Opinion No 13/2002 concerning a draft Commission regulation laying down detailed rules for the implementation of Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation applicable to the general budget of the European Communities
Date: 2002-10-24
Institutions: European Court of Auditors
Subjects: closing of accounts, expenditure, financial management, financial regulation, general budget (EU), management accounting

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OPINION No 13/2002

concerning a draft Commission regulation laying down detailed rules for the implementation of
Council Regulation (EC, Euratom) No 1605/2002 of 25 June 2002 on the Financial Regulation
applicable to the general budget of the European Communities

(presented pursuant to Article 279 of the EC Treaty)

(2003/C 12/03)

THE COURT OF AUDITORS OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Commu-
nity, and in particular Article 248(4) and Article 279 thereof,

(a) to ensure that the Implementing Rules do not contain excep-
tions to the basic principles included in the Financial Regula-
tion (where not specifically provided for in the Financial
Regulation);

(b) that all important issues and areas are adequately covered; and

Having regard to the Treaty establishing the European Atomic
Energy Community, and in particular Article 160c(4) and Article
183 thereof,

(c) that provisions are practical and workable.

Having regard to the draft Commission Regulation (1) laying down
detailed rules for the implementation of Council Regulation (EC,
Euratom) No1605/2002 of 25 June 2002 on the Financial Regu-
lation applicable to the general budget of the European Commu-
nities (2),

Having regard to the request for an opinion on the draft regula-
tion, sent to the Court of Auditors by the Commission on 25 July
2002,

HAS ADOPTED THE FOLLOWING OPINION:

INTRODUCTION

The Court has also examined the way in which some major issues
raised in its opinion (3) on the recasting of the Financial Regula-
tion, such as the provisions relating to accounting and the pre-
sentation of the financial statements and to expenditure opera-
tions, have been considered in the proposal.

Specific comments on individual articles, containing pro-
3.
posals for amending the text where appropriate are attached in a
two-column table (in addition, relatively minor questions relating
to the terminology used have been communicated to the Com-
mission). The simpler and clearer structure adopted for the Finan-
cial Regulation, which should contain only basic principles, has
resulted in a more logical structure and an increased number of
detailed provisions in the proposed Implementing Rules. How-
ever, the attached table indicates that there are still provisions,
including those highlighted at paragraphs 4 to 12 below, which
are inadequate, are incomplete or lack clarity.

1.
Following the adoption of a new Financial Regulation in
June 2002, the Commission submitted in July 2002 a proposal
for recasting the Implementing Rules of the Financial Regulation.
The adoption of this proposal will complete the recasting of the
Financial Regulation, which the Commission expects to achieve at
the end of the year 2002. The aim of the Commission is to make
applicable at the beginning of the year 2003 the new instruments
that should improve the quality of the financial management and
financial reporting of the Communities.

2.
The Court has examined the proposal within the frame-
work set by the new Financial Regulation. It has structured its
analysis around the following objectives:

KEEPING AND PRESENTATION OF THE ACCOUNTS

4.
The further refinement in the Financial Regulation of the
existing requirement for an economic outturn account (Article
126(1)(a)) and of a budgetary outturn account (Article 127(a))
represents a major step in the development of the financial report-
ing practice of the Communities. The Implementing Rules should
require the incorporation of a table in the Annex (4) to the finan-
cial statements that makes clear the link between the two out-
turns.

(1) Commission document, reference SEC(2002) 835 final.
(2) OJ L 248, 16.9.2002, p. 1.

(3) Opinion No 2/2001 (OJ C 162, 5.6.2001).
(4) Generally referred to in English as ‘notes to the financial statements’.

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Article 205 refers to Article 132 of the Financial Regula-
5.
tion, which contains provisions common to both the general and
budgetary accounts. Several articles in the proposal (Articles 211,
212, 213 and 215(2)), which currently refer to Article 135 of the
Financial regulation, and which therefore apply only to the gen-
eral accounts (on which the balance sheet is based), are of rel-
evance to both the general and budgetary accounts and therefore
should be incorporated in Article 205. The most important of
these is the requirement to use double-entry bookkeeping. This is
required by Article 134 of the Financial Regulation for the general
accounts. The Court considers that the Commission should also
introduce in an appropriate manner double entry bookkeeping
for the budgetary accounts. This would lead to a fully integrated
accounting system capable of providing the accounting discipline
which would help to solve many of the problems associated with
the present incomplete and disjointed approach. The challenge
which would still face the Commission would be to adequately
integrate also the information required to produce the financial
statements which is produced by subsidiary accounting systems.

ASSIGNED REVENUE

6.
Articles 11 to 13 include provisions dealing with three of
the ten cases of assigned revenue provided for by Article 18(1) of
the Financial Regulation. There is however no article, either in the
Financial Regulation or in the Implementing Rules, defining a
budget structure to be applied generally to all cases of assigned
revenue, covering the treatment of the related budgetary expen-
diture as well as the assigned revenue itself. Such an article should
be introduced in the Implementing Rules.

PAYMENT OF EXPENDITURE

8.
Article 81 of the Financial Regulation provides that a dis-
tinction shall be made in the accounts between the different types
of payment (pre-financing, interim payments, etc.) at the time
they are made. In its opinion on the recasting of the Financial
Regulation (1), the Court insisted that subsequent changes in the
nature of the different types of payments (for instance, pre-
financing absorbed by reimbursements of expenditure) be regis-
tered as well, in order to enable the Commission’s accounts to
provide information about the extent to which budgetary pay-
ments represent expenditure at the level of beneficiaries. A provi-
sion to this effect should be made explicit in the Implementing
Rules at Article 102.

9.
At Article 178(1), the Court proposes that it would be far
preferable not to reason in terms of renewing pre-financing pay-
ments, but to establish the principle that pre-financing payments
are made once at the beginning of an operation, and that all sub-
sequent payments are made on the basis of reimbursing the Com-
munity share of expenditure incurred by the grant recipient. At
the appropriate time, the prefinancing payments would be
absorbed by expenditure incurred. An approach of this kind,
which was proposed by the Court in its Opinion on the recasting
of the Financial Regulation (2), makes it relatively easy to identify,
for management and supervision purposes, prefinancing pay-
ments which have not yet been absorbed by expenditure incurred
and to reflect the extent to which budgetary payments represent
expenditure at the level of beneficiaries (see paragraph 8).

AUDIT OF GRANTS

10.
Audits complying with terms of reference laid down by
the authorising officer should be mandatory for grants which
exceed the monetary limits laid down in Article 178(2).

COMMITMENT OF EXPENDITURE

INTERNAL AUDIT

7.
In order to ensure the completeness of the recording and
the adequate monitoring of commitments Articles 88 and 92
should provide:

(a) for the registering of budgetary commitments in the central

accounting system;

(b) whether one or two levels of legal commitment should be
recorded where financing agreements are concerned; and

(c) that the central accounting system should automatically pre-
vent the cumulative amount of legal commitments from
exceeding the amount of the corresponding budgetary com-
mitment.

11.
Articles 106 to 111 concerning the Internal Auditor con-
tain repetitions of articles 85 and 86 of the Financial Regulation,
contradictory elements, and provisions which could limit the
institution’s responsibilities for creating the internal audit func-
tion and ensuring its independence. They are also not entirely in
line with recognised international internal audit standards. These
articles should be dropped. The Court considers that the imple-
menting rules should be limited to provisions related to the
responsibilities of the internal auditor as explicitly foreseen in
article 87 of the Financial Regulation. In any case, if Articles 106
to 111 remain, the Court reserves the right to draft its own rules
concerning its internal auditor based solely on Articles 85 and 86
of the Financial Regulation.

