Annual Report and Statement of Assurance concerning the ECSC for the financial year 2001, together with the Commission's replies
Date: 2002-10-10
Institutions: European Court of Auditors
Subjects: ECSC, account, balance sheet, financial year, insurance, report

5.12.2002

EN

Official Journal of the European Communities

C 302/1

I

(Information)

COURT OF AUDITORS

ANNUAL REPORT AND STATEMENT OF ASSURANCE CONCERNING THE ECSC

for the financial year 2001, together with the Commission’s replies

(Article 45c(1) and (4) of the ECSC Treaty and Article 88 of the Financial Regulation of 21 December 1977, as last
amended by Council Regulation (EC, ECSC, Euratom) No 762/2001 of 9 April 2001)

(2002/C 302/01)

TABLE OF CONTENTS

Paragraph

Page

CHANGES IN THE ECSC BALANCE SHEET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHANGES IN APPLICATIONS OF ECSC FUNDS AND RESOURCES . . . . . . . . . . . . . . . . . . . . .

SOLVENCY OF THE ECSC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Solvency ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Provision for large exposures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE LIQUIDATION OF THE ECSC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Expiry of the ECSC Treaty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Implications of the non-ratification of the Treaty of Nice . . . . . . . . . . . . . . . . . . . . . . . . . .

FOLLOW-UP TO PREVIOUS OBSERVATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Cancellation of dormant commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Loans to officials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

STATEMENT OF ASSURANCE CONCERNING THE ECSC . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1-3

4-5

6-9

6-7

8-9

10-12

10-11

12

13-16

13

14-15

16-20

Tables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2

2

2

2

2

2

2

3

3

3

3

3

5

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

10

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CHANGES IN THE ECSC BALANCE SHEET

SOLVENCY OF THE ECSC

1.
The ECSC balance sheet total declined from 3 972 million
euro on 31 December 2000 to 3 288 million euro on 31 Decem-
ber 2001, corresponding to a fall of 684 million euro (17 %) (see
Table 1 ). On the assets side, this decrease was due almost entirely
to the decline in loans and advances to customers (– 256 million
euro to credit institutions and – 414 million euro to companies).
On the liabilities side, the decline was due to the decrease in the
amounts owed to credit institutions (– 377 million euro) and the
fall in debenture loans (– 226 million euro).

Liquid asset accounts and loans made up 53 % and 43 %
2.
of the ECSC’s total assets respectively. The liquid asset accounts
remained stable between the financial years 2000 and 2001. At
31 December 2001, they amounted to 1 755 million euro. The
liquid asset accounts concerned and the balancing items on the
liabilities side are shown in Table 2.

3.
For some years now, the financial statements of the ECSC
have been audited by a private audit firm. In accordance with the
international audit practice followed at the Court, the latter used
this firm’s audit work in drawing up its opinion on the ECSC’s
financial statements.

CHANGES IN APPLICATIONS OF ECSC FUNDS AND
RESOURCES

4.
Unlike previous financial years, in 2001, the appropria-
tions for the ECSC’s operating budget (EOB) went up by 17 mil-
lion euro in relation to the financial year 2000, amounting to
195 million euro. This increase can be explained by the fact that,
in view of the expiry of the Treaty, the Commission had encour-
aged the Member States to apply for aid for rehabilitation and the
social measures for both the past year and the current year, as is,
moreover, envisaged in the rules for these types of aid. Tables 3
and 4 give a breakdown of the changes in the applications of
ECSC funds and in the movements of the provision for financing
the EOB in 2001.

Solvency ratio

6.
The solvency ratio went up from 41,4 % on 31 December
2000 to 56,1 % on 31 December 2001. As in the past, this
increase was due to the increase in the Guarantee Fund and, above
all, to the fall in the volume of outstanding loans to the banks (see
Table 5).

In view of the expiry of the ECSC Treaty on 23 July 2002,
7.
the Commission decided to adjust borrowing and lending
policy (1). For that date, it has committed itself to achieving a level
of reserves equal to 100 % of still outstanding loans that are not
covered by a State guarantee. At 31 December 2001, the cover-
age for these loans, which should total more than 572 million
euro on 23 July 2002, stood at more than 100 %, given that the
provision amounted to 580 million euro at the end of the finan-
cial year 2001.

