue and expenditure, which they shall send
to the Commission before 1 July each year.

These  estimates  shall  also  be  sent  by  these  institutions  to  the  budgetary  authority  for
information  by  no  later  than  1 July  each  year.  The  Commission  shall  draw  up  its  own
estimates, which it shall also send to the budgetary authority by the same date.

In  preparing  its  own  estimates  the  Commission  shall  use  the  information  referred  to  in
Article 32.

Article 32
(New)

Each body referred to in Article 190 shall, in accordance with the instrument establishing it,
send  to  the  Commission  by  1  April  each  year  an  estimate  of  its  revenue  and  expenditure,
including the establishment plan, and its work programme.

The  Commission  shall  forward  these  documents  to  the  budgetary  authority  for  information,
except in the case provided for in point (3)(d) of Article 46(1).

Article 33
(Initial proposal: Article 30)

1.

The  Commission  shall  place  a  preliminary  draft  budget  before  the  Council  by
1 September each year at the latest. It shall at the same time transmit the preliminary
draft budget to the European Parliament.

34

The  preliminary  draft  budget  shall  contain  a  summary  general  statement  of  the
expenditure and revenue of the Communities and consolidate the estimates referred to
in Article 31.

2.

The Commission shall attach to the preliminary draft budget:

(a)

an analysis of financial management in the previous year;

(b)

(c)

an  opinion  on  the  estimates  of  the  other  institutions;  this  opinion  may  contain
different estimates, accompanied by the reasons therefor;

any  working  paper  it  considers  useful  in  connection  with  the  establishment
plans  of  the  institutions  and  the  grants  which  the  Commission  awards  to  the
bodies referred to in Article 190 and to the European Schools;

(d)

information on objectives for the activities and on any evaluation available.

1.

2.

1.

2.

1.

Article 34
(Initial proposal: Article 31)

The  Commission  may, on its  own initiative  or  if  requested  by  the  other  institutions,
each in respect of its own section, present to the Council a letter of amendment to the
preliminary draft budget on the basis of new information which was not available at
the time the preliminary draft was established.

However, save as otherwise agreed by the institutions or in exceptional circumstances,
the Commission shall put such letter of amendment to the Council at least thirty days
before the first reading of the draft budget by the European Parliament. The Council
must  put  the  letter  of  amendment  to  the  European  Parliament  at  least  fifteen days
before the said first reading.

Article 35
(Initial proposal: Article 32)

The  Council  shall  establish  the  draft  budget  in  accordance  with  the  procedure  laid
down in Article 272 of the EC Treaty, Article 78 of the ECSC Treaty and Article 177
of the Euratom Treaty.

The Council shall place the draft budget before the European Parliament by 5 October
at the latest. The Council shall attach to that draft budget an explanatory memorandum
defining,  where  appropriate,  its  reasons  for  departing  from  the  preliminary  draft
budget.

Article 36
(Initial proposal: Article 33)

The President of the European Parliament shall declare the budget finally adopted in
accordance  with  the  procedure  provided  for  in  Article  272  of  the  EC  Treaty,
Article 78 of the ECSC Treaty and Article 177 of the Euratom Treaty.

35

2.

1.

2.

Once  the  budget  has  been  declared  finally  adopted,  each  Member  State  shall,  from
1 January of the following financial year or from the date of the formal declaration if it
is made after 1 January, be bound to make over to the Community the payments due as
specified in  the  Council  Regulation implementing  the  Decision  on  the  system  of  the
Communities’ own resources.

Article 37
(Initial proposal: Article 34)

If  necessary,  or  in  the  case  provided  for  in  Article  15(3),  the  Commission  may
present preliminary draft amending budgets.

Preliminary  draft  amending  budgets  from  institutions  other  than  the  Commission
shall be sent to the Commission.

The  Commission  shall,  save  in  exceptional  circumstances,  submit  any  preliminary
draft amending budget to the Council by 1 September each year at the latest. It may
attach  a  dissenting  opinion  to  the  requests  for  amending  budgets  from  the  other
institutions.

3.

The budgetary authority shall discuss them with due account for their urgency.

Article 38
(Initial proposal: Article 35)

1.

2.

Where the Council has received a preliminary draft  amending budget, it shall draw
up a draft amending budget in accordance with Article 35.

Except  for the timetable,  Articles  35  and  36  shall  apply  to  amending  budgets.  They
must be substantiated by reference to the budget whose estimates they are amending.

Article 39
(Initial proposal: Article 36)

The Commission and the budgetary authority may agree to bring forward certain dates for the
transmission of the estimates, and for the adoption and transmission of the preliminary draft and
draft budgets. This agreement may not, however, have the effect of shortening or delaying the
periods allowed for consideration of these texts under Article 272 of the EC Treaty, Article 78
of the ECSC Treaty and Article 177 of the Euratom Treaty.

CHAPTER 2
STRUCTURE AND PRESENTATION OF THE BUDGET

Article 40
(Initial proposal: Article 37)

The budget shall consist of:

36

(a)

(b)

1.

2.

a summary statement of revenue and expenditure;

separate  sections  subdivided  into  statements  of  revenue  and  expenditure  for  each
institution.

Article 41
(Initial proposal: Article 38)

Commission revenue and the revenue and expenditure of the other institutions shall
be classified by the budgetary authority according to their type or the use to which they
are assigned under titles, chapters, articles and items.

The statement of expenditure for the Commission section shall be set out on the basis
of  a  nomenclature  adopted  by  the  budgetary  authority  and  classified  according  to
purpose.

A title shall correspond to a policy area and a chapter shall, as a rule, correspond to
an activity.

Each title may include operational appropriations and administrative appropriations.

The administrative appropriations for a title shall be grouped in a single chapter.

Article 42
(Initial proposal: Article 39)

The budget may not contain negative revenue or expenditure.

The own resources paid under the Council Decision on the system of the Communities’ own
resources  shall  be  net  amounts  and  shall  be  shown  as  such  in  the  summary  statement  of
revenue in the budget.

Article 43
(Initial proposal: Article 40)

1.

Each  section  of  the  budget  may  include  a  "provisions"  title.  Appropriations  shall  be
entered in this title in the following two circumstances:

(a) where  no  legal  basis  exists  for  the  action  concerned  when  the  budget

is established;

(b) where  there  is  uncertainty,  on  serious  grounds,  about  the  adequacy  of  the
appropriations  entered  on  the  budget  lines  or  about  the  possibility  of  using
them in a manner consistent with sound financial management.

The appropriations in this title may be used only after transfer in accordance with the
procedure laid down in Articles 22, 23 and 24.

2.

In the event of serious implementation difficulties, the Commission may propose, in
the course of a financial year, that appropriations be transferred to the  "provisions"

37

title. The budgetary authority shall take a decision on these transfers as provided in
Article 26.

Article 44
(Initial proposal: Article 41)

The  Commission  section  may  include  a  "negative  reserve"  limited  to  a  maximum  amount  of
EUR 200 million. This reserve, which shall be entered in a separate chapter, may comprise both
commitment appropriations and payment appropriations.

This reserve must be drawn upon before the end of the financial year by means of transfer in
accordance with the procedure laid down in Articles 22, 23 and 25.

Article 45
(Initial proposal: Article 42)

1.

The Commission section of the budget shall include the following two reserves:

(a)

a reserve for emergency aid for third countries;

(b)

a reserve relating to Community loans and loan guarantees to third countries.

2.

The  conditions for the entry, utilisation and  financing of the reserves referred  to  in
paragraph  1(a)  and  (b)  are  laid  down  in  the  Council  Regulation  on  budgetary
discipline and in the Council Regulation implementing the Decision on the system of
the Communities’ own resources respectively.

Article 46
(Initial proposal: Article 43)

1.

The budget shall show:

(1)

in the summary statement of revenue and expenditure:

(a)

(b)

(c)

(d)

the  estimated  revenue  of  the  Communities  for  the  financial  year  in
question;

the estimated revenue for the preceding financial year and the revenue for
year N - 2;

the  commitment  and  payment  appropriations  for  the  financial  year  in
question;

the commitment and payment appropriations  for the preceding  financial
year;

(e)

the expenditure committed and the expenditure paid in year N - 2;

(f)

a  summary  statement  of  the  schedule  of  payments  due  in  subsequent
financial  years  to  meet  budget  commitments  entered  into  in  earlier
financial years;

38

(g)

appropriate remarks on each subdivision;

(2)

in the section for each institution, the revenue and expenditure shall be shown
in  the  same  structure  as  in  point 1,  with  appropriate  remarks  on  each
subdivision, and with schedules of payments due in subsequent financial years
to meet budget commitments entered into in earlier financial years.

The  estimated  annual  amounts  of  payment  appropriations  required  for
subsequent financial years in relation to the commitment appropriations for the
current  year  shall  be  shown,  as  an  indication,  in  a  schedule  entered  in  the
remarks column of the budget.

(3)

as regards staff:

(a)

(b)

(c)

for each section of the budget, an establishment plan setting the number
of  posts  for  each  grade  in  each  category  and  in  each  service  and  the
number of permanent and temporary posts authorised within the limits of
the budget appropriations;

an establishment plan for staff paid from the research and technological
development  appropriations  for  direct  action  and  an  establishment  plan
for  staff  paid  from  the  same  appropriations  for  indirect  action;  the
establishment  plans  shall  be  classified  by  category  and  grade  and  shall
distinguish  between  permanent  and  temporary  posts,  authorised  within
the limits of the budget appropriations;

as  regards  scientific  and  technical  staff,  the  classification  may  be  based
on groups of grades, in accordance with the conditions laid down in each
budget.  The  establishment  plan  must  specify  the  number  of  highly
qualified  technical  or  scientific  personnel  who  are  accorded  special
advantages  under  the  specific  provisions  of  the  Staff  Regulations  of
Officials  of  the  European  Communities  and  Conditions  of  Employment
of Other Servants of the European Communities hereinafter referred to as
“the Staff Regulations”;

(d)

an  establishment  plan  setting  the  number  of  permanent  and  temporary
posts, authorised within the limits of the budget appropriations, by grade
and by category in each body mentioned in Article 190.

The establishment plans shall show next to the number of posts authorised for
the financial year the number authorised for the preceding year;

(4)

as regards borrowing and lending operations:

(a)

in the general statement of revenue, the budget lines corresponding to the
relevant operations and intended to record any reimbursements received
from  beneficiaries  who  initially  defaulted,  leading  to  activation  of  the
performance  guarantee. These lines shall  carry  a  token  entry  (p.m.)  and
be accompanied by appropriate remarks;

(b)

in the Commission section:

39

(i)

(ii)

lines  containing 

the  budget 
the  Communities’  performance
guarantees  in  respect  of  the  operations  in  question.  These  lines
shall  carry  a  token  entry  (p.m.),  so  long  as  no  effective  charge
which has to be covered by definitive resources has arisen;

remarks  giving  the  reference  to  the  legal  basis  and  the  volume  of
the  operations  envisaged,  the  duration  and  the  financial  guarantee
given by the Communities in respect of these operations;

(c)

in a document annexed to the Commission section, as an indication:

(i)

ongoing capital operations and debt management,

(ii)

the capital  operations  and  debt  management  for  the  financial  year
in question;

(5)

the budget lines under revenue and expenditure necessary for implementing the
reserve relating to Community loans and loan guarantees to third countries and
also for implementing the Guarantee Fund for external actions.

In addition to the documents referred to in paragraph 1 the budgetary authority may
attach other documents to the budget.

Article 47
(Initial proposal: Article 44)

The  establishment  plan  described  in  point  (3)  of  Article  46(1)  shall  constitute  an
absolute limit for each institution or body; no appointment may be made in excess of
the limit set.

However, save in the case of grades A1 and A2, each institution or body may modify
each  establishment  plan  by  up  to  10%  of  posts  and  within  the  limit  of  the  budget
appropriations and the total number of posts allocated.

By  way  of  derogation  from  the  first  subparagraph  of  paragraph  1,  the  effects  of
part-time  work  authorised  by  the  appointing  authority  in  accordance  with  the
Staff Regulations may be offset by other appointments.

2.

1.

2.

40

TITLE IV
IMPLEMENTATION OF THE BUDGET

CHAPTER 1
GENERAL PROVISIONS

Article 48
(Initial proposal: Article 45)

1.

2.

1.

2.

The  Commission  shall  implement  the  budget  in  revenue  and  expenditure  in
accordance  with  this  Regulation,  on  its  own  responsibility  and  within  the  limits  of
the appropriations authorised.

The  Member  States  shall  cooperate  with  the  Commission  to  ensure  that  the
appropriations  are  used  in  accordance  with  the  principle  of  sound  financial
management.