(1) Opinion No 2/2001, paragraph 32 (OJ C 162, 5.6.2001).
(2) Opinion No 2/2001, paragraph 33 (OJ C 162, 5.6.2001).

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INTERNAL RULES FOR EACH INSTITUTION

12.
Articles 51 and 59 of the Financial Regulation make ref-
erence to the internal rules of the institutions. It is necessary for

the Implementing Rules to require each institution to adopt such
internal rules for the ‘proper implementation of its section of the
budget’, incorporating not only the assignment of responsibilities
but also the rules and procedures to be followed. Such a provi-
sion is found in Article 9 of the current Implementing Rules.

This Opinion was adopted by the Court of Auditors in Luxembourg at its meeting of 24 October 2002.

For the Court of Auditors

Juan Manuel FABRA VALLÉS

President

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THE COURT’S COMMENTS ON THE COMMISSION’S PROPOSAL

ANNEX

The Court’s comments

The Commission’s proposal

PART ONE

COMMON PROVISIONS

TITLE II

BUDGETARY PRINCIPLES

CHAPTER 1

Principles of unity and budgetary accuracy

Article 3

Article 3

This Article provides a definition of pre-financing which is considered as
remaining the property of an EU institution (and which should therefore,
according to Article 4, be recorded in the balance sheet) in a way which
excludes pre-financing payments to procurement contractors (Article 88 of
the Financial Regulation), to EU personnel, to EU Member States, to candi-
date countries for pre-adhesion measures, and to international organisations
in the context of joint management. Such broad exclusions mean that the
accounting principle of ‘reality over appearance (sic)’ (*) laid down in Finan-
cial Regulation Article 124(g) is rendered meaningless as far as prefinancing
operations are concerned. Further, these exclusions are not in conformity
with the accounting framework that the Commission wishes to establish.

(*) Generally referred to in English as ‘substance over form’.

Scope of pre-financing remaining the property of the institutions

(Article 5(4) of the Financial Regulation)

1.
Pre-financing within the meaning of Article 102 shall remain the
property of the institution, save where otherwise provided by the basic act.
This provision does not concern pre-financing paid under a contract within
the meaning of Article 88 of the Financial Regulation, to staff or to Member
States, or under the agricultural and structural pre-accession instruments.

It shall not apply to joint management within the meaning of Article 53 of
the Financial Regulation.

In the case of direct centralised management within the meaning of
2.
Article 53 of the Financial Regulation involving a number of partners, the
rule referred to in paragraph 1 shall apply solely to the principal contractor.

3.
In the case of decentralised management and in the case of indirect
centralised management within the meaning of Article 53 of the Financial
Regulation, the rule referred to in paragraph 1 shall apply only to the entity
receiving pre-financing direct from the Commission.

4.
The rule referred to in paragraph 1 shall apply to pre-financing
decided after the entry into force of this Regulation under contracts or agree-
ments.

CHAPTER 3

(Chapter 4 of the Financial Regulation)

Principle of unit of account

Article 9

Article 9

Conversion into euro of expenditure committed at the end of the
budget year

(Article 16 of the Financial Regulation)

The December euro rates shall be used to calculate the obligations outstand-
ing at the end of the financial year.

This provision regarding the revaluation of foreign currency outstanding
commitments should stipulate the use of the same rate as laid down for bal-
ance sheet items, which should be defined at Article 211 of the Implement-
ing Rules.

The title of the article should be amended to refer to outstanding commit-
ments.

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The Commission’s proposal

CHAPTER 4

(Chapter 5 of the Financial Regulation)

Principle of universality

The Court’s comments

Article 11

Articles 11, 12 and 13

These Articles include provisions dealing with three of the 10 cases of
assigned revenue provided for by Article 18(1) of the Financial Regulation.
There is however no article, either in the Financial Regulation or in the
Implementing Rules, defining a budget structure to be applied generally to
all cases of assigned revenue, covering the treatment of the related budget-
ary expenditure as well as the assigned revenue itself. Such an article should
be introduced in the Implementing Rules.

Contributions from Member States to research programmes

(Article 18(1)(a) of the Financial Regulation)

1.
The Member States’ contributions for financing certain supplemen-
tary research programmes, provided for in Article 5 of Regulation (EC)
No 1150/2000, shall be paid as follows:

(a)

(b)

seven-twelfths of the sum entered in the budget shall be paid by no later
than 31 January of the current year;

the remaining five-twelfths shall be paid by no later than 15 July of the
current year.

2.
Where the budget is not finally adopted before the start of a financial
year, the contributions provided for in paragraph 1 shall be based on the
sum entered in the budget for the previous financial year.

3.
Any contribution or additional payment owed by the Member States
to the budget must be entered in the Commission’s account or accounts
within thirty days of the call for funds.

Payments made shall be entered in the account provided for in Regu-
4.
lation (EC) No 1150/2000 and shall be subject to the conditions laid down
by that Regulation.

Article 12

Assigned revenue resulting from the participation of EFTA States in
certain Community programmes

(Article 18(1)(d) of the Financial Regulation)

The budget structure to accommodate the participation of the EFTA

1.
States in certain Community programmes shall be as follows:

(a)

in the statement of revenue, a line with a token entry (p.m.) shall be
entered to accommodate the full amount of the EFTA States’ contribu-
tion for the year in question. The estimated amount shall be shown in
the budget remarks;

(b)

in the statement of expenditure:

(i)

(ii)

the remarks for each line relating to the Community activities in
which the EFTA States participate shall show ‘for information’ the
estimated amount of the participation;

an annex, forming an integral part of the budget, shall set out all
the lines covering the Community activities in which the EFTA
States participate.

This annex reflects and is part of the structure to accommodate the appro-
priations corresponding to this participation, as provided for in paragraph 2,
and to allow the expenditure to be implemented.

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The Commission’s proposal

The Court’s comments

2.
Under Article 82 of the Agreement on the European Economic Area,
the amounts of the annual participation of the EFTA States, as confirmed to
the Commission by the EEA Joint Committee in accordance with Article 1(5)
of Protocol 32 annexed to that Agreement, shall give rise to the provision,
at the start of the year, of the full amounts of the corresponding appropria-
tions for commitments and appropriations for payments.

3.
If, in the course of the year, additional appropriations are provided
on the budget lines with EFTA State participation without the EFTA States
being able, during that year, to adjust their contributions in order to comply
with the ‘proportionality factor’ provided for in Article 82 of the Agreement
on the European Economic Area, the Commission shall be authorised, as a
provisional and exceptional measure, to use its cash resources to pre-finance
the share of the EFTA States. Whenever new appropriations are provided,
the Commission shall, as soon as possible, call in the corresponding contri-
butions from the EFTA States. The Commission shall inform the budgetary
authority each year of the decisions taken.

The pre-financing shall be regularised as soon as possible in the budget for
the following year.

4.
In accordance with Article 18(1)(d) of the Financial Regulation, the
financial contributions of the EFTA States shall constitute assigned revenue.
The accounting officer shall adopt appropriate measures to ensure that use
of the revenue arising from these contributions and of the corresponding
appropriations is monitored separately.

In the report provided for in Article 131(2) of the Financial Regulation, the
Commission shall show separately the implementation, in both revenue and
expenditure, corresponding to EFTA State participation.

Article 13

Proceeds of sanctions imposed on Member States declared to have
an excessive deficit

(Article 18(1)(b) of the Financial Regulation)

The budget structure to accommodate the proceeds of the sanctions referred
to in Section 4 of Council Regulation (EC) No 1467/97 shall be as follows:

(a)

(b)

in the statement of revenue, a line carrying a token entry (p.m.) shall
be entered to accommodate the interest on such amounts;

at the same time, and without prejudice to Article 74 of the Financial
Regulation, entry of these amounts in the statement of revenue shall
give rise to the provision, in the statement of expenditure, of commit-
ment appropriations and payment appropriations. These appropria-
tions shall be used as stipulated in Article 17 of the above Regulation.