Provision for large exposures

8.
The provision for large exposures concerns loans which
are not covered by first-rate guarantees and which exceed 25 % of
the ECSC’s own funds. It is therefore intended to cover the risks
associated with this concentration of resources and to enable the
ECSC to weather any default. As was stated in the Court’s previ-
ous reports, the application of the provisions of this Directive (it
is not legally applicable to the ECSC) represents a cautious policy
towards exposures resulting from past transactions.

9.
Because of the fall in the volume of the assets concerned
following the repayments made in recent years, the amount of
this provision has continued to decrease — from 18 million euro
on 31 December 1999 to 17 million euro on 31 December 2000
and 6 million euro on 31 December 2001.

THE LIQUIDATION OF THE ECSC

Expiry of the ECSC Treaty

5.
As in the past, budgetary expenditure was lower than fore-
cast (23 % in 1999, 24,2 % in 2000 and 5,3 % in 2001). Unlike
previous financial years, the actual requirements for rehabilitation
aid in 2001 were utilised at a rate of 100 % with regard to rede-
ployment aid and 88 % for the coal social measures. By way of
comparison, the utilisation of appropriations was only 50 % in
1999 and 46 % in 2000.

10.
The various Community bodies began to examine the
consequences of the liquidation of the ECSC in the early 1990s.
According to the Protocol annexed to the Treaty of Nice, the
assets of the ‘ECSC in liquidation’, the main source of which is the
levy on the production of coal and steel (2), should be allocated

(1) Adjustment of borrowing and/or lending policy in view of the expiry

of the Treaty (23 July 2002) (OJ C 175, 28.6.1994, p. 5).

(2) Established under Article 49 of the ECSC Treaty.

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to these two sectors of economic activity to fund their research
activities on the basis of an allocation formula of 27,2 % for coal
and 72,8 % for steel (1). The creation of a ‘Coal and Steel Research
Fund’ will enable the management of this research activity.

FOLLOW-UP TO PREVIOUS OBSERVATIONS

Cancellation of dormant commitments

11.
The Commission has submitted three proposals to the
Council with a view to putting in place the procedures for the
liquidation of the ECSC and the implementation of the Research
Fund:

(a)

the first concerns the necessary provisions for the implemen-
tation of the Nice Protocol (2);

(b)

the second regards the multiannual financial guidelines for
managing the assets of the ‘ECSC in liquidation’ (3);

(c)

lastly, the third lays down multiannual technical guidelines
for the research programme (4).

13.
At the end of the financial year, dormant commitments
had been cancelled to the tune of 58 million euro. These cancel-
lations regarded rehabilitation aid and social measures (23,2 mil-
lion and 15,5 million euro respectively), interest rebates (10,3 mil-
lion euro) and research (9,1 million euro). It should be noted that,
in 2001, the Commission cancelled amounts that it should have
cancelled during previous financial years. In view of the liquida-
tion of the ECSC on 23 July 2002, the Court suggests that the
Commission should carry out a special examination of all the
commitments that are still open and cancel those that it can
assume will not to be used in the future.

Implications of the non-ratification of the Treaty of Nice

Loans to officials

12.
The failure to ratify the Treaty of Nice has cast doubt
upon the Regulations proposed by the Commission. According to
international law, after the ECSC Treaty expires, the ECSC’s assets
should return to the Member States. However, as this solution has
not been contemplated, the Member States, meeting at an inter-
governmental conference, decided to issue the Commission with
a management mandate (5) to manage these funds according to the
same principles as it would have applied to the ‘Coal and Steel
Research Fund’. This provisional solution will apply until the Nice
Treaty has been ratified or another solution found.

14.
The Commission (DG Personnel and Administration) is
required to draw up an annual report concerning the situation of
loans to officials, which amounted to 34,8 million euro at the end
of 2001. Until 1987, this report was forwarded to the Council.
Since then, it has only been sent to the various Commission
departments. The most recent report available relates to the period
1994 to 1995. In reply to the Court’s report concerning the finan-
cial year 2001 (6), the Commission committed itself to drawing
up the missing reports by the end of 2001. It did not comply with
this commitment.