Article 49
(Initial proposal: Article 46)

A basic act must first be adopted before the appropriations entered in the budget for
any Community action or any other Union action may be used.

The  following  appropriations  may  be  used  without  a  basic  act  provided  that  the
actions they are intended to finance fall within the competence of the Community:

(a)

(b)

(c)

appropriations for pilot projects of an experimental nature designed to test the
feasibility of an action and its usefulness;

appropriations  for  preparatory  actions,  designed  to  prepare  proposals  for  the
adoption of future Community actions;

appropriations  for  one-off  actions,  or  even  actions  for  an  indefinite  duration,
carried out by the Commission by virtue of tasks resulting from its prerogatives
at  institutional  level  other  than  its  right  of  legislative  initiative  and  under
specific powers directly conferred on it by the Treaties;

(d)

appropriations  for  the  operation  of  each  institution  under  its  administrative
autonomy.

Article 50
(Initial proposal: Article 47)

The  Commission  shall  confer  on  the  other  institutions  the  requisite  powers  for  the
implementation of the sections of the budget relating to them.

41

Article 51
(Initial proposal: Article 48)

The  Commission  and  each  of  the  other  institutions  may,  within  their  departments,  delegate
their powers of  budget implementation in  accordance  with  the  conditions  laid  down  by  this
Regulation  and  by  their  internal  rules  and  within  the  limits  which  they  lay  down  in  the
instrument of delegation. Those so empowered may act only within the limits of the powers
expressly conferred upon them.

Article 52
(Initial proposal: Article 49)

All financial  actors  shall  be prohibited from  taking  any  measures  of  budget  implementation
which may bring their own interests into conflict with those of the Communities. Should such
a case arise, the actor in question must refrain from such measures and refer the matter to the
competent authority.

CHAPTER 2
METHODS OF IMPLEMENTATION

Article 53
(Initial proposal: Article 50)

1.

The Commission shall implement the budget:

(a)

on a centralised basis;

(b)

by shared or decentralised management; or

(c)

by joint management with international organisations.

2.

3.

4.

5.

the  Commission 

Where 
the  budget  on  a  centralised  basis,
implementation  tasks  shall  be  performed  either  directly  by  its  departments  or
indirectly, in accordance with the provisions of Articles 54 to 57.

implements 

the  Commission 

the  budget  by  shared  management,
Where 
implementation  tasks  shall  be  entrusted  to  Member  States  in  accordance  with  the
provisions of Titles I and II of Part Two.

implements 

Where  the  Commission  implements  the  budget  by  decentralised  management,
implementation  tasks  shall  be  entrusted  to  third  countries  in  accordance  with  the
provisions of Title IV of Part Two.

In cases of shared or decentralised management, in order to ensure that the funds are
used in accordance with the applicable rules, the Commission shall apply clearance
of accounts procedures or financial correction mechanisms which enable it to assume
its responsibility for the implementation of the budget in accordance with Article 274
of the EC Treaty.

42

6.

7.

1.

2.

3.

1.

In  the  methods  of  budget  implementation  referred  to  in  paragraphs  3  and  4,  the
Member States  and  third  countries  shall  conduct  regular  checks  to  ensure  that  the
actions to be financed from the Community budget have been implemented correctly.

They  shall  take  appropriate  measures  to  prevent  irregularities  and  fraud  and  if
necessary shall bring prosecutions to recover funds wrongly paid.

Where  the  Commission  implements  the  budget  by  joint  management,  certain
implementation tasks shall be entrusted to international public-sector organisations as
specified in the implementing rules.

These  organisations  shall,  in  their  accounting,  audit,  control  and  procurement
procedures,  apply  standards  which  offer  guarantees  equivalent  to  internationally
accepted standards.

Article 54
(Initial proposal: Article 51)

The  Commission  may  not  entrust  to  third  parties  the  executive  powers  it  enjoys
under  the  Treaties  where  they  involve  a  large  measure  of  discretion  implying
political  choices.  The  implementing  tasks  entrusted  must  be  clearly  defined  and
supervised.

Within  the  limits  laid  down  in  paragraph  1,  the  Commission  may,  when
implementing  the  budget  on  a  centralised  basis  and  indirectly  under  Article  53(2),
entrust tasks of public authority and in particular budget implementation tasks to:

(a)

agencies  governed  by  Community  law,  referred  to  in  Article 55,  hereinafter:
"executive agencies";

(b)

bodies set up by the Communities as referred to in Article 190;

(c)

national  public-sector  bodies  or  bodies  with  a  public-service  mission
guaranteed by the State.

Where the bodies referred to in paragraph 2 perform implementation tasks, they shall
conduct regular checks to ensure that the actions to be financed from the budget have
been implemented correctly.

Such bodies shall take appropriate measures to prevent irregularities and fraud and if
necessary bring prosecutions to recover funds lost, wrongly paid or incorrectly used.

Article 55
(Initial proposal: Article 52)

The executive agencies shall be set up by Commission decision. They shall be legal
persons under Community law to which powers can be delegated to implement all or
part of a Community programme or project on behalf of the Commission and under
its responsibility.

43

2.

1.

2.

3.

1.

2.

The  conditions  and  arrangements  for  the  creation  and  operation  of  these  executive
agencies  shall  be  defined  in  such  a  way  that  the  Commission  retains  control  of
implementation and can monitor their operation.

Article 56
(Initial proposal: Article 53)

Decisions  entrusting  executive  tasks  to  the  bodies  referred  to  in  Article  54(2)  shall
include  all  appropriate  arrangements  for  ensuring  the  transparency  of  operations
carried out and must comprise:

(a)

transparent,  non-discriminatory  procurement  and  grant  award  procedures
which prevent any conflicts of interest;

(b)

an effective internal control system for management operations;

(c)

accounting  arrangements  for 
the
presentation  of  the  accounts which will  enable  the  correct  use  of  Community
funds  to  be  ascertained  and  the  true  extent  of  this  use  to  be  reflected  in  the
Community accounts;

these  operations  and  procedures  for 

(d)

an independent external audit.

The Commission may accept that the audit, accounting and procurement systems of
the national bodies referred to in Article 54(2)(c) are equivalent to its own, with due
account for internationally accepted standards.

The  Commission  shall  ensure  periodic  supervision,  evaluation  and  control  of  the
implementation of the tasks entrusted.

Article 57
(Initial proposal: Article 54)

The Commission may not entrust measures of implementation of funds deriving from
the budget, in particular payment and recovery, to external private-sector entities or
bodies, other than those which have a public-service mission guaranteed by the State
under Article 54(2)(c).

The  tasks  which  may  be  entrusted  by  contract  to  external  private-sector  entities  or
bodies other than those which have a public-service mission guaranteed by the State
are  technical  expertise  tasks  and  administrative,  preparatory  or  ancillary  tasks
involving neither the exercise of public authority nor the use of discretionary powers
of judgment.

44

CHAPTER 3
FINANCIAL ACTORS

SECTION 1
PRINCIPLE OF SEPARATION OF DUTIES

Article 58
(Initial proposal: Article 55)

The duties of authorising officer and accounting officer shall be separated.

SECTION 2
AUTHORISING OFFICER

Article 59
(Initial proposal: Article 56)

1.

2.

3.

4.

1.

2.

3.

The institution shall perform the duties of authorising officer.

Each institution shall lay down in its internal rules the staff of an appropriate level to
whom it delegates the duties of authorising officer, the scope of the powers delegated
and  the  possibility  for  the  persons  to  whom  these  powers  are  delegated  to
subdelegate them.

The powers of authorising officer shall be delegated or subdelegated only to persons
covered by the Staff Regulations.

Authorising officers by delegation or subdelegation may act only within the limits set
by the instrument of delegation or subdelegation.

Article 60
(Initial proposal: Article 57)

The  authorising  officer  shall  be  responsible  in  each  institution  for  implementing
revenue  and  expenditure  in  accordance  with  the  principles  of  sound  financial
management  and  for  ensuring  that  the  requirements  of  legality  and  regularity  are
complied with.

implement  expenditure, 

To 
the  authorising  officer  by  delegation  and  by
subdelegation shall make budget commitments and legal commitments, shall validate
expenditure  and  authorise  payments  and  shall  undertake  the  preliminaries  for  the
implementation of appropriations.

Implementation  of  revenue  shall  comprise  drawing  up  estimates  of  amounts
receivable, establishing entitlements to be recovered and  issuing  recovery orders.  It
shall involve waiving established entitlements where appropriate.

45

4.

5.

6.

7.

The  authorising  officer  by  delegation  shall  put  in  place,  in  compliance  with  the
minimum  standards  adopted  by  each  institution  and  having  due  regard  to  the  risks
associated with the management environment and the nature of the actions financed,
the  organisational  structure  and  the  internal  management  and  control  procedures
suited  to  the  performance  of  his  duties.  Before  an  operation  is  authorised,  the
operational and financial aspects shall be verified by members of staff other than the
one  who  initiated  the  operation.  Initiation  and  verification  of  an  operation  shall  be
separate functions.

All  staff  responsible  for  controlling  the  management  of  financial  operations  must
have  the  necessary  professional  skills.  They  shall  respect  a  specific  code  of
professional standards established by each institution.

Any  member  of  staff  involved  in  the  financial  management  and  control  of
transactions who considers that a decision he is required by his superior to apply or
to agree to is irregular or contrary to  the principles  of  sound financial management
shall inform the authorising officer by delegation in writing and, if the latter fails to
take action, the panel referred to in Article 66(3). In the event of any illegal activity,
fraud or corruption which may harm the interests of the Community, he shall inform
the authorities and bodies designated by the applicable legislation.

The  authorising  officer  by  delegation  shall  report  to  his  institution  on  the
performance of his duties in the form of an annual activity report covering the results
of  the  operations  by  reference  to  the  objectives  set,  the  risks  associated  with  these
operations  and  the  use  made  of  the  resources  provided.  The  authorising  officer  by
delegation  shall  submit  to  his  institution  the  annual  activity  report,  together  with
financial and management information.

SECTION 3
ACCOUNTING OFFICER

Article 61
(Initial proposal: Article 58)

1.

Each institution shall appoint an accounting officer who shall be responsible in each
institution for:

(a)

proper  implementation  of  payments,  collection  of  revenue  and  recovery  of
amounts established as being receivable;

(b)

preparing and presenting the accounts in accordance with Title VII;

(c)

keeping the accounts in accordance with Title VII;

(d)

(e)

laying  down,  in  accordance  with  Title  VII,  the  accounting  rules  and  methods
and the chart of accounts;

laying  down  and  validating  the  accounting  systems  and  where  appropriate
validating  systems  laid  down  by  the  authorising  officer  to  supply  or  justify
accounting information;

46

(f)

treasury management.

2.

3.

The accounting officer shall obtain from authorising officers, who shall guarantee its
reliability, all the information necessary for the production of accounts which give a
true image of the Communities' assets and of budget implementation.

Save  as  otherwise  provided  in  this  Regulation,  the  accounting  officer  is  alone
empowered  to  manage  monies  and  other  assets.  He  shall  be  responsible  for  their
safekeeping.

Article 62
(New)

The  accounting  officer  may,  in  the  performance  of  his  duties,  delegate  certain  tasks  to
subordinates subject to the Staff Regulations.

The instrument of delegation shall lay down the tasks entrusted to the delegatees.

SECTION 4
IMPREST ADMINISTRATOR

Article 63
(Initial proposal: Article 59)

For  the  payment  of  small  sums  and  for  the  collection  of  revenue  other  than  own  resources,
imprest accounts may be set up which shall be endowed by the institution's accounting officer
and  shall  be  placed  under  the  responsibility  of  imprest  administrators  designated  by  the
institution's accounting officer.

CHAPTER 4
LIABILITY OF THE FINANCIAL ACTORS

SECTION 1
GENERAL RULES

Article 64
(Initial proposal: Article 60)

1.

2.

Without prejudice to any disciplinary  action, authorising officers by delegation and
subdelegation  may  at  any  time  have  their  delegation  or  subdelegation  withdrawn
temporarily or definitively by the authority which appointed them.

Without prejudice to any disciplinary action, the accounting officer may at any time
be  suspended  temporarily  or  definitively  from  his  duties  by  the  authority  which
appointed him.

47

3.

1.

2.

1.

2.

3.

Without prejudice to any disciplinary action, imprest administrators may at any time
be  suspended  temporarily  or  definitively  from  their  duties  by  the  authority  which
appointed them.