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The Court’s comments

Article 41(1)

This Article should be completed by ‘The Commission will ensure that in
such situations adequate provision has been made for the audit of the action
as a whole.’

The Commission’s proposal

TITLE IV

IMPLEMENTATION OF THE BUDGET

CHAPTER 2

Methods of implementation

SECTION 2

Special provisions

Article 41

Joint management

(Articles 53 and 165 of the Financial Regulation)

1.
The appropriations used in joint management with international
organisations within the meaning of Articles 53 and 165 of the Financial
Regulation shall finance actions, performance of which requires the pooling
of resources from a number of donors, where it is not reasonably possible
or appropriate to assign the share contributed by each donor to each type
of expenditure.

The international organisations referred to in paragraph 1 are as fol-

2.
lows:

(a)

international public-sector organisations set up by intergovernmental
agreements and specialised agencies set up by such organisations;

(b)

the International Committee of the Red Cross (ICRC);

(c)

the International Federation of National Red Cross and Red Crescent
Societies.

CHAPTER 3

Financial actors

SECTION 1

Rights and obligations of the financial actors

Article 42

Article 42

Rights and obligations of the financial actors

(Article 58 of the Financial Regulation)

Each institution shall provide each financial actor with the resources required
to perform his duties and a charter describing in detail his tasks, rights and
obligations.

This Article, which concerns the resources and tasks of financial actors, is
linked to Article 58 of the Financial Regulation, which treats only the seg-
regation of duties between the authorising officer and the accounting officer.
There is no article in the Financial Regulation dealing in common with the
roles of the three financial actors.

Logically the provision in Article 42 should be drafted separately for each
of the three financial actors and linked to Articles 59, 61 and 63 respectively.

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The Commission’s proposal

SECTION 2

Authorising officer

The Court’s comments

Article 43

Article 43

Assistance for authorising officers by delegation and subdelegation

(Article 59 of the Financial Regulation)

The authorising officer responsible may be assisted in his duties by members
of staff entrusted, under his responsibility, with certain operations required
for the implementation of the budget and production of financial and man-
agement information. In order to prevent any conflicts of interests, these
members of staff shall be subject to the obligations referred to in Article 52
of the Financial Regulation.

The first sentence of this Article simply repeats (not very accurately) Article 59
of the Financial Regulation and therefore should be deleted.

The second sentence should read ‘In order to prevent any conflict of inter-
est, the members of staff who may assist the authorising officer by del-
egation or subdelegation to carry out certain operations shall be subject
to the obligations referred to in Article 52 of the Financial Regulation’.

Article 60(7) of the Financial Regulation

Article 60(7) of the Financial Regulation provides that ‘The Commission
shall not later than 15 June each year, send to the budgetary authority a sum-
mary of the annual reports for the previous year’. A provision that this sum-
mary should also be transmitted to the Court should be included in the
Implementing Rules.

SECTION 3

Accounting officer

Article 61

Third-party files

(Article 61 of the Financial Regulation)

1.
The accounting officer may make payments by bank credit transfer
only if the bank account details of the payee have first been entered in a
common file by institution.

Entry in the file of the payee’s bank account details or modification of those
details shall be based on a document, in paper or electronic form, certified
by the payee’s bank.

2.
With a view to payment by bank credit transfer, authorising officers
may enter into a commitment towards a third party on behalf of their insti-
tution only if that third party has provided the documentation required for
its entry in the file.

Authorising officers shall check that the bank account details communicated
by the payee are still valid when each payment order is drawn up.

In connection with pre-accession aid, individual commitments may be con-
cluded with the public authorities in the countries applying for accession to
the European Union without a prior entry in the third-party file. In this
event the authorising officer shall do his utmost to ensure that the entry is
made as quickly as possible. The agreements shall provide that communica-
tion to the Commission of the payee’s bank account details is a condition to
be fulfilled before the first payment can be made.

Article 61(1)

The requirement that the bank account details to be entered in the third-
party file of an institution must be certified by the payee’s bank for all cases
of payment by bank credit transfer is extremely cumbersome if applied to
all purchases, even those of low value or of an occasional nature. It would
seem reasonable to limit this requirement to payments over a specified
amount.

Article 61(2)

This Article deals with the establishment of third party files for payment
purposes. The purpose and relevance of the third subparagraph of para-
graph 2 is not clear.

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The Court’s comments

The Commission’s proposal

CHAPTER 5

Revenue operations

SECTION 2

Estimate of amounts receivable

Article 74

Article 74

Estimate of amounts receivable

(Article 70 of the Financial Regulation)

Estimates of amounts receivable shall specify the type of revenue and
1.
the budget item to which they are to be booked and, as far as possible, the
particulars of the debtor and the estimated amount.

When drawing up an estimate of amounts receivable, the authorising officer
responsible shall check in particular that:

(a)

the revenue is booked to the correct budget item;

(b)

the estimate is in order and conforms to the relevant provisions and to
the principles of sound financial management.

2.
The authorising officer responsible shall register estimates of amounts
receivable in the accounting system. Subject to Article 161(2) of the Finan-
cial Regulation, an estimate of amounts receivable shall not have the effect
of creating commitment appropriations. Appropriations may be created
only after the sums due have actually been recovered by the Communities.

SECTION 3

Establishment of amounts receivable

The formulation of paragraph 1 implies that no receivables should exist
which will not be booked to the budget. It should be made clear that for
other receivables (e.g. repayments of loans, whether financed from budget
lines or by borrowings, advances to personnel already booked on the bal-
ance sheet, etc.) an estimate of amounts receivable (and subsequently a
recovery order) should also be established.

The logic of putting the provision in the last sentence of paragraph 2 here
gives the misleading impression that all recoveries (booked to a budget line)
may lead to the creation of appropriations (for commitments and for pay-
ments). It would be more logical to put this provision under the provisions
for assigned revenue in Part One, Title II, Chapter 4 of this Regulation.

Article 76

Article 76

Establishment of amounts receivable

(Article 71 of the Financial Regulation)

Article 71(2) of the Financial Regulation provides that a recovery order must
be established for every amount receivable that is ‘identified as being cer-
tain, of a fixed amount and due (certaine, liquide et exigible)’. These terms
should be defined in the Implementing Rules.

To establish an amount receivable the authorising officer responsible shall
ensure that:

(a)

the debt really exists;

(b)

the debt is due;

(c)

the particulars of the debtor are correct;

(d)

the amount to be recovered is correct;

(e)

the amount to be recovered is booked to the correct budget item;

(f)

the supporting documents are in order; and

(g)

the procedure conforms to the principle of sound financial manage-
ment.

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The Court’s comments

The Commission’s proposal

SECTION 4

Authorisation of recovery

Article 78

Establishment of the recovery order

(Article 72 of the Financial Regulation)

1.

The recovery order shall specify:

(a)

the financial year to which the revenue is to be booked;

(b)

(c)

the references of the act or legal commitment which is the source of
the debt and gives rise to the entitlement to recovery;

the budget article and any other subdivision that may apply, including,
where appropriate, the references of the corresponding budget com-
mitment;

(d)

the amount to be recovered, expressed in euro;

(e)

the name and address of the debtor;

(f)

the due date; and

(g)

the possible method of recovery, including in particular recovery by
offsetting or enforcement on any guarantee lodged.