(1) SEC(1998) 1948, p. 11: ‘at 31 December 1997 values the percentage
contributions of the coal and steel industries were 27,2 % and 72,8 %
respectively’.

(2) COM(2001) 121 final of 7 March 2001 — Amended proposal for a
Council Decision establishing the measures necessary for the imple-
mentation of the Protocol, annexed to the Treaty of Nice, on the
financial consequences of the expiry of the ECSC Treaty and on the
Research Fund for Coal and Steel (OJ C 180 E, 26.6.2001).

(3) COM(2001) 121 final of 7 March 2001 — Amended proposal for a
Council Decision laying down multiannual financial guidelines for
managing the assets of the ‘ECSC in liquidation’ and, on completion
of the liquidation, the ‘Assets of the Coal and Steel Research Fund’
(OJ C 180 E, 26.6.2001).

(4) COM(2001) 121 final of 7 March 2001 — Amended proposal for a
Council Decision laying down multiannual financial guidelines for the
research programme of the Research Fund for Coal and Steel (OJ C 180
E, 26.6.2001).

(5) Decision 2002/234/ECSC of 27 February 2002, of the representatives
of the Governments of the Member States meeting within the Coun-
cil, concerning the financial consequences of the expiry of the ECSC
Treaty and the Coal and Steel Research Fund (OJ L 79, 22.3.2002,
p. 42).

15.
Up until July 1999, the Commission’s departments used
a certain database for the management of loans to officials. Fol-
lowing various problems, it exported the data to another database
without validating them. The Commission only started the task
of validating the data for the financial years after 1999 at the
beginning of February 2002. Furthermore, there is a gap of two
to three months between DG ADMIN’s data (the personnel and
administration Directorate-General) and the data held by DG
ECFIN (the economic and financial affairs Directorate-General),
which is responsible for drawing up the ECSC’s monthly and
annual balance sheets. The Court notes with concern the weak-
nesses found in the management of these loans and recommends
that urgent steps should be taken to restore sound management.

STATEMENT OF ASSURANCE CONCERNING THE ECSC

Pursuant to Article 45c of the Treaty establishing the
16.
European Coal and Steel Community (ECSC), the Court has

(6) Annual Report concerning the ECSC for the financial year 2000

(OJ C 366, 20.12.2001).

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examined the ECSC’s accounts so as to provide the European Par-
liament and the Council with a statement of assurance concern-
ing the reliability of the accounts and the legality and regularity
of the underlying transactions.

and financial situation of the European Coal and Steel Commu-
nity at 31 December 2001, and of the result of its operations for
the financial year then ended’.

17.
The accounts concerned are the financial statements of
the ECSC at 31 December 2001, which were drawn up under the
responsibility of the Commission and published in the Official
Journal of the European Communities (1).

18.
In its report on the ECSC’s financial statements at
31 December 2001 (2), which incorporates the Statement of Assur-
ance concerning the reliability of the accounts and which is pub-
lished together with the financial statements concerned, the Court
concluded that the latter gave ‘a true and fair view of the assets

The Court performed its audit in accordance with its audit
19.
policies and standards. These have been adapted from generally
accepted international auditing standards to reflect the specific
characteristics of the Community context. The Court carried out
such tests of the accounting records and other audit procedures
as it deemed necessary in the circumstances. Through this audit,
the Court obtained a reasonable basis for the opinion expressed
below.

20.
In the Court’s view, taken as a whole, the legality and
regularity of the transactions underlying the ECSC accounts for
the financial year 2001 are sufficiently assured.

This Report was adopted by the Court of Auditors in Luxembourg at its meeting of 10 October 2002.

For the Court of Auditors

Juan Manuel FABRA VALLÉS

President

(1) Financial Statements of the ECSC at 31 December 2001 (OJ C 158,

3.7.2002).

(2) Report on the Financial Statements of the ECSC at 31 December

2001 (OJ C 158, 3.7.2002).