Article 65
(Initial proposal: Articles 61and 62(1))

The  provisions  of  this  chapter  are  without  prejudice  to  the  criminal-law  liability
which the persons referred to in Article 64 may incur as provided in the  applicable
national  law  and  in  the  provisions  in  force  on  the  protection  of  the  European
Communities'  financial  interests  and  on  the  fight  against  corruption  involving
officials of the European Communities or officials of Member States.

Each authorising officer, accounting officer or imprest administrator shall be liable to
disciplinary  action  and  payment  of  compensation  as 
the
Staff Regulations, without prejudice to Articles 67 and 68.

laid  down 

in 

SECTION 2
RULES APPLICABLE TO AUTHORISING OFFICERS BY DELEGATION AND
SUBDELEGATION

Article 66
(Initial proposal: Article 62(2) and (3))

An authorising officer by delegation or subdelegation who considers that a decision
which it is his responsibility to take is irregular or contrary to the principles of sound
financial  management  shall  inform  the  delegating  authority  in  writing.  If  the
delegating  authority  then  gives  a  reasoned  instruction  in  writing  to  the  authorising
officer  by  delegation  or  subdelegation  to  take  the  decision  in  question,  the
authorising officer may not be held liable.

In the  event  of  subdelegation,  the  authorising  officer  by  delegation  continues  to  be
responsible for the effectiveness of the internal management and control systems put
in place and for the choice of the authorising officer by subdelegation.

Each  institution  shall  set  up  a  specialised  financial  irregularities  panel  which  shall
determine whether a financial irregularity has occurred and what the consequences, if
any, should be.

On  the  basis  of  the  opinion  of  this  panel,  the  institution  shall  decide  whether  to
initiate  proceedings  entailing  liability  to  disciplinary  action  or  to  payment  of
compensation.  If  the  panel  detects  systemic  problems,  it  shall  send  a  report  with
recommendations to the authorising officer by delegation and to the internal auditor.

48

SECTION 3
RULES APPLICABLE TO ACCOUNTING OFFICERS AND IMPREST ADMINISTRATORS

Article 67
(Initial proposal: Article 63)

An accounting officer may be liable to disciplinary action and payment of compensation, as
laid down in the Staff Regulations, in particular where:

(a)

(b)

(c)

he loses or damages monies, assets and documents in his keeping;

he alters bank accounts or postal giro accounts;

he  recovers  or  pays  amounts  which  are  not  in  conformity  with  the  corresponding
recovery or payment orders;

(d)

he fails to collect revenue due.

Article 68
(Initial proposal: Article 64)

An imprest administrator may be liable to disciplinary action and payment of compensation,
as laid down in the Staff Regulations, in particular where:

(a)

(b)

(c)

(d)

he loses or damages monies, assets and documents in his keeping;

he cannot provide proper supporting documents for the payments he has made;

he makes payments to persons other than those entitled;

he fails to collect revenue due.

CHAPTER 5
REVENUE OPERATIONS

SECTION 1
MAKING AVAILABLE OF OWN RESOURCES

Article 69
(Initial proposal: Article 65)

An estimate of revenue constituted by own resources, as  referred to in the Council Decision
on the system of the Communities' own resources, shall be entered in the budget in euros. It
shall  be  made  available  in  accordance  with  the  Council  Regulation  implementing  that
Decision.

49

SECTION 2
ESTIMATE OF AMOUNTS RECEIVABLE

Article 70
(Initial proposal: Article 66)

1.

2.

1.

2.

3.

4.

An estimate of the amount receivable  shall first be made  by the  authorising officer
responsible in respect of any measure or situation which may give rise to or modify
an amount owing to the Communities.

By way of derogation from paragraph 1, no estimate of the amount receivable shall
be  made  before  Member States  make  available  to  the  Commission  the  amounts  of
own  resources  defined  in  the  Council  Decision  on  the  system  of  the  Communities'
own  resources  which  are  paid  at  fixed  intervals  by  the  Member  States.  The
authorising  officer  responsible  shall  issue  a  recovery  order  in  respect  of  these
amounts.

SECTION 3
ESTABLISHMENT OF AMOUNTS RECEIVABLE

Article 71
(Initial proposal: Article 67)

Establishment of an amount receivable is the act by which the authorising officer by
delegation or subdelegation:

(a)

verifies that the debt exists;

(b)

determines or verifies the reality and the amount of the debt;

(c)

verifies the conditions in which the debt is due.

The  own  resources  made  available  to  the  Commission  and  any  amount  receivable
that is identified as being certain, of a fixed amount and due must be established by a
debit note sent to the debtor followed by a recovery order to the accounting officer,
both drawn up by the authorising officer responsible.

Amounts wrongly paid shall be recovered.

The conditions in which interest on late payment is due to the Communities shall be
laid down in the implementing rules.

50

1.

2.

1.

2.

SECTION 4
AUTHORISATION OF RECOVERY

Article 72
(New)

The authorisation of recovery is the act whereby the authorising officer by delegation
or  subdelegation  responsible  instructs  the  accounting  officer,  by  issuing  a  recovery
order, to recover an amount receivable which he has established.

The  institution may  formally establish  an amount  as being  receivable  from  persons
other  than  States  by  means  of  a  decision  which  shall  be  enforceable  within  the
meaning of Article 256 of the EC Treaty and Article 92 of the ECSC Treaty.

SECTION 5
RECOVERY

Article 73
(Initial proposal: Article 68)

The  accounting  officer  shall  act  on  recovery  orders  for  amounts  receivable  duly
established by the authorising officer responsible. He shall exercise due diligence to
ensure that the Communities receive their revenue and shall see that their rights are
safeguarded.

The accounting  officer shall recover  amounts by  offsetting  them  against  equivalent
claims  that  the  Communities  have  on  any  debtor  who  himself  has  a  claim  on  the
Communities that is certain, of a fixed amount and due.

Where  the  responsible  authorising  officer  by  delegation  is  planning  to  waive
recovery  of  an  established  amount  receivable,  he  shall  ensure  that  the  waiver  is  in
order and complies with the principle of sound financial management and the criteria
laid down in the implementing rules. The waiver decision must be substantiated. The
authorising officer may delegate the decision only as laid down in the implementing
rules.

Article 74
(Initial proposal: Article 69)

Revenue  received  by  way  of  fines,  periodic  penalty  payments  and  other  penalties  and  any
accrued  interest  shall  not  be  finally  recorded  as  budget  revenue  as  long  as  the  decisions
imposing them may be annulled by the Court of Justice.

The  first  paragraph  shall  not  apply  to  decisions  on  clearance  of  accounts  or  financial
corrections.

51

CHAPTER 6
EXPENDITURE OPERATIONS

Article 75
(New)

1.

2.

Every item of expenditure shall be committed, validated, authorised and paid.

The  commitment  of  the  expenditure  shall  be  preceded  by  a  financing  decision
adopted by the institution or the authorities to which powers have been delegated by
the institution.

SECTION 1
COMMITMENT OF EXPENDITURE

Article 76
(Initial proposal: Article 70)

1.

The  budget  commitment  is  the  operation  reserving  the  appropriation  necessary  to
cover subsequent payments to honour a legal commitment.

The legal  commitment is the act  whereby the  authorising  officer  responsible  enters
into an obligation with regard to third parties which may result in expenditure being
charged to the budget.

The  budget  commitment  and  the  legal  commitment  shall  be  adopted  by  the  same
authorising  officer,  save  in  duly  substantiated  cases  as  provided  for  in  the
implementing rules.

2.

The  budget  commitment  is  individual  when  the  beneficiary  and  the  amount  of  the
expenditure are known.

The  budget  commitment  is  global  when  at  least  one  of  the  elements  necessary  to
identify the individual commitment is still not known.

The budget commitment is provisional when it is intended to cover the expenditure
referred to in Article 151 or routine administrative expenditure and either the amount
or the final beneficiaries are not definitively known.

3.

Budget commitments for actions extending over more than one financial year may be
broken down over several years into annual instalments only where the basic act so
provides and for  administrative expenditure. Where the budget  commitment  is  thus
divided into annual instalments, the legal commitment shall stipulate this, except in
the case of expenditure on staff.

52

1.

2.

3.

Article 77
(Initial proposal: Article 71)

In  respect  of  any  measure  which  may  give  rise  to  expenditure  chargeable  to  the
budget,  the  authorising  officer  responsible  must  first  make  a  budget  commitment
before entering into a legal obligation with third parties.

Subject to the special provisions of Title IV of Part Two, global budget commitments
shall  cover  the  total  cost  of  the  corresponding  individual  legal  commitments
concluded up to 31 December of year N + 1.

Subject to Article 76(3) and Article 183(2), individual legal commitments relating to
individual or provisional budget commitments shall be concluded by 31 December of
year N.

At  the  end  of  the  periods  referred  to  in  the  first  and  second  subparagraphs,  the
unused  balance  of  these  budget  commitments  shall  be  decommitted  by  the
authorising officer responsible.

The  amount  of  each  individual  legal  commitment  adopted  following  a  global
commitment  shall,  prior  to  signature,  be  registered  by  the  authorising  officer
responsible in the budget accounts and booked to the global commitment.

The  legal  commitments  entered  into  for  actions  extending  over  more  than  one
financial  year and the corresponding budget commitments shall, save in the case of
staff  expenditure,  have  a  final  date  for  implementation  set  in  compliance  with  the
principle of sound financial management.

Any parts of such commitments which have not been executed six months after that
date shall be decommitted in accordance with Article 11.

Article 78
(Initial proposal: Article 72)

When adopting a budget commitment, the authorising officer responsible shall ensure that:

(a)

(b)

(c)

the expenditure has been charged to the correct item in the budget;

the appropriations are available;

the expenditure conforms to the relevant provisions, in particular of the budget and
regulations, and of all acts adopted in accordance with the Treaties and regulations;

(d)

the principle of sound financial management is complied with.

53

SECTION 2
VALIDATION OF EXPENDITURE

Article 79
(Initial proposal: Article 73)

Validation of expenditure is the act whereby the authorising officer responsible:

(a)

(b)

(c)

verifies the existence of the creditor's entitlement;

determines or verifies the reality and the amount of the claim;

verifies the conditions in which payment is due.

SECTION 3
AUTHORISATION OF EXPENDITURE

Article 80
(Initial proposal: Article 74)

Authorisation of expenditure is the act whereby the authorising officer responsible, by issuing
a payment order, instructs the accounting officer to pay an item of expenditure which he has
validated.

SECTION 4
PAYMENT OF EXPENDITURE

Article 81
(Initial proposal: Article 75)

1.

Payment  shall  be  made  on  production  of  proof  that  the  relevant  action  has  been
carried out in accordance with the provisions of the basic act or the contract and shall
cover one of the following operations:

(a)

payment of the entire amount due;

(b)

payment of the amount due in any of the following ways:

(i)

pre-financing, which may be divided into a number of payments;

(ii)

one or more interim payments;

(iii) payment of the balance of the amounts due.

2.

A distinction shall be made in the accounts between the different types of payment
referred to in paragraph 1 at the time they are made.

54

Article 82
(Initial proposal: Article 76)

Payment of expenditure shall be made by the accounting officer within the limits of the funds
available.

SECTION 5
TIME-LIMITS FOR EXPENDITURE OPERATIONS

Article 83
(Initial proposal: Article 77)

The  validation,  authorisation  and  payment  of  expenditure  must  be  completed  within  the
time-limits laid down in the implementing rules, which shall also specify the circumstances in
which creditors paid late are entitled to receive default interest charged to the line from which
the principal was paid.

CHAPTER 7
IT SYSTEMS

Article 84
(Initial proposal: Article 79)

Where  revenue  and  expenditure  operations  are  managed  by  means  of  computer  systems,
documents may be signed by a computerised or electronic procedure.

CHAPTER 8
INTERNAL AUDITOR

Article 85
(Initial proposal: Article 80)

Each institution shall appoint an internal auditor responsible for providing the institution with
guarantees,  in  accordance  with  the  relevant  international  standards,  concerning  the  proper
operation  of  budget  implementation  systems  and  procedures.  The  internal  auditor  may  be
neither authorising officer nor accounting officer.

Article 86
(Initial proposal: Article 81)

1.

The  internal  auditor  shall  advise  his  institution  on  dealing  with  risks,  by  issuing
independent  opinions  on  the  quality  of  management  and  control  systems  and  by
issuing  recommendations  for  improving  the  conditions  of  implementation  of
operations and promoting sound financial management.

He shall be responsible:

55

(a)

for assessing the suitability and effectiveness of internal management systems
and the performance of departments in implementing policies, programmes and
actions by reference to the risks associated with them;

(b)

for  assessing  the  suitability  and  quality  of  the  internal  control  systems
applicable to every budget implementation operation.