The recovery order shall be dated and signed by the authorising officer

2.
responsible, then sent to the accounting officer.

Article 78(2)

It should be stated in this Article that the authorising officer should register
the recovery orders in the accounting system (as is said for the estimates of
accounts receivable in Article 74(2)).

CHAPTER 6

Expenditure operations

SECTION 1

Commitment of expenditure

Article 88

Global and provisional commitments

(Article 76(2) of the Financial Regulation)

1.
The global budget commitment shall be implemented either by the
conclusion of a financing agreement, itself providing for the subsequent
conclusion of one or more individual legal commitments, or by the conclu-
sion of one or more individual legal commitments.

Financing agreements relating to macrofinancial assistance, budgetary sup-
port and other specific forms of budgetary aid may give rise to payments
without the conclusion of individual legal commitments.

Article 88(1)

This Article provides that budget commitments can be implemented by
financing agreements which themselves envisage one or more subsequent
individual legal commitment(s), as provided for in Article 166(2) of the
Financial Regulation for the external action area. It is not made clear, either
in the Financial Regulation or in the Implementing Rules, whether there is
to be recording of only one level of legal commitment (the financing agree-
ment) or two levels (the financing agreement and subsequent individual legal
commitments).

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The Commission’s proposal

The Court’s comments

Article 91

Single signature

(Article 76 of the Financial Regulation)

Article 91

This Article does not include all the possible situations (such as death, ill-
ness, etc.) which would prevent a single person signing both the budgetary
and legal commitment. A subparagraph (f) should be added to provide for
such exceptional circumstances with an appropriate level of approval.

The rule that there be a single signatory for the budget commitment and the
corresponding legal commitment shall not apply in the following cases
alone:
(a) where the commitments are provisional;
(b) where global commitments relate to financing agreements with third

countries,

(c) where the institution’s decision constitutes the legal commitment;
(d) where the global commitment is implemented by a number of legal
commitments, for which different authorising officers by delegation are
responsible;

(e) where, in connection with imprest accounts available for external
action, legal commitments must be signed by members of staff of the
local units referred to in Article 252.

Article 92

Article 92

Registration of individual legal commitments

(Article 77 of the Financial Regulation)

In the case of a global budget commitment followed by several individual
legal commitments, the authorising officer responsible shall register in the
central accounts the amounts of these successive individual legal commit-
ments. The authorising officer responsible shall check that the aggregate
amount does not exceed the amount of the global commitment covering
them.

The registration in the accounts shall indicate the references of the global
commitment against which the individual commitments are being booked.

The authorising officer responsible shall register the amounts in the accounts
before signing the corresponding individual legal commitment.

SECTION 3

Authorisation of expenditure

Article 99

Checks on payments by the authorising officer

(Article 80 of the Financial Regulation)

When drawing up the payment order, the authorising officer responsible
shall ensure that:

(a)

(b)

(c)
(d)

the payment order has been properly issued, meaning that a corre-
sponding validation decision has been taken previously in the form of
‘passed for payment’, the particulars of the payee are correct and the
amount is due;

the payment order corresponds to the budget commitment against
which it is booked;
the expenditure is charged to the correct item in the budget;
appropriations are available.

This Article should provide explicitly for the registering in the central
accounts of the budgetary commitments (individual, global or provisional)
by the authorising officer, as well as individual legal commitments.

This Article provides that the responsible authorising officer should verify
that the cumulative amount of legal commitments does not exceed the
amount of the corresponding budget commitment. It should be provided
that the accounting system should automatically prevent such a situation
arising.

Article 99(b)

This Article provides that the authorising officer should verify that a pay-
ment order is in conformity with the corresponding budget commitment.
It should also provide that it is in conformity with the corresponding legal
commitment, which automatically ensures agreement with the correspond-
ing budget commitment. For the same reason the requirement
in
Article 100(d) that a payment order should mention references to the cor-
responding budget commitment (as well as to the legal commitment (100(c))
is redundant.

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The Commission’s proposal

SECTION 4

Payment of expenditure

The Court’s comments

Article 102

Article 102

Booking of pre-financing and interim payments

(Article 81 of the Financial Regulation)

Pre-financing is intended to provide the beneficiary with a float. It

1.
may be split into a number of payments.

2.
An interim payment, which may be repeated, is intended to reim-
burse expenditure incurred by the beneficiary on the basis of a statement of
expenditure when the action is in progress. It may clear pre-financing in
whole or in part, without prejudice to the provisions of the basic act.

3.
The closure of the expenditure shall take the form of the payment of
the balance, which may not be repeated and clears all preceding payments,
or a recovery order.

Article 81 of the Financial Regulation provides that a distinction shall be
made in the accounts between the different types of payment (pre-financing,
interim payments, etc.) at the time they are made. In paragraph 32 of its
Opinion No 2/2001 on the proposed recasting for the Financial Regulation,
the Court insisted that subsequent changes in the nature of the different
types of payment be registered as well (e.g. pre-financing connected to reim-
bursement of expenditure or cleared through interim or closing payments).
In this way the accounts can show the degree to which budgetary payments
represent expenditure at the level of beneficiaries. Registering such changes
should be made explicit in Article 102, which, in view of its title, seems to
have been the intention.

Article 46(2) of the current Financial Regulation provides for the payment
of advances to staff without charging them to the budget. If it is feasible the
Implementing Rules should provide for this because Article 81 of the Finan-
cial Regulation coming into force in 2003 does not clearly do so.

See also Article 178(1).

CHAPTER 7

IT systems

Article 104

Article 104

Description of IT systems

(Article 84 of the Financial Regulation)

Where computer systems and subsystems are used to process budget imple-
mentation operations, a full description of each system or subsystem shall
be required.

Each description shall define the content of all data fields and describe how
the system treats each individual operation. It shall show in detail how the
system guarantees the existence of a complete audit trail for each operation.

— The computer systems should not only be described in full but the
descriptions should also be kept up to date. The text should be modi-
fied as follows: ‘a full up-to-date description of each system … shall be
required’.

— This Article is duplicated in Article 206, although the wording is not
exactly the same. The third indent of Article 206(2), requiring that links
with the central accounting system should be indicated, should be
incorporated in Article 104.

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CHAPTER 8

Internal auditor

The Court’s comments

Article 106

Articles 106 to 111

These Articles concerning the Internal Auditor contain repetitions of
Articles 85 and 86 of the Financial Regulation, contradicting elements and
provisions which could limit the institution’s responsibilities for creating the
internal audit function and ensuring its independence. They are also not
entirely in line with recognised international internal audit standards. These
Articles should be dropped. The Court considers that the implementing
rules should be limited to provisions related to the responsibilities of the
internal auditor as explicitly foreseen in Article 87 of the Financial Regula-
tion.

Appointment of the internal auditor

(Article 85 of the Financial Regulation)

Each institution shall appoint its internal auditor in accordance with

1.
arrangements adapted to its specific features and requirements.

2.
Each institution shall determine, in accordance with its specific fea-
tures and its requirements, the scope of the mission of the internal auditor
and shall lay down in detail the objectives and procedures for the exercise of
the internal audit function with due respect for international internal audit
standards.

The institution may appoint as internal auditor, by virtue of their par-
3.
ticular competence, an official or other servant covered by the Staff Regula-
tions chosen from nationals of the Member States.

4.
When two or more institutions appoint the same internal auditor
they shall make the necessary arrangements for him to be declared liable for
his actions as laid down in Article 112.

Article 107

Conduct of audits

(Article 86 of the Financial Regulation)

The internal auditor shall perform his functions in accordance with the rel-
evant international standards. Internal audit activity shall focus on the effec-
tiveness and efficiency of existing and projected management and control
systems.