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Changes in the ECSC summary balance sheet, before allocation of the surplus, between 31 December 2000 and
31 December 2001

Table 1

31.12.2000

31.12.2001

Mio EUR

%

Mio EUR

%

Assets

Loans (to banks and undertakings)
Liquid assets (bank balances and bonds)
ECSC operating budget (levy, fines and subsidies receiv-
able)
Tangible and intangible assets
Other assets
Prepayments and accrued income

2 071
1 758

42

—

5
96

52,1
44,3

1,1
—
0,1
2,4

1 401
1 755

43

—

7
83

42,6
53,4

1,3
—
0,2
2,5

Total assets

3 972

100,0

3 288

100,0

Liabilities
Amounts owed (including bond issues)
Other liabilities
Accruals and deferred income
Provision for liabilities and charges
Provision for large exposures
ECSC operating budget (commitments and provisions)
— commitments
— provisions
Reserves and surplus

2 044
7
92
159
17
836

435
401

818

Total liabilities

3 972

Source: Financial Statements of the ECSC at 31 December 2001.

51,5
0,2
2,3
4,0
0,4
21,0

11,0
10,1

20,6

100,0

1 441
0
78
151
6
771

381
390

841

3 288

43,8
0,0
2,4
4,6
0,2
23,4

11,6
11,8

25,6

100,0

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Changes in ECSC liquid assets and principal balancing items, 31 December 2000 to 31 December 2001

Table 2

Items

Liquid assets

Loans and advances to credit institutions:
— repayable on demand
— with agreed maturity date

Bonds
— public issuers (1)
— ECSC bonds
— sundry items

Balancing items

Reserves
— Guarantee fund
— Special reserve
— reserve
— utilisation

— Former pension fund

— reserve
— utilisation

31.12.2000

31.12.2001

Partial

Total

Partial

Total

(Mio EUR)

33,7

141,8

8,3
25,4

995,0
—
808,7

1 803,7

8,6
133,3

1 102,7
—
581,7

1 684,4

Total liquid assets

1 837,4

1 826,2

565,0
42,1

24,6

176,1
– 134,0

74,6
– 50,0

631,7

585,8

580,0
0,6

5,2

118,0
– 117,4

40,0
– 34,8

31,0
358,8

99,3
71,4

434,5

401,0

116,4

17,0

223,0

13,8

1 837,4

380,9

389,8

100,0

108,3

6,0

170,7

84,7

1 826,2

Commitments for the operating budget

Provisions for financing the operating budget

— for budget imponderables
— for the financing of future operating budgets

73,0
328,0

Assets of the Research Fund

Provision for liabilities and charges

Provision for large exposures

Value adjustments

— on loans disbursed on loan capital
— on bonds

Sundry items

Total balancing items

(1) Before value adjustments.
Source: Financial statements of the ECSC at 31 December 2001.

143,1
79,9

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Table 3

Changes in applications of funds and in resources during the period 1994 to 2001

Items

1994

1995

1996

1997

1998

1999

2000
(a)

2001
(b)

(Mio EUR)

Variation
(b) – (a)

A. Applications
Administrative expenditure
Commitments
Exceptional applications

5,0
386,4
32,5

5,0
277,9
—

5,0
201,2
—

5,0
180,9
—

5,0
154,0
—

5,0
145,6
—

5,0
129,9
—

5,0
184,6
—

Total applications (A)

423,9

282,9

206,2

185,9

159,0

150,6

134,9

189,6

B. Resources in the financial year
Results of non-budgetary operations
Levy
Other budgetary resources (fines, subsidies, etc.)
Cancellations of commitments
Exceptional resources

112,5
107,7
4,8
63,3
91,9

90,8
102,3
11,6
70,7
—

95,6
95,9
4,4
90,0
—

143,3
101,6
4,3
195,2
—

69,6
—
12,3
134,2
—

82,9
—
19,5
85,4
—

82,1
—
3,0
71,6
—

136,0
—
2,0
58,0
—

—
54,7
—

54,7

53,9
—
– 1,0
– 13,6
—

Total resources in the financial year (B)