The  internal  auditor  shall  perform  his  duties  on  all  the  institution's  activities  and
departments. He shall enjoy full and unlimited access to all information required to
perform his duties.

internal  auditor  shall  report 

The 
recommendations.  The 
recommendations resulting from audits.

to 
institution  shall  ensure 

the 

institution  on  his  findings  and
taken  on

that  action 

is 

2.

3.

Article 87
(Initial proposal: Article 82)

Special rules applicable to the internal auditor shall be laid down by the institution and shall
be such as to guarantee that he is independent in the performance of his duties.

The  internal  auditor  shall  assume  responsibility  for  action  taken  in  the  performance  of  his
duties as laid down in the Staff Regulations and spelt out in the implementing rules.

TITLE V
PROCUREMENT

CHAPTER 1
GENERAL PROVISIONS

SECTION 1
SCOPE AND AWARD PRINCIPLES

Article 88
(Initial proposal: Article 83)

1.

Public  contracts  are  contracts  for  pecuniary  interest  concluded  in  writing  by  a
contracting authority within the meaning of Articles 103 and 168, in order to obtain,
against payment of  a  price  paid  in  whole  or  in  part  from  the  budget,  the  supply  of
movable or immovable assets, the execution of works or the provision of services.

These contracts comprise:

(a)

building contracts;

(b)

supply contracts;

56

(c) works contracts;

(d)

service contracts.

2.

This Title does not relate to grants.

Article 89
(Initial proposal: Article 84)

1.

2.

All public contracts financed in whole or in part by the budget shall comply with the
principles of transparency, proportionality, equal treatment and non-discrimination.

All  procurement  contracts  shall  be  put  out  to  tender  on  the  broadest  possible  base,
except when use is made of the negotiated procedure referred to in Article 91(1)(d).

SECTION 2
PUBLICATION

Article 90
(Initial proposal: Article 85)

1.

All  contracts  exceeding  the  thresholds  provided  for  in  Article 104  or  Article  168
shall be published in the Official Journal of the European Communities.

Contract  notices  shall  be  published  in  advance  except  in  the  cases  referred  to  in
Article 91(2) and for the service contracts referred to in the implementing rules.

Publication  of  certain  information  after  the  contract  has  been  awarded  may  be
dropped  where  it  would  hinder  application  of  the  law,  would  be  contrary  to  the
public  interest  or  would  harm  the  legitimate  business  interests  of  public  or  private
undertakings or could distort fair competition between them.

2.

Contracts  with  a  value  below  the  thresholds  provided  for  in  Article 104  or
Article 168 shall be advertised as appropriate.

SECTION 3
PROCUREMENT PROCEDURES

Article 91
(Initial proposal: Articles 86 and 87)

1.

Procurement procedures shall take one of the following forms:

(a)

the open procedure;

(b)

the restricted procedure;

(c)

contests;

57

(d)

the negotiated procedure.

2.

3.

For contracts where the value exceeds the thresholds provided for in Article 104 or
Article  168,  use  of  the  negotiated  procedure  shall  be  authorised  only  in  the  cases
provided for in the implementing rules.

The  first  subparagraph  shall  not  apply  to  the  service  contracts  referred  to  in  the
implementing rules.

The  thresholds  below  which  the  contracting  authority  may  either  use  a  negotiated
procedure  or,  by  way  of  derogation  from  the  first  subparagraph  of  Article  88(1),
simply pay costs against invoices shall be determined in the implementing rules.

Article 92
(Initial proposal: Article 87(4))

A  full,  clear  and  precise  description  of  the  subject  of  the  contract  must  be  given  in  the
documents relating to the call for tenders

Article 93
(Initial proposal: Article 88)

1.

Candidates  or  tenderers  shall  be  excluded  from  participation  in  a  procurement
procedure if:

(a)

(b)

(c)

(d)

(e)

(f)

they are bankrupt or being wound up, are having their affairs administered by
the  courts,  have  entered  into  an  arrangement  with  creditors,  have  suspended
business activities, are the subject of proceedings concerning those matters, or
are in any analogous situation arising from a similar procedure provided for in
national legislation or regulations;

they have been convicted of an offence concerning their professional conduct
by a judgment which has the force of res judicata;

they have been  guilty of grave professional misconduct proven by any means
which the contracting authority can justify;

they  have  not  fulfilled  obligations  relating  to  the  payment  of  social  security
contributions or the payment of taxes in accordance with the legal provisions of
the  country  in  which  they  are  established  or  with  those  of  the  country  of  the
contracting  authority  or  those  of  the  country  where  the  contract  is  to  be
performed;

they have been the subject of a judgment which has the force of res judicata for
fraud,  corruption,  involvement  in  a  criminal  organisation  or  any  other  illegal
activity detrimental to the Communities' financial interests;

following  another  procurement  procedure  or  grant  award  procedure  financed
by the Community budget, they have been declared to be in serious breach of
contract for failure to comply with their contractual obligations.

58

2.

Candidates or tenderers must certify that they are not in one of the situations listed in
paragraph 1.

Article 94
(Initial proposal: Article 89)

Contracts  may  not  be  awarded  to  candidates  or  tenderers  who,  during  the  procurement
procedure:

(a)

(b)

are subject to a conflict of interest;

are  guilty  of  misrepresentation  in  supplying  the  information  required  by  the
contracting authority as a condition of participation in the contract procedure or fail to
supply this information.

Article 95
(Initial proposal: Article 90)

Administrative  or  financial  penalties  may  be  imposed  by  the  contracting  authority  on
candidates or tenderers who are in one of the cases of exclusion provided for in Articles 93
and 94, after they have been given the opportunity to present their observations.

These penalties may consist:

(a)

(b)

in  the  exclusion  of  the  candidate  or  tenderer  concerned  from  contracts  and  grants
financed by the budget, for a maximum period of five years;

in  the  payment  of  financial  penalties  by  the  contractor  in  the  case  referred  to  in
Article 93(1)(f) and by the candidate or tenderer in the cases referred to in Article 94
where  they  are  really  serious  and  without  exceeding  the  value  of  the  contract  in
question.

The penalties imposed shall be in proportion to the seriousness of the misconduct.

Article 96
(Initial proposal: Article 91)

1.

2.

1.

The selection criteria for evaluating the capability of candidates or tenderers and the
award  criteria  for  evaluating  the  content  of  the  tenders  shall  be  defined  in  advance
and set out in the call for tender.

Contracts  may  be  awarded  by  the  automatic  award  procedure  or  by  the
best-value-for-money procedure.

Article 97
(Initial proposal: Article 92)

The  arrangements  for  submitting  tenders  shall  ensure  that  there  is  genuine
competition  and  that  the  contents  of  tenders  remain  confidential  until  they  are  all
opened simultaneously.

59

2.

3.

4.

The  contracting  authority  may  require  tenderers,  as  provided  in  the  implementing
rules,  to  lodge  a  security  in  advance  as  a  guarantee  that  the  bids  made  will  not  be
withdrawn.

With  the  exception  of  the  contracts  involving  small  amounts  referred  to  in
Article 91(3),  applications  and  tenders  shall  be  opened  by  an  opening  board
appointed  for  this  purpose.  Any  tender  or  application  declared  by  the  board  not  to
satisfy the conditions laid down shall be rejected.

All  applications  or  tenders  declared  by  the  opening  board  to  satisfy  the  conditions
laid  down  shall  be  evaluated,  on  the  basis  of  the  selection  and  award  criteria  laid
down in the documents relating to the call for tenders, by a committee appointed for
this purpose with a view to proposing to whom the contract should be awarded.

Article 98
(Initial proposal: Article 93)

While the procurement procedure is under way, all contacts between the contracting authority
and  candidates  or  tenderers  must  satisfy  conditions  ensuring  transparency  and  equal
treatment. They may not lead to amendment of the conditions of the contract or the terms of
the original tender.

Article 99
(Initial proposal: Article 94)

1.

2.

The  authorising  officer  shall  decide  to  whom  the  contract  is  to  be  awarded,  in
compliance  with  the  selection  and  award  criteria  laid  down  in  advance  in  the
documents relating to the call for tenders and the procurement rules.

The contracting authority shall notify all candidates or tenderers whose applications
or  tenders  are  rejected  of  the  grounds  on  which  the  decision  was  taken,  and  all
tenderers  whose  tenders  are  admissible  and  who  make  a  request  in  writing  of  the
characteristics and relative advantages of the successful tender and the name  of  the
tenderer to whom the contract is awarded.

However,  certain  details  need  not  be  disclosed  where  disclosure  would  hinder
application  of  the  law,  would  be  contrary  to  the  public  interest  or  would  harm  the
legitimate  business  interests  of  public  or  private  undertakings  or  could  distort  fair
competition between those undertakings.

Article 100
(Initial proposal: Article 95)

The contracting authority may, before the contract is signed, either abandon the procurement
or cancel the award procedure without the candidates or tenderers being entitled to claim any
compensation.

The  decision  must  be  substantiated  and  be  brought  to  the  attention  of  the  candidates  or
tenderers.

60

SECTION 4
GUARANTEES AND CONTROL

Article 101
(Initial proposal: Article 96)

The contracting authority may, as provided in the implementing rules, require contractors to
lodge a guarantee in advance in order to:

(a)

(b)

ensure full performance of the contract,

limit the financial risks connected with payment of pre-financing.

Article 102
(New, Article 84(3) of the initial proposal)

Where the award procedure or performance of the contract is vitiated by substantial errors or
irregularities or by fraud, the institutions shall suspend performance of the contract.

Where  such  errors,  irregularities  or  fraud  are  attributable  to  the  contractor,  the  institutions
may in addition refuse to make payments or may recover amounts already paid, in proportion
to the seriousness of the errors, irregularities or fraud.

CHAPTER 2
PROVISIONS APPLICABLE TO CONTRACTS AWARDED BY THE
COMMUNITY INSTITUTIONS ON THEIR OWN ACCOUNT

Article 103
(Initial proposal: Article 97)

The  Community  institutions  shall  be  deemed  to  be  contracting  authorities  in  the  case  of
contracts awarded on their own account.

Article 104
(Initial proposal: Article 98)

Subject to Title IV of Part Two of this Regulation, the Directives of the European Parliament
and of the Council on the coordination of procedures for the award of public service, supply
and works contracts shall lay down the thresholds which determine:

(a)

(b)

(c)

the publication arrangements referred to in Article 90;

the choice of procedures referred to in Article 91;

the corresponding time-limits.

61

Article 105
(Initial proposal: Article 99)

Participation  in  tendering  procedures  shall  be  open  on  equal  terms  to  all  natural  and  legal
persons coming within the scope of the Treaties and to all natural and legal persons in a third
country which has ratified a special agreement with the European Communities in the field of
public procurement under the conditions laid down in that agreement.

Article 106
(Initial proposal: Article 100)

Where  the  Plurilateral  Agreement  on  Government  Procurement  concluded  within  the
World Trade Organisation applies, the contracts shall also be open to nationals of the States
which have ratified this agreement, under the conditions laid down in that agreement.

TITLE VI
GRANTS

CHAPTER 1
SCOPE

Article 107
(Initial proposal: Article 101)

1.

Grants  are  direct  financial  contributions,  by  way  of  donation,  from  the  budget  in
order to finance:

(a)

(b)

either  an  action  intended  to  help  achieve  an  objective  forming  part  of  a
European Union policy;

or the functioning of a body which pursues an aim of general European interest
or has an objective forming part of a European Union policy.

They shall be covered by a written agreement.

2.

The following shall not constitute grants within the meaning of this Title:

(a)

(b)

expenditure on the institutions' staff, loans and shareholdings, and procurement
contracts;

EAGGF  Guarantee  and  Structural  Funds  expenditure  referred 
Articles 149(1) and 156(1) and aid paid as macrofinancial assistance.

to 

in

62

CHAPTER 2
AWARD PRINCIPLES

Article 108
(Initial proposal: Article 102)

1.

2.

1.

2.

1.

2.

1.

The award of grants is subject to the principles of transparency and equal treatment.
They  may  not  be  cumulative or  awarded  retrospectively  and  they  must  involve  co-
financing.

The  grant  may  not  have  the  purpose  or  effect  of  producing  a  profit  for  the
beneficiary.

Article 109
(Initial proposal: Article 103)

Grants shall  be subject to an  annual  programme,  to  be  published  at  the  start  of  the
year, with the exception of crisis management aid and humanitarian aid operations.

This  work  programme  shall  be  implemented  through  the  publication  of  calls  for
proposals except in cases of urgency or where the characteristics of the  beneficiary
leave no other choice for a given action.

All grants awarded in the course of a financial year shall be published annually with
due observance of the requirements of confidentiality and security.