Article 108

Operational resources

(Article 86 of the Financial Regulation)

The institution shall provide the internal auditor with the resources required
for the proper performance of his audit function and a mission charter
detailing his tasks, duties and obligations.

Article 109

Work programme

(Article 86 of the Financial Regulation)

The internal auditor shall adopt his work programme and shall sub-

1.
mit it to the institution.

The institution may ask the internal auditor to carry out audits not

2.
included in the work programme referred to in paragraph 1.

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The Court’s comments

The Commission’s proposal

Article 110

Reports of the internal auditor

(Article 86 of the Financial Regulation)

1.
The internal auditor shall submit to the institution the annual internal
audit report provided for in Article 86(3) of the Financial Regulation, indi-
cating the number and type of internal audits carried out, the principal rec-
ommendations made and the action taken on those recommendations.

This annual report shall also mention any systemic problems detected by the
specialised panel set up under Article 66(4) of the Financial Regulation.

2.
This report shall be sent to the departments audited and to the bod-
ies designated by each institution to see that action is taken on the recom-
mendations by the departments responsible.

3.
Each institution shall consider, on the basis of the recommendations
made in the reports of its internal auditor, whether the recommendations
made are suitable for an exchange of best practices with the other institu-
tions.

Article 111

Independence

(Article 87 of the Financial Regulation)

The internal auditor shall enjoy complete independence in the conduct of his
audits. He may not be given any instructions nor be restricted in any way as
regards the performance of the functions which, by virtue of his appoint-
ment, are assigned to him under the Financial Regulation.

TITLE V

PROCUREMENT

CHAPTER 1

General provisions

Article 124

Article 124

Use of a negotiated procedure without prior publication of a
contract notice

(Article 91 of the Financial Regulation)

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The Commission’s proposal

The Court’s comments

It would seem prudent to introduce a provision for cases in which the ten-
dering procedure does not give any result or if the prices quoted are not
acceptable (as is provided for in Article 59(c) of the current Financial Regula-
tion).

Contracting authorities may use the negotiated procedure without

1.
prior publication of a contract notice in the following cases:

(a) where no tenders or no suitable tenders have been submitted in response
to an open procedure or restricted procedure after the initial procedure
has been completed, provided that the original terms of the contract as
specified in the documents relating to the invitation to tender referred
to in Article 128 are not substantially altered;

(b) where, for technical or artistic reasons, or for reasons connected with
the protection of exclusive rights, the contract can be awarded only to
a particular economic operator;

(c)

in so far as is strictly necessary where, for reasons of extreme urgency
brought about by unforeseeable events not attributable to the contract-
ing authorities and likely to jeopardise the Communities’ interests, the
time limits for the other procedures provided for in Articles 138, 139
and 140 cannot be kept;

(d) where a service contract follows a contest and must, under the rules
applying, be awarded to the successful candidate or to one of the suc-
cessful candidates: in the latter case, all successful candidates shall be
invited to participate in the negotiations;

(e)

(f)

for additional services and works not included in the project initially
considered nor in the contract first concluded but which have, through
unforeseen circumstances independent of the contracting authority,
become necessary for the performance of the services or works, subject
to the conditions set out in paragraph 2;

for additional contracts consisting of the repetition of similar services
or works entrusted to the contractor awarded an earlier contract by the
same contracting authorities, provided that the subject of the contract
conforms to a basic project and that the first contract was awarded
under the open or restricted procedure.

As soon as the first project is put up for tender, the option of using this
procedure shall be pointed out, and the total estimated cost of the addi-
tional contracts shall be taken into consideration in calculating the
thresholds referred to in Article 156. This procedure may be used only
during the three years following the conclusion of the original contract;

(g)

for supply contracts:

(i)

in the case of additional deliveries which are intended either as a
partial replacement of normal supplies or installations or as the
extension of existing supplies or installations where a change of
supplier would oblige the contracting authority to acquire equip-
ment having different technical characteristics which would result
in incompatibility or disproportionate technical difficulties in opera-
tion and maintenance; the length of such contracts may not exceed
three years;

(ii) where the products involved are manufactured purely for the pur-
pose of research, experiment, study or development, with the
exception of commercial viability tests and large-scale production
aimed at recovering research and development costs;

(h)

for building contracts, after prospecting the local market;

(i)

for contracts with a value below the threshold laid down in Article 127(2).

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The Court’s comments

2.
For the additional services and works referred to in paragraph 1(e),
the contracting authority may make use of the negotiated procedure without
prior publication of a contract notice on condition that the award is made
to the contractor performing the contract:

(a) where such additional contracts cannot be technically or economically
separated from the main contract without serious inconvenience for
the contracting authority; or

(b) where such services or works, although separable from the perfor-
mance of the original contract, are strictly necessary for its comple-
tion.

The aggregate value of additional contracts may not exceed 50 % of the
amount of the initial contract.

TITLE VI

GRANTS

CHAPTER 1

Scope

Article 158

Scope

(Article 108 of the Financial Regulation)

The grants paid under the financing agreements referred to in
1.
Article 166 of the Financial Regulation and the grant agreements with the
bodies referred to in Article 54 of that Regulation are governed by this Title.

On the other hand, the procedure for awarding and concluding those agree-
ments is not subject to this Title.

CHAPTER 3

Award procedure

Article 171

Financing applications

(Article 114 of the Financial Regulation)

1.
Applications shall be made on the form distributed by the authoris-
ing officers responsible and in accordance with the criteria laid down in the
legal basis and the call for proposals.

Article 158(1)

The first indent of this Article says that grant agreements with bodies
entrusted with budget implementation tasks (as defined in Article 54 of the
Financial Regulation) are covered by Title VI of the Implementing Rules deal-
ing with grants (only to say in the second indent that the procedure concern-
ing the award and conclusion of these agreements is not subject to the provi-
sions of this Title). This seems to be in contradiction with Article 108(2) of
the Financial Regulation which says that ‘the following shall not constitute
grants within the meaning of this title (Part1, Title VI): (c) payments made to
the delegate bodies of the Commission referred to in Articles 54 and 55 …’.

The second indent should say precisely which of the articles in this title
should apply to the types of grant agreement for which their award and con-
clusion is not subject to the provisions of this Title (which also include the
financing agreements defined in Article 166 of the Financial Regulation),
most of which seem to concern award procedures and conditions.

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The Court’s comments

2.
They shall show that the applicant exists as a legal person and has the
financial and operational capacity to complete the proposed action or work
programme, subject to Article 174(4). For this purpose the authorising
officer shall request a declaration from potential beneficiaries on their
honour; the profit and loss account, the balance sheet for the last financial
year for which the accounts have been closed and any other supporting
document requested in the call for proposals shall, depending on the analysis
of management risks conducted by the authorising officer responsible on his
own responsibility, also be attached to the application.

3.
The budget for the action or the operating budget attached to the
application must have revenue and expenditure in balance and show clearly
the costs which are eligible for financing from the Community budget, save
in the case of the flat-rate amounts referred to in Article 179(1).

4.
For actions where the cost to be financed exceeds EUR 300 000 and
for operating grants of over EUR 50 000, the application shall be accompa-
nied by an external audit report produced by an approved auditor. This
report shall certify the accounts for the last year available, give an assess-
ment of the viability of the body within the meaning of Article 174(2) and
identify the grants received during the year.

The provisions of the first subparagraph shall apply only to the first applica-
tion made by a beneficiary to an authorising officer in any one budget year.

In the case of agreements linking the Commission and a number of benefi-
ciaries, these thresholds shall apply to each beneficiary.

