Communication of the Commission - Improving the recovery of Community entitlements arising from direct and shared management of Community expenditure
Date: 2002-12-03
Institutions: European Commission
Subjects: Community budget, EU expenditure, EU financing, administrative procedure, claim, financial analysis, financial management, institutional reform, management

COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, 3.12.2002
COM(2002) 671 final

COMMUNICATION OF THE COMMISSION

Improving the recovery of Community entitlements arising from direct and
shared management of Community expenditure

TABLE OF CONTENTS

COMMUNICATION OF THE COMMISSION Improving the recovery of Community
entitlements arising from direct and shared management of Community expenditure.............. 1

1.

2.

2.1

2.2.

3.

3.1.

Introduction.................................................................................................................. 6

Analysis of the current situation .................................................................................. 9

Accounting data at 30/06/2002 .................................................................................... 9

Problems which the accounting data cannot identify: non established Community
entitlements ................................................................................................................ 11

Improved recovery of established Community entitlements ..................................... 14

Measures considered by the Commission on adoption of the action plan of
13 December 2000 concerning Community entitlements arising from direct
expenditure and implemented on this basis ............................................................... 14

3.1.1.

Preventive measures................................................................................................... 15

3.1.2. Curative measures (reduction of old Community entitlements) ................................ 15

3.2.

Measures now being introduced following the action plan of 13 December 2000.... 18

3.2.1.

Enhancing the role of the authorising officer (decentralisation of the debit note)..... 18

3.2.2. Boosting enforced recovery methods......................................................................... 19

3.2.3. Rationalisation of the writing-off of debts ................................................................. 20

3.2.4. Measures to be implemented to ensure full use of these new rules ........................... 23

4.

Measures to ensure systematic establishment of Community entitlements within a
reasonable period ....................................................................................................... 24

4.1.

Systematic establishment of all "principal" entitlements........................................... 24

4.1.1

Retaining the overriding obligation in the new Financial Regulation ....................... 24

4.1.2.

Enhancing the obligation to forecast entitlements ..................................................... 24

4.1.3. Reinforcing the accountability of Community officials and staff.............................. 25

4.2.

4.3.

Systematic establishment of default interest on principal debts ................................ 25

Systematic establishment of Community entitlements arising from shared
management in the EAGGF Guarantee sector ........................................................... 26

4.3.1.

Solutions proposed to clear the "burden of the past" ................................................. 27

4.3.2.

Solution proposed to facilitate treatment of reported irregularities in future............. 29

5.

Conclusions................................................................................................................ 30

2

ABSTRACT

Community  expenditure  per  capita  in  constant  prices  has  increased  significantly  between
1992  and  2002.  New  tasks  have  been  conferred  on  the  Commission,  many  involving  the
management of funds. Total Community financing over this period in 2002 prices amounts to
around 800 billion Euro.

A part of this management of funds has been the recovery of entitlements by the Communities
or by the Member States, in case of shared management of Community funds, following the
settlement  of  advances  or  as  a  consequence  of  error,  irregularities  of  form  or  of  substance,
and, in rare cases, of fraud.

The  extent  of  open  entitlements  as  of  30  June  2002  totalled  just  over  3,5  billion  Euro,
including  entitlements  from  agricultural  expenditure,  structural 
from
miscellaneous items. The recovery of all Community entitlements regularly comes to between
80 and 90% of the amount due.

funding  and 

But the area is a difficult one and subject to misunderstanding, since the term recoveries used
in the accounts covers four quite different matters:

(1) 

(2) 

(3) 

(4) 

recoveries of amounts unduly paid by Member States to agricultural entities
or to organisations involved in structural actions, either through formal errors
or errors of substance, unintentional or, occasionally, deliberate,

recoveries  of  fines  levied  by  the  Commission  on  organisations  or  Member
States

recoveries of own resources from Member States in the normal procedure of
drawing down entitlements

recoveries  from  beneficiaries  of  Community  funding  when  the  contract  or
grant agreement has not been fulfilled according to its terms

This  Communication  to  the  Parliament,  the  Council  and  the  Court  of  Auditors,  the
Commission answers these institutions' demands to be provided with in-depth information on
the progress made with regard to Action 96 of the White Paper on reform, concerning "Better
management of unduly paid funds".

This communication takes stock of progress since 2000  in  the  recovery  of  sums  paid  under
direct and shared management of Community expenditure, which needed to be recovered as a
consequence  of  settlement  of  advance  payments,  as  well  as  errors,  irregularities  or,  in  few
cases, fraud.

This communication leaves aside own  resources  and  fines,  which  are  governed  by  different
sets of rules and do not result from the management of Community expenditure, even though
they are also registered as Community entitlements in the accounts.

Under  Community  entitlements  arising  from  direct  management  much  has  been  done  since
2000 in terms of preventive  and curative measures, rationalisation and increase of resources
involved in recovery within the  horizontal  services of the Commission. Further  clarification
as to the role of each actor, re-enforcement of establishment of Community entitlements and

3

recovery  methods,  transparent  rules,  both  regulatory  and  internal,  will  be  applicable  from
01/01/2003 with the application  of the new financial framework (new  Financial Regulation,
Implementing Rules and Internal Rules).

Under  Community  entitlements  arising  from  shared  management  of  Community  funds
(EAGGF-Guarantee and Structural Funds), Member States are responsible for claims towards
final  beneficiaries  and  for  communicating  the  amounts  concerned  to  the  Commission.  By
virtue  of  the  existing  legislation  the  Commission  has  to  follow  the  process  of  recovery
conducted by the Member States on a case by case basis, and where appropriate according to
the  EAGGF  Guarantee  and  the  Structural  Funds  regulations,  charge  Member  States  with
amounts non recovered. This follow up is  a  complex and burdensome  process  and accounts
for  delays  in  establishing  Community  entitlements  as  well  as  the  existence  of  a  specific
backlog of cases to be investigated in the area of the EAGGF Guarantee. The Commission is
setting up a temporary task force composed of specialists from OLAF and DG AGRI to deal
with this backlog and is preparing a proposal to modify Article 8 of the Regulation 1258/1999
with a view to simplifying these procedures.

The Commission is confident that this new environment will ensure more efficient recovery
of Community  entitlements arising both from  direct and  shared  management  of Community
funds.

4

1.

INTRODUCTION

The  constant  increase  in  tasks  conferred  on  the  Commission,  particularly  in
connection with the management of funds, has automatically drawn greater attention
to the problem of amounts that need to be recovered by the Communities or by the
Member States in the case of shared management of Community funds, following the
settlement of advance payments or as a result of errors, irregularities or, in few cases,
fraud1.

...The Commission has undertaken a substantial administrative reform in response to
this concern. In the Reform White Paper of March 2000, it laid down guidelines for
the  more  effective  management  of  expenditure  and  of  the  recovery  of  entitlements
arising  from  direct  and  shared  management  of  Community  expenditure.  This
approach  is  one  of  this  Commission's  main  contributions  to  the  protection  of  the
Community's financial interests.

The  objective  of  reform  in  this  sector  was  described  in  the  action  plan  on  the
Commission's administrative reform of April 2000.

Measures must focus on how to make legislation and financial management rules and
procedures as "watertight" as possible against errors, irregularities and fraud through
better  defined  and  more  effective  co-operation  between  Commission  departments,
and between the Commission and Member States.2

The  White  Paper  set  out  a  number  of  basic  actions  for  the  general  support  of  the
reform,  such  as  the  creation  of  the  Internal  Audit  Service,  the  Central  Financial
Service, an information and training programme for the financial actors and a general
overhaul of the financial rules. The White Paper also established four general fields
of activity for the protection of financial interests.3 Action 96 had the specific aim to
achieve a more effective recovery of unduly paid funds.