Article 110
(Initial proposal: Article 104)

One action may give rise to the award of only one grant from the budget to any one
beneficiary.

A beneficiary may be awarded only one operating grant from the budget per financial
year.

Article 111
(Initial proposal: Article 105)

A  grant  may  be  awarded  for  an  action  which  has  already  begun  only  where  the
applicant can demonstrate the need to start the action before the agreement is signed.

In such cases, expenditure eligible for financing may not have been incurred prior to
the date of submission of the grant application, save in duly substantiated exceptional
cases as provided for in the legal basis or for the expenditure necessary for the proper
implementation  of  crisis  management  aid  or  humanitarian  aid  operations  as  laid
down in the implementing rules.

No grant may be awarded retrospectively for actions already completed.

63

2.

1.

The agreement on an operating grant may not be signed more than four months after
the start of the beneficiary's budget year. Expenditure eligible for financing may not
have been incurred before the grant application was lodged or before the start of the
beneficiary's budget year.

Article 112
(Initial proposal: Article 106)

The  grant  may  not  finance  the  entire  costs  of  the  action,  subject  to  Title  IV  of
Part Two.

The grant may not finance the entire operating expenditure of the beneficiary body.

2.

When operating grants are renewed, they shall be gradually decreased.

The legal basis may, however, allow exceptions to the first subparagraph for bodies
pursuing an objective of general European interest.

CHAPTER 3
AWARD PROCEDURE

Article 113
(Initial proposal: Article 108)

1.

Grant applications submitted in writing by legal persons shall be eligible.

By way of exception, depending on the nature of the action or the objective pursued
by the applicant, the legal basis may provide that natural persons may receive grants.

Grants  may  not  be  awarded  to  applicants  who  are,  at  the  time  of  a  grant  award
procedure, in one of the situations referred to in Articles 93 and 94.

Applicants must certify that they are not in one of the situations listed in Article 93.

Administrative and financial penalties may be imposed by the authorising officer, as
provided in Article 95, on applicants who are excluded under paragraph 2.

Article 114
(Initial proposal: Article 107)

The  selection  criteria  shall  be  such  as  to  make  it  possible  to  assess  the  applicant's
ability to complete the proposed action or work programme.

The  award  criteria  shall  be  such  as  to  make  it  possible  to  assess  the  quality  of  the
proposals submitted in the light of the objectives and priorities set.

2.

3.

1.

2.

64

Article 115
(Initial proposal: Article 109)

1.

2.

3.

Proposals  shall  be  evaluated,  on  the  basis  of  pre-announced  selection  and  award
criteria,  by  an  evaluation  committee  set  up  for  that  purpose,  with  a  view  to
determining which proposals may be financed.

The authorising officer responsible shall then draw up the list of beneficiaries and the
amounts approved.

The authorising officer responsible shall inform applicants in writing of the decision
on their application. If the grant requested is not awarded, the  institution  shall give
the  reasons  for  the  rejection  of  the  application,  with  reference  in  particular  to  the
selection and award criteria already announced.

CHAPTER 4
PAYMENT AND CONTROL

Article 116
(Initial proposal: Article 110)

The  pace  of  payments  shall  be  determined  by  the  financial  risks  involved,  the  duration  and
progress of the action or the costs incurred by the beneficiary.

Article 117
(Initial proposal: Article 111)

The  authorising  officer  responsible  may  require  the  beneficiary  to  lodge  a  guarantee  in
advance in order to limit the financial risks connected with the payment of pre-financing.

Article 118
(Initial proposal: Article 112)

1.

2.

The amount of the grant shall not become final until after the institution has accepted
the  final  reports  and  accounts,  without  prejudice  to  subsequent  checks  by  the
institution.

Should  the  beneficiary  fail  to  comply  with  his  legal  or  contractual  obligations,  the
grant shall be suspended and may then be reduced or terminated after the beneficiary
has been given the opportunity to make his observations.

65

CHAPTER 5
IMPLEMENTATION

Article 119
(Initial proposal: Article 113)

1.

2.

3.

Where implementation of the action requires the award of procurement contracts by
the beneficiary, the award shall be subject to the principles set out in Title V of this
Part.

In  cases  of  joint  management  the  Commission  shall  ensure  that  the  principles  of
transparency  and  non-discrimination  are  complied  with  in  the  procurement
procedures applied by the international organisations.

Each  grant agreement shall provide expressly for the Commission and the Court of
Auditors to exercise their powers of control, on documents and on the premises, over
all contractors and subcontractors who have received Community funds.

TITLE VII
PRESENTATION OF THE ACCOUNTS AND ACCOUNTING

CHAPTER 1
PRESENTATION OF THE ACCOUNTS

Article 120
(Initial proposal: Article 115)

The Community accounts shall comprise:

(a)

(b)

(c)

(d)

the financial statements of the institutions as set out in Article 125 and those of the
bodies referred to in Article 190;

the consolidated financial statements which present in aggregated form the financial
information  contained  in  the  financial  statements  of  the  institutions  and  bodies
referred to in point (a);

the reports on implementation of the budget of the institutions and the budgets of the
bodies referred to in Article 190;

the  consolidated  reports  on  implementation  of  the  budget  which  present  in
aggregated form the information contained in the reports referred to in point (c).

66

Article 121
(New)

The accounts of the institutions and bodies referred to in Article 190 shall be accompanied by
a report on budgetary and financial management during the year.

Article 122
(New, taken in part from Article 116(1) of the initial proposal)

The accounts must comply with  the  rules  and  be accurate and  comprehensive and present a
true and fair view:

(a)

as regards the financial statements, of the assets and liabilities, charges and income,
entitlements and obligations not shown as assets or liabilities and cash flow;

(b)

as regards reports on budget implementation, of revenue and expenditure operations.

Article 123
(New, taken from Article 116(2) of the initial proposal)

The  financial  statements  shall  be  drawn  up  in  accordance  with  the  generally  accepted
accounting principles, namely:

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

1.

2.

3.

going concern basis;

prudence;

consistent accounting methods;

comparability of information;

materiality;

no netting;

substance over form;

accrual-based accounting.

Article 124
(New)

In  accordance  with  the  principle  of  accrual-based  accounting,  the  financial
statements shall show the charges and income for the financial year, regardless of the
date of payment or collection.

The  value  of  assets  and  liabilities  shall  be  determined  in  accordance  with  the
valuation rules provided for in Article 132.

The annex to the financial statements shall present the entitlements and commitments
which do not appear in the balance sheet and which may have a material influence on

67

the net assets, the financial situation or the outturn of the institutions concerned or of
any of the bodies referred to in Article 190.

Article 125
(Initial proposal: Article 115)

1.

The financial statements shall be presented in millions of euro and shall comprise:

(a)

(b) 

(c)

the balance sheet and the economic outturn account, which represent the assets
and liabilities and financial situation and the economic outturn at 31 December
of  the  previous  year; they shall  be  presented in  accordance  with  the  structure
laid down by the Council Directive on the annual accounts of certain types of
companies,  but  with  account  being  taken  of  the  specific  nature  of  the
Communities' activities;

the cash-flow  table  showing  amounts  collected  and  disbursed  during  the  year
and the final treasury position;

the  statement  of  changes  in  capital  presenting  in  detail  the  increases  and
decreases during the year in each item of the capital accounts.

2.

The  annex  to  the  financial  statements  shall  supplement  and  comment  on  the
information presented in the statements referred to in paragraph 1.

Article 126
(Initial proposal: Article 115(3))

The  budget  implementation  reports  shall  be  presented  in  millions  of  euro.  They  shall
comprise:

(a)

 (b)

1.

2.

the budget outturn account, which sets out all budget operations for the year in terms
of revenue and expenditure; the structure in which it is presented shall be the same as
that of the budget itself;

the annex to the budget outturn account, which shall supplement and comment on the
information given in that account.

Article 127
(Initial proposal: Article 117)

The accounting officers of the other institutions and bodies referred to in Article 190
shall send to the Commission's accounting officer by 1 March of the following year
at  the  latest  their  provisional  accounts  together  with  the  report  on  budgetary  and
financial management during the year.

The Commission's accounting officer shall consolidate the provisional accounts and
shall send to the Court of Auditors, by 31 March of the following  year at the latest,
the  provisional  accounts  of  each  institution  and  body  referred  to  in  Article  190
together with the provisional consolidated accounts.

68

He  shall  also  send  the  report  on  budgetary  and  financial  management  of  each
institution  and  body  referred  to  in  Article  190  to  the  European  Parliament,  the
Council and the Court of Auditors by the same date.

Article 128
(Initial proposal: Article 118)

1.

2.

3.

4.

The  Court  of  Auditors  shall,  by  15  June  at  the  latest,  make  its  observations  on  the
provisional  accounts  of  each  institution  and  body  referred  to  in  Article  190  so  that
they  can  make  the  corrections  considered  necessary  for  drawing  up  the  final
accounts.

Each institution and body referred to in Article 190 shall draw up its final accounts
and  send  them  to  the  Commission's  accounting  officer  by  31  July  of  the  following
year at the latest with a view to drawing up the final consolidated accounts.

After approving the final consolidated accounts, the Commission shall send them to
the European Parliament, the Council and the Court of Auditors by 15 September of
the following year at the latest.

The  final  consolidated  accounts  shall  be  published  in  the  Official Journal  of  the
European  Communities  together  with  the  statement  of  assurance  given  by  the
Court of Auditors in accordance with Article 248 of the EC Treaty, Article 45c of the
ECSC  Treaty  and  Article 160c  of  the  Euratom  Treaty  by  31  October  of  the
following year.

CHAPTER 2
INFORMATION ON THE IMPLEMENTATION OF THE BUDGET

Article 129
(Initial proposal: Article 119)

In  addition  to  the  statements  provided  for  in  Articles  125  and  126,  the  Commission  shall
report to the European Parliament and the Council twice a year on budget guarantees and the
corresponding risks.

This information shall be sent to the Court of Auditors at the same time.

Article 130
(New - formerly Article 78)

1.

In addition to the statements provided for in Articles 125 and 126, the Commission
shall  send  once  a  month  to  the  European  Parliament  and  the  Council  figures,
aggregated  at  chapter  level  at  least,  on  the  implementation  of  the  budget,  both  for
revenue and for expenditure against all appropriations.

These  figures  shall  also  provide  details  of  the  utilisation  of  appropriations  carried
over.

69

2.

1.

2.

3.

4.

5.

1.

2.

The figures shall be sent within ten working days following the end of each month;

Three times a year, within the thirty working days following 31 May, 31 August and
31 December, 
the  Council  a  report  on
implementation of the budget, covering both revenue and expenditure broken down
by chapter, article and item.

the  European  Parliament  and 

to 

This report shall also provide details of the utilisation of appropriations carried over
from previous financial years.

CHAPTER 3
ACCOUNTING

SECTION 1
COMMON PROVISIONS

Article 131
(Initial proposal: Article 120)

The institution's accounting system is  the  system  serving  to  organise  the  budgetary
and  financial  information  in  such  a  way  that  figures  can  be  input,  filed  and
registered.

The accounts shall consist of general accounts and budget accounts. These accounts
shall be kept in euro on the basis of the calendar year.

The figures in the general accounts and the budget accounts shall be adopted at the
close of the budget year so that the accounts  referred to in Chapter 1 can be drawn
up.

Notwithstanding paragraphs 2 and 3, the authorising officer by delegation may keep
analytical accounts.

For management purposes the Commission may set up allocation accounts.

Article 132
(New, taken from Article 120(2) of the initial proposal)

The Commission's accounting  officer  shall,  after  consulting  the  accounting  officers
of the other institutions  and bodies  referred to in Article  190, adopt  the  accounting
rules  and  methods  and  the  harmonised  chart  of  accounts  to  be  applied  by  all  the
institutions and all the bodies referred to in Article 190.

When adopting the rules and methods referred to in paragraph 1, the Commission's
accounting officer shall be guided by the generally accepted accounting standards for
the public sector but may depart from them where justified by the specific nature of
the Communities' activities.

70

SECTION 2
GENERAL ACCOUNTS

Article 133
(Initial proposal: Article 120(3))

The general accounts shall record, in chronological order using the double entry method, all
events  and  operations  which  affect  the  economic  and  financial  situation  and  the  assets  and
liabilities of the institutions and bodies referred to in Article 190.

Article 134
(New, taken from Article 120(5) of the initial proposal)

1.

2.

3.

Movements  on  the  accounts  and  the  balances  shall  be  entered  in  the  accounting
ledgers.

All  accounting  entries,  including  adjustments  to  the  accounts,  shall  be  based  on
supporting documents, to which they shall refer.

The accounting system must be such as to leave a trail for all accounting entries.