380,2

275,4

285,9

444,4

216,1

187,8

156,7

196,0

39,3

(B) – (A)

– 43,7

– 7,5

79,7

258,5

57,1

37,2

21,8

6,4

– 15,4

Transfer from (+) / to (–) the provision for financing
the operating budget

Transfer from (+) / to (–) the reserves

Surplus for the financial year

43,3

2,0

1,6

0,3

9,0

1,8

– 58,6

– 224,9

– 26,0

– 13,0

– 8,0

—

– 19,0

– 31,3

– 30,0

– 23,0

– 12,0

15,0

2,1

2,3

1,1

1,2

1,8

8,6

8,0

27,0

6,8

Source: Financial statements of the ECSC for the financial years in question.

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Table 4

Movements against the provision for financing the ECSC operating budget in 2001

Items

Balance at
31.12.2000

Utilisation

Allocation

Net change

Available provision for financing the ECSC operating
budget

401,0

251,2

– 251,2

Available provision for coal and steel research (1)

—

240,0

240,0

(Mio EUR)

Balance at
31.12.2001

149,8

240,0

Provision for fines and surcharges to be collected
subsequently and for subsidies to be recovered (2)

42,3

0,9

0,8

– 0,1

42,2

Total

443,3

252,1

240,8

– 11,3

432,0

(1) The allocation of 240 million euro corresponds to the provision for financing coal and steel research after the liquidation of the ECSC.
(2) Fines, surcharges and interest subsidies are considered to be ECSC resources only at the point when they have actually been paid. Until
then, an amount equivalent to these claims is included in this provision. As a result, the 42 Mio EUR in question is not yet available to
finance the operating budget.

Source: Financial statements of the ECSC at 31 December 2001.

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Table 5

ECSC own funds in 2001

Items (after allocation of surplus)

31.12.2000

Allocation

Withdrawal

31.12.2001

(Mio EUR)

Guarantee fund (1)
Special reserve
Former pension fund
Assets of the coal and steel research fund
Surplus brought forward

Subtotal (reserve and surplus)

Provision for large exposures
Provision available for financing the operating budget
Provision for financing coal and steel research

565,0
176,1
74,6
0,0
2,0

817,7

17,0
401,0
—

15,0
0,0
0,0
100,0
1,3

116,3

0,0
0,0
240,0

(1) Own funds used by the Commission in the numerator of the ECSC solvency ratio.
Source: Financial Statements of the ECSC at 31 December 2001.

Total

1 235,7

356,3

0,0
58,1
34,6
0,0
0,0

92,7

11,0
251,2
0,0

354,9

580,0
118,0
40,0
100,0
3,3

841,3

6,0
149,8
240,0

1 237,1

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THE COMMISSION’S REPLIES

CHANGES IN APPLICATIONS OF ECSC FUNDS AND
RESOURCES

supply additional documentation proving entitlement to the late
payment of a rebate.

5.
The forecasts of expenditure in 2001 were made on the
basis of estimates provided by the Member States, as in previous
years.

FOLLOW-UP TO PREVIOUS OBSERVATIONS

13.
The Commission shares the Court’s concern regarding
cancellations of dormant commitments and regularly examines
commitments that are still open with a view to cancelling them
where necessary, as shown by the relatively high level of cancel-
lations in 2001.

14.
The Commission is aware of the problems that have
accumulated over the last few years with the management of
building loans. The situation has to do with the Commission’s
decision to stop granting building loans before expiry of the ECSC
Treaty and the existence of a fairly complex administrative set-up
chiefly based on systematic double checking by the department
managing the loans. The latter’s priority has tended to be to carry
out a minimum of essential day-to-day management tasks. Now
that the ECSC Treaty has expired, the Commission is able to give
the assurance that the delayed annual reports will be presented in
the autumn of 2002.

15.
The Commission has completed validating the data for
the years 1999 to 2002. The task of validating data for years prior
to 1999 is in hand.

Caution is nevertheless required since cancellations cannot be
reversed. As regards interest rebates, a minimum level of appro-
priations needs to be maintained in case a sub-borrower were to

From September 2002 monthly balance sheets will be closed not
more than six weeks after the reference period.