1

2

3

In this context ‘errors’ refers to “transactions which have been incorrectly entered in the accounts or
which have not been carried out in accordance with the legal and regulatory provisions applicable to
them”,  as  defined  by  the  Court  of  Auditors  for  the  purpose  of  its  annual  reports  and  the  DAS,  and
regardless  of  any  potential  prejudice  to  the  budget  of  the  European  Communities.  ‘Irregularity’  in
accordance with Article 280 CE refers to incorrect application of rules, now coupled in the context of
the  protection  of  financial  interests  with  an  impact  on  the  budget.  Article  1,  paragraph 2  of  Council
Regulation  (EC,  Euratom)  No  2988/95  of  18  December  1995  on  the  protection  of  the  European
Communities  financial  interests  (O  J L  312  of  23 December 1995)  defines  irregularity  as  “any
infringement  of  a  provision  of  Community  law  resulting  from  an  act  or  omission  by  an  economic
operator, which has, or would have, the effect of prejudicing the general budget of the Communities or
budgets managed by them, either by reducing or losing revenue accruing from own resources collected
directly  on  behalf  of  the  Communities,  or  by  an  unjustified  item  of  expenditure”.  Finally  “fraud”  as
defined by Article 1 of the 1995 Convention on the protection of financial interests implies, in respect
of revenue, an intentional act or omission having the effect of illegally diminishing the resources of the
general budget of the European Communities (Convention drawn up on the basis of Article K.3 of the
Treaty  on  European  Union,  on  the  protection  of  the  European  Communities’  financial  interests
(OJ C 316 of 27 November 1995)
Reforming  the  Commission,  White  Paper,  Part II,  COM(2000)200 final/2,  5 April 2000,  V,  XXX-
Protecting the Communities' financial interests, pp. 69-70.
Action 92 "Guidelines  for sound project management", Action 93 "Better co-ordination of interaction
between  OLAF  and  other  services",  Action  94  "Fraud  “proofing”  of  legislation  and  contract
management ", Action 95 "Optimisation of Early Warning System".

5

                                                
The  communication  to  the  Commission  of  13 December 2000  on  the  recovery  of
unduly paid funds 4 fleshed out these guidelines by setting out a practical action plan
for  the  recovery  of  established  Community  entitlements  in  the  field  of  ‘direct’5
expenditure.  It  is  now  a  case  of  gauging  the  extent  to  which  this  has  been
implemented, deciding on the next steps  and,  in accordance  with  the  Commission's
undertakings,  supplement  this  action  plan  with  new  measures  to  ensure  that  all
establishable  debts  in  connection  with  both  direct  and  shared  management6  of
expenditure are established.

Improving the recovery of Community entitlements is obviously only one aspect of
the reform of financial management which the Commission has undertaken to make
expenditure operations as error/irregularity/fraud-proof as possible. The fundamental
importance of measures being taken to prevent any undue payment well in advance
should be emphasised in this connection,7 although they do not fall within the scope
of this communication.

In  this  perspective,  it  should  be  pointed  out  that  the  Commission  implements  the
appropriations adopted by the budgetary authority for missions which intrinsically do
not  always  allow  the  risk  of  undue  payments  to  be  completely  removed.  There  are
two  main  reasons  for  this.  The  first  relates  to  the  type  of  sectors  concerned:  the
management model must take account of the risks inherent in these sectors and the
ultimate  objectives  set  by  the  legislator.  This  reservation  is  particularly  true  for
development aid and the economic and social cohesion policy.  The only protection
conceivable,  and  one  that  is  used  by  the  Commission8,  is  to  use  risk  evaluation
methods to try to reduce certain risks to a minimum, in particular by ascertaining the
financial  and  operational  capacity  of  every  recipient  of  Community  grants.9  The
second  reason  relates  to  the  type  of  expenditure  authorised.  In  particular,  paying
advances  or  granting  pre-financing  without  quid  pro  quo  at  the  time  of  payment
constitutes a tangible risk. However, this is viewed by all as an essential tool for the
achievement  of  certain  measures  adopted  by  the  Community  legislator.  Thus  this

4

5

6

7

8

9

Communication  of  13  December 2000  from  Ms Schreyer  to  the  Commission,  "Action  96-  More
effective management of recovery of unduly paid funds", SEC(2000)2204/3, point 4 "Plan of action for
more effective procedures".
Now  called  ‘centralised  direct’  management  in  accordance  with  Article 53(2)  of  Council  Regulation
(EC,  Euratom) N° 1605/2002  of  25 June 2002  on  the  Financial  Regulation  applicable  to  the  general
budget  of  the  European  Communities  (OJ L 248  of  16 September 2002)  –  hereafter  referred  to  as
‘direct’  management.  Recoveries  by  executive  agencies  within  the  management  of  Community
programmes  or  projects  delegated  to  them  in  accordance  with  Article  54(2)a)  and  55  of  Council
Regulation (EC, Euratom) N° 1605/2002 enter within the scope of the present communication.
Or “decentralised” management of Community funds where budget implementation tasks are delegated
to third countries in accordance with Article 53(3) of Council Regulation (EC, Euratom) N° 1605/2002,
as is the case towards candidate countries under the SAPARD and ISPA programmes.
In  particular  through  increased  evaluation  of  all  activities  throughout  the  expenditure  cycle
(SEC(2000)1051  of  26/07/2000)  and  through  fraud-proofing  (COM(2001)630  of  25/10/2001)  and  the
more general improvement of project management, including the adoption of internal control standards
(SEC(2001)2037/4)  and  the  harmonisation  of  contracts  to  achieve  greater  legal  certainty  for  the
Commission.
Comprising  the  systematic  evaluation  of  expenditure,  also  in  advance  of  any  legislation  (financial
statement),  the  introduction  of  planning,  programming  and  performance  measurement,  the  extent  of
implementation  and  elements  for  future  action,  in  particular  the  setting  of  objectives,  multiannual
programming,  annual  management  plans,  monitoring  performance  against  targets,  risk  analysis  and
management (Standard 11 of these internal control standards), SEC(2000)2203.
Conditions laid down in Articles 171 et seq of the draft Regulation laying down detailed rules for the
implementation of the new Financial Regulation adopted by the Commission on 24 July 2002.

6

                                                
principle has been upheld with the backing of all the Community institutions in the
new  Financial  Regulation  adopted  unanimously  by  the  Council  on  25 June 2002.10,
albeit subject to two obligations. One concerns the obligation, in the cases provided
for  in  the  implementing  rules,  to  require  contractors  or  beneficiaries  to  lodge  a
guarantee  in  advance  in  order  limit  the  financial  risks  connected  with  payment  of
pre-financing11. The other concerns the obligation to recover the interest  yielded by
pre-financing which remains the property of the Communities12.

10

11

12

Article 81(1)(b)(i) of Regulation 1605/2002, OJ L 248 of 16/09/2002, pp. 1-41.
Articles 102 and 118 of the new Financial Regulation.
Articles  3-4  of  the  draft  Regulation  laying  down  detailed  rules  for  the  implementation  of  the  new
Financial Regulation adopted by the Commission on 24 July 2002 (COM(2002)402 final).

7

                                                
2.

ANALYSIS OF THE CURRENT SITUATION

For accounting reasons, recovery orders established by the Commission have so far
included all types of revenue without any further distinction. For the purpose of this
communication therefore, own resources13 and fines14, which do not result from the
management of Community expenditure, are irrelevant..

These  two  types  of  Community  entitlements  excepted,  the  overall  amount  of
Community  entitlements  arising  from  the  direct  and  shared  management  of
Community  funds  outstanding  at  30 June 2002  based  on  the  main  types  of  debt
distinguished in the annual balance sheet of the Communities is as follows :

BUDGET 2002 : OPEN ENTITLEMENTS (Mio €)

EAGGF                  2 263.05

Struc. Funds               407.57

Other                          916.69

2.1 Accounting data at 30/06/2002

(cid:1)  Figures

As regards Community entitlements arising from the direct and shared management
of Community expenditure, the Commission recovered € 2.461,44 Mio in 2001. The
figure for the first six months of 2002 is € 755,27 Mio.

As  requested  by  the  Court  of  Auditors,  the  €2.263 billion  recently  recorded  for
EAGGF Guarantee section reflects amounts reported by the Member States as "to be
recovered",  but  consists  of  sums  actually  awaiting  recovery  by  the  Member  States
which,  if  not  recovered,  will  be  charged  either  to  the  Community  budget  or  to  the
budget  of  the  Member  State  concerned  (in  the  latter  case  only  will  the  sums  in
questions have to be recovered for the Community budget). The Commission can do
little if any thing to recover these amounts relating to overpayments by the 89 paying
agencies in the European Union to beneficiaries, which are to be recovered by these
agencies.  Due  to  the  fact  that  these  claims  are  so  old  however,  the  Commission
decided to enter them into the accounts, but will have to apply depreciating ratio to
take account of the time elapsed since  these  amounts were initially declared  by the
paying agencies in the Member States.