Article 135
(New, taken from Article 121( 2) of the initial proposal)

The  accounting  officer  shall,  after  the  close  of  the  budget  year  and  up  to  the  date  of
presentation of the accounts, make any adjustments which, without involving disbursement or
collection in respect of that year, are necessary for a true and fair presentation of the accounts
which complies with the rules.

SECTION 3
BUDGET ACCOUNTS

Article 136
(New, taken from Article 120(4) of the initial proposal)

1.

2.

The budget accounts provide a detailed record of budget implementation.

For the purposes of paragraph 1 the budget accounts shall record all budget revenue
and expenditure operations provided for in Title IV of Part One.

71

CHAPTER 4
PROPERTY INVENTORIES

Article 137
(Initial proposal: Article 122)

1.

Each institution and body referred to in Article 190 shall  keep inventories showing
the  quantity  and  value  of  all  the  Communities'  tangible,  intangible  and  financial
assets  in  accordance  with  a  model  drawn  up  by  the  accounting  officer  of  the
Commission.

Each  institution  and  body  referred  to  in  Article  190  shall  check  that  entries  in  the
inventory correspond to the actual situation.

2.

The sale of movable property shall be suitably advertised.

TITLE VIII
EXTERNAL AUDIT AND DISCHARGE

CHAPTER 1
EXTERNAL AUDIT

Article 138
(Initial proposal: Article 123)

The Court of Auditors shall conduct the audit of accounts provided for by Article 248 of the
EC Treaty, Article 45 of the ECSC Treaty and Article 180 of the Euratom Treaty.

Article 139
(Initial proposal: Article 124)

1.

2.

3.

The European Parliament, the Council and the Commission shall inform the Court of
Auditors,  as  soon  as  possible,  of  all  decisions  and  rules  adopted  pursuant  to
Articles 9, 13, 18, 22, 23, 26 and 36.

The institutions shall send to the Court of Auditors any internal rules they adopt in
respect of financial matters.

The  Court  of  Auditors  shall  be  informed  of  the  appointment  of  authorising  officers,
internal  auditors,  accounting  officers  and  imprest  administrators  and  of  delegation
decisions under Articles 51, 61, 62, 63 and 85.

72

1.

2.

Article 140
(Initial proposal: Article 125)

The  audit  carried  out  by  the  Court  of  Auditors  shall  be  based  on  records  and,  if
necessary, performed on the spot. Its purpose shall be to establish that all revenue has
been  received  and  all  expenditure  incurred  in  a  lawful  and  proper  manner  having
regard to the provisions of the Treaties, the budget, this Regulation and all other acts
adopted pursuant to the Treaties. It shall also establish that the financial management
has been sound. The audit in the Member States shall be  carried  out  in  conjunction
with the national audit institutions or, where they do not have the necessary powers,
with the national departments responsible.

In the performance of its task, the Court of Auditors shall be entitled to consult, in the
manner  provided  for  in  Article  142,  all  documents  and  information  relating  to  the
financial management of the departments or bodies subject to its audit. It has the power
to  make  enquiries  of  any  official  responsible  for  a  revenue  or  expenditure  operation
and to use any of the auditing procedures appropriate to those departments or bodies.

In  order  to  obtain  all  the  necessary  information  for  the  performance  of  the  task
entrusted  to  it  by  the  Treaties  or  the  acts  adopted  pursuant  to  them,  the  Court  of
Auditors may be present, at its request, during the audit operations carried out within
the  framework  of  the  implementation  of  the  budget  by,  or  on  behalf  of,  any
Community institution.

At  the  request  of  the  Court  of  Auditors,  each  institution  shall  authorise financial
institutions  holding  Community  deposits  to  enable  the  Court  of  Auditors  to  ensure
that external data tally with the accounts.

3.

In  order  to  perform  its  task,  the  Court  of  Auditors  shall  notify  the  institutions  and
authorities to which this Regulation applies of the names of the members of its staff
who are empowered to audit them.

Article 141
(Initial proposal: Article 126)

The Court of Auditors shall ensure that all securities and cash on deposit or in hand are checked
against vouchers signed by the depositories or against official memoranda of cash and securities
held. It may carry out such checks itself.

Article 142
(Initial proposal: Article 127)

1.

The  Commission,  the  other  institutions,  the  bodies  administering  revenue  or
expenditure on the Communities' behalf and the national audit institutions or, where
they do not have the necessary powers, the national departments responsible and the
final beneficiaries of payments from the budget shall afford the Court of Auditors all
the  facilities  and  give  it  all  the  information  which  the  Court  of  Auditors  considers
necessary for the performance of its task. They shall place at the disposal of the Court
of  Auditors  all  documents  concerning  the  award  and  performance  of  contracts
financed  by  the  Community  budget  and  all  accounts  of  cash  or  materials,  all
accounting  records  or  supporting  documents,  and  also  administrative  documents

73

relating thereto, all documents relating to revenue and expenditure, all inventories, all
organisation  charts  of  departments,  which  the  Court  of  Auditors  considers  necessary
for auditing the budgetary and financial outturn report on the basis of records or on the
spot  and,  for  the  same  purposes,  all  documents  and  data  created  or  stored  on  a
magnetic medium.

The first subparagraph shall also apply to natural or legal persons receiving payments
from the Community budget.

2.

The officials whose operations are checked by the Court of Auditors shall:

(a)

show their records of cash in hand, any other cash, securities and materials of all
kinds, and also the supporting documents in respect of their stewardship of the
funds  with  which  they  are  entrusted,  and  also  any  books,  registers  and  other
documents relating thereto;

(b)

present  the  correspondence  and  any  other  document  required  for  the  full
implementation of the audit referred to in Article 140(1).

The information supplied under  point (b) of the first  subparagraph  may  be  requested
only by the Court of Auditors.

The  Court  of  Auditors  shall  be  empowered  to  audit  the  documents  in  respect  of  the
revenue and expenditure of the Communities which are held by the departments of the
institutions and, in particular, by the departments responsible for decisions in respect of
such revenue and expenditure, the bodies administering revenue or expenditure on the
Communities'  behalf  and  the  natural  or  legal  persons  receiving  payments  from  the
budget.

The national audit institutions or, where they do not have the necessary powers, the
national departments responsible shall provide the Court of Auditors, at its request,
with  all  the  information  they  possess  on  operations  financed  or  co-financed  by  the
Communities and on the management and control of these operations.

The  task  of  establishing  that  the  revenue  has  been  received  and  the  expenditure
incurred in  a  lawful  and  proper  manner  and  that  the  financial  management  has  been
sound shall extend to the utilisation, by bodies outside the institutions, of Community
funds received by way of grants.

Community financing paid to beneficiaries outside the institutions shall be subject to
the agreement in writing by the beneficiaries or, failing agreement on their part, by the
contractors or subcontractors, to an audit by the Court of Auditors into the use made of
the financing granted.

The  Commission  shall  provide  the  Court  of  Auditors,  at  its  request,  with  any
information on borrowing and lending operations.

Use of integrated computer systems may not have the effect of reducing the access of
the Court of Auditors to the supporting documents.

3.

4.

5.

6.

7.

74

1.

2.

3.

4.

5.

6.

7.

Article 143
(Initial proposal: Article 128)

The annual report of the Court of Auditors provided for in Article 248(4) of the EC
Treaty, Article 45c(4) of the ECSC Treaty and Article 160c(4) of the Euratom Treaty
shall be governed by the provisions of paragraphs 2 to 7 of this Article.

The Court of Auditors shall transmit to the Commission and the institutions concerned,
by  15  June  at  the  latest,  any  observations  which  are,  in  its  opinion,  such  that  they
should appear in the annual report. These observations must remain confidential. Each
institution shall address its reply to the Court of Auditors by 30 September at the latest.
The replies of institutions other than the Commission shall be sent to the Commission
at the same time.

The Commission shall inform Member States without delay of the Court of Auditors'
observations on the management of Community funds for which they are responsible
under the rules applicable whenever the Member States referred to are identified in
those observations.

The  Member  States  shall  reply  to  the  Commission  by  31  August  at  the  latest.  The
Commission shall transmit the reply, accompanied by its comments to the Court of
Auditors, by 30 September.

The  annual  report  shall  contain  an  assessment  of  the  soundness  of  financial
management.

The  annual report  shall contain  a section  for  each  institution.  The  Court  of  Auditors
may add any summary report or general observations which it sees fit to make.

The Court of Auditors shall take all necessary steps to ensure that the replies of each
institution  to  its  observations  are  published  immediately  after  the  observations  to
which they relate.

The Court of Auditors shall transmit to the authorities responsible for giving discharge
and to the other institutions, by 31 October at the latest, its annual report accompanied
by  the  replies  and  shall  ensure  publication  thereof  in  the  Official  Journal  of  the
European Communities.

Article 144
(Initial proposal: Article 129)

At  the  same  time  as  the  annual  report  referred  to  in  Article  143,  the  Court  of  Auditors  shall
provide  the  European  Parliament  and  the  Council  with  a  statement  of  assurance  as  to  the
reliability of the accounts and the legality and regularity of the underlying transactions.

Article 145
(Initial proposal: Article 130)

1.

In addition to the annual report, the Court of  Auditors may also,  at any time, submit
observations, in the form of special reports, on specific questions. It may also deliver
opinions at the request of any of the institutions.

75

2.

The Court of Auditors shall notify the institution concerned of all observations which
are,  in  its  opinion,  such  that  they  should  appear  in  a  special  report.  These
observations must remain confidential.

The institution concerned shall have two and a half months within which to inform the
Court of Auditors of any comments it wishes to make on the observations in question.

The  Court  of  Auditors  shall  adopt  the  definitive  version  of  the  special  report  in
question the following month.

Where the observations referred to in the first subparagraph concern the management
of Community funds for which the Member States are responsible under the relevant
rules, the Commission shall send the special report to the Member States identified.

The Member States shall send their replies to the Commission within one and a half
months  of  the  presentation  of  the  observations  in  question.  The  Commission  shall,
without  delay,  transmit  these  replies  to  the  Court  of  Auditors  together  with  its
remarks.

The  Court  of  Auditors  shall  adopt  the  definitive  version  of  the  special  report  in
question the following month.

The  special  reports,  together  with  the  replies  of  the  institutions  concerned  or  the
the
Member  States 
European Parliament and the Council, each of which shall decide, where appropriate in
conjunction with the Commission, what action is to be taken in response.

transmitted  without  delay 

in  question,  shall  be 

to 

3.

1.

2.

Should the Court of Auditors decide to have any such special reports published in the
Official  Journal  of  the  European  Communities,  they  shall  be  accompanied  by  the
replies of the institutions concerned or of the Member States in question.

The  opinions  referred  to  in  paragraph  1  which  do  not  relate  to  proposals  or  drafts
covered  by  the  legislative  consultation  procedure  may  be  published  by  the  Court  of
Auditors in the Official Journal of the European Communities. The Court of Auditors
shall  take  its  decision  on  publication  after  consulting  the  institution  which  requested
the opinion or which is concerned by it. Opinions published shall be accompanied by
any remarks by the institutions concerned.

CHAPTER 2
DISCHARGE

Article 146
(Initial proposal: Article 131)

The  European  Parliament,  upon  a  recommendation  from  the  Council  acting  by  a
qualified  majority,  shall,  before  30  April  of  year  N  +  2  give  a  discharge  to  the
Commission in respect of the implementation of the budget for year N.

If the date provided for in paragraph 1 cannot be met, the European Parliament or the
Council shall inform the Commission of the reasons for the postponement.

76

3.

1.

2.

3.

1.

2.

If the European Parliament postpones the decision giving a discharge, the Commission
shall make every effort to take measures, as soon as possible, to remove or  facilitate
removal of the obstacles to that decision.

Article 147
(Initial proposal: Article 132)

The discharge decision shall cover the accounts of all the Communities' revenue and
expenditure,  the  resulting  balance  and  the  assets  and  liabilities  of  the  Communities
shown in the balance sheet. It shall include an assessment of the responsibility of the
Commission in budgetary management over the financial year in question.

With  a  view  to  granting  the  discharge,  the  European  Parliament  shall,  after  the
Council  has  done  so,  examine  the  accounts  and  financial  statements  referred  to  in
Article 275 of the EC Treaty, Article 78d of the ECSC Treaty, and Article 179a of the
Euratom Treaty. It shall also examine the annual report made by the Court of Auditors
together with the replies of the institutions under audit, any relevant special reports by
the  Court  of  Auditors  in  respect  of  the  financial  year  in  question  and  the  Court  of
Auditors’ statement of assurance  as  to the reliability of the  accounts and the  legality
and regularity of the underlying transactions.