In the case of partnerships referred to in Article 161, an external audit cover-
ing the last two years available must be produced before the framework
agreement is concluded.

The authorising officer responsible may, depending on the analysis of man-
agement risks, waive this obligation for public bodies, the international
organisations referred to in Article 41, and beneficiaries who have accepted
joint and several liability in the case of agreements with a number of ben-
eficiaries.

5.
The applicant shall indicate the sources and amounts of any other
funding received or applied for in the same year for the same action or for
any other action and for routine activities.

Article 171(4)

The specific provision in Article 171(4) for the application to be accompa-
nied by an audit report going beyond the certification of the accounts would
appear to mean that the required report will have to be prepared specifi-
cally. There is a risk that in some circumstances (e.g. external action) such a
demanding requirement may result in worthwhile programmes being turned
down. It should be sufficient to require the previous year’s normal audit
report to be provided. The end of the first sentence of Article 171(4) should
read ‘… by an approved auditor certifying the accounts for the last year for
which they are available’. The second sentence should be deleted.

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The Court’s comments

Article 178(1)

This Article provides that, for each grant, a pre-financing payment should
be renewed only when at least 70 % of the pre-ceding prefinancing payment
has been absorbed, as demonstrated by a declaration of expenditure. It would
be far preferable not to reason in terms of renewing pre-financing pay-
ments, but to establish the principle that pre-financing payments are made
once at the beginning of an operation, and that all subsequent payments are
made on the basis of reimbursing the Community share of expenditure
incurred by the grant recipient. At the appropriate time, the pre-financing
payments would be absorbed by expenditure incurred. This can be done
when pre-financing is absorbed pro rata to the cumulative expenditure
incurred, or when total payments have reached the limit laid down in the
grant agreement.

An approach of this kind, which was proposed by the Court in paragraph 33
of its Opinion No 2/2001 on the recasting of the Financial Regulation,
makes it relatively easy to account for pre-financing payments which have
not yet been absorbed by expenditure incurred (and which should appear in
the balance sheet in accordance with Article 4(1) of the Implementing Rules),
and to identify these for supervision and control purposes. It would also
make it easier for the Commission’s accounts to give some indication of the
extent to which budgetary payments represent ‘real’ expenditure at the level
of beneficiaries. See also Article 102.

Article 178(2)

This paragraph should be linked to Article 120(2) of the Financial Regula-
tion which concerns the audit of grants. The second indent should be modi-
fied as follows to make audit of grants of a certain financial importance
mandatory: ‘The authorising officer must request an external audit, com-
plying with terms of reference laid down by him, where …’.

The Commission’s proposal

CHAPTER 4

Payment and control

Article 178

Supporting documents for requests for payments

(Article 117 of the Financial Regulation)

1.
For each grant, pre-financing shall not be renewed until at least 70 %
of the total amount of any earlier pre-financing has been cleared. The state-
ment of the beneficiary’s outlay shall be produced in support of any request
for a further payment.

An external audit of the accounts for the action or of the body in
2.
receipt of an operating grant produced by an approved auditor may be
demanded by the authorising officer responsible in support of any payment
on the basis of his analysis of management risks.

The authorising officer responsible shall give reasons for not requesting an
external audit where payment of pre-financing and interim payments exceed
EUR 500 000 per year and per agreement, for payments of balances exceed-
ing EUR 100 000 and for operating grants of more than EUR 50 000.

In the case of an agreement linking the Commission and a number of ben-
eficiaries, these thresholds shall apply to each beneficiary.

Article 179

Flat-rate financing

(Article 117 of the Financial Regulation)

1.
In addition to cases of scholarships and prizes, the basic act may
authorise flat-rate financing for contributions of less then EUR 5 000 or the
use of scales of unit costs.

In order to ensure compliance with the co-financing, no-profit and sound
financial management principles, these flat-rate amounts and scales shall be
reviewed at least every two years by the authorising officer responsible. The
amounts shall be approved by the Commission.

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The Commission’s proposal

The Court’s comments

2.

The grant agreement may authorise flat-rate cover:

Article 179(2)

(a) of the beneficiary’s overheads up to a maximum of 7 % of total eligible
costs for the action, save where the beneficiary is in receipt of an oper-
ating grant financed from the Community budget;

(b) of certain mission expenses on the basis of a per diem scale approved

annually by the Commission.

The ceiling provided for in point (a) of the first subparagraph may be
exceeded by reasoned decision of the Commission.

Grant agreements may authorise flat-rate cover ‘of the beneficiary’s over-
heads up to a maximum of 7 % of the total costs for the action’. This arbi-
trary ceiling does not have a sound basis and is meaningless in the absence
of an accepted definition of what constitutes overheads, given that this may
vary considerably from one organisation to another. It would be adequate
to allow flat-rate cover of reasonable overheads and leave that judgment to
the authorising officer. The provision that this ceiling ‘may be exceeded by
reasoned decision of the Commission’ provides welcome flexibility but
seems to be too heavy a procedure for such a matter.

Article 181

Article 181

Suspension and reduction of grants

(Article 119 of the Financial Regulation)

The authorising officer responsible shall suspend payments and reduce

1.
the grant or demand reimbursement pro rata by the beneficiary:

(a) where the agreed action or work programme is not carried out at all,

properly, in full or on time;

Paragraph 1(a) obliges the authorising officers to ‘suspend payments and
reduce the grant or demand reimbursement pro rata’ if the work programme
is not carried out on time (as well as for other reasons). This is too categoric,
most actions being late for a whole variety of reasons, some of which are
outside the control of the grantee.

(b) where amounts exceeding the financing ceilings set in the agreement
have been paid, in particular if the agreed action or work programme
has been carried out at a lower cost than initially forecast;

The authorising officer should simply have the power to act in that way, if
necessary and appropriate.

(c) where the budget for the action or the operating budget reveals a sur-

plus ex post.

2.
Payments may also be suspended following presumed infringements
of other clauses of the agreement. The purpose of such suspension shall be
to give time to check whether the presumed infringements have in fact
occurred and, where appropriate, to rectify them.

TITLE VII

KEEPING AND PRESENTATION OF THE ACCOUNTS

CHAPTER 1

Presentation of the accounts

Article 184

Article 184

Exception to the accounting principles

(Article 124 of the Financial Regulation)

Where, in a specific case, the accounting officers consider that an exception
should be made to the content of one of the accounting principles defined
in Articles 185 to 191, this exception must be duly substantiated and reported
in the annex to the financial statements referred to in Article 201.

The Article should read as follows: ‘Where in a specific case, the accounting
officers consider that an exception should be made to the accounting prin-
ciples defined in Articles 185 to 191, this exception must not only be duly
substantiated, but its impact on the income, expenditure (“charges” is the
wording used in the English version of the Financial Regulation in Article 123,
to translate the word “charges” in French. The word “expenditure” seems
more appropriate in English), assets and liabilities, entitlements and obli-
gations, must also be disclosed in the Annex (*) to the financial state-
ments.’

(*) Generally referred to in English as ‘notes to the financial statements’.

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Article 188

Principle of comparability of information

(Article 124 of the Financial Regulation)

1.
The principle of comparability of information means that for each
item the financial statements shall also show the amount of the correspond-
ing item the previous year.

2.
Where, pursuant to paragraph 1, the presentation or the classifica-
tion of one of the components of the financial statements is changed, the
corresponding amounts for the previous year shall be made comparable and
reclassified.

Where it is impossible to reclassify items, this shall be explained in the
Annex.

The Court’s comments

Article 188(2)

The following text should be added to this Article: ‘When the presenta-
tion or the classification of one of the components of the financial
statements is changed in accordance with Article 187(2), the Annex to
the accounts should indicate the nature of the amount(s) concerned
by, and the reason for, the changes concerned’.