13

14

Own  resources  (€ 45 460.06 Mio at  30/06/2002)  are  excluded  from  the  schedules  as  they  are  less
relevant for the purpose of this communication. Community entitlements in this field stem from regular
monthly claims on Member States to make available own resources, and these claims are paid in time
by  national  treasuries.  Own  resources  are  not  governed  by  the  Financial  Regulation  applicable  to  the
general  budget  of  the  European  Communities,  but  by  Council  Decision  of  29 September 2000  on  the
system of the European Community’s Own Resources (2000/597/EC, Euratom).
Fines  imposed  by  the  Commission  for  infringements  against  the  competition  rules  (€ 2 935.76  at
30/06/2002) are mentioned only as a memorandum item, as they give rise to provisional payments or
the provision of a guarantee in the event of an appeal to a Community court.

8

                                                
The breakdown by due date is given in the following table (the analysis of the figures
for the EAGGF Guarantee section is given in section 4.3).

BUDGET 2002 : OPEN ENTITLEMENTS* AND CASHING BY DUE DATE ON 30 JUNE 2002

Fines**

Structural funds

Due date

Entitlement 
established

% Cashed 
in 2002

Entitlement 
established

Cashed in 
2002

Outstanding

% 
Cashed 
in 2002

Other

Entitlement 
established

Cashed in 
2002

Outstanding

% 
Cashed 
in 2002

in Mio Euro

not due

< 1 year

1 to 2 years

2 to 3 years

3 to 4 years

4 to 5 years

> 5 years

Total

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

2.010,36

190,68

51,81

521,86

8,8

152,25

2.935,76

19,45

381,22

9,19

24,18

12,81

2,03

22,93

-1,23

61,5

2,1

0

0,16

0,23

1,49

20,68

-6,33%

784,49

239,61

544,88

30,54%

319,72

16,13%

620,33

428,57

191,75

69,09%

7,08

22,89%

72,53

10,99

61,54

15,15%

24,18

-0,02%

12,65

1,28%

1,81

11,18%

21,44

6,49%

11

34,69

15,12

69,54

0,61

9,57

0,53

1,15

10,4

5,51%

25,12

27,59%

14,6

3,50%

68,39

1,65%

471,81

64,24

407,57

13,62%

1.607,72

691,03

916,69

42,98%

* Open entitlements are either established in 2002 or still outstanding  from previous years

**The amount of 2.935,76 Mio€ is composed of fines that are not due as yet and fines for which an appeal is pending before the  Court

of Justice of the EC.  As far as the latter cases are concerned, fines are either provisionally paid or secured by bank guarantee.

(cid:1)  Analysis

The amount overdue at 30 June 2002 (that is to say debts actually due on that date)
came to around:

– 

– 

– 

€ 2.3 billion  for  the  EAGGF  Guarantee  Section,  bearing  in  mind  the  above
reservation on depreciation to be applied and on the amount which is actually
to be repaid to the Community budget;

€ 387 million for the Structural Funds,

€ 373 million  for  miscellaneous  Community   entitlements  in  connection  with
direct management.

In themselves, these figures do not reflect a problematic situation assuming that they
show  that  amounts  which  have  to  be  recovered  are  systematically  established  and
provided  that  the  amounts  outstanding  consist  of  new  debt  with  old  Community
entitlements being regularly recovered. However this situation does not apply to the
debts  owed  to  the  Communities :    although  the  amount  outstanding  remains
relatively stable from month to month despite the establishment of new debts, more
detailed analysis by year of establishment reveals a sizeable percentage of old debts
which have not been recovered.

For shared  management the Communities' accounting data depict  a  situation  which
must be considered as provisional : the fact that the above figures have been recorded
does not mean that the Communities will be able to demand repayment of the entire
amount  under  the  sectoral  rules  (see  section  4.3  below  for  the  EAGGF-Guarantee
section).

The breakdown by age of debts arising from direct  management  of  Community
funds  is  examined  below.  This  analysis  (on  the  basis  of  the  final  column  of  the
above table) shows that:

9

– 

– 

– 

– 

some 88% of the amount overdue relate to Community entitlements established
in year n;

3% relate to Community entitlements established in year n-1;

1% relate to Community entitlements established in year n-2;

the  remaining  8%  relate  to  Community  entitlements  established  more  than
three years earlier.

The  oldest  Community  entitlements  should  attract  most  attention  and  be  the  target
for improvement. The  failure to  recover  these  Community  entitlements  could  mean
that:

– 

– 

– 

– 

the standard follow-up measures taken by the accounting officer have not been
successful;

the alternative recovery methods involving the offsetting of debts or calling in
the guarantee were not possible or were not applied;

the enforcement procedure under Article 256 EC has not been initiated;

and where the enforcement procedure under Article 256 EC was not possible,
the  procedure  for  obtaining  an  enforcement  order  by  legal  action  was
unsuccessful or was not initiated by the competent Commission services.

There are a number of reasons why these recovery methods have not been successful
or have not been fully applied. Some of the management failings can be explained up
to  now  by  a  certain  inappropriateness  of  the  tools  and  procedures  as  well  as,  to  a
certain extent, by the need to increase awareness of these methods in the departments
concerned.  In  any  case,  the  extent  to  which  the  inherent  length  of  the  legal
procedures initiated is responsible should not be underestimated.

The older the debt, the less likely it is to be recovered (change of address, insolvency
of  the  debtor,  time  bar  ruling  out  any  legal  action).  The  difficulties  involved  in
recovering  Community  entitlements  must  therefore  be  clearly  identified:  the
diagnosis  is  positive  as  the  recovery  of  properly  established  funds  is  relatively
stable  in  percentage  terms  and  comes  to  between  80 and  90%  of  the  amount
due. Solutions still have to be found to clear the "burden of  the past" consisting of
old Community entitlements which have not been recovered.

that 

These  findings  show 
to  recover  established
entitlements should give priority to the clearance of this "burden of the past"  while
keeping a careful eye on all debt to ensure than no new "burden of the past" of this
type accumulates.

the  Commission's  efforts 

2.2. Problems  which  the  accounting  data  cannot  identify:  non  established
Community entitlements

The accounting system can only reflect the recovery  orders entered in the system –
i.e. the established Community entitlements - and the way in which they are followed
up. It is therefore extremely difficult, if not impossible, to quantify with any degree

10

of  relevance  the  amount  of  establishable  debts  which  have  not  been  established  or
cannot be established yet.

However,  in  the  field  of  direct  management,  the  horizontal  departments  have
observed  instances  where  establishment  of  amounts  receivable  has  not  been
systematic  (e.g.  following  closure  of  programmes  or  projects  because  of  the  poor
implementation of earlier tranches of the programme or project).

In  addition,  some  audits  conducted  by  the  Court  of  Auditors  into  the  shared
management  of  the  EAGGF  Guarantee  Section  have  underlined  that  irregularities
reported by the Member States were not followed up by the competent Commission
services  or  that  follow-up  was  late.15  The  amounts  reported  by  the  Member  States
under  applicable  legislation  for  shared  management  of  EAGGF  expenditure  give  a
picture of the amounts still to be recovered or still to be charged to the Member State
or the Community. This delay in the establishment of Community entitlements in the
strict  sense  of  the  term  is  due  in  particular  to  the  slowness  of  recovery  procedures
before some national courts (see table below). These amounts relate to entitlements
vis-à-vis  the  final  beneficiary,  bearing  in  mind  that  any  amounts  recovered
successfully have to be passed over to the EAGGF  and  that  the  Member States  are
responsible  for  the  management  of  this  type  of  expenditure  under  shared
management.

This  communication  therefore  intends  to  adopt  new  measures  against  this
phenomenon  of  under-establishment  in  the  field  of  direct  expenditure  and
inadequacy  of  means  to  establish  Community  entitlements  in  the  field  of  shared
management of Community expenditure.

15

European Court of Auditors, Annual report concerning the financial year 2000, report on the activities
financed from the general budget, Chapter 2.

11

                                                
Amounts related to irregularities communicated as of 31/12/2001
under EAGGF Guarantee for the period 1970-2000
in accordance with Reg. (EC) 595/91

Nota bene : the figures indicated for Italy are not strictly comparable with those reported for
the other countries, and clearly overestimate the amount of irregularities. When detecting an
irregularity,  the  Italian  authorities  calculate  the  total  to  be  recovered  on  the  basis  of  the
overall  amounts  collected  by  the  beneficiary  over  the  whole  of  the  period  covered  by  the
audit  revealing  the  irregularity;  it  is  only  at  the  end  of  the  criminal  and/or  formal
administrative  procedure  that  the  judge  establishes  the  exact  amount  involved  in  the
irregularity and initiates recovery.