The Commission shall submit to the European Parliament, at the latter’s request, any
information required for the control of the implementation of the budget of the year in
question. Access to confidential information and the arrangements for handling it shall
comply  with  fundamental  human  rights,  the  protection  of  business  secrecy,  the
provisions  governing  judicial  and  disciplinary  proceedings  and  the  interests  of  the
Union.

Article 148
(Initial proposal: Article 133)

In accordance with Article 276 of the EC Treaty, Article 78g of the ECSC Treaty and
Article  180b  of  the  Euratom  Treaty,  the  Commission  and  the  other  institutions  shall
take  all  appropriate  steps  to  act  on  the  observations  accompanying  the  European
Parliament's  discharge  decision  and  on 
the
recommendation for discharge adopted by the Council.

the  comments  accompanying 

At the request of the European Parliament or the Council, the institutions shall report
on  the  measures  taken  in  the  light  of  these  observations  and  comments,  and,  in
particular, on the instructions they have given to those of their departments which are
responsible for the implementation of the budget. The Member States shall cooperate
with the Commission by informing it of the measures they have taken to act on these
observations so that the Commission may take them into account when drawing up
its own report. The reports from the institutions shall also be transmitted to the Court
of Auditors.

77

PART TWO
SPECIAL PROVISIONS

TITLE I
EUROPEAN AGRICULTURAL GUIDANCE AND
GUARANTEE FUND, GUARANTEE SECTION

1.

2.

1.

2.

3.

1.

2.

3.

Article 149
(Initial proposal: Article 134)

Parts  One  and  Three  of  this  Regulation  shall  apply  to  expenditure  effected  by  the
authorities  and  bodies  referred  to  in  the  rules  relating  to  the  EAGGF Guarantee
Section and to revenue, save as otherwise provided in this Title.

Operations managed directly by the Commission shall be implemented in accordance
with the rules laid down in Parts One and Three.

Article 150
(Initial proposal: Article 135)

For each  financial  year,  the  budget  of  the  EAGGF  Guarantee  Section  shall  include
equal amounts of commitment appropriations and payment appropriations.

Payment appropriations not used at the end of the financial year shall be carried over
automatically to the following year only to cover earlier commitments.

Payment appropriations which have been carried over but which have not been used
by the end of the financial year shall be cancelled.

Article 151
(Initial proposal: Article 136)

The Commission shall reimburse the expenditure incurred by the Member States.

The  Commission  decisions  fixing  the  amounts  of  these  payments  shall  constitute
global provisional commitments, which may not exceed total appropriations entered in
the EAGGF Guarantee Section, less any assigned revenue.

As from 15 November, routine management expenditure for the EAGGF Guarantee
Section  may  be  committed  in  advance  against  the  appropriations  provided  for  the
following financial year. Such commitments may not, however, exceed one half of the
total corresponding appropriations for the current financial year. They may apply only
to expenditure for which the principle is laid down in an existing legal base.

78

Article 152
(Initial proposal: Article 137)

1.

2.

Expenditure effected by the authorities and bodies referred to in the rules relating to
the  EAGGF  Guarantee  Section  shall,  within  two  months  following  receipt  of  the
statements  sent  in  by  Member  States,  be  the  subject  of  a  commitment  by  chapter,
article and item. Save where payment has not yet been made by the Member States or
where eligibility is in doubt, the amounts shall be charged as payments within the same
time-limit.

This budget commitment shall be deducted from the global provisional commitment
referred to in Article 151.

Global provisional commitments which have been made for a financial year and which
have  not  given  rise  to  commitment  on  specific  lines  in  the  budget  nomenclature  by
1 February of the following financial year shall be cancelled in respect of the original
financial year.

3.

Paragraphs 1 and 2 shall apply subject to the clearance of accounts.

Article 153
(Initial proposal: Article 138)

Expenditure shall be booked to the accounts for a financial year on the basis of the repayments
made by the Commission to the Member States by 31 December of the  year concerned at the
latest, provided that the payment order has reached the accounting officer by 31 January of the
following financial year at the latest.

Article 154
(Initial proposal: Article 139)

1.

2.

Where  the  Commission  may  transfer  appropriations  pursuant  to  Article  23,  it  shall
take its decision by 31 January of the following financial year at the latest and shall
inform the budgetary authority thereof.

In  cases  other  than  those  referred  to  in  paragraph  1,  the  Commission  shall  submit
transfer proposals to the budgetary authority by 10 January of the following financial
year at the latest.

The budgetary authority shall take decisions on such transfers in accordance with the
procedure provided for in Article 24, but within a time-limit of three weeks.

Article 155
(Initial proposal: Article 140)

Assigned  revenue  under  this  Title  shall  be  assigned  as  an  overall  amount  either  to
appropriations for the  EAGGF Guarantee Section for  financing expenditure on  the  common
agricultural policy or to appropriations for the EAGGF Guarantee Section for financing rural
development and accompanying measures.

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TITLE II
STRUCTURAL FUNDS

Article 156
(Initial proposal: Article 141)

1.

2.

3.

1.

2.

3.

Parts  One  and  Three  of  this  Regulation  shall  apply  to  expenditure  effected  by  the
authorities and bodies referred to in the regulations governing  the Structural Funds,
the Cohesion Fund and the pre-accession structural and agricultural measures and to
their revenue, save as otherwise provided in this Title.

Operations  managed  directly  by  the  Commission  shall  also  be  implemented  in
accordance with the rules laid down in Parts One and Three of this Regulation.

The  pre-accession  structural  and  agricultural  measures  may  be  managed  on  a
decentralised basis as provided in Article 165.

Article 157
(Initial proposal: Article 142)

Payment by the Commission of financial contributions from the Funds shall be made
in accordance with the regulations referred to in Article 156.

The  time-limit  for  interim  payments  by  the  Commission  shall  be  laid  down  in
accordance with the regulations referred to in Article 156.

The treatment of repayments by the Member States of prefinancing payments and the
implications for the amount of contributions from the Funds shall be governed by the
regulations referred to in Article 156.

Article 158
(Initial proposal: Article 143)

The  Commission  shall  automatically  decommit  appropriations  that  have  been  committed  as
provided for in the regulations referred to in Article 156.

The decommitted appropriations may be made available again in the event of a manifest error
attributable  solely  to  the  Commission  or  in  the  case  of  force  majeure  which  has  serious
repercussions for the implementation of operations supported by the Structural Funds.

To  this  end,  the  Commission  shall  examine  decommitments  made  during  the  previous
financial  year and decide, by 15  February of the current  year, on  the  basis  of  requirements,
whether it is necessary to make the corresponding appropriations available again.

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Article 159
(Initial proposal: Article 144)

With regard to the operational expenditure referred to in this Title, the Commission may make
transfers  from  one  title  to  another,  provided  that  the  appropriations  in  question  are  for  the
same objective, within the meaning of the regulations referred to in Article 156.

Article 160
(Initial proposal: Article 145)

Aspects concerning the management and selection of projects and audit shall be governed by
the regulations referred to in Article 156.

TITLE III
RESEARCH

Article 161
(Initial proposal: Article 146)

1.

2.

3.

1.

2.

Parts  One  and  Three  shall  apply  to  the  research  and  technological  development
appropriations, save as otherwise provided in this Title.

These appropriations shall be entered either in one of the budget titles relating to the
policy area  research by direct  or  indirect  action  or  in  a  chapter  relating  to  research
activities in another title.

They shall be used by implementation of the actions listed in the implementing rules.

With regard to the operational expenditure referred to in this Title, the Commission
may  make  transfers  from  one  title  to  another,  provided  that  the  appropriations  are
used for the same purpose.

Experts  paid  from  the  research  and  technological  development  appropriations  shall
be  recruited  in  accordance  with  the  procedures  laid  down  by  the  Council  when  it
adopts each research framework programme.

Article 162
(Initial proposal: Article 147)

The  Joint  Research  Centre  (JRC)  may  receive  funding  charged  to  appropriations
entered outside the titles and the  chapters referred to in Article 161(1) in respect of
its  participation  on  a  competitive  or  negotiated  basis  in  Community  activities
financed in whole or in part from the general budget.

The  appropriations  relating  to  the  activities  in  which  the  JRC  participates  on  a
competitive  basis  shall  be  treated  as  assigned  revenue  within  the  meaning  of
Article 18. The commitment appropriations generated by this revenue shall be made
available as soon as the amount receivable has been estimated.

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3.

4.

1.

2.

The utilisation of these appropriations shall be shown in a set of analytical accounts
in the budget outturn account for each category of action to which it relates; it shall
be  separate  from  revenue  originating  from  financing  by  third  parties  (public  or
private)  and  from  revenue  from  other  services  carried  out  by  the  Commission  for
third parties.

The rules on procurement in Title V of Part One shall not apply to the activities of
the JRC on behalf of third parties.

By way of derogation from Article 23, the Commission may, within the budget title
relating to the policy area direct action research, make transfers between chapters of
up to 15% of the appropriation on the line from which the transfer is made.

TITLE IV
EXTERNAL ACTIONS

CHAPTER I
GENERAL PROVISIONS

Article 163
(Initial proposal: Article 148)

Parts One and Three shall apply to external actions financed from the budget, save as
otherwise provided in this Title.

The  appropriations  for  the  actions  referred  to  in  paragraph 1  shall  be  used  by  the
Commission:

(a)

either by autonomous decision;

(b)

or under agreements concluded with one or more beneficiary third countries;

(c)

or  under  agreements  with  the  international  organisations  referred  to  in
Article 53.

CHAPTER 2
IMPLEMENTATION OF ACTIONS

Article 164
(Initial proposal: Article 149)

The actions referred to in this Title may be implemented either on a centralised basis by the
Commission  or  on  a  decentralised  basis  by  the  beneficiary  third  country  or  countries,  or
jointly with international organisations.

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Article 165
(Initial proposal: Article 150)

1.

Under the decentralised management  arrangements,  the  Commission may decide to
entrust  management  of  certain  actions  to  the  authorities  of  beneficiary  third
countries, after having established that the beneficiary third country or countries are
in a position, in the management of Community funds, to apply at least the following
criteria to be specified according to the degree of decentralisation agreed:

(a)

effective separation of the duties of authorising officer and accounting officer;

(b)

(c)

existence  of  an  effective  system  for  the  internal  control  of  management
operations;

separate procedures for the presentation of accounts showing the use made of
Community funds;

(d)

existence of an independent external audit system;

(e)

transparent, non-discriminatory procurement procedures ruling out all conflicts
of interest.

2.

The beneficiary country must undertake to comply with Article 53(6).

Article 166
(Initial proposal: Article 151)

The implementation of actions by beneficiary third countries or international organisations is
subject  to  scrutiny  by  the  Commission.  Such  scrutiny  shall  be  exercised  either  by  prior
approval, by ex post checks or by a combined procedure.

Article 167
(Initial proposal: Article 152)

1.

Actions carried out shall give rise to:

(a)

a  financing  agreement  drawn  up  between  the  Commission,  acting  for the
Communities, and the beneficiary third country or countries or the bodies they
have designated, hereinafter: "the beneficiaries"; or

(b)

a  contract  or  grant  agreement  with  a  national  or  international  public-sector
bodies or natural or legal persons responsible for carrying out the actions.

The contracts and agreements provided for in the  first subparagraph shall lay down
the terms on which the external aid shall be managed by the contractor.

2.

Financing  agreements  with  beneficiary  third  countries  shall  be  concluded  by
31 December  of  year N + 1  at  the  latest,  year  N being the one  in  which  the  budget
individual  contracts  and  agreements  which
commitment  was  made.  The 
implement such  financing  agreements  shall  be  concluded  by  31  December  of
year N + 3 at the latest, year N being the one in which the budget commitment was

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made.  Individual  contracts  and  agreements  relating  to  audit  and  evaluation  may  be
concluded later.

CHAPTER 3
PROCUREMENT

Article 168
(Initial proposal: Article 153)

1.

2.

1.

2.

The provisions of Article 56 and of Chapter 1 of Title V of Part One relating to the
general  provisions  on  procurement  shall  be  applicable  to  contracts  covered  by  this
Title subject to the special provisions relating to thresholds and the arrangements for
awarding  external  contracts  laid  down  in  the  implementing  rules.  The  contracting
authorities for the purposes of this Chapter shall be:

(a)

the Commission on behalf of and for the account of one or more beneficiaries;

(b)

the beneficiary or beneficiaries;

(c)

a  national  or  international  public-sector  body  or  natural  or  legal  persons  who
have  signed  a  financing  agreement  or  grant  agreement  with  the  Commission
for the implementation of an external action.

The procurement procedures must be laid down in the financing agreements or grant
agreements referred to in Article 167.