Article 191

Article 191

Principle of reality over appearance

(Article 124 of the Financial Regulation)

The principle of reality over appearance means that accounting events
recorded in the financial statements shall be presented by reference to their
economic nature.

This Article requires that the financial statements comply with the principle
of reality over appearance (*). It should be stated in this article that whenever
there are exceptions to this principle, they should be disclosed in the annex
to the financial statements when material. An example of such an exception
would be the recording of legal commitments in instalments.

(*) Generally referred to in English as ‘substance over form’.

Article 193

Valuation of assets and liabilities

(Article 125 of the Financial Regulation)

1.
Assets and liabilities shall be valued at purchase price or production
cost. However, the value of non-financial fixed assets shall be written down
for depreciation. In addition a write-down may be applied where the value
of an asset decreases and an increase in the value of a liability may be cov-
ered by a provision.

2.
The accounting rules and methods referred to in Article 133 of the
Financial Regulation may lay down that all items or only some of them shall
be valued at a value other than their purchase price.

Article 193(1)

Standard depreciation rates for the different asset categories concerned
(which should include the ‘Formation expenses’ mentioned in Article 196)
should be indicated in this Article so that all institutions apply comparable
rules.

Article 193(2)

The following text should be added: Such valuations must be justified
and this justification must be disclosed in the Annex to the financial
statements required by Article 201.

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The Court’s comments

Article 201

Article 201

Annex to the financial statements

(Article 126 of the Financial Regulation)

The Annex referred to in Article 126 of the Financial Regulation shall form
an integral part of the financial statements. It shall contain at least the fol-
lowing information:

(a)

accounting principles, rules and methods;

(b)

explanatory notes, supplying additional information not contained in
the body of the financial statements which is necessary for an accurate
picture;

(c) off-balance-sheet commitments showing entitlements and obligations
not included in the balance sheet which could have a material impact
on the assets and liabilities, the financial situation or the result of the
entity concerned.

The Annex (*) to the financial statements should be required to contain also
a table which would show the link between the budget outturn account on
the one hand and the economic outturn account on the other hand, so that
the reader of the financial statements would be in a position to understand
the link between both results.

(*) Generally referred to in English as ‘notes to the financial statements’.

In Article 201(b) ‘in the body of’ should be replaced by ‘elsewhere in’, to
avoid a contradiction with the first indent of this Article which states that
the Annex shall form an integral part of the financial statements.

CHAPTER 2

(Chapter 3 of the Financial Regulation)

Accounting

SECTION 1

Organisation of the accounts

Article 205

Article 205

Organisation of the accounts

(Article 132 of the Financial Regulation)

1.
The accounting officer of each institution and body referred to in
Article 185 of the Financial Regulation shall draw up documents describing
the organisation of the accounts and accounting procedures of his institu-
tion.

In drawing up the financial statements, as little use as possible shall

2.
be made of information from outside the accounts.

3.
Budget revenue and expenditure shall be recorded in the computer-
ised system referred to in Article 206, according to the economic nature of
the operation, as current revenue or expenditure or as capital.

This Article refers to Article 132 of the Financial Regulation which contains
provisions common to both the general and budgetary accounts. Several
articles in the proposed Implementing Rules, which currently refer to
Article 135 of the Financial Regulation, and which therefore apply only to
the general accounts (on which the balance sheet is based), are of relevance
to both the general and budgetary accounts and therefore should be incor-
porated in Article 205. These are Articles 211 (double-entry bookkeeping
and accounting in euro), 212 (recording), 213 (supporting documents) and
215(2) (closure).

The most important of these is the requirement to apply double-entry book-
keeping which should be applied to the budgetary accounts. This would lead
to a fully integrated accounting double-entry system capable of providing
the accounting discipline required to solve the problems associated with the
present incomplete and disjointed approach.

Paragraph 1 should be modified as follows: ‘The accounting officer … shall
draw up, and keep up to date, documents describing …’.

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Article 206

Computerised systems

(Article 132 of the Financial Regulation)

The Court’s comments

Article 206

The accounts shall be kept with the help of one or more computer

1.
programs.

Where accounts are kept using computerised systems and sub-

2.
systems, such systems and subsystems shall be described in full.

The first and second indents of paragraph 2 of this Article largely duplicate
Article 104. It would be sufficient in indent one to state that the provisions
of Article 104 apply to accounting systems and subsystems. The second
indent should be deleted and the third be incorporated in Article 104.

This description shall define the content of all data fields and specify how
the system treats individual operations. It shall state how the system guar-
antees the existence of a complete audit trail for each operation.

The descriptions of computerised accounting systems and subsystems shall
indicate any links between these systems and the central accounting system
(particularly as regards the transfer of data and the reconciliation of bal-
ances).

SECTION 2

Accounting ledgers

Article 208

Trial balance

(Article 135 of the Financial Regulation)

Article 208

Each institution and body referred to in Article 185 of the Financial Regula-
tion shall establish a trial balance covering all asset, liability and outturn
accounts, including the accounts cleared during the year, with, in each case:

This Article, which requires the establisment of a trial balance, should be
amended as follows to be consistent with the chart of accounts in Article 210:
‘… covering all asset,
liability, outturn, special and off-balance-sheet
accounts, including …’.

(a)

account number;

(b)

description;

(c)

total debits;

(d)

total credits;

(e) balance.

SECTION 3

Chart of accounts

Article 210

Chart of accounts

(Article 135 of the Financial Regulation)

The chart of accounts shall be adopted by the Commission’s account-

1.
ing officer.

2.

The chart of accounts shall divide the accounts into classes.

Each class may be subdivided into groups or subgroups, as required.

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The Court’s comments

3.

The chart of accounts must contain at least the following classes:

(a)

for the balance-sheet accounts:

(i)

(ii)

class 1: accounts for capital, provisions and creditors due in over
one year;

class 2: accounts for formation expenses, fixed assets and debtors
due in over one year;

(iii)

class 3: stock accounts;

(iv)

class 4: accounts for debtors and creditors due in one year or less;

(v)

class 5: financial accounts;

(b)

for the revenue and expenditure accounts:

(i)

class 6: charges accounts;

(ii)

class 7: income accounts;

(c)

for the special accounts:

classes 8 and 9: special accounts;

(d)

for off-balance-sheet transactions:

class 0: off-balance-sheet transactions.

The chart of accounts shall be detailed enough to allow operations

4.
to be recorded in accordance with accounting standards.

Article 210(4)

This paragraph should be dropped unless it can be drafted in a way which
makes clear exactly what it means.

The contents of each account and class and its operation shall be laid

5.
down in the chart of accounts.

SECTION 4

Registration

Article 211

Entries in the accounts

(Article 135 of the Financial Regulation)

Article 211

Entries shall be made using the double entry method, whereby any
1.
movement or variation recorded in the accounts shall be represented by an
entry establishing an equivalence between the amount debited and the
amount credited in the various accounts affected by that entry.

This Article should contain a provision for the year-end balances on balance-
sheet accounts reflecting assets or liabilities denominated in foreign curren-
cies to be converted to euro at the rate prevailing at 31 December. The
unclear second sentence of paragraph 2 on revaluations would then become
redundant, as would the third sentence referring illogically to Article 8 of the
Implementing Rules.

The euro counterpart of a transaction denominated in a currency

2.
other than the euro shall be calculated and entered in the accounts.

Transactions in foreign currencies in accounts which can be revalued shall
be revalued at least each time the accounts are closed.

This revaluation shall be based on the rates laid down in accordance with
Article 8.