12

3.

IMPROVED RECOVERY OF ESTABLISHED COMMUNITY ENTITLEMENTS

This  communication  focuses  on  the  recovery  of  Community  entitlements  resulting
from 
the  direct  management  of  Community  expenditure  and  from  shared
management  with  the  Member  States  of  expenditure  under  the  EAGGF  Guarantee
Section and the Structural Funds.

In  the  latter  cases  the  Community  entitlement  within  the  meaning  of  the  Financial
Regulation are limited to cases of irregularities or fraud of the economic operators in
which  the  failure  to  recover  the  sums  owed  by  these  operators  are  the  result  of
negligence on the part of the Member States, and where the Commission decides, in
accordance  with  the  sectoral  rules  applicable,  that  the  financial  consequences  must
be borne by the Member States. The debt to be recovered by the Communities is not
established  until  the  sectoral  procedures  have  been  completed.16  The  amounts
concerned then give rise to the recovery of the Community funds from the Member
States.

As the Communities have secure methods for recovering Community funds when the
debtors  are  the  Member  States,  the  measures  to  be  taken  to  improve  recovery  of
established  Community  entitlements  mainly  focus  on  debts  owed  by  debtors  other
than  the  Member  States  or  Community  entitlements  arising  from  the  direct
management of Community expenditure.

3.1. Measures considered by the Commission on adoption of the action plan of
13 December 2000  concerning  Community  entitlements  arising  from  direct
expenditure and implemented on this basis

In December 2000 the Commission introduced an action plan to improve recovery of
established  Community  entitlements  arising  from  the  direct  management  of
expenditure,  in  particular  old  debts,  by  analysing  the  problems  reported.  These
problems included the complexity of the cases  concerned, the lack of co-ordination
between the departments involved in recovery and certain shortcomings in applying
the  tools  available.  The  length  of  legal  actions  brought  before  national  and
Community courts should also be mentioned in this connection.

The action plan adopted in December 2000 has focused future tasks on a number of
measures to improve the overall management of cases of recovery and, as regards the
burden of the past, to continue pursuing those cases which have not led to voluntary
recovery.

A number of measures carried out to implement this action plan have helped improve
recovery,  both  by  preventing  any  accumulation  of  excessively  old  Community
entitlements which become irrecoverable and reducing the "burden of the past".

16

For  EAGGF  Guarantee,  application  of  Article 8  of  Council  Regulation  (EEC)  No  729/70  of
21 April 1970 on  the  financing  of  the  common  agricultural  policy  (OJ  L  94,  28.04.1970,  p.13);  then,
from the 2000 financial year, Council Regulation (EC) No 1258/1999 of 17 May 1999 on the financing
of the common agricultural policy (OJ L 160, 26.06.1999, p.103). For SAPARD, Articles 8, 13 and 14
of Section A of the annex to the multiannual financing agreement. For the Structural Funds, Article 24
of Regulation No 4253/1988 (as amended by Regulation No 2082/93) then Article 39 of Regulation No
1260/1999  from  2000;  Article  H  of  Annex II  of  Regulation  No  1164/94  for  the  Cohesion  Fund.  For
ISPA,  Article 9  of  Regulation  No  1267/1994  and  specific  provisions  of  the  financial  protocol  on
decisions to grant assistance.

13

                                                
3.1.1. Preventive measures

Two  measures  have  been  implemented  under  the  action  plan  to  prevent  any
accumulation of excessively old debts which are likely to become irrecoverable

(cid:1)  With respect to the traditional duties of the Accounting Officer

The  Accounting  Officer  had  been  asked  to  send  reminders  and  letters  of  formal
notice  more  systematically  and  more  quickly.  He  was  to  be  provided  with  refined
tools  to  allow  the  issue  of  standardised,  automatic  reminders  and  letters  of  formal
notice ("dunning")  and  the  introduction  of  automatic  early-warning  and  monitoring
mechanisms,  so  that  the  Accounting  Officer  can  perform  his  general  co-ordinating
function vis-à-vis the other actors and remind them of the measures to be taken.

This operation was completed in January 2002 by means of an ACCESS/BO solution
developed  from  the  budget  datawarehouse.  Reports  can  now  also  be  produced  by
both the Budget Directorate-General and the other Directorates-General showing the
age of the recovery orders issued by the DGs. Reliability improved considerably in
2001, even if some improvements still appear desirable17.

Reporting  measures  now  make  it  possible  to  gauge  the  extent  of  the  recovery
measures,  which  are  to  be  undertaken  in  each  Directorate-General  (data  now
included in the annual report by the Directors-General) or, in some  cases, to  gauge
shortcomings in connection with the establishment of Community entitlements.

(cid:1)  With respect to the new duties of the Accounting Officer

The  Accounting  Officer  has  been  entrusted  with  the  task  of  seeking  relevant
information on the financial situation of the debtors when authorising officers require
help  in  this  context  and  has  ensured  since  the  end  of  2000  access  to  that  the
Dun & Bradstreet database for all Directorates-General.

3.1.2. Curative measures (reduction of old Community entitlements)

As  regards  the  reduction  of  old  Community  entitlements  in  particular,  the
following  measures  set  out  in  the  action  plan  have  been  carried  out  without  any
change to the existing rules.

Given the complexity of the cases in which the debt could not be recovered, it was
decided  to  step  up  consultation  of  the  horizontal  departments  (DG  BUDG,  Legal
Service, OLAF,  Secretariat-General) to  trace the  address of  a  debtor, decide on the
legal measures to be taken or, as the final solution when the debt is irrecoverable, to
waive an established debt.

17

In the case of the treatment of "partial reductions" for example, the link between the negative recovery
order (cancellation  of  all  or  part  of  a  recovery  order  which  has  already  been  issued)  and  the  original
recovery order (corresponding to the initial amount to be recovered) must still be guaranteed.

14

                                                
(cid:1)  Recovery of recoverable old Community entitlements

(cid:1)  New tasks for OLAF

In  February  2002  OLAF  set  up  a  new  unit  (A5)  for  administrative,  legislative  and
financial follow-up in the  field of direct expenditure, in accordance with the action
plan adopted in the December 2000 communication. This unit is responsible for the
internal  and  external  co-ordination  of  the  follow-up  of  cases  of  fraud  and
irregularities  involving  direct  expenditure  which  are  the  subject  of  OLAF
investigations,  in  close  collaboration  with  the  authorising  DGs  and  other  interested
services. Since it was set up in February 2002, it has received 57 cases from OLAF's
Investigations Directorate for the administrative, legislative and financial follow-up.
The unit ensures that the Commission actually brings a civil action in cases subject to
criminal  procedures  relating  to  recovery.  At  the  request  of  an  authorising  officer,
OLAF  can,  as  soon  as  the  debtor  goes  missing,  also  undertake  a  search  for  his
address. Such a search could extend to any other body having legal or financial links
with the debtor third party.

(cid:1)  Treatment of recovery within the Legal Service

The  Legal  Service  has  introduced  a  centralised  system  for  recovery  cases  to  be
assigned to and monitored by the team responsible for the substance in consultation
with the Legal Service's Budget team where there are any doubts about questions of
principle.  A  recovery  officer  is  then  appointed  by  the  lead  manager  handling  the
case.

The procedure to be followed by the Directorates-General was set out in a memo to
the  Directors-General.  A  practical  guide  to  recovery  assigns  responsibilities  and
gives  a  step-by-step  explanation  of  the  measures  to  be  taken  by  the  Legal  Service
officials,  including  those  involving  collaboration  with  the  other  Commission
departments for the purposes of recovery.18

(cid:1)  Role of the Central Financial Service (CFS)

In the action plan adopted in December 2000, the Commission called on the CFS to
draw up minimum guidelines for  the  organisation of channels and  the management
rules.

The  internal  control  standards  adopted  by  the  Commission  on  13 December 2000
(SEC(2000)  2203)  and  updated  in  2001  (SEC(2001)2037/4)  establish  the  norms
applicable  to  the  expenditure  cycle  and  the  recovery  process  by  laying  down  the
minimum  requirements  and  control  procedures  to  be  maintained  within  each
Directorate-General.  Alongside  these  standards  (which  have  been  annexed  to  the
internal rules on the implementation of the budget since 2001), the CFS produces a
regularly  updated  manual  describing  the  operational  process  of  risk  evaluation  not
only for the whole of the expenditure cycle but also, in the latest updating for 2002,
in the field of recovery.19

18

19

Memo of 31 March 2001 (JUR(2001)15037) from Mr Rosas and Mr Dewost to the Directors-General:
Debt recovery – Procedure for consulting the Legal Service, Annex 2.
"Detailed risk assessment for operational processes – the Process Handbook".