Article 169
(Initial proposal: Article 154)

Participation  in  tendering  procedures  shall  be  open  on  equal  terms  to  all  persons
coming  within  the  scope  of  the  Treaties  and,  in  accordance  with  the  specific
provisions in the basic instruments governing the cooperation sector concerned, to all
natural  and  legal  persons  who  are  nationals  of  the  beneficiary  third  countries  or  of
any other third country expressly mentioned in those instruments.

In  duly  substantiated  exceptional  cases,  it  may  be  decided,  on  the  basis  of  the
specific  conditions  laid  down  in  the  basic  instruments  governing  cooperation,  to
allow nationals of third countries other than those referred to in paragraph 1 to tender
for contracts.

CHAPTER 4
AWARD OF GRANTS

Article 170
(Initial proposal: Article 155)

An action may be financed in full by the budget if this is essential for it to be carried out.

84

CHAPTER 5
AUDITING OF ACCOUNTS

Article 171
(Initial proposal: Article 156)

Each financing agreement or grant agreement must expressly provide for the Commission and
the Court of Auditors to have the power of audit, on the basis of documents and on the spot,
over  all  contractors  and  subcontractors  who  have  received  Community  funds,  subject  to
Article 56(2).

TITLE V
EUROPEAN OFFICES

CHAPTER 1
GENERAL PROVISIONS

Article 172
(Initial proposal: Article 157)

1.

2.

3.

1.

"European  offices"  for  the  purposes  of  this  Title  are  the  bodies  set  up  to  perform
specific cross-cutting tasks on behalf of one or more institutions.

This Title shall also apply to the European Anti-Fraud Office.

Parts  One  and  Three  shall  apply  to  the  operation  of  the  European  offices,  save  as
otherwise provided in this Title.

Article 173
(Initial proposal: Article 158)

The  appropriations  for  each  European  office,  the  total  amount  of  which  shall  be
entered  in  a  special  budget  line  within  the  section  of  the  budget  relating  to  the
Commission, shall be set out in detail in an annex to that section.

The annex shall take the form of a statement of revenue and expenditure, subdivided
in the same way as the sections of the budget.

The appropriations entered in that annex shall cover all the financial requirements of
each European office in the performance of its duties on behalf of the institutions.

2.

Each  European  office's  establishment  plan  shall  be  annexed  to  that  of  the
Commission.

85

3.

4.

The  Director  of  each  European  office  shall  take  decisions  on  transfers  within  the
annex  provided  for  in  paragraph  1.  The  Commission  shall  inform  the  budgetary
authority of such transfers.

Each  European  office's  accounts  shall  form  an  integral  part  of  the  Communities'
accounts referred to in Article 120.

Article 174
(Initial proposal: Article 159)

The  Commission  shall,  in  respect  of  the  appropriations  entered  in  the  annex  for  each
European office,  delegate  the  powers  of  authorising  officer  to  the  Director  of  the  European
office in question and shall set the limits and conditions for this delegation of powers.

1.

2.

3.

1.

2.

Article 175
(Initial proposal: Article 160)

Each  interinstitutional  European  office  shall  draw  up  analytical  accounts  of  its
expenditure, enabling the proportion of its services supplied to each of the institutions
to be determined. Its Management Committee shall lay down the criteria on which the
accounting system shall be based.

The  remarks  concerning  the  specific  budget  line  on  which  is  entered  the  total
appropriation for each interinstitutional European office shall show an estimate of the
cost of services supplied by the office to each of the institutions. This shall be based
on the analytical accounts provided for in paragraph 1.

Each  interinstitutional  European  office  shall  notify  the  institutions  concerned  of  the
results of the analytical accounts.

Article 176
(Initial proposal: Article 161)

The Management Committee of each European office shall lay down the detailed rules
for the implementation of this Title.

Should the remit of a European office involve supplies to third parties for pecuniary
interest,  the  Management  Committee  shall  lay  down  the  specific  provisions
governing how these supplies are to be made and the keeping of the corresponding
accounts.

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CHAPTER 2
EUROPEAN ANTI-FRAUD OFFICE

Article 177
(Initial proposal: Article 162)

Chapter  1  shall  apply  to  the  operation  of  the  European  Anti-Fraud  Office  (OLAF),  save  as
otherwise provided in this Chapter.

Article 178
(Initial proposal: Article 163)

The  Commission  shall,  at  the  request  of  the  Director  of  OLAF,  make  transfers  within  the
annex provided for in Article 173(1). The Commission shall inform the budgetary authority of
such transfers.

Article 179
(Initial proposal: Article 164)

1.

2.

The  Commission  shall  delegate  to  the  Director  of  OLAF  the  powers  of  authorising
officer in respect of the appropriations entered in the annex to the Commission Section
relating to OLAF and shall set the limits and conditions for this delegation of powers.

The Director of OLAF shall be authorised to subdelegate his powers to staff covered
by the Staff Regulations.

Article 180
(Initial proposal: Article 165)

The provisions of Article 175(1), (2) and (3) and those of Article 176(2) shall not apply to the
European Anti-Fraud Office (OLAF).

TITLE VI
ADMINISTRATIVE APPROPRIATIONS

Article 181
(Initial proposal: Article 166)

Parts One and Three shall apply to administrative appropriations, save as otherwise provided
in this Title.

87

Article 182
(Initial proposal: Article 167)

1.

2.

1.

2.

As  from  15  November  of  each  year,  routine  administrative  expenditure  may  be
committed in advance against the appropriations provided for the following financial
year. Such commitments may not, however, exceed one quarter of the appropriations
on the corresponding budget line for the current financial year. They may not apply to
new  expenditure  of  a  kind  not  yet  approved  in  principle  in  the  last  budget  duly
adopted.

Expenditure  which  must  be  paid  in  advance,  for  example  rents,  may  give  rise  to
payments  from  1  December  onwards  to  be  charged  to  the  appropriations  for  the
following financial year.

Article 183
(Initial proposal: Article 168)

For  each  financial  year  the  amount  of  the  commitment  appropriations  contained  in
the budget shall be equal to that of the payment appropriations.

Administrative  expenditure  arising  from  contracts  covering  periods  that  extend
beyond the financial year, either in accordance with local practice or relating to the
supply of equipment, shall be charged to the budget of the financial year in which it
is effected.

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PART THREE
TRANSITIONAL AND FINAL PROVISIONS

TITLE I
TRANSITIONAL PROVISIONS

Article 184
(Initial proposal: Article 169)

The section of the budget relating to the Commission shall, as a transitional measure, contain
within the appropriations for the EAGGF Guarantee Section a monetary reserve, for which the
entry,  utilisation  and  financing  conditions  are  determined  by  the  Council  Regulation  on
budgetary  discipline  and  the  Council  Decision  on  the  system  of  the  Communities’  own
resources and by the provisions adopted for implementing the latter.

Article 185
(Initial proposal: Article 170)

The  EAGGF  Guarantee  appropriations  for  rural  development  and  accompanying  measures
shall  remain  subject  to  Article  150  until  the  end  of  the  period  covered  by  the  financial
perspective, that is until 31 December 2006.

Until that date, appropriations not committed and the corresponding payment appropriations
may  be  carried  over,  to  the  following  financial  year  only,  up  to  a  maximum  of  3%  of  the
appropriations  for  the  title  concerned.  Such  carryover  shall  be  possible  only  if  the
commitment  appropriations  earmarked  on  the  relevant  lines  in  the  budget  for  the  following
year  will  not  make  it  possible  to  make  good  the  shortfall  in  implementation  of  the  rural
development  programmes  in  relation  to  the  level  decided  the  previous  year.  The  carryover
decision shall be taken, at the latest on 15 February of the year to which the carryover is being
made, by the Commission, which shall inform the budgetary authority.

Article 186
(New)

1.

The classification of Commission expenditure according to purpose as provided for
in Article 41(2) shall apply for the first time in respect of budget year 2004.

For budget year 2003 the Commission section shall comprise:

(a)

(b)

a  part  A  devoted  to  expenditure  on  the  institution's  staff  and  administrative
operation;

a  part  B  devoted  to  operational  expenditure  made  up  of  several  sub-sections
depending on requirements.

89

2.

The  time-limits  referred  to  in  Articles 127(2),  128(4)  and  143(2),  (4)  and  (7)  shall
apply for the first time in respect of budget year 2005.

For earlier years these time-limits shall be:

(a)

1 May for Article 127(2),

(b)

15 July for Article 128(1),

(c)

15 September for Article 128(2),

(d)

15 October for Article 128(3),

(e)

30 November for Article 128(4),

(f)

15 July and 31 October for Article 143(2),

(g)

30 September and 31 October for Article 143(4),

(h)

30 November for Article 143(7).

The provisions of Title VII of Part One shall apply gradually depending on technical
possibilities in order to be fully effective for the budget year 2005.

TITLE II
FINAL PROVISIONS

Article 187
(Initial proposal: Article 171)

The European Parliament and the Council shall be empowered to demand any information or
explanations regarding budgetary matters within their competence.

Article 188
(Initial proposal: Article 172)

In  consultation  with  the  European  Parliament  and  the  Council  and  after  the  other  institutions
have  delivered  their  opinions,  the  Commission  shall  adopt  rules  for  implementing  this
Regulation.

All the institutions shall deliver their opinions within three months after the Commission has
sent its draft regulation laying down the  rules for implementing the  Financial  Regulation.  If
no reply is received within this time, the opinion shall be deemed to be favourable.

The  Commission  shall  definitively  adopt  the  regulation  laying  down  the  rules  for
implementing the Financial Regulation within three months after receiving the last opinion or,
if  no  opinion  is  received,  within  three  months  of  expiry  of  the  time-limit  set  in  the
second paragraph.

90

Article 189
(Initial proposal: Article 173)

Every  three  years,  or  whenever  it  is  necessary  to  do  so,  the  European  Parliament  and  the
Council shall examine this Regulation in the light of a proposal from the Commission.

Any regulations amending this Regulation shall be adopted by the Council after recourse to the
conciliation procedure, if the  European  Parliament or  the Council so  requests.  The  procedure
shall  be  initiated  if  the  Council  intends  to  depart  from  the  opinion  adopted  by  the
European Parliament.

The conciliation shall take place in a "conciliation committee" consisting of the Council and
representatives of the European Parliament. The Commission shall participate in the work of
the conciliation committee.

the  conciliation  procedure  shall  be 

The  aim  of 
the
European Parliament  and  the  Council.  The  procedure  should  normally  take  place  over  a
period  not  exceeding  three  months,  unless  the  instrument  in  question  must  be  adopted  by  a
specific  date  or  if  the  matter  is  urgent,  in  which  case  the  Council  may  set  an  appropriate
time-limit.

to  seek  agreement  between 

When the positions of the two institutions are sufficiently close, the European Parliament may
give a new opinion, after which the Council shall take definitive action.

Article 190
(Initial proposal: Article 174)

1.

The  Commission  shall  draw  up,  on  the  basis  of  this  Regulation,  a  framework
financial  regulation  for  the  bodies  set  up  by  the  Communities  and  having  legal
personality which may receive grants from the budget.

The  financial  rules  of  these  bodies  may  not  depart  from  the  framework  regulation
except  where  their  specific  operating  needs  so  require  and  with  the  Commission's
prior consent.

The  framework  regulation  shall  be  adopted  after  the  European Parliament,  the
Council and the Court of Auditors have been consulted. These institutions shall give
their  opinions  on  the  draft  regulation  within  three  months  after  the  Commission  has
transmitted  the  draft  regulation.  If  no  reply  is  received  within  this  time,  the  opinion
shall be deemed to be favourable.

2.

3.

4.

Discharge for the implementation of the budgets of the bodies referred to in the first
subparagraph of paragraph 1 shall be given by the European Parliament.

The  Commission's  internal  auditor  shall  exercise  the  same  powers  over  the  bodies
referred  to  in  the  first  subparagraph  of  paragraph  1  as  he  does  in  respect  of
Commission departments.

The  bodies  referred  to  in  the  first  subparagraph  of  paragraph  1  shall  apply  the
accounting rules set out in Article 132 so that their accounts can be consolidated with
the Commission's accounts.

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Article 191
(Initial proposal: Article 175)

The Financial Regulation of 21 December 1977 is repealed.

References to the repealed Regulation shall be construed as references to this Regulation and
shall be read in accordance with the correlation table in the annex.

Article 192
(Initial proposal: Article 176)

This Regulation shall enter into force on the twentieth day following that of its publication in
the Official Journal of the European Communities.

This Regulation shall be binding in its entirety and directly applicable in all Member States.

Done at Brussels,

For the Council
The President

92