Article 212

Accounting records

(Article 135 of the Financial Regulation)

Article 212

All accounting records shall specify the origin, content and booking refer-
ence of each data item and the references of the relevant supporting docu-
ments.

See Article 205

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The Commission’s proposal

Article 213

Supporting documents

(Article 135 of the Financial Regulation)

The Court’s comments

Article 213

1.
Each entry shall be based on a dated and numbered supporting docu-
ment, produced on paper or on a medium which guarantees the reliability
and safeguarding of its content for the periods laid down in Article 46.

See Article 205

Operations of the same type, carried out in the same place and on

2.
the same day may be summarised in a single supporting document.

Article 214

Article 214(b)

Recording in the journal

(Article 135 of the Financial Regulation)

Accounting operations shall be recorded in the journal by one of the fol-
lowing methods, which are not mutually exclusive:

This Article should provide for a monthly, rather than a periodic, summary.

(a)

either day by day, operation by operation;

(b) or in the form of a periodic summary of the total amounts involved in
operations, provided that all documents allowing verification of indi-
vidual operations day-by-day are kept.

Article 215

Validation of entries

(Article 135 of the Financial Regulation)

1.
Entries in the journal and in an inventory ledger shall be made final
by means of a validation procedure prohibiting any change to or deletion of
the entry.

2.
A closure procedure designed to freeze the chronology of records and
guarantee their inviolability shall be implemented before the final financial
statements are presented.

Article 215(2)

See Article 205

SECTION 5

Reconciliation and verification

Article 216

Reconciliation of accounts

(Article 135 of the Financial Regulation)

The balance shown on each account in the trial balance shall be rec-

1.
onciled periodically, and at least whenever the accounts are closed.

Article 216(1) and (2)

2.
Periodically, and at least whenever the accounts are closed, the
accounting officer shall check that the data in the inventory ledger corre-
spond to the actual situation, in particular as regards:

(a)

cash at bank, by reconciliation of the statements of account from finan-
cial institutions;

(b)

cash in cash offices, by reconciliation with the data in the cash book.

The fixed assets accounts shall be reviewed in accordance with Article 222.

Paragraph 1 should make it clear with what ‘the balance shown on each
account in the trial balance shall be reconciled periodically’. ‘Periodically’
should be replaced by ‘monthly’ or ‘quarterly’.

Paragraph 2 should make it clear what is meant by ‘inventory ledger’, by
reference to Article 207 and/or Article 209.

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The interinstitutional liaison accounts shall be reconciled and cleared

3.
periodically.

Article 216(3) and (4)

Paragraph 3: replace ‘periodically’ by ‘monthly’

The suspense accounts shall be reviewed periodically by the account-

4.
ing officer so that they can be cleared as soon as possible.

Paragraph 4: replace ‘periodically’ by ‘quarterly’
A clear time frame is required for these important provisions.

SECTION 6

Budget accounts

Article 217

Content and keeping of budget accounts

(Article 137 of the Financial Regulation)

1.

The budget accounts shall show, for each subdivision of the budget:

Article 217(1)

This Article refers to the need to disclose ‘participation and contributions by
third parties’, which is a source, among others, of assigned revenue.

The subparagraphs (a)(i) and (b)(i) should be modified to replace these terms
by ‘assigned revenue’.

(a)

in the case of expenditure:

(i)

the appropriations authorised in the initial budget, the appropria-
tions entered in amending budgets, the appropriations carried over,
the appropriations available in respect of participation by third par-
ties, transfers of appropriations and the total appropriations thus
available;

(ii)

the commitments and payments in respect of the financial year;

(b)

in the case of revenue:

(i)

the estimates entered in the initial budget, the estimates entered in
amending budgets, revenue from contributions by third parties and
the total amount of estimates thus determined;

(ii)

the entitlements established and the amounts recovered in respect
of the financial year in question;

(c)

the commitments still to be paid and revenue still to be recovered car-
ried forward from previous financial years.

The commitment appropriations and payment appropriations referred to in
point a of the first paragraph shall be entered and shown separately.

The global provisional commitments relating to the EAGGF Guarantee Sec-
tion and the corresponding payments shall also be recorded in the budget
accounts.

These commitments shall be presented in respect of total EAGGF Guarantee
Section appropriations.

2.

(a)

The budget accounts shall show separately:

the use of appropriations carried over and the appropriations for the
year;

(b)

the clearance of outstanding commitments.

On the revenue side, amounts still to be recovered from previous financial
years shall be shown separately.

The budget accounts may be organised in such a way as to develop a

3.
cost accounting system.

The budget accounts shall be kept using computer systems, in books

4.
or on file cards.

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The Court’s comments

The Commission’s proposal

CHAPTER 3

(Chapter 4 of the Financial Regulation)

Property inventories

Article 218

Property inventories

(Article 138 of the Financial Regulation)

Article 218

The system of property inventories shall be established by the authorising
officer with technical assistance from the accounting officer. This inventory
system must supply all the information required for keeping the accounts.

For the inventory system to be fully useful and in order to avoid any overlap
and/or double entry of information, it should not only supply the informa-
tion required for keeping the accounts, but also for ensuring the safekeep-
ing of the assets.

Article 220

Entries in the inventory

(Article 138 of the Financial Regulation)

Add to text: ‘and for the safekeeping of the assets’.

Articles 220 to 222

All items acquired whose purchase price or production cost is EUR 420 or
more, with a period of use greater than one year, and which are not con-
sumables shall be entered in the inventory and recorded in the fixed assets
accounts.

Article 138 of the Financial Regulation provides that ‘each institution and
… shall keep inventories showing … of all tangible, intangible and financial
assets …’. However Articles 220, 221 and 222 (inventory entries, content
and checks) of the Implementing Rules seem to ignore the financial assets.

PART TWO

SPECIAL PROVISIONS

TITLE I

(Title II of the Financial Regulation)

STRUCTURAL FUNDS

Article 226

Article 226

Repayment of payments on account

(Article 157 of the Financial Regulation)

In accordance with the regulations on the Structural Funds and the Cohe-
sion Fund, the repayment of payments on account in respect of a given
operation shall not have the effect of decommitting the corresponding
appropriations or of reducing the contribution from the Fund to the opera-
tion concerned.

The reference to Article 157 of the Financial Regulation should be replaced
by Article 156 which concerns repayments.

It would be more accurate to refer to ‘… the repayment of all or part of pay-
ments on account …’.

Amounts repaid shall constitute assigned revenue in accordance with
Article 18 of the Financial Regulation.

The reference to ‘decommitting the corresponding appropriations’ is unnec-
essary, because the initial commitment has already been absorbed by the
payments on account concerned and can no longer be decommitted.

The second sentence providing that amounts repaid shall constitute assigned
revenue should refer to the precise indent of Article 18 covering such cases
(presumably point (f) based on a relatively wide interpretation).

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The Commission’s proposal

TITLE IV

(Title V of the Financial Regulation)

EUROPEAN OFFICES

Article 258

Article 258

Treasury — Bank accounts

(Article 172 of the Financial Regulation)

To meet the cash requirements of an interinstitutional Office, bank accounts
or post office giro accounts may be opened on its behalf by the Commis-
sion, acting on a proposal from the Management Committee.

It would be clearer if the third paragraph of this Article read: ‘The final cash
position for each year shall be reconciled and cleared between the Office
in question and the Commission at the end of the year’.

The accounts shall be replenished regularly by payments made by the Com-
mission upon receipt of calls for funds from the Office in question. Such
payments may not exceed the total amount of the appropriations entered for
this purpose in the Commission budget for the current year.

The final cash position for each year shall be adjusted between the Office in
question and the Commission at the end of the financial year.