15

                                                
Finally,  recovery  statistics  have  been  included  in  the  annual  reports  of  the
Directorates-General in 2001, providing a useful tool for gauging the progress made
or still to be achieved in the field of recovery.

(cid:1)  Study on the outsourcing of various recovery activities

As  recommended  by  the  Commission  in  December 2000,  this  question  was
considered in the form of a cost/benefit analysis of outsourcing some of the recovery
activities.  However,  the  conclusions  and  recommendations  of  this  study  have  not
been  finalised  pending  stabilisation  of  the  new  rules  and  the  final  report  by  the
Internal Audit Service on recovery.

(cid:1)  Recognising the fact that some Community entitlements are irrecoverable

Following  questions  from  departments,20  recommendations  by  the  discharge
authority  and  the  undertaking  made  in  December 2000,  the  CFS  laid  down  the
conditions  and  procedures  for  waiving  the  recovery  of  Community  entitlements
which  have  become  irrecoverable  when  all  the  necessary  steps  to  recover  them
have been taken without success. This supplements the framework recently adopted
for other cases where revision of established entitlements may prove necessary:

– 

– 

the  Commission 

The  guidelines  on  the  application  of  the  principle  of  proportionality  to  the
waiving  of  debt 
in
recovery  were  adopted  by 
November 200121  following  the  resolution  of  the  discharge  authority  for  the
1999  financial  year22.  In  this  decision,  the  Commission  amended  the  internal
rules on implementation of the 2001 budget by introducing the  thresholds for
the delegation of powers of budget implementation demanded by the discharge
authority and adopting more transparent and more formal procedures and better
defined and more binding criteria for waiving the recovery of established debts
through  application of  the principle  of  proportionality.  These  thresholds  were
consolidated in the Commission's internal rules on implementation of the 2002
budget23.

The  internal  rules  on  the  implementation  of  the  2002  budget  draw  a  more
logical  distinction  between  waiving  recovery,  cancellation  and  technical  and
accounting adjustments, allowing more satisfactory fine-tuning of the level of
delegation or subdelegation in accordance with the degree of responsibility and
risk  in  these  three  types  of  operation.  This  experiment,  launched  in
autumn 2001  at  the  joint  initiative  of  the  Directorates-General  for  Financial
Control  and  the  Budget,  allowing  powers  to  be  subdelegated  for  minor
corrections  (upwards  and  downwards)  to  all  recovery  orders  where  these
constitute  no  more  than  technical  and  accounting  adjustments,  has  simplified
the very strict rules on delegation and subdelegation for the  waiving  of  debts

20

21

22

23

In its capacity of financial help desk, the CFS received and replied to 37 questions relating to recovery
between  February 2001  and  July 2002,  an  average  of  just  over  two  questions  a  month  over  this  18-
month period.
SEC(2001)1857 final, 21/11/2001.
Point  9(1)  of  the  Parliament  Resolution  containing  observations  forming  an  integral  part  of  the
discharge  in  respect  of  implementation  of  the  general  budget  of  the  European  Union  for  1999
(Commission) (SEC(2000)537 –C5-0617/2000-2000/2155(DEC) ).
C(2002)1305, 8.4.2002

16

                                                
adopted for the 2001 financial year. As it gave satisfaction, the experiment was
rolled  over24  and  extended  in  the  internal  rules  for  2002  to  make  the  quite
logical  distinction  between  waiving  recovery  of  an  amount  which  is  actually
due25 and the actual cancellation of an unduly established debt26.

3.2. Measures  now  being 
13 December 2000

introduced 

following 

the  action  plan  of

The  deadline  for  completing  the  whole  of  the  December 2000  action  plan  had
initially  been  fixed  at  1 April 2001,  but  was  then  postponed  to  30 June 2002  when
the Commission updated the timetable for implementing the various measures of the
White Paper in connection with action 96 on 21 December 2001.

Despite the measures and advances mentioned above, the timetable must be adjusted
in  line  with  a  more  realistic  assessment  of  what  can  be  achieved  given  the  overall
financial reform and the time needed to adopt and introduce the new rules.

The  main  improvements  to  the  recovery  of  established  Community  entitlements  as
laid  down  in  December  2000  depend  on  a  concomitant  update  of  the  basic  rules.
However, the institutional timetable set by the Göteborg European Council fixed the
end  of  2002  for  the  adoption  of  the  recast  1977  Financial  Regulation  and  the
resulting  legal  framework:  at  interinstitutional  level,  the  Regulation  laying  down
detailed  rules  for  the  implementation  of  certain  provisions  of  the  new  Financial
Regulation and, within  the  Commission, the revision  and planned  harmonisation of
various  provisions of the  internal procedure  relating to  the  recovery  of  Community
entitlements.  The  same  is  true  for  the  proposals  amending  the  regulations  on  the
Financial Regulation of the European Development Fund (EDF) or the  Community
agencies.

This  new  regulatory  framework  is  now  close  to  completion27  and  involves  three
series  of  amendments  leading  to  a  substantial  improvement  in  the  recovery  of
established  Community  entitlements  arising  from  direct  management  and  resolving
the problem of shared management.

3.2.1. Enhancing  the  role  of  the  authorising  officer  (decentralisation  of  the  debit
note)

In order to allow contacts between debtors and the authorising officer with a view to
resolving  the  maximum  number  of  cases  by  checking  the  justification  of  all
Community  entitlements  recorded  as  "to  be  recovered"  before  the  Accounting
Officer  proceeds  with  the  recovery  procedure,  the  Commission  undertook  in

24

25

26

27

Article 12 of the internal rules for 2002.
Article 10 of the internal rules for 2002
Article 11 of the internal rules for 2002.
The new Financial Regulation unanimously adopted by the Council on 25 June 2002 and, in accordance
with Article 187, is due to enter force on 1 January 2003 and the draft Commission Regulation laying
down implementing provisions was adopted on 24 July 2002 (COM(2002)402 final). For the EDF, the
Commission  proposed  the  same  principles  in  its  draft  Regulation  of  11 June 2002  on  the  Financial
Regulation applicable to the European Development Fund (COM(2002)290). For what are known as the
traditional  agencies  (as  opposed  to  the  proposed  executive  agencies  to  carry  out  programmes),  these
principles are set out in the draft framework Financial Regulation of the agencies referred to at Article
185 of the new Financial Regulation adopted by the Commission on 17 July 2002 (COM(2002).403/2).

17

                                                
December 2000  to  devolve  from  the  Accounting  Officer  to  the  authorising  officers
the drafting and the dispatching of the "debit note" informing the debtor that a debt
has been established against him.

This  devolution  is  now  provided  for  in  the  regulatory  rules  and  should  enter  into
force on 1 January 2003.28 The Commission should formally adopt the revision and
consolidation of the various internal provisions on debt recovery by this date.

3.2.2. Boosting enforced recovery methods

The revision of the rules has led to major changes.

(cid:1)  Recovery by offsetting the debt

In the field of direct expenditure, the Commission has made relatively little use of the
principle of statutory set-off so far. As a matter of fact although this principle exists
in all the Member States, the recent case law of the Court of First Instance29 had cast
doubts on the possibility of using this efficient procedure, under which the amount to
be recovered from the debtor is deducted from any claim which this debtor may have
on his creditor that is certain, of a fixed amount and due. However, the conclusions
of Advocate General P. Léger on the appeal launched by the Commission in this case
concludes against the latter judgement of the  Tribunal and suggests  to  the  Court of
Justice  to  recognise  the  mechanism  of  setting-off  as  a  general  principle  of
Community law (Case C-87/01 P of 17 September 2002).

Besides,  this  principle  is  now  explicitly  recorded  in  the  new  Financial
Regulation for use against "any" debtor.30

This very general formulation should allow Community entitlements to be recovered
by offsetting in the case of "miscellaneous" debtors under direct management.

The  impact  of  this  new  instrument  cannot  be  quantified  for  the  recovery  of
Community  entitlements  arising  from  direct  management,  but  more  systematic  and
efficient  use  of  the  offsetting  mechanism  will  be  facilitated  by  the  ongoing
optimisation of the early warning system.31

In the field of shared management, specific rules apply as laid down for expenditure
financed  for  the  Structural  Funds  (decision  to  reduce  assistance  and  financial
correction). Consequently where the Member States are the Communities’debtors
whilst also having claims on the Communities, this mechanism will help to recover
outstanding  debts.  This  recovery  operation  should  cover  in  particular  the

28

29

30

31

Article 71(1)  and  (2)  of  the  new  Financial  Regulation  and  Article  75  of  the  draft  Regulation  laying
down detailed rules for the implementation of the new Financial Regulation.
In  its  judgement  of  14 December 2000  in  case  T-105/99,  Conseil  des  communes  et  régions  d’Europe
(CCRE) v Commission, the Court of First Instance ruled out the offsetting of a debt on the grounds that
the Commission should first have ascertained whether this course would not obstruct actual completion
of the operation.
Article 73(1), subparagraph 2 of the new Financial Regulation reads as follows: "The accounting officer
shall recover amounts by offsetting them against equivalent claims that the Communities have on any
debtor who himself has a claim on the Communities that is certain, of a fixed amount and due."
Memorandum on "Optimisation of the early warning system, Action 95 of the administrative reform",
SEC(2000)1811.

18

                                                
€408 million  established  at  30 June 2002  for  the  Structural  Funds  and  yet  to  be
recovered.

(cid:1) 

Recovery through enforcement of any guarantee lodged in advance

This  procedure  is  already  used,  but  it  should  be  made  more  effective  as  the  new
Financial Regulation increases the number of cases in which guarantees must or may
be lodged in advance.32

(cid:1)  Enforced recovery

Making increased use of "simplified" enforcement in accordance with Article 256 of
the EC Treaty was one of the basic recommendations set out in the memorandum of
December 2000 on improving debt recovery failing voluntary payment by the debtor.

The  principle  is  contained  in  Article 72(2)  of  the  new  Financial  Regulation  which
allows  an  amount  to  be  formally  established  as  receivable  from  persons  other  than
States  by  means  of  a  decision  which  is  enforceable  within  the  meaning  of
Article 256 EC. Therefore, a recovery order not based on a formal decision taken in
advance33  may  be  formalised  by  a  Commission  decision  with  the  power  of  an
enforcement order.

It  is  also  proposed  to  include  this  principle  in  the  rules  for  the  participation  of
undertakings,  research  centres  and  universities  and  for  the  implementation  of  the
sixth 
technological  development  and
demonstration activities.34

framework  programme 

research, 

for 

If recovery is not enforceable on this basis, an enforceable title must be obtained by
legal  action  before  the  competent  courts.35  The  chances  of  obtaining  recovery  by
means of this second solution should be enhanced with the forthcoming adoption of a
Council Regulation creating a European enforcement order for uncontested claims.36

Use of this instrument for Community entitlements arising from direct management
should facilitate the recovery of outstanding recovery orders.37

32

33

34

35

36

37

In the 1977 Financial Regulation this obligation applies only to contracts (Article 64a) and is considered
as  an  option  for  grants  only  in  the  grants  vade-mecum.  The  range  of  guarantees  to  be  provided  is
extended by Articles 98, 102 and 117 of the new Financial Regulation and the conditions in which the
debt  is  due  are  beefed  up  for    both  contracts  and  grants  (to  limit  the  financial  risks  involved  in  pre-
financing).
Particularly fines imposed by the Commission under the competition policy.
Article 12  of  the  Decision  of  the  European  Parliament  and  of  the  Council  of  5 November 2002
concerning the rules for the participation of undertakings, research centres and universities and for the
dissemination  of  research  results  for  the  implementation  of  the  European  Community  framework
programme 2000-2006.
Second solution set out in the rules (Article 81 of the draft Regulation laying down detailed rules for the
implementation of the new Financial Regulation, adopted by the Commission on 24.7.2002).
Commission proposal of 18.4.2002 (COM(2002)159 final)
Subject to the outcome of the legal  procedures to be initiated when Article 256 of the EC Treaty cannot
be used.

19

                                                
3.2.3. Rationalisation of the writing-off of debts

As  regards  the  writing-off  of  established  debts,  which  is  a  specific  act  of  budget
implementation  affecting  the  Communities'  assets,  the  new  regulatory  framework
should  incorporate  and  extend  to  all  the  other  institutions  the  distinctions  made  to
general satisfaction in the Commission's internal rules.38 This differentiation and the
establishment of criteria in the new rules will allow each institution to vary the level
of  delegation  or  subdelegation  it  intends  to  confer  on  its  officials  in  line  with  the
degree of responsibility and the risk of the different types of operation, even though
the  responsibility  of  the  official  exercising  powers  by  delegation  or  subdelegation
does not absolve the delegating authority from responsibility39. The different types of
operation are:

– 

– 

– 

waiving  a  duly  established  debt  (the  widest  margin  of  discretion),  either  for
reasons  of  sound  financial  management  (debt  irrecoverable  or  the  cost  of
recovery  higher  than  the  amount  to  be  recovered)  or  for  reasons  of
proportionality (in line with the criteria which are also set in the rules);

cancellation of an unduly established debt (limited margin of discretion);

technical and accounting adjustment (no margin of discretion since this results
automatically from certain objective data).

These different stages are summarised below in the form of an abbreviated flowchart.

Legend :

Start/end

Operation

Decision

Parallel
procedure

Task of Authorising
Officer (AO)

Task of
Accounting
Officer

Internal storage

Flow of procedure

Joint task of AO
and Accounting
Officer

Task of OLAF

38

39

See point 3.1.1 above.
This principle, laid down in Article 21, paragraph 2 of the Staff Regulations ("An official in charge of
any branch of the service shall be responsible to his superiors in respect of the authority conferred on
him and for the carrying out of instructions given by him. The responsibility of his subordinates shall in
no  way  release  him  from  his  own  responsibility"),  is  expanded  upon  in  Article  66(3)  of  the  new
Financial Regulation ("In the event of subdelegation, the authorising officer by delegation continues to
be responsible for the effectiveness of the internal management and control systems put in place and for
the choice of the authorising officer by subdelegation").

20

                                                
AO suspects
 fraud?

If so

AO informs OLAF

OLAF investigates, and considers 
appropriateness of referral
 for possible criminal proceedings

OLAF sends
investigation report
to AO/institution

AO establishes debt on the basis of supporting documents

AO draws up recovery order

Recovery order registered
 in the accounting system

AO issues and sends debit note

If so

Recovery 
by offsetting

If so

Recovery

If so

Recovery through 
enforcement of guarantee

Offsetting possible?

If not

Does debtor
pay by due
date?

If not

Is there
 a guarantee?

If not

Accounting Officer sends reminder and,
 if necessary, letter of formal notice

Payment by end of deadline
 laid down in letter of formal notice?

If so

Recovery

If not

Debt recoverable and
cost of recovery< debt?

If so

Enforced recovery

If not

Waiver by AO

21

3.2.4. Measures to be implemented to ensure full use of these new rules

Apart  from  the  ongoing  training  measures,  authorising  officers  are  to  be  provided
regularly  with  relevant  indicators  for  analysis,  particularly  in  the  form  of  quarterly
reports  from  the  Accounting  Officer  to  each  authorising  officer  by  delegation
showing  the  age-based  balance  of  recovery  orders  drawn  up  by  his  Directorate-
General40.  The  authorising  officers  by  delegation  will  use  these  as  a  basis  for
drawing up the decisions with the possibility of an enforcement order in accordance
with Article 72 of the new Financial Regulation.

The  Accounting  Officer  will  also  send  an  annual  memo  to  the  authorising  officers
responsible, drawing their attention to a list of Community entitlements which they
have established and which they might consider waiving.

40

All  authorising  officers  by  delegation  can  already  carry  out  this  type  of  reporting  by  means  of  the
budgetary datawarehouse.

22

                                                
MEASURES  TO  ENSURE  SYSTEMATIC  ESTABLISHMENT  OF  COMMUNITY

4.
ENTITLEMENTS WITHIN A REASONABLE PERIOD

This aspect was not covered by the previous action plan adopted in December 2000.
However,  the  Commission  did  state  that  further  recommendations  should  be  made
about unestablished Community entitlements.

It has already been pointed out above that it is difficult to put forward any figures for
"under-establishment",  although  the  extent  of  this  phenomenon  can  be  gauged  by
existing indicators.

4.1. Systematic establishment of all "principal" entitlements

4.1.1 Retaining the overriding obligation in the new Financial Regulation

In the rules, the overriding obligation to establish any debt that is certain, of a fixed
amount and due laid down in Article 28 of the 1977 Financial Regulation was taken
over in Article 71(2) of the new Financial Regulation and the roles of the  financial
actors  were  clarified.  The  draft  Commission  Regulation  laying  down  detailed  rules
for  the  implementation  of  the  new  Financial  Regulation  and,  within  the  institution,
the new consolidated internal procedure provisions should further clarify their role.

The  Financial  Regulation  thus  leaves  no  scope  for  any  de  minimis  interpretation
which would allow "small amounts" not to be established41.

Instead, the obligation to establish debts has been extended to the interest yielded by
pre-financing, which remains the property of the institution.42

4.1.2. Enhancing the obligation to forecast entitlements

The  new  rules  still  call  for  the  entry  of  an  estimate  of  amounts  receivable  for  any
measure or situation which may give rise to a Community entitlement. This is a sort
of obligatory memorandum item for the use of the authorising officers, for which the
Commission intends to specify the circumstances (ex ante checks to be made by the
authorising  officer,43  details  on  when  it  is  to  be  drawn  up44).  This  instrument  of

41 

42

43

44

No other interpretation is possible. Even assuming that the legislator had left this possibility open, only
two  hypotheses  would  be  feasible.  Either  the  de  minimis  rule  would  not  be  laid  down  officially,  in
which case its application would make way, if not for arbitrary assessment, then at least for a lack of
uniformity  in  the  application  of  Community  law  between  departments  in  the  same  institution.  Or,
should such a de minimis rule be actually laid down officially, e.g. in order to ensure compliance with
the principle of non-discrimination, debtors would then be able to use it and abuse it, undermining the
force of law and compromising the Commission's efforts to administer public funds in accordance with
the principle of sound financial management. In neither eventuality would the solution be acceptable.
Article 4 of the draft Regulation laying down detailed rules for the implementation of the new Financial
Regulation adopted by the Commission on 24 July 2002.
Article 74 of the draft Commission Regulation laying down detailed rules for the implementation of the
new Financial Regulation.
In particular Article 4 on the interest or equivalent benefits yielded by pre-financing, which remains the
property of the Communities; Article 228 for the JRC. However the obligation to clear prefinancing on
interim payments, which is linked to accrual accounting, will come gradually into application as a result
of the transitional period foreseen by the new Financial Regulation (Article 181)

23

                                                
sound  financial  management  should  help  curb  failure  to  establish  Community
entitlements. However, where a  debt is  immediately  certain, of  a fixed  amount and
due, then it has to be established without prior establishing a forecast of revenue.

4.1.3.  Reinforcing the accountability of Community officials and staff

Authorising  officers  are  made  more  accountable  as  a  result  of  the  Commission’s
administrative  reform.  In  their  management  plans  2004  authorising  officers  will
consign  key  indicators  for  regular  monitoring  of  financial  management  such  as  the
evolution  of  outstanding commitments (reste à liquider)  and  in  particular  ‘dormant
commitments’ as well as the number of recovery orders issued.

Furthermore,  the  obligation  to  establish  any  debt  that  is  certain,  of  a  fixed  amount
and due is also accompanied by a more stringent system of sanctions in the case of
non-compliance.

Without calling into question the principle of the sole responsibility of each official
under the Staff Regulations, the recast Financial Regulation provides (Article 66(1))
that  the  authorising  officer  “shall  be  liable  to  payment  of  compensation  ...  where,
through serious misconduct, he/she omits to draw up a document establishing a debt
or  if  he/she  neglects  to  issue  a  recovery  order  or  is,  without  justification,  late  in
issuing it”.

Undoubtedly, the more the internal channels are streamlined to improve management
in  general  and  recovery  in  particular,  and  the  more  staff  training  is  developed,  the
easier  it  will  be  to  pin  down  those  cases  where  failure  to  establish  an  entitlement
constitutes  negligence  "which  an  average  well-performing  official  would  never
commit" - the criterion adopted by the Commission for invoking financial liability in
accordance with Article 22 of the Staff Regulations.45

4.2. Systematic establishment of default interest on principal debts

The Commission is bound to apply the same zero tolerance dictated by the principles
of  sound  financial  management,  equality  of  treatment  and  non-discrimination
between debtors owing default interest to the Communities.  In accordance with  the
undertakings  made  by  the  Commission  in  December 2000,  this  interest  must  be
systematically established if no payment has been made by the due date.

Moreover, under Directive 2000/35/EC, the statutory rate applicable (rate applied by
the  European  Central  Bank  to  its  main  refinancing  operations,  as  published  in  the
C series  of  the  Official  Journal  of  the  European  Communities  on  the  first  working
day  of  the  month  in  which  the  debt  is  due)  should  be  increased  by  1.5 percentage
points to 7 percentage points for commercial transactions between the Communities
and  undertakings  within  the  meaning  of  the  above-mentioned  directive  and  to
3.5 percentage points in all other cases.

This  surcharge  and  actual  application  of  the  systematic  establishment  of  default
interest from the date due will, to some degree, deter late payment by debtors to the
Communities and improve recovery of established Community entitlements.

45

"New  orientations 
http://www.cc.cec/home/admref/en/pdf/orientation_19072001_en.pdf.

the 

for 

reform  of  personnel  policy",  19.7.2001,  point 5.4,  pp. 17-18,

24

                                                
The new consolidated internal procedure provisions on debt recovery to be adopted
for entry into force from 1 January 2003 will have to spell out this principle.

Stricter  application  of  the  principles  than  in  the  past  will  obviously  have  practical
consequences  and  involve  costs,  also  in  terms  of  resources;  however,  these  costs
should be largely offset by the benefits of systematically claiming the interest due.

4.3. Systematic establishment of Community entitlements arising from shared
management in the EAGGF Guarantee sector

The  rules  on  financing  the  common  agricultural  policy  contain  provisions  for
recovering funds unduly paid either through failures of the national authorities or as a
result of fraud and irregularities committed by operators.

The legal framework is developed in Article 8(1) of Regulation (EC) N° 1258/1999
(ex 729/70) which provides that :

«1.  The  Member  States  shall,  in  accordance  with  national  provisions  laid  down  by  law,
regulation or administrative action, take the necessary measures to ;

a)satisfy  themselves  that  transactions  financed  by  the  Fund  are  actually  carried  out  and
executed correctly ;

b) prevent and deal with irregularities ;

c)recover sums lost as a result of irregularities or negligence.

The Member States shall inform the Commission of the measures taken for those purposes
and in particular of the state of the administrative and judicial procedures.

2. In the absence of total recovery, the financial consequences of irregularities or negligence
shall be borne by the Community, with the exception of the consequences of irregularities or
negligence attributable to administrative authorities or other bodies of the Member States.

The sums recovered shall be paid to the accredited paying agencies and deducted by them
from the expenditure financed by the Fund. The interest on sums recovered or paid late shall
be paid into the Fund.

3. The Council, acting by a qualified majority on a proposal from the Commission, shall lay
down general rules for the application of this Article ».

The implementing rules of Article 8(3) are to be found in Council Regulation (EEC)
N° 595/91. In particular, Articles 3) and 5) of Regulation (EEC) N° 595/91 provide
for  communications  to  the  Commission  by  the  Member  States  of  irregularities  as
well as their update. Article 5(2) provides that :

« 2. Where a Member State considers that an amount cannot be totally recovered, or cannot
be expected to be totally recovered , it shall inform the Commission, in a special notification,
of the amount not recovered and the reasons why the amount should, in its view, be borne by
the Community or by the Member State.

This information must be sufficiently detailed to enable the Commission to decide who shall
bear  the  financial  consequences,  in  accordance  with  Article  (2)  of  Regulation  (EEC)  N°
729/70» (now 1258/1999).

25

In  1995,  the  follow-up  of  irregularities  communicated  by  Member  States  under
Regulation  (EEC)  N°  595/91  was  entrusted  to  UCLAF,  the  tasks  of  which
Commission service were subsequently taken up by OLAF. Based on the information
received from the Member States, when the debts are considered to be irrecoverable,
OLAF proposes to the Commission to charge them to  the Community  budget or to
the  Member  State,  the  latter  being  charged  only  if  they  are  deemed  to  have  been
negligent. The Member States are notified of the financial correction, which follows
the normal clearance procedures (conciliation, formal decision, etc.). 

The problem for shared management is not that of recovery since debts can always
be  offset  as  the  debtors  will  always  have  payment  orders  in  the  pipeline  for  their
monthly "advances"46.

The  problem  is  one  of  lack  of  establishment  when  no  clearance  decision  is  yet
possible  with  regard  to  the  cases  reported  by  the  Member  States  under  the  rules
applicable.

4.3.1. Solutions proposed to clear the "burden of the past"

(cid:1)  Analysis of the burden of the past

(cid:1)  Period before 1995

From 1999 onwards, OLAF undertook a review of all the cases notified before 1995
by  Member  States.  This  exercise  was  undertaken  for  all  Member  States  which
reported cases, except Italy.

The examination by OLAF concerned mainly cases reported to it before 1995 but not
yet recovered. It did however include a small number of cases reported after this date
for  which  the  Member  States  had  reported  that  the  amount  was  irrecoverable,  in
which case a clearance of accounts decision was possible immediately.

The dialogue stage, the updating of the figures and determination of the amounts to
be covered by the national and/or Community budget has been completed for ten of
the then (before 1995) twelve Member States, the only one missing being Italy47.

At 30 June 1999, a total of €1 019 million was  to be recovered from all the pre-1995
cases  reported  under  Regulations  (EEC)  No 283/72  and  (EEC)  No 595/91.  As  a
result of the dialogue with the Member States and the various updatings, this figure
was down to €771 million at 31 December 2000.

Since  August  2002,  a  "package"  has  been  available  for  drawing  up  a  formal
clearance  decision,  given  that  all  the  Member  States  have  agreed  to  the  approach
decided by the Commission.

OLAF  has  followed  the  clearance  of  accounts  procedure.  Letters  with  reference  to
Article  8  of  Regulation  (EC)  N°  1663/95  have  been  written  to  all  the  relevant
Member  States,  replies  have  been  received  and  bilateral  meetings  held.  After  the

46

47 

These are actually payments, since they involve reimbursement of expenditure incurred.
No existing amounts relating to Luxembourg.

26

                                                
bilateral  meetings  and,  sometimes  after  exchanges,  OLAF  and  10  Member  States
have reached a common position.

Consequently, this  « package », amounting to 76 Million €, is to be included in one
of the next clearance of accounts decisions.

(cid:1)  Period from 1995 on and case of Italy

There  is  still  a  considerable  backlog.  Analysing  it  requires  an  efficient  working
method and a substantial investment in terms of staff. Therefore the Commission has
decided to set up a temporary task force to weed out outstanding cases for which no
clearance  decision  can  be  drawn  up  at  this  stage,  to  be  chaired  at  the  appropriate
level by OLAF with the assistance of DG AGRI.

Some  of  these  outstanding  amounts  are  the  subject  of  legal  procedures  whose
outcome is still uncertain (€353 million), while  the amount declared irrecoverable by
the Member States comes to €65 million.

The  €1392  million  recorded  for  Italy  over  the  period  1970-2000  is  certainly
exaggerated,  for  the  following  reason:  when  they  detect  an  irregularity,  the  Italian
authorities  calculate  the  total  to  be  recovered  on  the  basis  of  the  overall  amounts
collected  by  the  beneficiary  over  the  whole  of  the  period  covered  by  the  audit
revealing  the  irregularity;  it  is  only  at  the  end  of  the  criminal  and/or  formal
administrative procedure that the judge establishes the exact amount involved in the
irregularity and initiates recovery.

(cid:1)  Overall appraisal of total figures

Analysis of the figures produces the following findings with regard to cases reported
for the period up to 31 December 2000:

– 

– 

over the period 1970-2000, more than 22 000 cases involving a total of almost
€ 3 billion  were  reported  as  irregularities  in  the  EAGGF  Guarantee  sector,  of
which € 2.780 billion are to be recovered fr om the various beneficiaries in the
different Member States ;

of  this  total,  € 653 million  were  act ually  recovered  and  €46 million  declared
irrecoverable.

This leaves a balance of € 2.081 billion to be recovered at 31 December 2000 (7 698
cases),  among  which  € 771 million  for  irre gularities  reported  before  1995  (1 627
cases) and €  1 310 million (6 071 cases) for the period 1995-2000.

The  likelihood  of  recovering  the  amounts  outstanding  will  depend  on  the  Member
States'  efforts  to  initiate  effective  and  efficient  recovery  procedures.  It  should  be
noted in this connection that, while 46% of the cases reported before 1995 are subject
to legal procedures, the percentage for the period after 1995 has fallen to only 15%.

27

Balance by Member State:

€ million

pre-1995 cases

 cases from 1995 on total Grand total

total

legal proc.

total

legal proc.

total

legal proc.

Italy

588

269 (46%)

804

132 (16%)

1392

401

(29%)

Germany

 20

   8 (40%)

208

 14 (7%)

 228

 22

(10%)

Spain

Others 

67

96

11 (13%)

 86

 4 (5%)

153

15

(10%)

65 (66%)

202

49 (24%)

298

113

(38%)

TOTAL

771

353 (46%)

1310

199 (15%)

2081

584

(28%)

4.3.2. Solution proposed to facilitate treatment of reported irregularities in future

Commission services will ensure a coherent treatment of the outstanding cases on the
basis  of  concrete  instructions  how  to  interpret  and  apply  the  rules  laid  down  in
Article 8 of Regulation (EC) No 1258/1999, which will allow an acceleration of the
decision-making process.

For  cases  of  fraud  and  irregularities  committed  by  operators,  the  Commission  is
currently studying a new system. In order to introduce this system, the Commission
plans presenting to the Council a draft regulation amending Article 8 of Regulation
(EC) No 1258/1999.

In this connection it is considering the idea that the new rules relating to the financial
consequences of irregularities should be based on a pre-determined timetable. These
rules  would  involve  annual  overall  reports  from  Member  States  on  the  progress  of
their  national  recovery  procedures.  The  resulting  financial  consequences  for  cases
not settled by the time set in the above timetable laid down would, as a rule, be borne
jointly  by  the  Community  budget  and  the  budget  of  the  Member  State  concerned.
Such  a  system  is  based  on  the  liability  of  the  Member  States  and  ex post  control
under  the  clearance  of  accounts  procedure.  This  amendment  of  the  present  rules
would greatly simplify and speed up the procedures.

The Commission is also considering whether such a system might also cover cases of
irregularities committed before it entered into force.

Finally, once these new rules adopted, the Commission will reconsider the division
of  responsibilities  of  the  services  concerned  in  the  spirit  of  reform  which  aims  at
enhancing the role of the authorising services.

28

5.

CONCLUSIONS

The  measures  envisaged  in  December  2000  in  the  first  communication  on  the
recovery  of  amounts  unduly  paid  from  Community  funds  have  already,  without
changes  to  the  law,  raised  awareness  in  Commission  departments,  clarified  roles,
improved tools and increased incentives for operational departments.

The new regulatory framework, which will come into force on 1 January 2003, sets
up  appropriate  legal  instruments  to  enable  more  systematic  establishment  and
recovery  of  Community  entitlements  (particularly  as  regards  interest  yielded  by
funds which are Commission property), in particular, where voluntary payment does
not  occur,  by  means  of  more  systematic  withholding  of  guarantees  and  more
systematic use of offsetting and enforcement orders.

The  new  provisions  on  writing  off  irrecoverable  Community  entitlements  will
provide the regulatory basis to carry out this operation prudently, thanks to specific,
clear-cut criteria and transparent procedures.

The Commission has instructed its directors-general and heads of service to allocate
the necessary resources to implementing the above measures, and to report back on
this issue in their annual activity reports. As regards the backlog of uncertain actual
Community  entitlements  in  the  area  of  the  EAGGF-Guarantee  section  (outstanding
pending  recovery  and/or  a  decision  on  charging),  a  temporary  mobilisation  of  staff
for handling these cases should allow to speed up the decision whether to charge the
Member  State  concerned  or  the  Community  under  the  clearance  of  accounts
procedures. To improve the management of complex cases of this kind in the future,
the Commission intends to present a proposal to amend Regulation No 1258/1999.

The  Commission  is  confident  that  the  new  awareness  of  the  priority  now  being
accorded to recovery and the new  resources being made available will  improve  the
management  of  Community  expenditure  and  Community  entitlements  over  the
coming years.

29